Roles of the Qatar Central Bank in Supervising and Monitoring the Financial Institutions of Qatar - Case Study Example

• Roles of the Qatar Central Bank (QCB) in supervising and monitoring the financial institutions of Qatar
• Introduction

The Qatar Central Bank (QCB) was established in August, 1993 (Qatar Central Bank, 2015a). In order to stabilize the volatile financial sector of Qatar, QCB has played a vital role along with the Qatar Monetary Agency (QMA). In the initial years, QCB has initiated various strategies to fix the exchange rate of the country against US dollar. Among all the functions, one of the most important functions of QCB is to ensure the stability of the financial sectors of Qatar. In order to meet this objective, QCB has decided to supervise the activities of all the financial institutions of the country. The role of QCB in monitoring all the financial institutions of Qatar has been discussed the following paragraphs.

• Discussion

As the supervisor of all the financial institutions of Qatar, QCB has primarily focused on preparing regulations to control money laundering and financial terrorism (Qatar Central Bank, 2015b). QCB has ensured that all the financial institutions of the country strictly follow the prescribed rules and make the guidelines as an integral part of their systems. The main purpose of the regulations is as follows:

• To ensure that all the financial institutions of Qatar comply with the laws associated with the anti-money laundering and financial terrorism.
• To monitor that all the financial institutions of Qatar as well as maintain the statutory obligations specified in the regulations by QCB.
• To observe that all the financial institutions of the country as well as implement policies, procedures and systems to control and prevent money laundering.
• To protect the financial institutions of Qatar from the exploitation of illegal transactions made through external links.
• To maintain the credibility, integrity and reputation of the financial institutions of Qatar.

For protecting the financial institutions from money laundering or financial terrorism, QCB has mandated some key principles for the financial institutions of the country. Firstly, the board of the financial institutions needs to ensure that all the prescribed policies, procedures, systems and controls are properly and sufficiently meeting the prerequisites of anti-money laundering law of (Qatar Financial Markets Authority, 2015). Secondly, QCB has monitored the risk taking capabilities of financial institutions. For protecting the financial institutions (FIs) from the exposure of risk, QCB has mandated that all the FIs are required to adapt a risk-based approach. Most importantly, QCB has concentrated on strengthening the capital base of the FIs. Thirdly, QCB has advised all the banks and other FIs to prepare a risk profile for each of the customers who come to the bank for any financial purpose such as, opening accounts or application of the loans. In order to formulate the risk profiles, the FIs have been asked to fill up the ‘know-your customer’, by cross-checking the documents provided by the customers.

QCB has also regulated the norms of effective reporting for all the financial institutions of the country (Qatar Central Bank, 2015b). In this case, the FIs have been asked to ensure that all the internal and external information related to money laundering or financial terrorism are sent to the QCB. QCB has also stressed on the high standard screening procedure in the FIs. In order to ensure the same, QCB has appointed efficient officers in the FIs. Moreover, QCB has also initiated trainings related to anti-money laundering or financial terrorism to the employees of the FIs. FIs have also been asked to provide the documentary evidences of its compliance of the regulations as specified by the QCB (Qatar Central Bank, 2015b).

QCB has enlisted some of the general responsibilities for the FIs to cope up with the illegal sources and transaction of the money. Financial intuitions have been asked to form programs against money laundering and terrorist financing. Most importantly, QCB has overseen to the fact that all the programs initialed by the FIs must comply with the size, capability, complexity and the nature of business. The program needs to be focus on developing, establishing and managing all the internal policies, procedures and systems related to anti-money laundering (AML). QCB has appointed a money laundering reporting officer (MLRO) in all the FIs across the State of Qatar. The FIs have been ordered that would ensure all the relevant information related to AML is accessed by the appointed MLRO. QCB has the right to access information such as daily transactions; know your customer documents etc from any branches of the FIs.

QCB has mandated that an independent auditing body will investigate the compliances of the rules, policies, procedures of the FIs related to financial terrorism (FT) and AML. QCB conducts a timely review of all the policies and procedures prescribed to the FIs for a smooth and transparent operation. In addition, the central bank of the country has also emphasized that all the policies are risk-sensitive and based on the capabilities of the FIs (Qatar Central Bank, 2015a). QCB has regulated the formal scrutiny for all the complex and large transactions. The financial transactions that do not contribute towards the development of the economy are termed as illegal. However, measures has been suggested by the QCB on due diligence of the customers. The regulations of QCB have also helped the FIs of Qatar to take proper actions for alleviating the risks associated with setting up the business relationship with the politically exposed people. The FIs of Qatar needs to conduct a regular assessment regarding the efficiency of the AML policies in preventing ML and FT.

QCB has prepared a method for ensuring that the banks of the country have the required capital buffer, in order to minimize the chances of financial risk. After a regular interval of time, QCB determines the requirement of capital for the banks in order to maintain the required capital adequacy ratio (Qatar Development Bank, 2016). The countercyclical buffer is not expected to rise more than 2.5%. QCB has imposed restrictions on the profit distribution of the banks. QCB has the right to modify the countercyclical buffer based on the situation of the market. In addition, QCB also expects that all the banks of the country to focus on the capital buffer while submitting the internal capital adequacy assessment process.

The supervision of QCB primarily includes the off-site supervision and on-site supervision (Qatar Central Bank, 2015b). In the case of off-site supervision of the FIs, QCB considers all the important ratios such as liquidity ratio, credit ratio or capital adequacy ratio. As a process of the off-site supervision, QCB monitors the compliances with risk ceilings associated with the prudential ratio. On the other hand, in the case of on-site supervision, QCB assesses the qualitative risks that cannot be evaluated through the off-site monitoring. In the case of on-site supervision, QCB considers the risk assessment indicators such as corporate governance, earnings, financial leverage and transparency. On the other hand, for investing companies, QCB considers the market conduct and trust of the investors (Qatar Central Bank, 2015b). In the case of the financial companies, QCB also considers the quality of the assets. The licensing and registration of all the FIs have been sanctioned by QCB.

QCB has taken the responsibility to print the bank notes. The law related to the regulation of the FIs has been mandated by the amended law of QCB. The instructions provided by QCB include the monetary policy, public debt, banking affairs, settlement systems etc. QCB has taken the necessary actions to regulate the insurance sector of the country. New regulatory policies formulated by this organization, have aimed to protect the right of both the insurers as well as the insurance service provider (Qatar Central Bank, 2015a). The regulatory framework of QCB has been aligned with the revised core principle for the insurance companies of the country. QCB intends to co-ordinate with the other financial bodies at the time of preparing the regulatory frame work.

QCB has also undertaken actions to promote Islamic financial institutions. For developing a common approach, QCB has modified the legal issues and taken the steps to harmonize the entire regulatory and supervisory processes. To maintain good governance in the FIs, QCB ensures integrity and transparency. The standard of corporate governance practiced by the banks and other FIs, have been monitored by the QCB (Qatar Central Bank, 2015a). QCB has ensured that all the FIs follow a uniform definition of the SMEs across all the financial institutions. The central bank of the country has initiated many steps to reduce the barriers involved in SMEs lending. In addition, QCB has extended the support to the Qatar Development bank and plans have been prepared for promoting the business of the SMEs. QCB has standardized the regulations for increasing the competitiveness of the FIs of Qatar, in the global market.

QCB has strengthened the connection of the FIs with the other financial bodies for improving their performance. The central bank of the country has set up a mechanism by which, the FIs and the concerned authority can communicate with each other and also share the information. For protecting the mutual interests of the regulatory bodies, QCB has developed minimum standards for the information (Qatar Central Bank, 2015b). QCB has also formulated a set of uniform indicators that the FIs can follow during the time of reporting. In order to standardize the performance of all the FIs, QCB has created certain benchmarks on the financial performance of the FIs. In case of non compliances to the prescribed standard, QCB can cancel the registration of those particular FIs. QCB has taken the necessary steps to avoid the risks such as liquidity crunch. All the transactions of the FIs are required to report to QCB. Due to the increased alertness among the managers regarding incidents such as AML, the FIs have been able to decline the rate of ML and FT.

• Conclusion

The essay began with the purpose of analyzing the role of QCB, so as to manage and control the operation of the financial institutions in Qatar. Through the discussion, it was found that QCB has initiated strategies to cope up with the incidents of money laundering and financial terrorism. QCB has also taken the necessary steps required to implement the policies in an effective manner. The central bank of Qatar has appointed trained employees to reduce the risk factors. In addition, QCB also keeps a track of all the financial indicators. QCB has taken a significant part to standardize the performance indicators of the FIs of Qatar. However, all the actions have been taken based on the infrastructure of the FIs. To avoid the chances of the risk, QCB has focused on enhancing its capital. High capital ratio may enable the firm to maintain its daily operations without any sorts of problems.