Monitoring and Supervising of Qatar Central Bank - Case Study Example

• Introduction

The essay will mainly emphasize on the role of QCB in monitoring and supervising financial institutions located in Qatar. QCB or Qatar Central Bank is responsible for supporting and developing the national economy. There are certain core economic policies which are followed by QCB so as to regulate the overall operations of financial institutions. It can be stated that QCB plays a vital role in bringing forth monetary stability. QCB acts as a governing body to maintain stability and transparency within financial activities. The study will further scrutinize different roles being played by QCB to manage activities of financial institutions. There are various new regulatory frameworks introduced by QCB so as to maintain standardized policies across the financial sector in Qatar. The bank’s relation with such a centralized governing body shall be further disclosed in this particular study. QCB also plays a significant role in reinforcing public confidence on financial institutions of Qatar. On the other hand, necessary measures are also formulated by QCB to reduce any criminal activities, such as fraud, identity theft, etc. The focus of this study is to determine the roles played by QCB in monitoring as well as supervising Qatar’s financial institutions.

• Discussion

In context of monitoring and supervising financial institutions, there are various roles which are played by QCB. For instance, QCB’s role can be evaluated in relation to centralizing banking credit operations. Financial institutions need to disclose indirect and direct credit facilities on a monthly basis. It helps in maintaining a transparent system and enables QCB to strongly scrutinize financial activities being performed by such institutions. On the other hand, banks also need to incorporate their account receivables within the wider framework of credit facilities. QCB plays an important role in the form of establishing instructions on credit risk, credit facilities, credit concentrations and other related activities. According to the Article 216 within the QCB law, financial penalty can also be imposed by the centralized body on financial institutions, if the later fails to align its internal or external operations with standardized policies. The act of supervision is also exhibited by QCB through scrutinizing the organizational structure of such financial institutions (Bloomberg L.P., 2015). It is evident that overall performance of a banking institution is strongly dependent on the governing body. QCB plays an important role of assigning appropriate candidates to distinct job roles within the financial institutions. As per the QCB rules, operational control needs to reside only with the senior officers. The top management coordinates with the QCB officials in order to formulate appropriate strategies. In accordance with the QCB regulations, it is essential that all financial institutions should submit overall outlook of their organizational structure to concerned authorities. QCB plays dual role in the form of safeguarding public funds as well as retaining monetary stability.

The varying roles of QCB are mainly centered towards the supervision approach. It can be regarded as the supervisory body which regulates monetary standards of such financial institutions. QCB’s roles are even extended to offsite supervision. Banks need to disclose every possible detail about their credit customers so as to ensure that QCB’s role of maintaining transparent and stable financial system is accomplished. The credit risk system is also properly scrutinized by QCB in order to exercise desirable control over financial institutions and banks’ credit concentrations. Financial statements are also closely examined by QCB so as to enhance confidence of public over financial activities. The examination of financial statements enables QCB to regulate credit and liquidity ratios as and when required. QCB is also responsible for monitoring the compliance with well-defined risk ceilings’ prudential ratios. The major risk ceilings can be categorized as investment concentrations, large credit concentrations, credit and deposit concentrations at financial institutions as well as banks, IPOs, consumer financing concentrations, fixed assets concentrations, share trading concentrations, etc. Hence, the monitoring and supervisory activities are not only limited to regulating internal activities of financial institutions. Apart from monitoring credit concentrations of different stakeholders there are other activities too which needs to be given importance (Wigglesworth, 2011). Onsite control is also another role performed by QCB in context of monitoring Qatar’s financial institutions. There are several activities which are encompassed within the onsite control mechanism. Risk assessment and analysis is one of the important onsite control activities. Inappropriate flow of funds is a major risk which is encountered by all financial institutions if proper policies are not formulated. The onsite inspection performed by QCB facilitates financial institutions to adopt best possible risk mitigation approaches. It is evident that qualitative risks cannot be properly assessed by following the offsite supervisory approach.

There are different assessment indicators which are prescribed by QCB for each of the financial service institutions, such as banks, exchange houses, investment companies and financing companies. The risk assessment indicators particularly for banks revolve around risk management frameworks, corporate governance, transparency and financial leverage. On the other hand, investment companies basically focus on trust and market conduct. Some specific risk control measures are adopted by investment companies in order to ensure that there is no such problem in flow of funds. QCB enforces financing companies to design appropriate risk control measures along with retaining high asset quality. Management effectiveness in case of financial institutions completely resides on the risk control measures been incorporated by such firms in accordance with QCB regulations. In context of the investment funds, the onsite assessment is certainly aimed at achieving compliance with the Investment Funds’ Law. The supervisory response of QCB is not only restricted to identifying different forms of risks but there are other parameters too which are taken into consideration by the governing body (QCB, 2014). For instance, QCB is solely responsible for proper follow-up in the risk assessment context. It is evident that improvement in risk structure is only possible when QCB consistently follow-up the wide set of risk management schemes that have been employed by such financial institutions.

The role of QCB is also extended to issuing financial penalties if the set risk management structures are not followed appropriately. QCB encompasses highly trained professionals who are actively indulged in inspecting various key activities being performed by financial institutions. The professionals are focused on closely scrutinizing international and domestic operations being performed by financial institutions in Qatar. It can be stated that financial penalties which are imposed by this governing body are completely based on the inspection report. There are some special inspection tasks which are followed by the supervisory board in order to determine whether financial operations are aligned with set rules or regulations. During the inspection, QCB professionals visit the financial institutions to closely verify certain operations or facts. QCB is a centralized governing body; hence, banks or other financial institutions are not authorized to formulate operational standards on their own. Licensing can be denoted as another responsibility exhibited by the QCB. It can be stated that licensing requirements are solely structured by the QCB. A license application form is dispatched to all financial institutions which need to be completed by a financial institution prior to initiating operational procedure (Sergie, 2016). There are various new regulations structured by QCB in order to maintain monetary stability across all financial institutions. In the recent years, QCB has introduced some sweeping regulations in order to enhance the performance standard of financial sector. The new rules which have been formulated ensure international investors that they will not be involved in any form of fraudulent activities. It has been forecasted that the project financing requirements will be probably high in the coming few years. Hence, QCB is entirely responsible for structuring the most suitable policies to trigger flow of funds. As per the new regulatory measures, securities’ portfolios of the banks have been limited in Qatar. The circular dispatched by QCB clearly states that bonds and equity instruments have been limited to 25% of reserves and capital. To be more precise, the new regulations might influence banks to transfer excess liquidity into additional governmental positions from public capital markets. The regulator even clearly mentioned that banks can invest only till 10% of the overall reserves and capital. It is evident that restrictions need to be imposed on capital flows so as to ensure that sufficient reserves are being maintained by financial institutions in Qatar. When there are some limitations imposed on international investment then it becomes easier to obtain funds for domestic operations. The performance of the financial sector is being enhanced only with the support of a centralized governing body. For instance, standardized set of policies will restrict banks or other financial institutions to implement strategic initiatives as per their convenience. A fair functioning system can be developed when a centralized governing body such as QCB is responsible for overall functioning of financial institutions. QCB’s new measures on restricting rate of investment are only applicable for unlisted securities within Qatar. The current regulations are also applicable to associates’ ownership which has limited risk exposures and shareholding to approximately 35%. QCB has also shifted its focus towards Islamic bank investments. It has been observed that Islamic bank investments mainly hold relevance in context of real estate funding. The overall property investment has been limited to approximately 10% of the bank’s reserves and capital. Future perspective has been taken into account by setting forth a limit on property investments (Hall, 2013). However, the strict regulation over investment rate has not affected all financial institutions equally. Qatar International Islamic Bank can be denoted as the only financial institution which has been affected by the limits imposed on property investment by QCB. Such norms are also formulated by QCB and are an important part of the monitoring role exhibited by QCB. The role of QCB also encompasses evaluating international financial standards and incorporating the best practices within the domestic financial sector. Global financial stability is a key area of concern for all financial institutions. It can be stated that a centralized banking system is necessary to determine factors which are affecting financial activities in global scenario. The rules or regulations set forth by QCB helps in triggering flow of capital between financial institutions.

QCB is responsible for tracking both global and domestic developments. The governing body even follow-up issues which needs desirable joint-up cooperation between regulators and authorities. All kinds of official communication and correspondence with the National Anti-Money Laundering Committee are conducted by QCB. It can be concluded that QCB works collaboratively with the AML/CFT division in order to ensure that money laundering activities can be completely eliminated (Shaw-Smith, 2011). The liquidity flow is an important factor to be taken into consideration in relation to financial sector. QCB’s role also revolves around evaluating liquidity flow within the banking sector. High asset quality enables bank to remain profitable as well as well-capitalized. The standards of financial conduct are structured by QCB to protect international investors and customers from any kind of fraudulent activities. QCB plays a vital role in enhancing level of cooperation within all GCC countries. A standardized policy framework is essential for effectively controlling such wide set of financial operations.

• Conclusion

As per the above study, it can be summarized that QCB exhibits diverse roles in order to stabilize operational procedure of financial institutions in Qatar. QCB is not only a supervisory body but there are other functions too which are given equal importance by this governing body. The study reveals various functional intricacies associated with financial institutions. Banks, investment firms, financing companies, etc., needs to be well aligned with the strict norms which are established by the centralized body. QCB closely supervises whether designated operations are being efficiently performed by financial institutions or not. The governing body also is actively indulged in framing exchange rate policy in order to attract wide array of international investors. QCB has determined the current exchange rate after evaluating its value against USD. On the basis of this study, it can be derived that role or function of QCB is extended to both internal and external activities performed by such financial institutions. Customer protection is a key area of focus for QCB. The policies are such framed that it satisfies customer interests as well as goals of financial institutions.