Qatar Central Banks Roles in Supervising and Monitoring - Case Study Example

• Introduction

Qatar Central Bank or QCB is the central financial body of Qatar. Previously, QCB followed the British monetary policies. Original name of QCB was Qatar Monetary Agency. QCB abandoned British monetary policies in the year 1973; in same year Dubai joined UAE. In order to achieve a stable economic condition, QCB has always worked with other nation’s central banks. Recently, Qatar collaborated with Monetary Authority of Singapore to bring harmony in the nation’s economy. Several finance companies, investment companies, exchange houses, et cetera are licensed and approved by QCB. There lies a regulatory framework where QCB, shareholders, executive and board members of different financial institutes work together in order to circulate currency throughout the economy. Most of the financial institutes of Qatar are obliged to follow the regulatory and supervisory frameworks of QCB. These frameworks contain responsibilities and roles that board members of financial institutes have to follow along with various policies and financial objectives. Furthermore, there is a particular organizational structure that financial institutes have to follow under the guidelines of QCB. QCB demands submission of correct, periodical and accurate financial statements and reports from banks and other financial institutes of Qatar. Credibility and transparency has to be maintained by all financial institutes while dealing with QCB. QCB has been imparted power by the laws of the nation to take strict actions against any financial institutes in case they fail to follow stringent rules and regulation of QCB. The thesis statement is “To understand QCB’s role in monitoring and supervising various financial institutes of Qatar.”

• Discussion

2011-2016’s national development strategy of Qatar includes attainment of economic sustainability. In order to achieve the above target, it is important that economic imbalance is arrested. However precautious an economy remains, it is difficult to avoid chronic market fluctuations, crises and other financial distresses that are of extreme nature. Economy of Qatar depends on the import-export dynamics of natural resources like other Middle East countries. The government of Qatar has time and again tried to strengthen its development strategy by fulfilling its national vision. Only sound economic policies can assist Qatar to maintain stable economic environment. For this purpose, the Central bank of Qatar intends to maintain financial stability in the nation by implementing two main policies. First policy is framed to prevent the economy from untimely exposure to various unacceptable risks and second one is more remedial in nature which tries to pacify the crisis at its earliest stage. Preventive nature of the former policy emphasizes on supervision and regulation of various financial institutes in the nation so that vulnerability in the entire financial system can be detected much earlier. Fluctuating market dynamics and dependency on other economies of the world makes it impossible to completely cushion a nation from potential risks exposure and therefore the latter policy has been rolled out by government. QCB perform both preventive and remedial functions (Kettell, 2010). They try to ensure constant financial stability by setting the nation’s financial environment. It also monitors and constructs financial soundness and solvency indicators at regular intervals. Various financial authorities and central banks are required for developing financial sectors. Supervision of QCB works as the “eagle–eye” view for the nation’s financial sector. Increase in share prices and real estate have hiked various speculative activities in financial sectors. QCB has restricted credit extend to several real estates and prohibited share purchase in order to safeguard banks from exposing to financially vulnerable situations. These types of preventive measures mainly aim to promote stability in entire banking system of the nation and protect investors’ interests. Further, long term effects such as combating inflation, et cetera can be achieved through these measures. Regulations of QCB improve the loan quality; assist credit risk management, accumulate adequate provisions and recover bad debts if possible. The financial institutes operating in the nation will have to classify credit facility accounts at regular intervals and submit the report to QCB (Khediri, Charfeddine & Youssef, 2015). For each category of credit facility accounts, standards have been set. For instance, performing credit facilities, accounts are categorized into Low and types. Low risks are reserved for the ones who have sufficient cash flows and financial resources; strong financial positions and good banking reputation. However, there are no weakness indicators in low risks (Al-Ajmi, Al-Saleh & Hussain, 2011). The account holders of performing credit facilities are more committed. are considered as bad, doubtful and sub-standard accounts. There are few indicators for categorization. QCB has become liberal with bad debt processing. For example, debts are excluded from the balance sheet of the banks with 100 percent provision (QCB, 2014). Even in such instances, banks have to monitor whether the default customer has left the country or not. If the customer left back any property or financial resources in Qatar, then that should be en-cashed before declaring insolvent or bankrupt. QCB also compels the national banks of Qatar to form a risk reserve which is extracted from net profits. The risk reserve can never be less than 1.5 percent of direct credit facilities. These are granted by branches, subsidiaries (outside and inside the nation) and banks. Credit facilities become subject to granting against the cash collaterals and for this the bank’s consolidated balance sheet is consulted. Credit concentrations are set by QCB. For instance, if a single customer borrows money from a bank, then it should not exceed 20 percent of the total reserve and capital of the bank. In case of major shareholder, it should not exceed 10 percent of the bank’s capital and reserve. In order to fortify the solvency and liquidity of Qatar’s banking system; few powers are given to QCB. In emergency situations, where bank’s liquidity needs support, QCB can grant loans to various financial institutions but it should not exceed fifty percent of total bank’s reserves and capital (QCB, 2014). Repo transactions are taken place between the central bank and other financial institutions in order to support banks’ liquidity. QCB may take a financial institution’s management under its control if and only that institution become insolvency endangered. Financial institutions become insolvent if they cannot pay liabilities even after maturity. Moreover, loss of sufficient amount of capital as reserves can make a financial institute subject to insolvency. The chartered auditor appointed by each financial institution has to be approved by QCB. Moreover, the chartered should be registered in Qatar itself. Urgent measures can be prescribed by QCB for financial institutions which are in poor solvency and liquidity position.

QCB enforces and lay out monetary policies of the state and formulates policies of banking and financial supervision along with rate of exchange (Nathan Garas & Pierce, 2010). As a result, QCB is given power to control and supervise money laundering under laws authorized by states. Financial institutes and banks will have to go through screening procedure before hiring their employees. QCB has completed their calculation of Countercyclical Capital for implementing Basel III and Pillar I. QCB encourages various financial institutes to innovate financial activities, services and business (Ramady, 2015). It also develops CFT and AML program so that financial institutes can fight against terrorist financing and money laundering (Mansoor Khan & Ishaq Bhatti, 2008). The measures that are taken has been shaped according to the terrorist size, financing, nature and complexity of the financial institutes’ business. These programs that are initiated by QCB contain framed procedures, internal policies, control and system. Moreover, proper compliance management is required to be arranged for AML and CFT programs. On-job training is required for the financial institute’s employees and officers so that they can follow the guidelines of QCB in every step. At bare minimum level, QCB gives instruction to the financial institutes to use advanced software for detecting various types of suspicious transaction which can either take place in domestic or international financial institutes operating in Qatar. Moreover, the board members are obliged to report about their external and internal affairs to QCB. It is needless to say that QCB emphasizes on internal communication between employees and officers. These communications are mainly focused on financial institutions’ procedures, policies, system, et cetera (Al-Mannai, & Hindi, 2015). Policies that are implemented by the internal authorities of financial institutes should be enough flexible to adjust with changing circumstances. Resultantly, the formulated policies of the financial institutes have to be appropriate, risk sensitive and adequate to risk. Unusually large transactions should be scrutinized and identified by the financial institutes according to the guidelines of QCB for CFT and AML programs (Safieddine, 2009). The transactions that do not have any apparent visibility or economic lawful purpose should be made null and void by the financial institutions’ board of directors. Appropriate measures need to be taken for risks that are related to establishment of business relationships with various persons who are politically active. All employees must comply with Law 4 for working in CFT and AML programs especially when any suspicious transactions are taking place. According to QCB, AML and CFT will have to be assessed at frequent intervals so that it can be updated with the changing laws. Subsidiaries or branches of financial institutes may have to impose consistent and higher standards in the policies and procedures of AML/CFT programs, especially when these institutes are operating with customers of many jurisdictions. The branches and subsidiaries that do not apply Special Recommendations and FATF Recommendations appropriately should be under the strict surveillance of Qatar’s financial institutions (Arouri, Hossain & Muttakin, 2011). These institutes should also ensure that outsourcing firms allow them to access important information and documents pertaining to FIU, QCB and Money Laundering officer who is reporting. In any instance, if the foreign jurisdiction does not allow the above mentioned access then financial institutes will have to immediately inform QCB. It is not even needed to be uttered that board of directors are held responsible for making these programs effective so that terrorist financing and money laundering is mitigated from the source. Therefore, board of directors will have to recruit appropriate employees and officers for carrying out the money laundering programs like CFT. Later these employees are screened according to the QCB’s guidelines. Independent audit functions are subject to compliance under QCB. The risk management methodologies and policies under AML and CFT programs should be appropriately documented in the guidelines of financial institutions by board of directors. Whoever makes the guidelines of the financial institutions should possess authority, experience and seniority. Furthermore, he should ensure the availability of advanced technologies in order to carry out daily chores in financial institutions. Availability of sufficient resources is a dire necessity for implementation of all the above mentioned programs (Al-Musalli & Ismail,2012). Stringent measures are only a part of QCB’s preventive actions to safeguard the banking system throughout Qatar. QCB also addresses the procedures and policies pertaining to customer risks; after all any financial institutes cannot have fortified cash flow if the customers remain dissatisfied. Financial institutes need to be extra careful for the customers who are politically exposed or else they can exert undue influence in the institute. According to QCB, risk assessment process should be strengthened for various legal arrangements, legal entities, trusts, facilities, societies and clubs. There is no doubt that plethora of products in financial institutions need regular assessment. Products include e-money products, savings accounts, wire transfers and payable through accounts. Moreover, products should not be false or fictitious for the customers which will tarnish the reputation of the financial institutions (Gray, 2013). QCB have a proper guideline regarding shell banking too. The financial institutions of Qatar are not entitled to continue business relations with the banks that do not possess any physical presence. They are also prohibited from continuing relations with the banks that are not affiliated under QCB. The business relations that will not need face-to-face interaction can be carried out via modern technologies like internet, but there should be proper safety measures within the boundaries of financial institutions so that any outsider cannot get access to any internal information.

• • Recent developments pertaining to QCB’s control over financial institutes of Qatar

New laws enforced by QCB in order to monitor and supervise financial institutes are related to cross border financial product marketing; dispute resolution; treating customers confidentially and fairly; acquisition and merging of financial institutes of Qatar; reinsurance and insurance and Islamic banking. Without proper license, the financial institutes cannot operate in Qatar or else they will be heavily fined. Under Old Law of QCB, any breach of law would expose financial institutes to a fine of QAR 5000 each day. As a result, cross border activities have to be conducted very carefully by the financial institutes of Qatar. Penalties will be imposed by the Qatar government under Article 205 related to cross border activities (Hazima & Hindi, 2010). According to QCB’s new law, it is clearly stated that Islamic financial institutes will have the right to acquire lease and assets for both movable assets and lands in order to keep their reserve-surplus dynamics balanced. Moreover, every financial institute will require a Sharia Supervisory Authority. As per QCB law, the authority can be appointed by those financial institutes’ board members. After amendment of former article, Article 103 mentions that reinsurance and insurance companies will have to ask for approval from QCB before issuing them to the customers. QCB will grant their approval in insurance policies forms. Before two financial institutes merges, they will require the permission of QCB. Moreover, when a single entity is formed after merging, it should have independent legal personality. These procedures will become immaterial if financial institutes do not submit application to QCB for rejecting or approving the decision. Time span for approval of application is 60 days. The financing institutes licensed under QCB cannot disclose key information about customers to any outsider; information may be related to customer accounts. However, with the prior consent of the customer, information can be revealed in few instances (International Monetary Fund, 2008). Under QCB, a dispute committee has been established for each financial institute. These committees have been given the power to review the decisions, punishments and fines levied by QCB. The main purpose for establishing this committee is to resolve disputes amicably between QCB and financial institutes. Committee consists of two individuals and three judges. Individuals belong from QCB and judges are selected from Court of Appeal.

• Conclusion

The Central bank of Qatar formulates various regulations for financial institutions so that any disrupt in the banking system can be dismantled before it crops up. QCB assure the nation’s monetary stability and preserves money/currency value. It is also known as the control, regulatory and supervisory body which monitors various financial institutes throughout Qatar. Moreover, QCB ensures that best banking practices and international standards are maintained in the economy of Qatar. It is no more doubtful that their intervention in the banking system reinforces the faith and confidence of the customers in financial activities of Qatar. Each passing day, policies and regulations of Qatar’s financial sector is becoming fortified. In order to ensure Qatar’s stable position in global economy, QCB is trying to keep strict surveillance over its exchange rates as well.