Qatar publishes revised Law 1

Briefing note February 2013

Qatar publishes revised Central Bank Law

Law No. 13 of 2012 on the Issuance of the Qatar Central Bank Law and Regulation of Financial Institutions (the Central Bank Law) has been enacted in Qatar.

The Central Bank Law updates Law No. 33 of 2006, the law which formally set out the role of the Qatar Central Bank, which in turn updated Law No. 15 of 1993, the law which established the framework for the regulation of financial services in Qatar.

The Qatar Central Bank the reputation and trust in Qatar in Qatar Financial Centre (QFC); this regard; and and Pursuant to the Central Bank Law, the Qatar Central Bank (QCB) is tasked  encouraging the growth of the  Qatar's financial markets. with the following objectives: financial sector in accordance with Therefore, despite the QCB being the Qatar's objectives for its  maintaining the value of the Qatari empowered to develop policy national economy. Riyal and ensuring monetary regarding financial services activities stability of Qatar; The objectives of the QCB make clear and business for the QFC and the the ambitions of Qatar to position Qatar Exchange, it will fall to the  acting as the "high competent itself as the regional hub for respective regulatory authorities of authority" responsible for the international financial services each to implement and enforce such licensing, supervision and business. policies. regulation of all financial services, business, markets and financial A Unitary Financial Services The QCB will appoint a Governor, activities executed in or through Regulator who will have the equivalent status of Qatar. To this end, the QCB must a Minister, and will be responsible for The QCB has been empowered to seek to apply best international the implementation of the QCB's develop, implement and enforce standards and practices; policy. The Governor will hold key policies related to the regulation, roles in respect of both the QFC  establishing a financial services, control and supervision of financial Regulatory Authority and the Qatar business, markets and financial services activities and business Financial Market Authority: activities sector operated in conducted in Qatar. Such policies are accordance with market rules (and to comply with the "national strategic  the Governor will assume the in accordance with principles of vision" and be in accordance with capabilities and powers conferred transparency, competitiveness, best international standards. on the Minister of Economy and stability and good governance); The QCB is empowered under the Finance by the Qatar Financial  promoting Qatar as an Central Bank Law to develop and Centre Law (Law No. 7 of 2005). international hub for financial follow up on the implementation of The Qatar Financial Centre Law services, business, markets and policies in respect of: provides that each of QFC financial activities and enhancing Authority, the QFC Regulatory  financial services, business and Authority, the Regulatory Tribunal other activities undertaken in the

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and the Civil and Commercial companies, foreign units and by any person approved, authorised Court submit to the Minister representative offices, and other or licensed by the QFC Regulatory regulations (or amendments, financial institutions; however, the Authority will fall outside the modifications to or repeal of any terms on which such licenses will be jurisdiction of the QCB. existing regulations) as granted are yet to be established by

appropriate to achieve their the QCB. respective objectives. The Mergers and Acquisitions of The financial services prohibition has Minister has the power to enact long been a characteristic of Qatari Financial Institutions such regulations, amendments banking regulation. Notwithstanding and modifications or repeal any There has been increasing focus on this, a great number of foreign regulations; and financial institution mergers and financial institutions undertake acquisitions (M&A) in the MENA  the Governor will supervise the business with Qatari counterparties region. A variety of factors are driving Qatar Financial Markets Authority and customers on a cross-border this trend, including foreign financial in accordance with the provisions basis. The Central Bank Law provides institutions refocusing on their core of the Law Regulating the that the QCB may licence foreign business activities and GCC banks Authority. financial institutions to operate having spare cash. Within Qatar, the It is therefore envisaged that, with the branches in Qatar; however, the requirement that conventional banks oversight of the QCB, the various Central Bank Law does not make any divest their Islamic banking activities regulators responsible for the specific reference to the regulatory has also contributed to the positive regulation, control and supervision of treatment of cross-border financial financial institution M&A trend. financial services activities and services business and activity which The Central Bank Law provides a business being conducted in Qatar, does not rely on a physical branch in framework for financial institution including through its financial and Qatar. There is no provision for a M&A in Qatar. business centre the QFC, will achieve cross-border licence or providing an their objectives in a unified and exception. Subject to any applicable provisions complementary manner. On the face of things, it would appear of the Commercial Companies Law and the permission of the QCB, any Licensing Financial Services, the position of cross-border business remains "business as usual". This financial institution is entitled to Businesses and Activities must come with a warning – as with acquire another financial institutions As was previously the case, the all new regulators that remain silent (subject to any conditions imposed Central Bank Law contains a financial on the subject, it is difficult to predict upon the proposed acquisition by the services prohibition – it is prohibited how fiercely the QCB will seek to QCB). for a person to undertake financial enforce its perimeter. Firms engaging Financial institutions may also effect a services business and activity within in a high volume of "fly-in/fly-out" merger: either creating a new Qatar without obtaining a license from visits will be interested in the financial institution or assuming the the QCB. sanctions provisions of the Central legal personality of one of the Bank Law which imposes a fine not Banks and insurance and reinsurance merging entities. Financial institutions exceeding 500,000 QAR for whoever companies (and other companies wishing to merge are required enter represents an unlicensed financial undertaking insurance activities) into a preliminary contract based on institution in Qatar. seeking a license are required to be in the following: the form of joint stock companies The position in the QFC remains the  an economic feasibility study offering their shares for public same and regulated activities can covering the causes, objective subscription. Investment and only be conducted in or from the QFC and conditions of the merger and financing companies must be pursuant to an appropriate approval, resultant consequences; established as joint stock companies. authorisation or license from the QFC The Central Bank Law also permits Regulatory Authority. Consequently,  a detailed study of the financial licenses for banking companies, the approval, licensing, supervision or and administrative restructuring of financial and investment consultation regulation of any business conducted the financial institution; and

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 a determination and evaluation of of merger by universal succession – institution is in danger of the assets and liabilities to be part common in many civil law jurisdictions. insolvency. of the merged entity. Financial Institutions undertaking The decision for placing a financial Financial institutions are not to merge M&A activity benefit from certain institution under temporary without the prior consent of the QCB. privileges under the Central Bank Law, management may be appealed within In order to obtain the requisite including: 15 days of receiving notice of the approvals, merging financial decision by making an application to institutions must submit the  the provision of "soft" loans by the the newly established Disputes preliminary contract and a merger QCB in instances where the Settlement Committee. The Disputes request to the QCB, along with the financial institution may otherwise Settlement Committee will be a audited financial statements, be facing insolvency; committee of the QCB, chaired by a constitutional documents of each  exemptions from income tax for Court of Appeal chief judge, and merging entity, information related to the year following the approval of comprising two Court of Appeal the regulatory and operational the M&A activity; and judges (to be nominated by the structures of each merging entity Supreme Judiciary Council) and two  exemptions from registration, (including the rights of employees experts (to be nominated by the documentation and other fees following termination of services), Board of the QCB). The decision of before concerned authorities for financial reports and minutes of the Disputes Settlement Committee all transactions required by the extraordinary meetings sanctioning may only be challenged before the M&A activity. the merger. The QCB then has 60 competent circuit at the Court of days within which to accept or reject Bank Resolution Regime? Appeal. the proposed merger. Where the QCB Regulators world-wide continue to Once placed into temporary fails to provide a decision within the work on developing more effective management, the power and authority prescribed time period, the merger tools for resolving failing banks and of the financial institution's board of application is to have been deemed other systemically important financial directors and shareholders are rejected. institutions. suspended. The QCB assumes the In order to implement a proposed Where the QCB are of the opinion administrative powers of the merger, the merging institutions are that a financial institution is faced with management of the financial required to form a High Committee problems affecting its financial institution subject to temporary and a Technical Committee. These standing, then the QCB may issue a management and has the power to: Committees are supervised by, and decision to merge that financial  assume all the powers of the under the control of, the QCB. The institution with another, stronger, shareholders, owners of the role of the High Committee is to financial institution. Where such a financial institution and the board evaluate, inspect, audit and study the process is agreed, the QCB assumes of directors; assets of the merging financial the position of the management of the  take hold of the title and assets of institutions. At this stage, the other failing institution in the merger the shareholders; roles of the Committees are unclear process. and will be clarified later by way of  take all necessary steps to collect The Central Bank Law also provides QCB board resolution. debts and amounts due to the for temporary management of a financial institution; and Once the QCB issues its final financial institution if it is in danger of approval of the merger, the resultant insolvency, meaning:  take all necessary steps to protect depositors, clients and investors, singular financial institution will legally  it cannot pay its debts as they fall including: replace the merged financial due; institutions in respect of all rights and  putting the financial  it holds an insufficient margin of liabilities of third parties. This decision institution into liquidation solvency; or is binding on all shareholders of the proceedings; merging financial institutions. This  in the discretion of the QCB, the process is reminiscent of the principle head office of a foreign financial

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 providing the financial  offering the assets, property,  selling the business as a institution with support to interests and returns of the going concern or merging restore margins of solvency; financial institution for sale; the financial institution with any other financial institution;  settling the liabilities of the financial institution pursuant to a rescue plan; and  reaching any other agreements and settlements regarding the financial and other affairs of the financial institution. At the end of the term of temporary management, the Governor of the QCB is empowered to revoke the licence of the financial institution in question. Where this is the case, the QCB must propose a plan for the liquidation of the assets and liabilities of the financial institution and supervise its execution. Where a financial institution accepting deposits has its licence cancelled, the QCB has the power to forbid the withdrawal of deposits of any kind and may prescribe withdrawal terms, conditions and restrictions.

Clifford Chance comment

Qatar is positioning itself to become a hub for financial services business and activities in the MENA region. The Central Bank Law demonstrates an understanding that such ambition can only be realised by embracing international standards and practices. If Qatar can successfully achieve this the foundation is set for attracting international players and developing a strong and vibrant domestic financial services sector.

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