OBG talks to Sheikh Abdulla bin Saoud Al Thani, Governor, Qatar Central Bank (QCB)

Interview: Sheikh Abdulla bin Saoud Al Thani

What does the QCB’s new designation as the supreme authority for the financial services industry mean in terms of its regulatory oversight?

SHEIKH ABDULLA BIN SAOUD AL THANI: The new law empowers the QCB to be the supreme authority in regulating, developing and supervising the payments, and settlement and clearing systems in Qatar. The law also introduces important new provisions for addressing the licensing and supervision of insurance businesses, consumer protection, protection of credit information, client confidentiality, regulation of Islamic financial institutions, dispute settlement, merger and acquisition of financial institutions, and sanctions for illegal financial services activities. In view of the new regulation, the QCB, the Qatar Financial Markets Authority and the Qatar Financial Centre (QFC) Regulatory Authority are collaborating to harmonise Qatar’s financial regulatory framework and enhance its infrastructure, and to ensure that the payment and settlement systems are in line with international standards. Under the new law, insurance business, which was previously licensed by the Ministry of Economy and Commerce, has now come under the regulatory domain of the QCB for licensing, regulation and supervision. Moreover, QFC regulated firms would henceforth operate under the domestic payments and settlement system, which will help in reducing liquidly risk within the financial system.

To what degree will the QCB’s new responsibility to license and supervise insurance companies impact the performance of the industry?

SHEIKH ABDULLA: As the overall economy continues to expand, Qatar’s insurance sector is likely to register strong growth. The state’s comprehensive social security system that provides pensions and other support services has partly resulted in low insurance penetration in Qatar, as well as the fact that compulsory insurance in most segments is not mandated by law. This is expected to change with the recent announcement of the broadening of the mandatory insurance pool in the health sector. The QCB is in the process of setting up a separate insurance department and aims to frame a comprehensive set of regulations for the sector in line with international best practices. Efforts are under way to develop an effective and harmonised authorisation and supervision framework for insurance firms in consultation with the other regulatory agencies. In this regard, we would lay greater emphasis on governance, prudential standards, group supervision and macroprudential surveillance. All these factors would contribute towards a healthy business expansion of both domestic and foreign insurance firms in Qatar.

What is the rationale for Qatar maintaining a currency peg to the US dollar? Under what conditions might a break from the peg be considered?

SHEIKH ABDULLA: Qatar’s decision to keep its exchange rate pegged to the US dollar is based on key considerations that encompass the economic realities of the country. The dollar peg provides a credible anchor for our monetary policy as almost all of Qatar’s export contracts and invoicing are done in the US dollar. Thus, a stable exchange rate renders stability to our foreign export earnings, the main component of government revenue. Moreover, for most of the period in which the peg has been maintained, the Qatari economy has benefitted from the stable economic environment in the US. Notwithstanding the fluctuations in the value of the dollar against other major currencies in recent years, the impact of such exchange rate changes on external trade is relatively small given the low share of nonoil exports in Qatar’s total trade. As such, we continue to reiterate our faith in the dollar peg.

With our emphasis on greater economic diversification, we aspire to develop the non-hydrocarbons sector over a period of time so as to reduce our reliance on hydrocarbons revenues in future. Our financial markets would have to deepen and develop further in order to provide the appropriate instruments for hedging of risk in a more flexible exchange rate environment.