1

4th Annual GCC Regulators’ Summit 22nd & 23rd February 2010, Qatar

Gulf Monetary Union: Review & Implications on the

Banking Sector

Presentation by Yousif Hassan YousifDirectorRetail Banking Supervision

Gulf Monetary Union-Objectives

Facilitating accomplishment of sustainable and integrated development of the GCC ; ultimate aim is to achieve full economic integration among the GCC States.

Acting as the enabler for increased financial stability and economic integration in the Gulf.

2

3

Gulf Monetary Union- Review Current Status GMU Agreement has been signed by four GCC

countries.( took effect on 23rd January 2010). The Agreement lays down the functions and

the direction of the Gulf Monetary Union. The Articles of Association (AoA) of the

Monetary Council as a part of the Agreement; agreed between all the members of the GCC; (signed by the four current members).

GMU Agreement The AoA lays down the objectives, functions and necessary requirements of the GMU:

a. Co-ordinating economic policies among member countries and achieving high degree of economic integration

b. Working towards monetary and financial stability in the region.

c. Paving the way for issuing single currency and integrated payment system.

4

GMU Agreement

d. Facilitating adoption of common banking regulations to ensure financial

stability and economic integration. e. Establishing Gulf Monetary Council –

a supranational authority consisting of Governors of the central banks of the participating countries, and supported by an executive management.

5

Gulf Monetary Council Will spearhead the movement towards formation of the Gulf

Central Bank: a supranational authority

The mandate of the Gulf Monetary Council: a. Establish Gulf Central Bank

b. Set the deadline for launching common currency

c. Draft rules on monetary policies d. Move towards harmonizing the banking

supervision regulations and practices.

6

7

Regulatory Structure

Board of Governors

GCC Monetary Council will be replaced by

Gulf Central Bank

National Supervisory Authorities

Banking Supervision Committee

Banking Supervision & RegulationsA critical component of GMU is to

achieve harmonization of banking supervision regulations.

GCC Banking Supervision Committee involved in harmonizing the supervisory regulations and supervision practices for last many years.

A target operating model for harmonization of GCC banking regulations is being developed.

8

Banking Supervision - Regulatory Structure

The Gulf Monetary Council will establish the Gulf Central Bank.The Gulf Central Bank will be a supra national authority.The National Supervision Authorities will have operational independence but will be accountable for their duties.

9

10

Principles for the Target Operating Model

The National Supervision Authorities will have to agree on the

following guiding principles for the GCC Banking Supervision Target Operating Model:-

Principle 1 :Single market for financial services is only a long term target; the harmonization of supervision is an enabler for the GCC Monetary Union and financial stability.

Principle 2: Harmonization shall be achieved step-by step, following a gradual approach

11

Principles for the Operating Model …( contd..) Principle 3 : A decentralized model shall be

used, with National Authorities retaining responsibility for supervision and control.

Principle 4: Common prudential minimum requirements shall be adopted, but National Authorities retain flexibility to impose stricter rules for their banks

Principle 5: The Target operating model shall incorporate international best practices as well as recent developments post-crisis.

Banking Supervision Target Operating Model Framework

12

a. Coverage of GCC countriesb. Types of banks covered

(specialized banks, Islamic banks, foreign banks, etc.)

c. Coverage of large banking groups

d. Coverage of Financial Centers

1. Scope of Application(“Who is being supervised”)

a. Market access/ licensingb. Prudential minimum

requirementsc. Supervisory review processd. Enforcement mechanisms

3. Primary Supervision & Control Approach

(“What and How”)

a. Gulf Central Bankb. National authoritiesc. Delineation of roles and

responsibilitiesd. Exchange of information

(vertical/ lateral)

2. Supervisory Institutions(“Who is supervising”)

a. Market disciplineb. Collaboration approach cross-

borderc. Crisis and systemic risk

management

4. Supplementary Responsibilities

Supervision & Control

Framework

Operating Model Framework

Enforcement powers will rests will the National AuthoritiesUnified application of IAS/IFRS by the member countries Sharing of information between the credit bureau/register of member countries to be followed by establishing a GCC-wide credit register 13

Banking Supervision Model :-Implications

14

Widen the scope and depth of banking regulations and supervision while ultimately achieving harmonization

Common licensing approach and requirements: common capital requirements GCC wide passporting system in the long term:- allows GCC originating banks to branch out in other member states. Common Prudential Requirements : aligned to Basel II – harmonized threshold for various prudential requirements

Banking Supervision Model :-Implications.. (contd..)

Harmonizing liquidity risk management requirements.Harmonizing the key periodic reporting requirements. Effective and efficient consolidated supervisionCommon minimum requirements for the assessment of the corporate governance in banks.

15

Banking Supervision Model :-Implications .. (contd..)

Improved cross border supervision.

GCC –wide crisis and systemic risk management

GCC wide Credit Register/BureauCommon Code of practice for external auditors and rating agencies

16

Issues to be resolved

Lender of Last Resort Monetary Policy for the regionCoverage of Islamic BankingIssuing of banking legislations by respective governments

17

18

Any Questions Please ????

End of Presentation