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The 4th GCC Regulator’s Summit, DohaFinancial Stability and Risk Management Session

22 February 2010Jahangir Khan – Director Risk and Compliance, DIFC Authority

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Economic Landscape 2000-7

Regulatory Landscape 2000-7

Intra-Organisational Landscape 2000-7

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KEY TOPICS

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• Historically low interest rates

• Rising real property prices fuelled by credit availability

• Creation of sub-prime mortgage lending market w/high risk & interest rates

• Excess capital globally driving demand for financial assets

• Institutions search for alternative investments after DOT.COM crash

• Formation of securitized sub-prime mortgage pools w/higher yields – ‘Mortgage Backed Securities’

• Wide-spread take-up and distribution to Hedge Funds, Pension Funds, Insurance Co’s, Banks etc in the form of CDOs, CMOs, MBSs, SIVs

ECONOMIC LANDSCAPE 2000-7

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ECONOMIC LANDSCAPE 2000-7

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REGULATORY LANDSCAPE 2000-7

• Lack of application of Prudential Regulation and Supervision on NBFIs and Affiliates

• Lack of Focus on Large Unregulated Institutions (Market Makers) re. systemic risk

• Shortcomings of micro prudential regulation

• Policy pressure to purchase sub-prime debt (Freddie, Fannie & Banks)

• Lack of scrutiny around Credit Rating Agency practices and methodologies

• Mark-to-Market asset calculation

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INTRA-ORGANISATIONAL LANDSCAPE 2000-7

• Lack of understanding of risk at BoD level

• Compensation Structures tied to share value

• Risk Aversion vs. Shareholder Value

• Risk Management and Compliance operating in silo’s

• Inadequate disclosure practices

• Unethical business practices e.g. ‘Structuring to rating’

Jahangir KhanDirector, Risk and Compliance

DIFC | Dubai International Financial CentreLevel 14, The GateP.O. Box 74777, Dubai, UAET: +971 4 401 0067M: +971 56 6034775

Tim.Tovell@difc.ae http://www.difc.ae