“SCA is working to develop requirements for the licensing of forex dealers,” Dr. Obaid Al Zaabi

As part of the efforts of the UAE government to counter the consequences caused by the coronavirus outbreak and support the national economy, the Capital Markets Advisory Committee had convened, on an invitation from the Securities and Commodities Authority (SCA), with all its members present, including representatives from the Abu Dhabi Securities Exchange (ADX), the Dubai Financial Market (DFM), the Dubai Gold and Commodities Exchange (DGCX), free zone counterparts, listed public joint stock companies, and brokerage and financial services companies.

Held by means of remote communication, the meeting was presided over by H.E. Dr. Obaid Saif Al Zaabi, SCA’s CEO, and attended by the CEO’s deputies and SCA’s department managers and advisors. Participants in the meeting discussed the agenda items, which centered on SCA’s initiatives to regulate the over-the-counter (OTC) market (the foreign exchange, or forex, market). They reviewed SCA’s initiatives and the preventive and precautionary measures it took to limit the consequences of COVID-19 and contain its negative effects on financial markets.

At the beginning of the meeting, Dr. Al Zaabi congratulated the DFM on the launch of Dubai Clear and Dubai CSD, stressing that the two companies will help raise the efficiency of markets and operations while bringing an added value to the national economy.

 Dr. Al Zaabi reviewed SCA’s key actions and initiatives to deal with the coronavirus pandemic, which are part of the wider government actions to limit COVID-19 consequences on different sectors and of the precautionary measures aimed at supporting the national economy and containing the negative impacts on financial markets. 

 Dr. Al Zaabi explained that, under the directives of the Cabinet, a range of actions was taken once the competent authorities announced COVID-19 a pandemic, including forming a working group to assess the impacts on financial markets. He added that SCA met with the financial markets at the onset of the outbreak to assess the current situation and make decisions and actions accordingly. Another meeting was also held with the UAE Central Bank to discuss matters pertinent to controls on stock purchase financing. The limit down on share prices was amended to 5 percent.

 Dr. Al Zaabi added that, in this context, a circular was sent to public joint stock companies, requiring them to hold their meetings using remote communication means and to enable electronic voting. Another circular was issued to licensed companies, requiring them to develop emergency plans to ensure business continuity.  SCA also extended the period during which the 2019 annual results must be disclosed and the deadline for holding annual general meetings to the end of June 2020, in addition to extending the period during which the 2020 first-quarter statements must be disclosed to mid-August 2020. It also offered facilities to public joint stock companies wishing to conduct stock buybacks. This is in addition to the Abu Dhabi Executive Council’s previous announcement concerning the allocation of one billion dirhams for the establishment of a market maker fund.

 SCA noted that it has set up a new section within its regulatory structure charged with the responsibility of monitoring the quality of external audits and their accreditation requirements.

 Financial industry and market representatives participating in the meeting expressed their appreciation for the actions that SCA has been taking and stressed the importance of the role they had in mitigating the negative impacts caused by the coronavirus pandemic and in helping to achieve market stability. 

 The discussions and deliberations between financial industry representatives produced the recommendations presented below.

 Recommendations concerning the precautionary measures aimed to contain the consequences of the pandemic

1. Enabling market makers to play a more active role to help bring stability to the markets, in addition to encouraging and helping companies to go back to business.
2. Looking at SCA’s decision to extend the disclosure period as a good opportunity for companies to review their allocations and study the impacts of the various incentive packages announced.
3. Changing the audit culture as auditors must keep in mind that they are appointed by the shareholders.
4. Assessing the quality of the performance of auditors, in addition to reviewing the engagement letters/agreements they have entered into with public joint stock companies to identify the scope of their responsibilities.
5. The audit report must demonstrate facts and must hold the auditor responsible for the report where the disclaimer statement contained in the report is omitted.
6. Establishing an electronic connection with the UAE Central Bank and the other banks so that transactions and wire transfers are made instantly.
7. Reducing operational costs as much as possible.   
8. Supporting the RegTech initiative aimed at alleviating the regulatory burden on supervisory authorities.
9. Using artificial intelligence systems to handle and respond to industry requests, thus saving time and effort and implementing physical distancing.

Recommendations concerning the regulation of the OTC market 

As to regulating the OTC market (the foreign exchange, or forex, market), Dr. Al Zaabi said that SCA is currently working to develop requirements for licensing OTC/forex dealers. He added that SCA is formulating preliminary provisions to make the central clearing of OTC trades and the reporting of such trades to trade repositories mandatory while the markets develop operational requirements and specify the products that are to be centrally cleared. The recommendations made in this regard included:

1. The need to specify the OTC products that are to be centrally cleared.
2. That SCA must develop a plan, in coordination with the financial markets and CCPs, to motivate banks and forex market participants to comply with the rules and provisions.
3. That CCPs must have in place a collateral management system that local and government issuers go to for central clearing instead of resorting to international clearing houses.
4. The need to establish trade repositories as they are a key element in regulating the OTC market.