Gulf Regulatory Outlook 2024 | Insights

Regulatory evolution as a driver of diversification

Synonymous with vast oil and gas reserves, the Gulf is embarking on a project of transformation and diversification to provide long-term economic stability and encourage investment. This also comes alongside rapid demographic changes, with the demands of a young, educated, and growing middle class helping to fuel this transformation.

As such, policymakers across the region are increasingly focused on developing a robust regulatory framework for capital markets to attract the confidence of both local and foreign investors. While different countries have their own approaches and priorities, this piece takes stock of the main financial regulatory initiatives underway in 2024 across the following themes:

Trading and markets;
Green finance;
Digital finance; and
Risk, capital and financial stability.

Trading and markets

Gulf policymakers are considering various market structure changes as part of the drive to encourage greater trading and investment in the region. Investor protection is proving to be a growing theme in the region, with the protection of investor rights and upholding fair trading practices seen as necessary conditions for attracting and retaining capital.

Qatar is embarking on an ambitious programme of market structure reform as the Financial Market Authority looks to advance the Qatari capital market to ‘developed’ status. Under Qatar’s 2023-2027 Strategic Plan, the country is set to develop governance codes for financial firms, a framework for fixed income markets, and initiatives for companies listed on the main and secondary markets. Derivatives trading is another area of focus for Qatari policymakers with the announcement last March that the Qatar Financial Centre Regulatory Authority had developed a new regulatory framework for listed derivatives. Specifically, the launch of the Derivatives Markets and Exchanges Rules 2023 allows for the establishment of a derivatives exchange, as well as a central clearing counterparty to ensure the efficient settlement of trades. The Qatar Stock Exchange is set to soon launch a derivatives exchange to offer investors the opportunity to trade options and futures on local stocks and the QSE equity index.

Saudi Arabia has made significant progress in developing its framework for capital markets and this pace of reform is set to continue over 2024 in line with Vision 2030. The Capital Market Authority recently approved rules to boost foreign investment in securities markets by reducing disclosure differences between qualified foreign investors and other investor categories. Alongside the focus on equity capital markets, the CMA is also sharpening its focus on debt capital markets by seeking to appoint one firm as the provider of an alternative trading system for sukuk and debt instruments through a tender process. Over the course of 2024 there is likely to be further advances in the regulatory development of Saudi debt capital markets.

Green finance

Although sustainability has been a long-standing and significant aspect of the Gulf’s various vision strategies, transition finance has taken on a new prominence across the region in the wake of COP28. An important driver behind the region’s economic diversification effort is to ensure that environmental, social, and governance (ESG)-conscious global investors do not overlook the region in their investment allocation strategies.

With the conclusion of COP28 in late-2023, the sustainable finance regulatory architecture across the Gulf is already taking shape and 2024 will see a broader regional push towards harmonizing regulations.

As host of COP28, the United Arab Emirates (UAE) has issued a flurry of announcements to accelerate the transition towards a sustainable economy. For example, the UAE Banks Federation are aiming to mobilize over a quarter of a billion USD in sustainable finance by 2030 under the sustainable finance regulatory framework announced in summer 2023. Further, the UAE Sustainable Finance Working Group issued its third Public Statement during COP28 to emphasize three pivotal objectives to improve sustainability-focused corporate governance, sustainability reporting, and the development of a sustainable finance taxonomy.

Looking further afield, the Central Bank of Bahrain (CBB) issued in late-2023 ESG reporting requirements that will apply to a comprehensive range of listed companies and financial institutions from the end-2024.

While the Kingdom of Saudi Arabia is in the early stages of designing a bespoke framework for ESG, authorities signed an agreement last year outlining the Kingdom’s commitment to developing an ESG taxonomy and creating a disclosure framework for listed companies. Under its stewardship of the GCC Exchanges Committee, Saudi Arabia is positioned to promote ESG awareness across the region.

As the Islamic finance industry continues to grow and develop, authorities are integrating sustainability considerations into work already underway to harmonize the Islamic finance framework. The UAE has issued guiding principles and a roadmap to foster sustainable Islamic finance, including prudential standards, disclosure guidelines, and a targeted timeline for implementation.

Digital finance

With technology reshaping investor behaviour and wider economic shifts, the Gulf region is looking to adopt an open approach to foster innovation and investment. Accordingly, a range of digital finance-related initiatives are underway for 2024.

The UAE is emerging as an AI power with a range of initiatives under its 2031 National AI Strategy. These include its own government ministry for AI and its own open-source large language model, known as Falcon. Most recently the Abu Dhabi Department of Economic Development (ADDED) and Mohamed bin Zayed University of Artificial Intelligence (MBZUAI) agreed to jointly pioneer AI-driven solutions for small and medium enterprises (SMEs).

Saudi Arabia is similarly intent on becoming a hub for AI investment. To provide businesses with more flexibility, the Kingdom has approved a series of changes to its data privacy rules to align them more closely with other international standards. In-scope businesses have until September 14, 2024, to comply. Qatar is also exploring a regulatory framework for AI, with further details to come later this year.

With both Saudi Arabia and the UAE signing the ‘Bletchley Declaration’ at the first AI Safety Summit last November, the Gulf’s voice in the international discussion over regulating AI will grow.

In response to the development of digital assets, authorities are adopting different approaches. The UAE is positioning itself as a global hub for digital asset activity and has created an advanced regulatory framework to this end. Specifically, individual Emirates such as Dubai have led this agenda through establishing the world’s first independent regulator for digital assets and adopting a comprehensive regulatory framework for virtual asset service providers. In parallel, the UAE’s Securities and Commodities Authority has begun to receive license applications from companies interested in providing digital asset services.

In contrast, countries such as Qatar and Kuwait have taken a different approach. For example, the Kuwaiti regulator banned all types of virtual currency transactions, including payments, investments, and mining.

Strengthening operational resilience and preventing cybersecurity risks is a key priority for Gulf policymakers in 2024. Qatar’s Strategic Plan includes a commitment to developing guidelines to implement a National Cybersecurity Framework and Saudi Arabia’s National Cybersecurity Authority continues its work to bolster cyber preparedness in the Kingdom.

Risk, capital, and financial stability

In line with the global regulatory agenda, Gulf regulators are proactively embracing global standards to enhance the stability of the banking and insurance sectors.

Implementation of the Basel bank capital standards is set to be a key global theme of 2024.

The Saudi Arabian Monetary Authority (SAMA) launched the official implementation of the Basel III bank reforms as of January 1, 2023, and work is ongoing to ensure that risk models are effectively calibrated. To reflect the impact of these reforms, SAMA also updated the prudential framework for Saudi banks’ capital risks.
Although Qatar’s banking sector has remained mostly resilient in the face of oil price volatility, having been supported by capital buffers, Qatar is looking ahead to the full implementation of the revised Basel III capital requirements from January 1, 2024.
The Dubai Financial Services Authority (DFSA) has sought public comments ahead of final rules to implement the rules for banking credit and counterparty credit risk under Basel III.

Developing a risk-based regulatory framework for the insurance sector is a strategic priority for many Gulf countries in line with a range of global jurisdictions. The UAE was the first country in the region to fully implement a model based on the key principles of the EU’s Solvency II, and Qatar is expected to follow and implement similar provisions as set out in its latest Strategic Plan.

As part of the Kingdom’s 2030 Vision, the Saudi Insurance Authority commenced its operations in November last year as a new unified and independent regulator for the insurance sector. This will provide the foundations of an internationally recognized risk-based regulatory insurance framework as Saudi Arabia looks to develop its insurance sector to support the country’s wider transformation.