This country-specific Q&A provides an overview to banking and finance laws and regulations that may occur in Qatar.
This Q&A is part of the global guide to Banking & Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance-2nd-edition/
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
The Qatar Central Bank (the “Central Bank” or “QCB”) has been empowered to enforce policies related to the regulation and supervision of financial services activities (i.e., banks) in Qatar. In-deed, Article 5 of Law No. 13 of 2012 issuing the Qatar Central Bank Law and the Regulation of Financial Institutions (the “QCB Law”) mentions the scope of powers of the Central Bank, which shall aim at assisting in the development and support of the national economy to achieve the fol-lowing:
- Maintaining the value of the currency and securing monetary stability;
- Acting as a higher regulatory, control and supervisory body for all services, businesses, markets and financial activities in or through the State, in accordance with the best international standards and practices;
- Founding a services, business, markets and financial activities sector that is based on the rules of the market and enjoys stability, transparency, competitiveness and good governance.
- Enhancing public confidence in the State as a leading global hub for services, business, markets and financial activities
- Ensuring orderly development of the services, business, markets and financial activities sector in line with the objectives of both the economic and overall development of the State
Furthermore, Article 7 of the QCB Law provides, inter alia, that the Central Bank shall, in the con-text of the vision of the national strategy and according to the best international standards and practices, develop and implement the State's monetary policy, exchange rate policies and policies relating to regulation, control and supervision of financial services and activities in the State.
To that effect, Paragraph 9 of the same article of the QCB Law provides that the Central Bank shall in particular issue licences to financial institutions to practice financial services, business and activities, oversight and supervise the same in accordance with the provisions of this Law and its implementing resolutions.
In this respect, financial institutions is defined under Article 1 of the QCB Law as any bank, insur-ance, reinsurance, investment, finance, exchange house, representation office, or external unit, and other financial institutions as determined and regulated by a decision of the Central Bank, and which shall be licensed in accordance with the provisions of this Law to practice all or some of the aforementioned activities, as determined by the Central Bank
Which type of activities trigger the requirement of a banking license?
Article 1 of the QCB Law defines a bank as any juristic person licensed in accordance with the provisions of the QCB Law to conduct all or some of the activities of banking, investment and de-velopment in the State of Qatar.
In this respect, banking activities is defined under Article 1 of the QCB Law as acceptance of deposits and other recoverable funds, granting of credit facilities; deducting, purchasing, and selling securities; trading in monetary and property instruments, foreign exchange and precious metals; issuance of cheques, credit cards and other payment instruments; issuance of guarantees and obligations; and any other activities determined by the Central Bank.
Whereas investment activities is defined under the same article as investing for third parties, practicing brokerage and financial agency, arranging Initial Public Offerings, providing custody and security services, participating in the issuance of shares and other securities, managing portfolios and investment funds, trading in monetary instruments and cash money, foreign exchange and precious metals, advising on capital markets, services related to purchase, merger and acquisition of companies, and any other activities determined by the Central Bank.
In light of the above, Article 77 of the QCB Law prohibits the exercise of any of the financial services or activities, as provided in this Law and its implementing resolutions, without obtaining a license from the Central Bank.
Does your regulatory regime know different licenses for different banking services?
The license granted is dependent on the nature of the Bank for example, the license granted for a national bank, is not the same as the license granted for a foreign bank who wishes to open a branch inside of Qatar. Furthermore the activities of the bank also play a role in the form of the license e.g. commerical bank, industrial bank, real estate bank. In addition to this, an Islamic Banking license differs from conventional banking due to the greater regulation and the need for a Shariah compliant board monitoring the activitries of the bank to ensure compliance with Islamic Shariah.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
The banking field is a highly regulated field and as such the license received will clearly stipulate the scope of powers the bank has, if the bank wishes to do further activities it must get the permission of the Qatar Central Bank prior to commencing the other activates.
Is there a “sandbox” or “license light” for specific activities?
The QCB circulars and guidelines do not provide for the implementation of a “sandbox” in the Central Bank.
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
QCB Circular No. 6 of 2018 regarding trading in Bitcoin provides that such currency is illegal. Indeed, the Central Bank urges all banks operating in Qatar not to deal with Bitcion, or exchange it with another currency, or open an account to deal with it, or send or receive any money transfers for the purpose of buying or selling this currency.
The Central Bank shall impose penalties in accordance to the provisions of the QCB Law in case of any violations of the above mentioned instructions.
What is the general application process for bank licenses and what is the average timing?
After the applicant applies for a license and submits the relevant documentations, pursuant to Article 82 of QCB Law which provides that the Governor shall issue his decision to grant the license within sixty days from the date of fulfillment of all the conditions provided for in this law and the regulations and decisions issued in implementation thereof, according to the public interest requirements and the national economy need.
As per Article 83 of QCB Law, the governor shall issue a grounded decision rejecting the licensing in the event it does not fulfill the conditions provided for. The applicant shall be notified of the issued decision regarding the application’s rejection and the reasons thereof. The notification shall be delivered to the applicant’s residence, or office. Notification may also be made in any means which ensures the knowledge of the decision. Applicant may appeal against the decision before the “Dispute Resolution Committee” established under Article 190 of QCB Law within 15 days from the date of receiving the notification.
Is mere cross-border activity permissible? If yes, what are the requirements?
Cross border activities are permissible as foreign banks will require to interact with the parent company, nonetheless cross border activities always raise the concern of potential money laundering, Qatar Central Bank raises the following guidlines by which money laundering can be manifested through cross border activities, these are:
- Customer introduced to the bank by an external financial institution located in a country known to be affected by criminal drugs production and trafficking.
- Customers paying/receiving regular large amounts in cash or by fax or telex transfer, without any indications to the legitimate sources of those funds, or customers connected to countries known to be affected by drugs production or trafficking or in relation to the prohibited terrorist organizations, or countries offering opportunities for tax evasion.
- Incoming or outgoing transfer operations executed by a customer without using any of his accounts at any bank.
- Constant and regular withdrawal/deposit of cheques issued in foreign currencies or travel cheques into the account of the customer.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
Article 79 of the QCB Law provides that, without prejudice to the provisions of the Commercial Companies Law and to Law No. 13 of 2000 Regulating the Investment of non-Qatari Capital in the Economic Activity, the QCB shall grant licenses to undertake financial services and activities in accordance with the conditions and regulations provided under this Law, to the following financial institutions:
- Banks, provided that they take the form of joint-stock companies that offers its shares for public offers, and in accordance with the conditions and restrictions specified by the Central Bank, and after submission to the Council of Ministers;
- Investment and financial companies, provided that they take the form of joint-stock companies;
- Insurance and reinsurance companies, joint-liability companies and other companies engaged in insurance that take the form of joint-stock companies and offer their shares for public offers in accordance with the conditions and restrictions specified by the Central Bank;
- Exchange companies, in accordance with the conditions and restrictions specified by the Central Bank;
- Financial consulting and investment firms, in accordance with the conditions and restrictions specified by the Central Bank;
- External units and representation offices, in accordance with the conditions and restrictions specified by the Central Bank;
- Any other financial institutions as determined by the Central Bank, and in accordance with the conditions and restrictions specified by the board of directors of the Central Bank.
The Bank may grant a license to any type of business other than a joint-stock company, subject to the approval of the Council of Ministers.
What are the organizational requirements for banks, including with respect to corporate governance?
Article 7 of the QCB Law provides, inter alia, that the Central Bank shall develop and implement policies relating to regulation, control and supervision of financial services and activities in the State, and shall in particular (5) develop controls, instructions and guidelines for corporate governance, transparency and good governance in all financial institutions under the supervision of the Bank.
The Instructions to Banks issued by the QCB provides, inter alia, that the Board of Directors of the QCB shall assume the main role and responsibility of forming the organizational structure for the bank or other financial institution.
In this respect, QCB Circular No. 68 of 2015 regarding Corporate Governance Guidelines (“Guidelines”), provides for the corporate governance principles that shall be applicable on all banks licensed by the QCB.
Principle (1) of the Guidelines provides that the Board of Directors of the QCB has overall responsibility to the bank, including approving and overseeing the implementation of the bank’s strategic objectives, policies, risk profile, governance framework and corporate culture. The board is also responsible for oversight of senior management.
Furthermore, Part 5 of Principle 5 of the Guidelines provides that the senior management should prepare the bank’s organizational structure to be approved by the board, which should include appropriate distribution of responsibilities, delegation of authority, and limits to responsibility and accountability. The organizational structure should include, but not limited to the following:
- Departments, units, and divisions in such a way that ensures independent implementation, audit and reconciliation, and prevents conflict of interests.
- Designations and professional levels.
- Communication channels and mechanism of reporting.
- Dual Control
- Assessment and accountability
Do any restrictions on remuneration policies apply?
Principle 4 of the Guidelines stipulates that one of the main committees of the board of directors is the Compensation and Remuneration Committee, which shall at a minimum support overseeing the following:
- Ensure that the remuneration policies, which must be approved by the board, is consistent with the relevant best international banking practices, for the chairman and members of board and all senior management including the CEO. Oversee the application of such policy and review it annually. Comply with the rules and policies of remuneration as mentioned under Principle (9).
- Ensure that remuneration policy considers all types of risks exposed while allocating remunerations, in such a way that there should be alignments between profits gained and degree of risk for all banking business and activities. Comply with the policy above mentioned in item (1).
- Ensure that the period of remuneration should be aligned with the actual income, particularly from the long-term performance.
- Remuneration committee should work together with Risk Management Committee or Chief Risk Officer, regarding assessment of incentives under risk assessment based remuneration system.
Indeed, Principle 9 of the Guidelines provides for the Compensation System in order for the board of directors to be able to enhance corporate governance and sound compensation practices. The following priciples and controls are listed by way of an example, in which the board of directors shall be fully responsible to comply with, which may not be delegated to the senior management:
- The board shall approve and follow up implementation of remuneration policies, as recommended by the compensation committee. It should also oversee any update or modification of the compensation policies, and the related recommendation by the compensation committee.
- Remuneration policy should be designed to attract and retain employees with sufficient knowledge, experience, skills and expertise required by the bank.
- Qatar Central Bank maintains the right, when necessary, to restrain or limit the aggregate variable remuneration to a percentage of the net profits, or as it may deem appropriate, if the bank does not comply with the related supervisory requirement of capital adequacy or proven to carry out incorrect banking practices.
Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
Principle 1 of the Guidelines provides, inter alia, that one of the roles and responsibilities of the board is to approve the reviewed interim financial statements and audited annual statements which present the bank’s financial position in accordance with the applicable international financial reporting standards, public disclosure standards, Basel Committee’s Pillar III disclosure standards (and the equivalent for Islamic Banks), and recommendations of the general assembly on approving the financial statements at year end. Nominate external auditor, and members of Sharia Supervisory Boards in Islamic Banks to be approved by the general assembly.
Indeed, QCB Circular No. 3 of 2014 was issued to regulate Capital Adequacy Ratio – Basel III Framework.
Clause 4.2.4 of the QCB Implementation Instructions – Basel III Framework for Convention Banks regarding the calculation of capital requirements provides, inter alia, that “Banks are required to hold regulatory capital against all of their securitization exposures, including those arising from the provision of Credit Risk Management (CRM) to a securitisation transaction, investments in asset-backed securities, retention of a subordinated tranche, and extension of a liquidity facility or credit enhancement, as set forth in the following sections. Repurchased securitisation exposures must be treated as retained securitisation exposures.“
Whereas QCB Circular No. 6 of 2014 regarding Capital Adequacy Ratio – Basel III Framework and IFSB – 15: Revised Capital Adequacy Standards is directed to Islamic banks, and attaches the Implementation Instructions, Basel III Framework for Islamic Banks – Pillar 1 Guidelines for Capital Adequacy.
Are there any requirements with respect to the leverage ratio?
QCB Circular No. 63 of 2014 was issued to regulate Leverage Ratio in all national banks operating in Qatar, which refers to Basel III leverage ratio framework and disclosure requirements issued by Basel Committee on Banking Supervision in January 2014. In this respect, national banks shall maintain more than 3% of the leverage ratio at all times.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
The QCB Implementation Instructions – Basel III Framework for Conventional Banks provides the following:
Risk weights for eligible liquidity facilities
For eligible liquidity facilities as defined in paragraph 217 and where the conditions for use of external credit assessments in paragraph 206 are not met, the risk weight applied to the exposure’s credit equivalent amount is equal to the highest risk weight assigned to any of the underlying individual exposures covered by the facility.
The QCB Implementation Instructions – Basel III Framework for Conventional Banks further provides under paragraph 217 that:
Eligible liquidity facilities
Banks are permitted to treat off-balance sheet securitisation exposures as eligible liquidity facilities if the following minimum requirements are satisfied:
a) The facility documentation must clearly identify and limit the circumstances under which it may be drawn. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements. In addition, the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw, or be structured such that draw-down is certain (as indicated by regular or continuous draws);
b) The facility must be subject to an asset quality test that precludes it from being drawn to cover credit risk exposures that are in default. In addition, if the exposures that a liquidity
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
Banks are under an obligation to file in the monthly statements of assets and liabilities (this is for commercial and Islamic banks). All banks are obliged to provide Qatar Central Bank with an electronic file containing the balance sheet.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
Principle 6 of the Guidelines provides, inter alia, that risk management policy should be applied on a consolidated basis for the whole banking group, taking into account the potential risks arising from the bank’s external activities and the bank’s head office shall be responsible for applying the policy to the whole group.
Banks are required to take into consideration the potential future changes when assessing credit risk at the levels of individual clients, their borrower groups, economic sectors and products, country, group of countries or overall portfolio. These changes should be considered when assessing the levels of specific provisions or any other potential provisions necessary to cover the credit risk in a consolidated basis.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Banks are required to be up-to-date with all developments that may have an impact on the risk management function. These developments may be internal such as, balance sheet and income statement, or external developments, such as geographical expansion, introduction of new products or business lines, mergers and acquisitions and these ought to be reported to the Central Bank. The Bank should have adequate procedures to address new activities, such as mergers and acquisitions. These processes should include, for example, the ability to assess relative risks arising from these activities, to identify potential shortcomings in internal controls projections and to adapt adequate measures to manage such risks and to have measures identifying and assessing new risks resulting from introduction of new products, or change in business line, complexity, economic or operating environment, type of portfolio, mergers and acquisitions. These variables should be taken into consideration while measuring risk with the use of qualitative and quantitative methods.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Article 124 of the QCB Law provides that the Board shall determine the ownership ratios and terms of natural and juristic persons of the shares of financial institutions under the control and supervision of the Central Bank, and such ratios may not be exceeded, directly or indirectly, and each financial institution must provide the Bank with all the information and data related thereto.
Are there specific restrictions on foreign shareholdings in banks?
Please refer to our answer under Question 18 above.
There is nothing preventing a foreign bank undertaking operations in the state of Qatar, branches of foreign banks can operate in the State of Qatar (currently in Doha, there are British, Iranian, Turkish and Chinese banks to name a few). A foreign bank who wishes to operate in Qatar has to submit greater paperwork compared to a local bank such as a list of names of members of board of directors and executive officers of the parent company, a list of names of the headquarter and branches in the home country and and international rating cetergory issued by the international rating agencies to name a few and therefore the process of recieving a license for a foreign bank may be slightly lengthier however foreign banks can operate in Qatar provided they have recieved a license from the Qatar Central Bank.
Is there a special regime for domestic and/or globally systemically important banks?
There are no known ‘special regimes’ for banks whether national or international, nonetheless, local companies are given further support in comparison to non-locations because of Qatar’s 2030 vision and the countries long held ambition to support local businesses.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
Article 216 of QCB Law provides:
The Bank may impose a financial penalty of not more than (10,000,000) ten million riyals for each violation, committed by the financial institution, of the provisions of this Law or the bylaws, resolutions or instructions issued in implementation thereof.
It may also impose a financial penalty of not more than (100,000) one hundred thousand riyals per day for each ongoing violation, committed by the financial institution, of the provisions of this Law or the bylaws, resolutions or instructions issued in implementation thereof.
The Bank shall determine the appropriate financial penalty in accordance with the gravity and enormity of the offence, according to the circumstances of each individual case, and after notice and warning to the financial institution in violation to remove the causes of the violation within a specified period.
Article 217 of the QCB Law provides:
The Bank may impose a financial penalty of not more than (2,000,000) two million riyals on any financial institution that refuses to provide the Bank or its inspectors with information or data they require, or refuses to allow them access to books, records and documents, or provides them with misleading information.
It is also to be noted that sanctions relating to anti money laundering will be sanctioned by virtue of law No. 4 of 2010 (“Money Laundering law”). Under Article 72 of the Money Laundering law the sanction is prison term not exceeding seven years and a fine not exceeding QAR 2,000,000.
What is the resolution regime for banks?
Over the years, there has been this dogma that a bank is “too big to fail” and this was one of the factors which resulted in many being surprised by the financial crisis that occurred, the Ministry of Finance (representing the Government of the State of Qatar) and the Qatar Central Bank have powers at their disposal to support financial situations which are failing to ensure to ensure the fluidity of financial institutions in the State of Qatar and to uphold the confidence of people in the financial system.
How are client’s assets and cash deposits protected?
Part 6 (Articles 140 – 159) of the QCB Law governs the protection of the clients of financial institutions.
For instance, Article 144 of the QCB Law provides that, as the supreme authority on supervision and control of services, business and financial activities in the State, the Bank shall set the rules and regulations necessary to protect customers of financial institutions according to international best practices. In particular, the Bank may:
1. Supervise and control the provision of financial services to the public, develop them and improve their delivery.
2. Lay the foundations and control standards necessary to protect customers from fraud, exploitation and discrimination and to ensure the quality of financial services.
3. Receive and consider customer complaints, take appropriate action, or refer them to the competent authorities.
4. Develop and organize appropriate mechanisms for settling disputes between financial institutions and their customers, including conciliation, mediation and arbitration.
5. Take appropriate action to deal with uncompetitive practices harmful to the interests of customers.
6. Take appropriate action against financial institutions subject to the supervision and control of the Bank to ensure their commitment and compliance with the provisions of this law and its implementing regulations, resolutions and instructions and all relevant legislation in force.
Furthermore, Article 145 of the QCB Law provides that all client accounts, deposits, trusts and safety deposits in banks and all transactions related to them, shall be confidential, and may not be accessed or disclosed and nor may any information or data about it be given to any person either directly or indirectly, except by written permission from the client, his heirs or legatees, or based on an enforceable court ruling in a current legal dispute.
Is there a requirement for banks to hold gone concern capital (“TLAC”)?
Paragraph 21 under the QCB Implementation Instructions – Basel III Framework for Conventional Banks provides that total regulatory capital will consist of the sum of the following elements:
I. Tier 1 (“T1”) Capital: going-concern capital
(a) Common Equity Tier 1 (“CET1”)
(b) Additional Tier 1 (“AT1”)
II. Tier 2 (“T2”) Capital: gone-concern capital
For each of the three categories above, there is a defined set of criteria that instruments are required to meet before inclusion in the relevant category.
For instance, Paragraph 43 of the aforementioned instructions provides that the objective of Tier 2 (“T2“) is to provide loss absorption on a gone-concern basis. Based on this objective, a table is provided within this Paragraph 43 which sets out the minimum set of criteria for an instrument to meet or exceed in order for it to be included in T2 capital.
In your view, what are the recent trends in bank regulation in your jurisdiction?
Banking regulations have become more aware of the threats of cybersecurity, particularly since the hacking of Qatar News Agency in May 2017. Consequently, more banks are enhancing their security teams, including Qatar Central Bank, which assembled a team dedicated to dealing with cyber-attacks.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
A threat that any financial sector may face is the use of technology is such sectors. In this respect, QCB issued circular No. 4 of 2018 regarding Threats of Modern Technology on Banks, as Qatar is committed to enhance cyber security initiatives in the financial sector.