Qatar: Banking & Finance

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Qatar including national authorities, regulation, licenses, organisational requirements, supervision and assets.

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/

  1. What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?

    Qatar issued the Qatar Central Bank Law no. 13 of 2012 (QCB Law). The QCB Law addresses many issues for the first time, including Islamic banking, mergers and acquisitions of financial institutions, credit rating agencies, insurance, treating customers fairly and resolution of failing banks.

    Qatar Central Bank (the “QCB”) is the competent higher authority, which layouts and enforce the State monetary policy, policy of the exchange rate and financial and banking supervision within the framework of the national strategy and in accordance with the best international standards and practices.

    Qatar Central Bank is also the primary regulator of financial institutions operating in Qatar, and the QCB Law has now expanded its supervisory powers to cover the insurance sector and the Qatar Financial Centre.

  2. Which type of activities trigger the requirement of a banking licence?

    In general, the conduct of any and all financial services in Qatar requires that a license be obtained from the competent authority and provides sanctions for persons who conduct such activities without the required license.

    All banking activities such as acceptance of deposits and other recoverable funds; granting of credit facilities; discounting, purchase and sale of securities; trade in monetary and property instruments, foreign exchange and precious metals; issuance of checks, credit cards and other payment instruments; issuance of guarantees and commitments; and any other activities determined by the Qatar Central Bank require a banking licence.

  3. Does the regulatory regime know different licenses for different banking services?

    QCB Law makes clear that the conduct of financial services in the State requires that a license be obtained from the competent authority and provides sanctions for persons who conduct such activities without the required license.

    Under the QCB Law, there are licences for Commercial Banks Specialized Banks Real Estate Banks Industrial Banks and the licence would determine whether it is conventional bank or an islamic bank.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    A licence permits the bank to carry out the general banking services. Any additional activities must be approved/licenced by the Qatar Central Bank.

  5. What is the general application process for bank licenses and what is the average timing?

    Banking License Application Process and Forms
    The general application process for a bank licence in Qatar requires an application for a licence to be submitted by the applicant or his legal representative to the competent department at the QCB, together with all supporting documents and information.

    In accordance with QCB Law different forms shall be used for applying to QCB for obtaining licenses to commence business for banks and their local and outside branches according to the requirement stated in those forms.

    • License Application Form - National Bank (Form (A) - Banks), annex no. (25).
    • License Application Form - Foreign Bank’s Branch in Qatar - (Form (B) - Banks), annex no. (25).
    • License Application Form - Branch inside Qatar – (Form (C) - Banks), annex no. (25).
    • License Application Form - National Bank’s Expansion outside Qatar – (Form (D) - Banks), annex no. (25).

    Granting or Rejection of licensing application
    The competent authority at the QCB shall examine the licence application and its annexes to verify that it satisfies the conditions that must be met, and may order any amendments it deems necessary for the application to be eligible for consideration.

    The applicant may, prior to the competent authority's decision, withdraw or amend the application in accordance with the rules and procedures established by the QCB.

    Where the Governor rejects the application, he shall serve a notice to the applicant of the reasons for such decision. The applicant may appeal such decision to the Board within fifteen (15) days from the date of notification.

    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 the QCB Law and the regulations and decisions issued in implementation thereof, according to the public interest requirements and the national economy need.

    The competent administration (Supervision and Control Dept.) shall promulgate the decision to grant the license in the Official Gazette and in two local newspapers, one issued in Arabic and the other in English.

    The QCB may license foreign financial institutions to open branches in the State of Qatar according to the conditions and controls issued by the QCB.

    In accordance with Article (88) of QCB Law, any financial institution shall commence conducting the licensed services, businesses or activities within six (6) months from the date of issuance of the license. The QCB may extend this period for another similar period. In the event of the elapse of this period without starting to conduct the licensed services, businesses, or activities, the license shall be deemed as if not issued.

    Banking licenses shall be automatically renewed if the bank continues its operations in accordance with QCB Law.

  6. Is mere cross-border activity permissible? If yes, what are the requirements?

    Qatar does not have any laws which apply to the activities of foreign entities operating on a cross-border basis. It may be possible, therefore, for a foreign entity to carry out certain activities without obtaining the aforementioned registrations. The key question is whether the foreign entity is undertaking activities in Qatar in such a way that its activities would constitute "carrying on business" in Qatar. If it is, the entity undertaking the activities would need to obtain the appropriate registrations/ licenses.

    In our experience, a foreign entity operating on a cross-border basis and restricting its activities in Qatar to "discreet matters" will be unlikely to be deemed to be carrying on business in Qatar. There is no specific guidance on what constitutes a "discreet matter" but it is likely to constitute a transaction which involves:

    (a) no marketing to non-sophisticated persons;

    (b) no general solicitation/public offering (by way of example, brochures promoting a financial product should not be made available in banks, and no marketing should be carried out which is not targeted to specific individuals/entities);

    (c) no advertising (as opposed to marketing) of products in Qatar (to give an example, an advertisement which only promotes the existence of an entity is probably acceptable, however an advertisement relating to a specific product should not be made);

    (d) no cold-calling or emailing on an untargeted/mass basis to residents of Qatar with whom the entity does not have a prior relationship;

    (e) no regular visits to Qatar; and

    (f) no road shows (for example, a conference room in a hotel should not be rented to promote a product).

  7. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    Without prejudice to the provisions of the Commercial Companies Law and the Foreign Investment Law, the Qatar Central Bank, in accordance with the conditions and regulations set by it, license the practice of banking business for banks that take the form of joint-stock companies and offer their shares for IPO.

    However, the Qatar Central Bank may grant a licence to any type of business other than a joint-stock company, subject to the approval of the Council of Ministers.

  8. What are the organisational requirements for banks, including with respect to corporate governance?

    The board of directors of a bank 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.

    To increase its supervisory efficiency and allow deeper focus in specific areas and risks exposed, a board may establish certain specialized board committees. The number and nature of such committees depends on many factors, including the size of the bank and its board, the nature and structure of the business areas of the bank, and its risk profile.

    Main Committees of the Board: 1- Audit Committee 2- Risk Committee. 3- Nominations and Governance Committee. 4- Compensation and Remuneration Committee.

    In addition to the board of directors and the committees, there is the Senior Management which includes senior employees of the bank, including the CEO, whose authority shall include management and operation of bank and implementation of board’s decisions in accordance with the approved strategies and policies, and the bank’s risk profile.

    The board of directors may delegate the CEO to act in the name of the bank generally and represent the bank’s interest while concluding transactions with third parties. The board shall also specify the restrictions of powers delegated to the CEO or other senior management, such as ceiling for financial transactions that may exceed the approval set for the board.

    Senior managers should possess personal characteristics of honesty and integrity, and acquire sufficient qualifications and experience to fulfil their roles in the bank.

    Senior managers along with the board should participate in implementation and development of a sound corporate governance system.

    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.

  9. Do any restrictions on remuneration policies apply?

    A compensation and remuneration committee must be established by the Board of Directors of a bank and comprised of, wherever appropriate, majority of independent members. It may also include external advisors for consultation. Its members should have sufficient knowledge, skills, and experience required for making independent and objective policies and decisions on compensation and remuneration practices.

    The board shall approve and follow up implementation of remuneration policies, as recommended by the compensation and remuneration committee. It should also oversee any update or modification of the compensation policies, and the related recommendation by the committee.

    Approved remuneration policy of a bank should at a minimum include the following:

    • Remuneration system should be consistent with risk profile and the bank’s overall performance, including indicators of profitability, liquidity, capital adequacy and operational performance. Employees’ compensations must be consistent with their performance and efforts to fulfill their responsibilities and the bank’s overall performance.
    • Remuneration system should include entire bank’s administrative levels, starting with the board members, senior managers, up to employees to enhance the efficiency of risk management and compensation policy.
    • All types of risks should be considered while deciding compensation for the bank’s group as a whole so that total income or profit should not be the only performance parameter.
    • The compensation policy should be based on objective performance assessment system linked to the risk management framework and the application of the internal controls and regulatory requirements to evaluate and measure staff performance at all levels.
    • The remuneration of members of board and executive management should be based on their performance and in consistency with the bank long-term performance not only the over current year period.
    • Compensation payout schedule shall be sensitive to risk’s time frame. As profits and losses of different activities of a bank are realized over different periods of time, the variable compensation payments should be deferred accordingly and not to be finalized over short periods where risks are realized over long periods.
    • Compensation outcomes (cash, equity and other forms) must be consistent with the related risk and rules that should regulate remuneration payments as per employees professional level.
    • Banks shall disclose all information about their compensation practices in a clear and comprehensive way in the bank’s financial statements. Members of board compensation payments must be disclosed.
    • Any large payouts should be described in details if they are part of compensation.
      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.

    are no contradictions between the amended items and the Articles of QCB Law.

  10. Has the 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?

    Qatar has implemented the Basel III.

    The regulatory capital will consist of the sum of Tier 1 (“T1”) Capital: going-concern capital and Tier 2 (“T2”) Capital: gone-concern capital.

    The Tier 1(“T1”) Capital: going–concern capital will consist of Common Equity Tier 1 capital (“CET 1”) and Additional Tier 1 (“AT1”). The minimum capital requirements for Qatari banks are: a) CET1 must be at least 6.0% of risk weighted assets at all times, b) T1 Capital must be at least 8.0% of risk weighted assets at all times and c) Total Capital (T1 Capital plus T2 Capital) must be at least 10.0% of risk weighted assets at all times.

  11. Are there any requirements with respect to the leverage ratio?

    Qatar Central Bank Instructions to banks Volume 2 November 2011 states that Basel Committee on Banking Supervision (BCBS) is introducing a simple, transparent, non-risk based leverage ratio, in order to constrain build-up of leverage in the banking sector and reinforce risk based requirements based on a “back-stop” measure. Banks may furnish their views and plans on the definition, exposure measures used in computing the leverage ratio, and transitional arrangements.

    The QCB had issued a Liquidity Coverage Ratio (LCR) circular to banks in January 2014 and it was amended in May 2014 to incorporate the changes effected by the Basel Committee on Banking Supervision (BCBS).

    In July 2014 the QCB issued another circular to the banks in Qatar on Leverage Ratio. The implementation started with effect from September 2014 as per the finalized BCBS document issued in January 2014 to test a Tier 1 leverage ratio of 3 percent.

  12. What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    Qatar has implemented the Basel III liquidity requirements, including regarding LCR and NSFR.

    The QCB, as part of it’s strategic plan for financial sector regulation, had issued a Liquidity Coverage Ratio (LCR) circular to banks in January 2014 and it was amended in May 2014 to incorporate the changes effected by the Basel Committee on Banking Supervision (BCBS).

    The Net Stable Funding Ratio (NSFR) is being implemented only as a supervisory observation.

  13. Do banks have to publish their financial statements?

    Banks operating in Qatar must publish their financial statements and must consider the following:

    • Complying with all conditions, amendments or directions which QCB may require the banks regarding the financial statements.
    • Financial statements or announcement for the date of the general assembly meeting of the bank to approve the financial statements may not be published before having QCB’s approval on such statements.
    • Banks should obtain QCB’s approval on the annual balance sheet, income statement, profit distribution account for the bank, (financial statements) before approving the final statement for the national banks to be submitted to the general assembly, within one month from the date of receiving the end of year financial statement and its attachments, and also provided that the bank implements all conditions or amendments or instructions as required by QCB.
    • On approval of the general assembly, and the auditor, the final financial statements are to be published in one of the Qatari daily newspaper within four months after the end of the fiscal year and QCB should be provided with a copy. The final financial statements approved by the general assembly and the external auditor should be published in any of the Qatari daily newspapers within four months following the fiscal year end and QCB should be provided a copy thereof.

    The financial statements of the foreign banks’ branches operating in the State of Qatar are to be published along with the financial statements of the parent bank in consolidation of its global branches, in one of the Qatari daily newspaper within four months after the end of the fiscal year and QCB should be provided a copy.

  14. Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?

    Qatar Central Bank obliges all national banks to apply all the ceilings and supervisory ratios on the consolidated level of the Bank and its group (branches and subsidiaries both inside and outside Qatar). QCB also expands its onsite and offsite supervision to include the bank and its group inside and outside Qatar.

  15. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    QCB's prior approval shall be taken if an individual (natural Person or legal entity) is to own ten percent (10%) or more of a national Bank's capital, whether be it direct or indirect ownership.

    QCB's special prior non-objection should be taken, if any financial institution will own fifty percent (50%) or more of a national Bank (direct or indirect Ownership), taking into account when evaluating the application, the instructions on consolidated supervision.

  16. Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    The QCB determines the ownership ratios and terms of natural and juristic persons of the shares of financial institution under the control and supervision of the QCB, and such ratios may not be exceeded, directly or indirectly, and each financial institution must provide the QCB with all the information and data related thereto.

    QCB's prior approval shall be taken if an individual (natural Person or legal entity) is to own ten percent (10%) or more of a national bank's capital, whether be it direct or indirect ownership.

  17. Are there specific restrictions on foreign shareholdings in banks?

    Investment Law No. 13/2000 is the primary legislation governing foreign investment in Qatar. Foreign investment is generally limited to 49 percent of the capital for most business activities, with a Qatari partner(s) holding at least 51 percent. However, the law allows, upon obtaining special government approval, up to 100 percent ownership by foreign investors in certain sectors, including: agriculture, industry, health, education, tourism, development and exploitation of natural resources, energy, or mining.

    Qatar amended the law in 2004 to allow foreign investment in the banking and insurance sectors upon obtaining approval of the Cabinet of Ministers. Moreover, foreign financial services firms are allowed 100 percent ownership at the Qatar Financial Center (QFC).

    We are aware that a new foreign investment law is to be issued soon. This new law might introduce different percentages for foreign investment in the economic sector in Qatar.

  18. Is there a special regime for domestic and/or globally systemically important banks?

    Qatar has adopted the Basel III standards.

    Qatar’s ‘systematically important’ banks are required to maintain additional capital charge. Effective from 2016, the domestic systemically important banks (D-SIBS) have to maintain additional capital charge in a phased manner with full implementation by January 2019.

    The Qatar Central Bank (QCB) has issued the Basel III Capital Adequacy guidelines to all Qatari banks in January 2014, with the minimum requirements for capital adequacy and capital conservation buffer.

    In July 2014, the QCB advised the local banks on the framework of D-SIBS, which have high loss absorption capital requirement ranging from 0.5 percent to 2.5 percent.

    The QCB had issued a Liquidity Coverage Ratio (LCR) circular to banks in January 2014 and it was amended in May 2014 to incorporate the changes effected by the Basel Committee on Banking Supervision (BCBS).

    A separate circular on Leverage Ratio was also issued in July 2014.

    The QCB observed that the local banks made good progress on developing the financial markets and related infrastructure to meet international standards and best practices in order to provide a conducive and investor friendly environment. Specifically, major steps have been taken to develop deep and liquid debt markets through regular issuance of Treasury bills as well as government securities.

  19. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    The QCB Law provides that, without prejudice to the financial penalties imposed by the QCB under the provisions of this law and the bylaws, regulations and resolutions issued in implementation thereof, or any more severe sanction provided for by any other law, the QCB shall apply sanctions on banks for offences described therein.

    For full list of the sanctions on violating persons, please check: http://www.qcb.gov.qa/English/Legislation/Instructions/Documents/BankInstructions/2013/11.pdf

  20. What is the resolution regime for banks?

    Please refer to question 8 above.

  21. How are client’s assets and cash deposits protected?

    Under the QCB Law, there are certain measures that must be taken by the banks in Qatar to protect the client’s deposits.

    The Qatar Central Bank plays may ask deposit-taking financial institutions to keep reserves with it at specific ratios and limits and sizes equal to the size, type and maturity of their deposits. The ratios of reserve shall be equal for all deposit-taking financial institutions and for each type of deposit or the total deposits.

    The required reserves shall be kept in the form of cash balances of the financial institutions at the QCB and shall be calculated in the manner specified by the Bank.

    The Bank may determine reserve ratios suitable for the activity of Islamic and specialized banks and other financial institutions that are subject to the control and supervision of the Bank in a manner commensurate with their nature.

    No reserves shall be subject to mortgage or seizure or any commitment to guarantee them.
    Where financial institutions that are subject to the QCB's oversight and supervision fail to retain the required reserves at the specified limits and ratios, the QCB may impose financial penalties not exceeding five times the interest rate or the advertised yield for each day that such failure continues.

    All banks shall retain all records and documents relating to its business in an appropriate manner and place within the State. The QCB may determine the duration for keeping such documents.

    The types of records and information that should be kept by the financial institution and the rules, conditions and regulations necessary for its registration shall be specified by a decision of the QCB.

  22. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    N/A

  23. Is there a requirement for banks to hold gone concern capital (TLAC)?

    Recently Qatar Central Bank (QCB) has come out with instructions for implementing capital adequacy and liquidity coverage for conventional banks based on the Basel III guidelines issued by the Basel Committee on Banking Supervision (BCBS). The regulatory capital will consist of the sum of Tier 1 (“T1”) Capital: going-concern capital and Tier 2 (“T2”) Capital: gone-concern capital.

    The Tier 1(“T1”) Capital: going–concern capital will consist of Common Equity Tier 1 capital (“CET 1”) and Additional Tier 1 (“AT1”). The minimum capital requirements for Qatari banks are: a) CET1 must be at least 6.0% of risk weighted assets at all times, b) T1 Capital must be at least 8.0% of risk weighted assets at all times and c) Total Capital (T1 Capital plus T2 Capital) must be at least 10.0% of risk weighted assets at all times.

    The capital buffers have been outlined in addition to the minimum capital requirements, which could be used at the time of stress and a breach in capital buffers will lead to constraints on distributions but not on the operations of the bank. The Capital buffers have to be met solely from CET 1. The Capital buffers include Capital conservation Buffer — 2.5% of Risk Weighted Assets (RWA), Countercyclical Buffer — 0% to 2.5% of RWAs and Domestic Systemically Important Banks (DSIBs) Buffer — 0% to 3.5% of RWAs.

  24. In your view, what are the recent trends in bank regulation?

    QCB keeps working on harmonising and strengthening regulatory oversight and safeguard consumer and investor protection.

    It has been very recently reported, that the Qatar Central Bank is seeking to establish a deposit protection framework as well as develop a cybersecurity lab as part of efforts to ensure sound and resilient financial sector. These action points form part of the strategic goal of maintaining the integrity of and confidence in the financial system.

    Qatar is committed to combating illicit financing and ensuring that financial sector information and infrastructure are protected and safeguarded from cyber incidents.

  25. What do you believe to be the biggest threat to the success of the financial sector ?

    The biggest threat of the success of the financial sector in Qatar as in many other jurisdictions is the challenges which banks face to insure the stability and the consumer protection. These challenges include cyber security threats, which have increased significantly around the world, as well as the risks surrounding the central banks’ work and its direct impact on policy making and the development of future plans and programs, in addition to the geopolitical fluctuations, which have a negative impact on the economy in general. We are aware that the Central Bank is considering that such challenges and risks to be addressed and all measures to be taken to confront them and reduce the risks.