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

The 4 th GCC Regulator’s Summit, Doha Financial Stability and Risk Management Session. 22 February 2010 Jahangir Khan – Director Risk and Compliance, DIFC Authority. 1. KEY TOPICS. Economic Landscape 2000-7 Regulatory Landscape 2000-7 Intra-Organisational Landscape 2000-7. 2.

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

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  1. The 4th GCC Regulator’s Summit, DohaFinancial Stability and Risk Management Session 22 February 2010 Jahangir Khan – Director Risk and Compliance, DIFC Authority 1

  2. KEY TOPICS • Economic Landscape 2000-7 • Regulatory Landscape 2000-7 • Intra-Organisational Landscape 2000-7 2

  3. ECONOMIC LANDSCAPE 2000-7 • 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

  4. ECONOMIC LANDSCAPE 2000-7

  5. 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

  6. 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’

  7. Jahangir Khan Director, Risk and Compliance DIFC | Dubai International Financial Centre Level 14, The Gate P.O. Box 74777, Dubai, UAE T: +971 4 401 0067 M: +971 56 6034775 Tim.Tovell@difc.ae http://www.difc.ae

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