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The 4th GCC Regulator’s Summit, Doha
Financial Stability and Risk Management Session
22 February 2010
Jahangir Khan – Director Risk and Compliance, DIFC Authority
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KEY TOPICS
Economic Landscape 2000-7
Regulatory Landscape 2000-7
Intra-Organisational Landscape 2000-7
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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
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ECONOMIC LANDSCAPE 2000-7
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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
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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’
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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
[email protected]
http://www.difc.ae