Many are questioning how Abu Dhabi plans to turn its dream of creating a financial free zone into a reality that can rival regional incumbent Dubai.
The oil-rich emirate has been busy recruiting senior figures from around the globe to head up the new free zone, known as the Abu Dhabi Global Market (ADGM), which aims to be operational in 2015.
Most recently, in October, it announced the hire of Richard Teng, chief regulatory officer of the Singapore Exchange, to head its regulatory body.
But given the presence of the neighbouring Dubai International Financial Centre (DIFC), it’s unclear whether the UAE, which has a population of almost 10 million, needs another financial zone. “It’s a question of whether there’s room for two in a region which is still relatively small,” said Abu Dhabi-based James Farn, head of banking & finance at Hadef & Partners’ Abu Dhabi office.
Indeed, competition among would-be financial hubs in the region is heating up. Gas-rich Qatar has also established a financial district, the Qatar Financial Centre, and Saudi Arabia is set to open the King Abdullah Financial District in Riyadh this year.
ADGM confirmed over email that ADGM is a natural step in the development of Abu Dhabi’s financial services sector, which forms one of the nine pillars identified in Abu Dhabi’s economic vision. Established to be a broad based financial services centre, ADGM will focus in its first phase on what it regards as Abu Dhabi’s expertise: private banking and asset and wealth management, it confirmed to IFLR.
KEY TAKEAWAYS
Uncertainty surrounds how Abu Dhabi will create a financial free zone to rival Dubai;
The ADGM will align itself with international regulations and best practices, initially focussing on private banking and asset and wealth management;
The centre is also in the early stages of an information exchange programme with other major international financial centres;
But potential issues include how the ADGM will compete with Dubai’s established infrastructure, and its location on the small Al Maryah Island.
While many are treating Abu Dhabi’s fledgling plan to build a financial centre as a response to Dubai’s current dominance as a magnet for international business in the region, Farn noted that the government’s plans to establish a financial free zone were first discussed in 1997.
“I don’t think the ADGM is an off the cuff response to the fact that Dubai has a financial free zone and therefore Abu Dhabi must have one,” said the lawyer from Hadef & Partners, which was involved in drafting the original legislation of 1997. “A much more forward-thinking analysis has gone into it.”
“Abu Dhabi has sat by the sidelines, looked at some of the very good things that Dubai has done and learned from some of its mistakes,” Farn added.
Thinking long-term
Indeed, the plan forms part of what is known as Abu Dhabi’s Vision 2030, which is aimed at diversifying the emirate’s economy away from its traditional strongholds of oil and gas.
As the richest-member of the United Arab Emirates’ (UAE) seven-member federation and with a gross domestic product that is more than twice Dubai’s, many believe that Abu Dhabi is a logical candidate to be the region’s finance hub.
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" I don’t think the ADGM is an off the cuff response to the fact that Dubai has a financial free zone " |
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But ADGM must negotiate some potential issues if it wants to establish itself as a rival to these more established financial centres. One lawyer pointed out the head-start that Dubai has on key infrastructure beyond the financial centre –schools and hospitals - as well as its establishment of an innovative court and legal system that mean international companies feel comfortable headquartering there.
ADGM confirmed to IFLR that it will align itself with international regulations and best practices, tailoring them to meet the free zone’s specific needs. It will use English law as its base, and as a way to establish a regulatory regime that is in-line with international markets, making it easier for international institutions to set-up and begin their operations.
ADGM further confirmed that it is in the early stages of an information exchange programme with other major financial centres.
There are also issues around how the ADGM’s establishing laws will dovetail with local licensing laws and procedures.
“You’re probably going to have grey areas, as you get with the DIFC,” said Farn. “Firms will only be able to carry out regulated activities subject to the global markets laws if they carry out those activities in or from the global market.”
Notably, the ADGM is sited on the relatively small Al Maryah Island. “I suspect you’ll find a lot of people wanting to go there, but in geographical terms it’s a very small place,” said Farn.
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