Why DIFC is a hub for financial organisations

dubai - Centre's status is reinforcing attractiveness and competitiveness of the UAE economy

June 30, 2016 saw the Middle Eastern operation of HSBC, the world's fourth-largest bank, complete its move, together with some $40 billion worth of assets, to the Dubai International Financial Centre (DIFC). This development is significant not just in its own right, as a major boost to the assets in the region's leading international financial centre, which is now ranked 13th in the world and looking to break into the top 10, having surpassed some traditional centres like Geneva, but also that it is becoming a location of choice for financial organisations and investors to tap into the markets of the Middle East, Africa and South Asia (Measa) region, predicted to be worth $10 trillion by 2020.

It forms part of a trend of firms moving from the West, attracted by the growth of emerging markets and the development of a South-South new Silk Road corridor, especially when the global economy continues to be beset by ongoing uncertainty and sluggish growth. DIFC Governor Essa Kazim put it succinctly when he stated a few days ago: "We are. the global financial hub for the Middle East, Africa and South Asia region. The relocation of HSBC's regional management office to the DIFC reinforces the attractiveness as well as competiveness of the UAE economy to international players in the banking and financial services sector."

DIFC as the gateway
International financial centres such as the DIFC play a key role in the global economy, by providing hubs of expertise, legal and regulatory certainty for investors to undertake their activities and tap into markets. Despite only being set up just over a decade ago, the DIFC is making its mark amongst its top global counterparts, including as London and Singapore, by demonstrating a rapid expansion rate, such as the 27 per cent growth recorded in the last year alone. The financial sector in Dubai contributes to 12 per cent of Dubai's GDP.

Combining unrivalled geographical connectivity to these markets with an ecosystem of over 1,500 firms, underpinned by an international best practice English common law, the DIFC is an increasingly attractive proposition to firms from around the world. In moving their operations to the centre, HSBC were admitting as much with David Eldon, head of HSBC Middle East Bank, stating: "Aligning our business and regulatory oversight geographically makes strong strategic sense. The DIFC and its independent regulator, the DFSA [Dubai Financial Services Authority], combine to offer a world-class financial services centre."

One leading financial commentator and academic, Georges Ugeux, chairman and CEO of Galileo Global Advisors and lecturer in law at Columbia University's School of Law in the US went further, adding: "The move is significant. because it shows that the DIFC, with its international regulatory and legal systems and its connections to emerging markets, is now a preferred place for doing business. Of course, the DIFC still has some work to do to become one of the top 10 IFCs in the world but it is now really knocking on the door, especially when combined with last year's Lloyd's platform move."

Where next for DIFC?
The DIFC is set to triple in size by 2024, in line with its ambitious expansion strategy, and is set to continue to contribute to a more diversified Dubai and UAE economy, a fact recognised by DIFC Authority CEO Arif Amiri, who said: "[This] move demonstrates how the DIFC is a vital player in the international finance system, especially where capital is looking to take advantage of the significant opportunities that emerging markets are presenting. As a reflection of this, financial services are anticipated to be 18 per cent of Dubai's GDP by 2024 and is a critical part of Dubai's overall vision."

Building on what has been achieved to date is now top of the agenda, especially by expanding the ecosystem to ensure that firms are able to take advantage of the new opportunities developing in emerging markets, and to develop alternative mechanisms including Islamic finance. In particular, by increasing access to finance in a region chronically underserved by financial services and capital and liquidity, exploring the potential of privatisation programmes and also supporting ongoing regional economic diversification efforts.

This sense of community and all in it together as companies reach out to new frontiers is obviously critical to firms in the DIFC. Humphry Hatton, CEO of Deloitte, a long-standing DIFC tenant, said: "One of the great benefits for Deloitte's financial advisory business being based in the DIFC is that we work in a community of world-class companies. For HSBC in the Middle East to move its international operations to the DIFC can only enhance the standing of the DIFC as a global financial centre, and sends an important signal to the financial community about the continued attractiveness of the DIFC as a base from which to carry out business."

The focus is not just on building a community of conventional financial services firms, including lawyers, insurers, banks and asset managers, but also acting as an innovation crucible for financial technology firms. Fintech has the chance to revolutionise the way financial services are delivered, from online and mobile payments to digital will making, in fast, flexible and secure ways, and is the next big thing in financial services and professional business operations. It is particularly key for SMEs looking to access finance and expand their operations, central to the future success of Dubai. The DIFC is taking a global leadership role in this as a member of the Global Blockchain Council, the technology underpinning cryptocurrencies and many digital assets, a strategic initiative from the Dubai government as part of the emirate's Smart City Vision, which is helping many fintech firms to set up their operations in the DIFC.

There is also continual work to keep building the physical infrastructure with work underway on Gate Avenue, which will connect the entire DIFC district creating an even more attractive zone for clients to advance their business, engage with the community and enjoying the lifestyle offering. This is set to benefit not only the DIFC as a destination for financial services professionals but also Dubai as a whole with a new urban living concept at its heart. Ensuring people want to come and live here is crucial for the DIFC's long-term success.

These are exciting times for the DIFC and for Dubai's financial services industry as a whole. Where next? A fast-moving industry will ensure new opportunities ahead but the impact of Brexit, Britain's vote to leave the European Union, will make people think twice about the UK and Europe as a destination, making them consider the benefits of locating in the DIFC with its three billion people just a few hours' flying time away.

The writer is a private wealth management consultant. Views expressed are his own and do not reflect the newspaper's policy.