Convergence of Arab Countries and International Financial Regulatory Framework

Wafik Grais, 04 Mar 2015

With the growing integration of the international financial landscape and periodic occurrences of financial crises with international spillovers across borders, a global financial governance framework is gradually emerging.  (IMF 2012b) The international framework’s principles are coordination, harmonization, peer review, and monitoring by global international agencies, most notably the International Monetary Fund (IMF), the Bank for International Settlements, and the World Bank for issues of financial inclusion and development. Standards and codes have been developed reflecting best practice. These standards include notably the Basel Core Principles for Banking Supervision and the principles related to securities exchange, payments systems and insurance.

 

As in most regions in the world, Arab countries are gradually aligning their financial system with international practice and increasingly complying with international standards.  In fact, all countries in the region with the exception of Libya and Iraq have already called upon the World Bank and IMF to conduct voluntary financial sector assessments. This transition to international standards will require clarification and harmonization of both financial authorities and regulatory/supervisory agencies to provide for more transparent and efficient governance of financial systems.  

 

Three examples of the currently diverse regulatory and supervisory arrangements in Arab countries below (Egypt, Morocco, Saudi Arabia) suggest that regional integration with the international framework will be highly nuanced and country-specific.

 

The least encumbered of the current Arab financial regulatory systems, such as Egypt, have only two agencies involved in financial market regulation and supervision.   The Central Bank of Egypt (CBE) oversees banking system and monetary policy while the Egyptian Financial Supervisory Authority (EFSA) regulates and supervises all nonbank financial intermediation.  Laws and executive regulations govern these two organizations, and specific laws deal with the various activities they regulate and supervise, such as mortgages and leasing.

 

In contrast, Morocco divides financial regulation and supervision among three agencies. Bank Al Maghrib, Morocco’s central bank, deals with banks as well as leasing and factoring companies. The Deontologic Council for Securities (CDVM, Morocco’s Capital Markets Authority), oversees the stock market and the Direction des Assurances et de la Prévoyance Sociale (DAPS, a department of the Ministry of Economy and Finance), regulates and supervises the insurance sector (IMF 2008).

 

Finally, demonstrating more complexity, the Saudi Arabian Monetary Agency (SAMA) supervises banks and the Capital Market Authority (CMA) oversees capital markets, five additional specialized credit institutions (SCIs) operate under the Ministry of Finance.  Outside the authority of SAMA and CMA, these government authorities complement bank lending and provide medium-to-long-term subsidized loans to industry, small and medium enterprises, housing, and agriculture (IMF 2012a).

 

Notwithstanding  these disparate financial market oversight and regulatory systems, most  Arab countries are now equipped with home grown and international financial sector assessments to enable them to calibrate for their needs  the most suitable regulatory and compliance framework consistent with  prevailing international standards.


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Wafik Grais is an International Senior Adviser specializing in Islamic finance, financial regulation, investment financing, private equity management, and corporate governance with expertise in SMEs and green growth financing. He was co-founder and chairman of Viveris Mashrek, a Cairo-based, financial advisory services company specialized in private equity investments in SMEs, licensed by Egypt's Financial Supervisory Authority. He spent 28 years in international finance notably with the World Bank in Washington DC where he held several senior positions both in operations and at corporate levels. He holds a Ph.D. in Economics.

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