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DFSA to review bonus and incentive structures, says new CEO.

The Dubai Financial Services Authority (DFSA) will review remuneration incentives as part of a broader range of conduct of business issues, said Ian Johnston, the DFSA's chief executive. Johnston said that the review would be part of the regulator's supervision of regulated firms and estimated that the DFSA would carry out some 125 on-site risk-based inspections this year.

"My view is that rewards have tended to drive behaviour. If you look at the mis-selling issues that have taken place in other jurisdictions in recent years, the common denominator is that was what the incentive provisions of the sales agent were over, whatever the distribution arm was. That was the direction that their incentives pushed them in and so you would expect them to behave accordingly," Johnston told Thomson Reuters in an interview in his office.

The DFSA, which only regulates wholesale financial markets firms based within the free zone of the Dubai International Financial Centre (DIFC), will focus on the remuneration structures in place to examine what types of behaviour they are influencing.

"That is the sort of thing that you would expect the regulator to do in a more mature financial centre," said Johnston, who stepped up from the deputy CEO role when he succeeded Paul Koster, who left the DFSA in June.

Johnston joined the DFSA in late 2006 as managing director, Policy and Legal Services Division, and has watched its evolution. The regulator, which concentrated on licensing in its early days, is now focusing on a traditional range of supervisory and compliance issues and a growing emphasis on enforcement. The number of firms seeking licences slowed down after the financial crisis but has increased since 2011, with more emphasis on seeking higher licence categories.

"We are seeing a number of firms which are engaging in a broader range of activities. That tells us their business is deepening and broadening, not just new firms coming in. That is important for the health of the centre," Johnston said.

Paying closer attention

The current average wait for licensing firms is about 74 days and where it has to do so the regulator is looking more closely at the calibre of application post-crisis. "We are looking more closely but where we have to, not looking at every applicant. We take a close look at every applicant but not necessarily any more closely that we would have done two or three years ago. We do very much focus on what is the risk posed by the type of business that is going to be licensed," Johnston said.

Those firms can expect rigorous supervision as the DFS

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Publication:CPI Financial
Date:Oct 10, 2012
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