WSJ: The DFSA has signed a plethora of cooperation agreements with regulators in other countries. What’s the purpose of these agreements? How do they help the DFSA?
Mr. Johnston: “We’ve been signing international agreements, and that’s a very positive thing for the regulator and a positive thing for the DIFC, because it means other key regulatory bodies around the world recognize that we have equivalent status and equivalent standards, and that’s positive. We signed that series of [agreements] with the European regulator recently. We did the same a few months before that in respect of accounting standards. Those things are very positive, I think, because it means that firms that are locating here from other parts of the world recognize that their regulator is recognized globally, but it also means they have a consistent basis for the regulation they face.”
WSJ: What’s your approach to enforcement?
Mr. Johnston: “I think enforcement is incredibly important for us and for any regulator, because you have to show where there are breaches to your rules that you’ll take appropriate action in respect of those. … I think people know we’re a serious regulator because of the enforcement action we’ve taken, and we do that unapologetically. That said, there’s always a proper process around it. There are checks and balances we carefully consider a matter before we take it through to enforcement. And then of course there’s also the actions we take can be appealed, so there are always checks and balances, and that’s quite appropriate. Regulators have got to use their enforcement powers properly and fairly.”
WSJ: What’s your next big regulatory push? There have been some changes to the DIFC’s funds regime in recent years in an attempt to get more people to manage funds out of the DIFC instead of just using the center merely as a place from which to sell funds managed elsewhere. What other changes are on the horizon?
Mr. Johnston: “More and more the agenda is set at a global level, and that’s a good thing. It will make regulation more consistent and it will address systemic issues, so that’s a good thing. Specifically here, we’re just now rolling out changes to our anti-money laundering regime. What we’re doing there is requiring the funds to take a much more risk-based approach, ensuring that their systems and controls around AML and [counter-terrorist financing] are proportionate or recognizing the risks posed by their clients and the risks posed by their business model. We’re trying to get away from firms taking a formulaic or tick-the-box approach. We will be tweaking our funds regime again. Funds is an area where you have to make sure you are always up to date. The DIFC has been really strong in terms of fund distribution, but there isn’t perhaps as much funds management activity here as some people would want to see, and our job is to make sure we’ve got the right framework of regulation that allows that to happen but again still provides good protection. Perhaps we’ll have a look at regulation of exempt funds and changing that.”
WSJ: If the regulatory agenda is increasingly being set at the global level, where does that leave the DFSA? Do you have any say in that agenda-setting process?
Mr. Johnston: “I’m a big believer that if there’s something that’s going to impact you, then you want to seek to influence it and have a say in what it looks like. We’re very well engaged, especially for our size, at the highest levels in the key standard-setting bodies, Basel Committee, IOSCO and IAIS and the Islamic Financial Services Board. When you think of the size of the DIFC, we are very well represented.”
