JUST BEFORE CHRISTMAS 2001 I was invited to the Rubens Hotel in London's Buckingham Palace Road for breakfast. My hosts were Claude Smadja, a Swiss journalist and until recently secretary to the famous annual World Economic Forum in Davos, and Habib Mahloujhi, a young British-educated Dubai resident of Iranian extraction. Mahloujhi was then head of knowledge at the executive office of the Crown Prince of Dubai, HH Sheikh Mohammed.
They told me of the executive office's plan to establish a regional financial centre in Dubai. It was to be called the Dubai International Financial Centre – DIFC for short. They were looking for a chief regulator. Did I know of anyone suitable?
Having retired from the Bank of England two years earlier, I was free and willing to undertake an advisory but not an executive role in the project.
During the Christmas break I took soundings from former colleagues at the Bank whose advice was that the project was worth a try. Crown Prince Mohammed and Dubai were in principle good things.
Having supervised regulation in insurance and stocks and futures markets and assisted in a regulatory role with the Bank, I had a particular range of experience that, given Dubai's need for a single regulator to cover all types of business, left me uniquely qualified for the role. I would be the initiator of the regulatory arrangements and an international ambassador to other regulators.
Just two-and-a-half years later, in June 2004, I was on a walking holiday in the Jura. The area is remote. The hotel facilities are spartan, but the mobile phones work. I was at breakfast with my wife when the phone rang. It was Charles Neil, the secretary of the DIFC. Dubai being two hours ahead of France, he was already at work. "Ian, I want to read you the following letter," he began.
With that he read a letter from Anis Al Jallaf, the chairman of the DIFC, summarily dismissing me. The message came as a bolt from the blue.
Although we were having grave trouble with the position of my chief executive Phillip Thorpe, who was under attack from certain elements in Dubai, I had not thought myself to be threatened. As I had been the very first recruit, my letter of appointment was from Al Jallaf himself. The dismissal appeared valid. I rang Phillip and told him the news: he was bemused.
Less than an hour later, as I got into the mini-van with the rest of my party to set off for the day's walk, the phone rang again. It was Phillip. He was calling from his car on the way home from the office. Soon after my phone call the head of HR at the DIFC, accompanied by the centre's new American-trained lawyer and two security guards, had entered his office, read him a dismissal letter and frogmarched him out of the office. They also confiscated his computer and those of his secretary and the head of the Regulatory Authority press office.
So ended my two-and-half-year career with the Dubai International Financial Centre. My experiences during that period, during which I visited Dubai 26 times, are of sufficient moment that it is appropriate to set them down for the record and as a warning to other regulators tempted to try their hand in the developing world.
In fact, as my experiences show, it is the difficulty in handling potential conflicts of interest that makes it hard for the developing world from playing a proper part in global finance.
The project starts
I paid my first visit to Dubai from January 8 to January 11 2002. During the visit I was interviewed by most of the members of the board of the infant DIFC. They were local businessmen from banking, property, insurance, plus the head of the local Dubai stock exchange. Apart from the latter none had any experience of regulation.
But the most important interview was with the chairman, Anis Al Jallaf. I made a note of the meeting and found him impressive. He asked if I would come and run the regulator for him. My reply was: "No, but I shall help."
At the end of the visit I summarized the arguments. I still believe that they are valid. I said:
"The region is rich and disturbed but Dubai is stable and in the geographical centre. Given the pressing need for development in the Middle East there is a need for local share offerings on an international scale – which should no longer have to be financed in London or New York. The approach will be to bolt on the best of foreign regulatory models with the agreement of their authors, and outsourcing will be widely used. Business will be wholesale, in dollars, not dirhams. There will be a unitary regulatory regime like London, with one regulator for all forms of business in the DIFC. And the watchwords will be integrity, simplicity and transparency."
Plans
Returning to London after my first visit I began work with advisers, who had been hired to convert the regulatory arrangements outlined in the prospectus for the DIFC into a detailed plan. The announcement of the proposed centre was trenchant on the required characteristics of the regulator. Our aims were that:
"A principal feature of the FSA will be the unitary regulator. The regulator will be a highly respected, internationally renowned individual having substantial experience in the regulation of financial services companies and/or financial markets. The international stature of the regulator is a critical element in the inception of the DIFC, as the regulator will play an important role in establishing the credibility of the DIFC in the global financial community."
The regulator would have comprehensive inspection, investigation, surveillance, compliance and enforcement powers within the DIFC. He should be able to outsource to bodies having the appropriate expertise and resources and in particular he should be able to place reliance upon home state regulators through passporting arrangements and memoranda of understanding with foreign regulators. He should have a small, high-level staff and an experienced advisory board or council.