‘We want to keep financial services in the region’
:: Since the Abu Dhabi Global Market (ADGM) declared itself “open for business” some 20 months ago, Richard Teng has clocked up the air miles in his efforts to promote the Arabian Gulf region’s newest financial center around the world of international finance.
But, it seems, his thoughts have recently turned much nearer home — the potential markets just across the border in Saudi Arabia.
“We’ve had contact with Saudi Arabia recently, and we’re exploring greater cooperation with Saudi Arabia on multiple fronts. Saudi Arabia and Abu Dhabi have many things in common — economic and financial strength and close political alliances. We think we can show the rest of the GCC (Gulf Cooperation Council) how to work more closely together,” he said in a recent interview in Dubai.
Teng is chief executive of the ADGM regulator, the Financial Services Regulatory Authority (FSRA), but he has also acted as global emissary for the new financial center, capitalizing on the international network of contacts he built up while he was at the center of financial life in his native Singapore, one of the leading global financial centers in the world.
What has attracted the recent interest in the UAE’s biggest neighbor, of course, is the potential boom in financial services there as a result of the economic transformation of the Kingdom envisaged in the Vision 2030 strategy.
The biggest initial public offering (IPO) in history — the estimated $100 billion sale of shares in Saudi Aramco — is only part of a plan that also includes a privatization program worth as much as $200 billion, according to recent official statements from the Kingdom’s Ministry of Economy and Planning.
That is enough to get every global financial institution salivating at the prospect of all the fat fees on offer, and several — most recently Citibank and JP Morgan — have begun to beef up their offices in Riyadh to help pull in that business.
The thinking of the ADGM and other financial centers in the Gulf is that while big banks will be obliged to have an official presence in Riyadh or Jeddah, some banking executives are more likely to prefer to be based in more established financial centers a short flight away.
The Dubai International Financial Centre (DIFC) — the region’s leading financial hub — is also believed to have stepped up its contacts with its Saudi counterparts recently. While Teng is reluctant to describe Abu Dhabi and Dubai as competing with each other, he does believe that the UAE capital could be a more attractive base for Saudi Arabia-oriented business.
“Saudi Arabia is the largest economy in the region and is very important for us. We are working with both the government and private sectors to see how we can support them. They too want to keep financial services in the region, just like us,” he said.
Bringing financial services back to the Gulf is one of the main planks of the ADGM’s business plan. “As a region, the Gulf was exporting too much of its financial services. Wealth and asset management, private banking, IPOs, all these were being taken outside the region, where much of the advisory and transactional work was done,” Teng said.
He declined to mention it, but much of the profit made from these services was also booked outside the region. The Gulf was losing out on its own economic transformation.
Pulling this business back in was one of the main reasons for the launch of the ADGM by a presidential decree in 2013.
Since then, the ADGM had a slow, steady and cautious preparation period, much in keeping with the overall approach of Abu Dhabi policymakers, before the official “open” sign was hung up in October 2015.
Like the more established center in Dubai, it rests on three main operating branches — a registration arm that oversees and administers the center; a common-law courts system; and the FSRA, the independent regulator that Teng runs. Its home is the Al-Maryah Island district of Abu Dhabi, which is part of the portfolio of the government-owned Mubadala Investment Company.
It has the capacity to provide the full spectrum of financial services, from private banking to investment banking and all else in between, but so far has focused on wealth and asset management, funds, financial technology (fintech) and other niche services like special purpose vehicles (SPV), real estate investment trusts and aviation leasing.
Some observers have criticized the pace of growth, but the figures do not bear that out. ADGM has 340 full members, including 26 financial institutions licensed by the Financial Services Regulatory Authority. That compares well with other regional centers at a similar stage of development. “We have witnessed the fastest pace of growth of assets under management in the Middle East and North Africa (MENA),” Teng said.
There are some big names on the financial list — Macquarie Capital, Aberdeen Asset Management, Northern Trust and most recently UniCredit Bank of Italy. The local financial industry has been getting behind the center too, with Abu Dhabi Financial Group (ADFG) and MDC Capital Management, an important investment arm of Mubadala.
Is there any sign of the “big one”: A mega-bank like Goldman Sachs or Morgan Stanley signing up for the ADGM? Teng prefers to keep his counsel on this question: “We have seen the ‘big unicorns’ coming into the region with Amazon’s bid for Souq.com and I think that’s telling us something. After the global financial crisis, lots of Western institutions went in for some quite serious cost-cutting, in this region as well as elsewhere. Now they are looking again at the Gulf and the Middle East. US institutions are looking again seriously at the region as a place to be based and to do business,” he said guardedly.
In the absence so far of the “big one,” Teng has been looking at other areas as well as wealth and asset management. Fintech has been a big focus over the past year, since the ADGM chairman, Ahmed Al-Sayegh, declared his intention to make the center the “capital” of fintech in the Middle East.
A special “regulatory laboratory” regime was set up to encourage fintech entrepreneurs to join the ADGM, with less onerous rules than full financial members and the first five successful applicants — from UAE, India and the West — have been chosen. A second batch is expected to follow soon.
Teng has also signed a partnership with the Singapore authorities to exploit the highly successful “sandbox” model that has helped the city-state become the Asian leader in fintech.
“It provides access to capital with the appropriate level of regulation. There will be more to come on this. We are looking to create a ‘bridge’ with Singapore to create capital and markets for fintech,” he said.
The ADGM was recently ranked the No. 1 hub in the MENA region for fintech by the global accounting and consulting firm Deloitte. Further fintech collaboration with Saudi Arabia is also a possibility.
Other specialisms have accompanied the growth. SPVs — corporate structures designed for particular types of transaction — have been a focus, with a particular appeal for family offices and other private investors. Real estate investment trusts have also seen the attractions of ADGM’s regulatory offering.
One groundbreaking initiative was to develop specialist skills in the aircraft-leasing sector. European financial group Natixis teamed up with Abu Dhabi airline Etihad in a leasing deal recently, and more is expected. “We want to get more of those and further develop our expertise in aviation finance. We have some of the biggest airlines in the world and it makes no sense for that business to be done abroad, in London or Dublin,” Teng said.
The growth looks set to accelerate with the improving economic outlook in the Gulf, a lessening of government “austerity” programs and a stabilization of the oil price.
“The pipeline from now to the end of the year is extremely busy. People are genuinely excited at the prospect of doing business in a ‘best in class’ regulatory regime, where we see our mission as problem solvers for member firms,” Teng said.
Of course, the heart of a financial center — like in London or New York — often revolves around a securities trading market. The ADGM does not have an equity-trading platform yet but is in talks with the Abu Dhabi Securities Exchange, the UAE capital’s onshore market, about ways to develop more liquidity in trading in equities and other financial instruments.
There is already an international market in the Gulf region — Nasdaq Dubai — but it has had only limited success in attracting big international stocks onto its board. Might there be an opportunity there for ADGM to open up an international stock market and — potentially — offer Saudi Aramco another place to list its shares in the region?
Teng would definitely not speculate on this but did say: “There is already a first-class exchange in Abu Dhabi. But we are looking to use ADGM as a platform to explore possibilities we have not had in the past. We should not rule anything out.” Make of that what you will.
Overall, he thinks the changes underway in Saudi Arabia can only be good for the region: “We have Saudi employees in ADGM and they are very thoughtful people, very engaging. We want to help them build a good neighborhood, which will bring value back up. It is a bit like having a house in a good neighborhood — the real estate value goes up. We want the same in financial services. We want to support liquidity in the region, and to work more closely together with them as a regulatory regime,” he said.