By Ewald Müller, director, Financial Analysis, QFCRA
Oil and gas-rich Qatar is one of the fastest-growing economies in the world, reporting GDP growth of more than 14% in 2011. Since the turn of the century, though, the country has taken steps to diversify its interests and has established a successful financial services sector in Doha, known as the Qatar Financial Centre (QFC).
The relative newness of Qatar’s financial services industry means that the regulatory system around it has also been created almost from scratch. The Qatar Financial Centre Regulatory Authority (QFCRA) was established in March 2005 and was tasked with building a principles-based regulatory and financial reporting regime that is aligned with best practice internationally.
QFCRA’s objectives include the ‘maintenance of efficiency, transparency, integrity and confidence in the QFC, as well as the maintenance of financial stability and reduction of systematic risk’. Effective risk reporting is an essential element of that objective, but is something that is relatively new to companies based in Qatar. The prevalence of risk reporting has increased across the Middle East in the past few years, but there is a lack of a broad understanding of risk reporting, a lack of skills around risk reporting, and a lack of understanding among users about what risk reports are meant to convey.
In many developed countries, the global financial crisis has been a catalyst for a more focused conversation about the value of risk reporting. One of the difficulties for those hoping to encourage better risk reporting in Qatar, though, was that the impact of the crisis was not felt as keenly in that country.
One of the benefits of starting with a blank piece of paper is that the QFCRA has been able to focus on what it sees as the essentials of good risk reporting: brevity. In Qatar a lot of what we’ve focused on in terms of risk reporting has come from the IMF’s financial stability indicators, which is not a vast set of data. It is a very good starting point, in the sense that it reflects the work of the entire world and focuses only on key indicators.
The biggest issue for me around risk reporting is quality versus quantity. Internationally, I think there’s so much disclosure that often users can’t see the wood for the trees and risk reports do more to confuse them than they do to help them. As far as I’m concerned, the crux of successful risk reporting is that it tells me what is useful – and materiality plays probably the single biggest role in that. Brevity is the key, and that is driven by materiality.
So far companies in Qatar have been “very appreciative” of the work of the QFCRA from a prudential perspective and there is an appetite for better risk reporting. Good risk reporting, which is linked to transparency, is a cornerstone to good governance. If risk reporting becomes a habit, it will create value. The problem is that the flipside is easier to prove – those who do not report risk well probably have something to hide.
Ewald joined the QFC Regulatory Authority in April 2012 from the South African Institute of Chartered Accountants (SAICA) where, as Senior Executive: Standards, he influenced developments in international standard-setting and South African legislation and regulation. Prior to his position with SAICA, Ewald held senior roles in financial management, regulation, financial analysis and investor relations, primarily in the financial services industry.