Lebanon has suspended the oversight authority for capital markets, which had previously uncovered important financial scandals – a decision that was condemned as “dangerous” by one of its board members.
The institution's mission is to oversee capital markets – which are financial markets that bring buyers and sellers together to trade financial assets – and protect investors from fraudulent activities.
“It's a dangerous turning point: the financial sector will find itself lacking a major supervisory authority,” Walid Kadri, one of the board members of the Capital Market Authority (CMA), told The National.
The decision is not final. A meeting is scheduled on Tuesday to explore financing options in response to internal dissent.
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The CMA board voted to suspend the institution, citing financial reasons at the end of December 2023. Employees were given the option to take unpaid leave for at least six months or resign by January 10, while board members are expected to retain their positions.
“The financial reasons put forth for the suspension are not acceptable,” said Mr Kadri. “There is enough financing for 2024 from the contributions of the institutions we licence,” he added, planning to present this argument during Tuesday's meeting.
The quorum for the CMA board to convene is four out of seven members, which comprise three government-appointed independent members and five permanent positions, including its chairman, the governor of the Banque du Liban. Decisions are reached by a majority vote.
Lebanon's once seemingly robust financial sector collapsed in 2019 collapsed in 2019, with losses surpassing $70 billion and causing insolvency in banks and the destruction of the local currency.
As financial scandals continue to emerge, calls for increased accountability have grown to uncover the reasons behind the collapse, described by the World Bank as one of the worst financial crises in over 150 years.
Central bank scandal
The CMA's Financial Control Unit, responsible for investigations and audit missions, played a crucial role in exposing irregularities related to Optimum Invest SAL, a broker closely associated with Lebanon's central bank.
In its audit, the CMA accused Optimum of “extravagant” irregularities in transactions with commercial banks.
Optimum has “forcefully” rejected the “baseless allegations” concerning its transactions with BDL uncovered in another audit conducted by Alvarez & Marsal, stressing their “commitment to compliance with applicable laws and regulations”. It did not comment on the CMA report.
The revelations follow the Forry Associates scandal, another brokerage firm suspected of siphoning off more than $300 million from the central bank.
Arrest warrants have been issued by France and Germany for Riad Salameh, the former central bank governor, on charges of money laundering, while the US and the UK have imposed sanctions on him and his relatives.
Mr Salameh has consistently denied the accusations.
“It’s obvious that the suspension is not a matter of financing or resources. For me, the real reason remains unclear,” Nadine Abdelnour, the secretary general of CMA told The National.
Mr Kadri pointed out that the suspension of the CMA coincides with an increase in unlicensed institutions providing financial products and asset management services on the black market – which would thrive without regulatory oversight.
He voiced concerns that the decision might favour networks of vested interests at the expense of the public. “Many of these companies ultimately end up misappropriating their clients' funds,” Mr Kadri said.
'Empty shell'
Other industry insiders maintain that the decision is purely driven by financial considerations and is intended as a temporary measure until a solution to find additional funding is identified.
The employees' low salaries, which have been greatly diminished by hyperinflation and are now a few hundred dollars per month, have prompted the departure of many qualified professionals from their positions, according to a source close to the CMA.
This is especially the case within the financial investigation unit, the CMA's core competency, where only one employee remains, according to the source.
“The current financing does not allow a re-evaluation of employees' salaries, and it will be challenging to attract new hires given the current salary levels,” the source said.
“The decision is only temporary. The essential thing is to exert pressure to secure adequate funding to effectively sustain the institution, but there is no point in keeping an empty shell and maintaining an institution that is not able to do its job,” the source added.
The source said the decision would be reversed if financing was found. Otherwise, it emphasised that the board would maintain essential functions, such as receiving files, while preserving current data, allowing for a quick restart when funding permits.
“Information regarding Optimum transactions has already been sent to the judiciary,” the source said, denying allegations that there might be an attempt to bury sensitive files.
‘General settlement’
However, for Lebanese lawyer Karim Daher, this decision is part of a “general settlement” regarding financial crimes in Lebanon.
The decision to suspend the CMA “eliminates a crucial path for exposing all the wrongdoings committed”, he told The National. “This perpetuates a sense of impunity and the absence of accountability”.
The move “also goes against good practice; every functioning country has capital market authorities to supervise the financial sector”.
It also reduces the possibility for any investors affected by Lebanese banks' wrongdoings to denounce and claim their rights before the CMA, Mr Daher said.
“The CMA can take regulatory measures against banks and financial institutions and imposes sanctions in case of violation, while also claiming damages and penalties. I have personally received many requests from investors affected by banks' misconduct, which I have redirected to the CMA or pool of specialised lawyers”.
Affected investors are mainly holders of preferred shares, bonds’ and notes’ holders, he said.
Lebanon's security situation, with a border conflict at its southern frontier with Israel threatening to evolve into a full-scale war, has diverted attention from the financial crisis.
Yet, accountability for the economic downturn, which has left Lebanese depositors unable to access their lifelong savings, remains elusive. Despite a series of financial scandals, the Lebanese judiciary has yet to hold any officials or members of the banking sector accountable.
“It has been six months since the findings from Optimum's audit were presented to the judiciary, and yet, no action has been taken,” said Mr Daher.
Shubh Mangal Saavdhan
Directed by: RS Prasanna
Starring: Ayushmann Khurrana, Bhumi Pednekar
What is graphene?
Graphene is extracted from graphite and is made up of pure carbon.
It is 200 times more resistant than steel and five times lighter than aluminum.
It conducts electricity better than any other material at room temperature.
It is thought that graphene could boost the useful life of batteries by 10 per cent.
Graphene can also detect cancer cells in the early stages of the disease.
The material was first discovered when Andre Geim and Konstantin Novoselov were 'playing' with graphite at the University of Manchester in 2004.
Getting there
Flydubai flies direct from Dubai to Tbilisi from Dh1,025 return including taxes
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Real Betis v Sevilla, 10.45pm (UAE)
Know before you go
- Jebel Akhdar is a two-hour drive from Muscat airport or a six-hour drive from Dubai. It’s impossible to visit by car unless you have a 4x4. Phone ahead to the hotel to arrange a transfer.
- If you’re driving, make sure your insurance covers Oman.
- By air: Budget airlines Air Arabia, Flydubai and SalamAir offer direct routes to Muscat from the UAE.
- Tourists from the Emirates (UAE nationals not included) must apply for an Omani visa online before arrival at evisa.rop.gov.om. The process typically takes several days.
- Flash floods are probable due to the terrain and a lack of drainage. Always check the weather before venturing into any canyons or other remote areas and identify a plan of escape that includes high ground, shelter and parking where your car won’t be overtaken by sudden downpours.
More on Quran memorisation:
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Five personal finance podcasts from The National
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LILO & STITCH
Starring: Sydney Elizebeth Agudong, Maia Kealoha, Chris Sanders
Director: Dean Fleischer Camp
Rating: 4.5/5
Joker: Folie a Deux
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In Full Flight: A Story of Africa and Atonement
John Heminway, Knopff
UAE currency: the story behind the money in your pockets
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UAE currency: the story behind the money in your pockets
WOMAN AND CHILD
Director: Saeed Roustaee
Starring: Parinaz Izadyar, Payman Maadi
Rating: 4/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Key facilities
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- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
COMPANY PROFILE
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Launch year: 2018
Number of employees: 40
Sector: Online food delivery
Funding: Raised $3.2m since inception
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Director:Michael Lehmann
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Countries offering golden visas
UK
Innovator Founder Visa is aimed at those who can demonstrate relevant experience in business and sufficient investment funds to set up and scale up a new business in the UK. It offers permanent residence after three years.
Germany
Investing or establishing a business in Germany offers you a residence permit, which eventually leads to citizenship. The investment must meet an economic need and you have to have lived in Germany for five years to become a citizen.
Italy
The scheme is designed for foreign investors committed to making a significant contribution to the economy. Requires a minimum investment of €250,000 which can rise to €2 million.
Switzerland
Residence Programme offers residence to applicants and their families through economic contributions. The applicant must agree to pay an annual lump sum in tax.
Canada
Start-Up Visa Programme allows foreign entrepreneurs the opportunity to create a business in Canada and apply for permanent residence.
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