Introduction The global financial crisis in the year 2008 that broke out in United States was a major turning point for the financial industry, in more ways than one, worldwide. The immediate response to fix the financial crisis and avert financial crisis of such nature and magnitude, according to many experts and economists, was possible only through increasingly strict regulation of the financial industry. Essentially, the financial crisis revealed explicitly the strong nexus between the operatings of the financial industry and the functionings of the overall economy and the crucial fact that any degree of loose regulation and supervision of the former will inevitably have extremely strong adverse consequence to the latter so much so that it can threaten the very existence of it. The financial crisis made it clear that the social cost of the crisis can be very huge. It resulted in job losses that ran into millions and led to hardship could only be rivalled during the great depression on the 1930s. On this token, policymakers worldwide including the GCC countries were under the alarm to make sure to take steps to solidify the financial industries by implementing sound macroprudential norms that are in line with the best banking practices. Essentially, the main premise was to ensure that speculative banking activities if left uncontrolled can have devastating consequences on the economy. Hence, the macroprudential policies are needed by the policymakers that aim to bring down the level of systemwide distress that has significant macroeconomic costs and also to build up the capacity of the financial industry to absorb any type of shocks that events like, for example, a sudden oil price shock. The fact that the GCC economies are mainly depended on the price of oil makes the oil price a very critical factor that the GCC economies have to take into consideration as their design more prudent financial regulatory policies in order to avert crisis (Ayadi, Groen, Chmelar, and Pyykko, 2013). A financial institution mechanism encompass a number of institutions in the country like the commercial banks, investment banks, regulators, central banking authority, the ministry of finance and other related ministries of the government and a number of other institutions too. The basic premise of drawing regulations which are sector specific is to keep the activities of that specific sector rather limited and confined. Essentially, it is driven mainly so as to achieve a moral undertaking from the firms so that they are compulsorily forced to abide by the regulatory framework being drawn and that their confirmatory behavior will help the country to achieve certain important objectives. Essentially, the implicit assumption is that regulation will lead to sound and healthy impact on the overall smooth functioning of the economy. The intention of the regulators is to make sure that the stability of the economic system is not compromised by certain immoral decision making from individuals at the top and to achieve this they try to instill confidence among the general people on the banking system abilities. Hence, as mentioned, the financial crisis proved rather well the fact that damage to the banking business can have severe repercussion on the socio-economic condition of the country and, therefore, the main point is to take steps that can reverse the change. With this the objective, regulation and supervision aims to fill the gap by making sure that the larger banking practices can come in line with what is needed to achieve effective sustainable growth (Clayson, and Lynch, 2012). The literature with reference to regulation of business is immense and a number of scholars have given their own interpretation of what should ideally constitute good regulation and not. Essentially, the main theme in the literature surrounding regulation is that regulation should not aim to intrude into and tamper with the smooth functioning of the banking activities. Banking authorities should have the freedom to develop services and products to cater to the needs of the general public with ease and that regulation should not aim to check this. Regulations should not aim to tamper with the quantity and quality of the interaction of the general public with the banks. It is also important to design regulation in a way so that it can lead to greater economic participation from all the sectors in the banking activities and led to a healthy and prosperous growth overall. Having said this, the positive benefits that regulation has far outweigh the negative effects of it. However, there is still no proper consensus how should regulation be conducted and what essentially should define regulation. Overall, it has been argued that regulation leads to greater degree of consumer confidence in the banks. Even the banks gain in the long run from austere set of regulation. Although the short term impacts might be adverse but a number of experts continue to argue that regulation protects the banks against unexpected changes in demand and cost. Certainly, the regulation and supervision of financial institutions in keeping in line with their economic conditions will, in all likelihood, have positive influence (Arvai, Prasad, and Katayama, 2014). It is important to understand that going forward most of the GCC countries will be looking to diversifying their economic structure in light of the depleting natural reserves in the form of oil. Hence, the services industry will, therefore, get the necessary push to participate in the economy. It is certain that the nature and magnitude of interaction that financial institutions will have with stakeholders and the general public will also take some sort of upward shift. As more and more institutions are set up in the form of banks it is only expected that the financial sector expansion will expand. Currently, most of the GCC countries are developing economic activities that is linked to the expanding hydrocarbon sector which, in turn, is expected to have significant competitive advantage in the future, according to many analysts (Ayadi, Groen, Chmelar, and Pyykko, 2013). Accordingly, the financial sector will have an increasingly important role to play in this phase of transition that most GCC countries are expected to go through and/or are already going through. Financial institutions are expected to serve as intermediaries between the lenders and the borrowers and indirectly lead to resources being allocated in the most efficient manner in the economy. Also, the higher the profits generated in this industry, the greater will be the employment generation overall as it will apply that resources are employed in the best possible manner are generating return which economic resources are able to cash on. Notably, the countries that make up GCC are some of the richest in the world mainly due to their oil reserves. To begin with most of these countries have financial structure and institutions that have developed recently. To make the regulation as effective as possible a number of steps have taken place lately in all the GCC countries ranging from strong regulatory mechanisms, setting up of central banking system and to put in place effective supervisory framework. To this end, assessing the regulation of many of the financial institutions is an important issue that needs to be considered. To this end, this paper makes an attempt to look into the evolution of the regulation of financial institutions in the various GCC countries in light of the constantly evolving economic situations. All the GCC countries comprising of Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates, and Qatar have been analyzed through the lens of the kind of the financial regulations that have been implemented since the inception of GCC in the year 1981 (Islam, 2003). Critical Analysis of Financial Regulation in GCC Countries Structure of the Banking Sector in GCC Countries (Put the sources of literature underneath your diagrams. Expand on the regulation of the GCC countries. Explain the dates of each regulation in the various GCC countries. The formation of GCC in the year 1981 was soon followed up by each country revamping the then prevalent financial structure which was to a very large extent underdeveloped. Most of the financial institutions, if any, were at the nascent stage and lacked the basic technicalities that the financial industries in any developed country possessed. However, the gap, since then, has been gradually reducing mainly because a number of financial institutions began to be established by the governments in these countries. At the same time, all the member countries implemented economic policies suited for its own development. In essence, there was never a unified approach to managing the economic situations. Three and a half decade latter there are still wide disparities in the set-up of the financial system including the banks in the country. Equally important is the fact that each country has been implementing financial sector reforms in line what is needed within certain sub-sector in the financial regulation. There is a heightened awareness among the policymakers of the financial regulation policies needed to ensure that the growth in the country is not compromised. This is mainly because of the swift integration of this region with the larger world. Undeniably, the financial services industry plays a rather critical role in all the Gulf Cooperating Council (GCC, henceforth) countries. However, the degree of involvement of this industry is fairly uneven and inconsistent from one country to another and this is mainly due to the uneven policies implemented since the inception of GCC. For instance, in Oman the financial industry contributes a meagre 3.9 percent where in Bahrain the contribution is close to 20 percent. (Ayadi, Groen, Chmelar, and Pyykko, 2013). The same figure for UAE is also very high. This is because UAE is a service led economy unlike Saudi Arabia where the share of services in the overall GDP is very minimal. This is mainly because the countries that make up the GCC are at varying stages in the path of economic development and this is clearly reflected in the way the share of assets the banks occupy. For instance, the assets of the banking sector in Saudi Arabia and Oman is around 200. On the other hand, in Oman the share of the assets that Banks occupy is more than 200 percent. The concentration of banking sector also varies greatly with UAE, a relatively smaller GCC country, having the least concentrated banking sector and Saudi Arabia the most concentrated (Ayadi, Groen, Chmelar, and Pyykko, 2013). Just to give an account where the banking system stands in the GCC countries. The same figure if you look for the share of the assets in the European Union it is around 400 percent. Hence, the banking business in GCC have a lot of catching up to do and the regulatory authorities should be mindful of this fact. The banking activities in the GCC countries are mainly dependent on and led by the commercial banks with Non-Banking Financial Institutions (NBFCs) playing a limited role. Overall, the structure of the financial system is not sophisticated in comparison to the developed countries and, in many areas, it remains limited although the level of sophistication of reforms has been going up gradually over the years. The restriction in the form of compliance with higher capital requirements and a number of traditional banking services being banned have inhibited their growth. An analysis of the difference between the capital ratios in GCC countries and the European countries give us an indication of the stringency with which the banks operate in GCC. It is clearly visible that the last decade and the start of this decade the capital ratios in the banks were in excess of 20 percent. This ratio is in respond to the total capital with respect to risk weighted average. Clearly, the banks appear to be better capitalized. A natural question of how much of the strong capital condition can be attributed to regulation of financial industries. Therefore, in this regard, it is very important to look into the evolution of the regulatory process in the GCC countries especially when most of the banks are public sector banks (Ayadi, Groen, Chmelar, and Pyykko, 2013). The capital ratios of the banks in the GCC countries is clearly better if one were to compare it to other developed countries. Although the capital position of the banks deteriorated around the time the financial crisis was at its height but these banks still manage to keep a total capital rations of between 10 and 20 percent. The period after the crisis saw an improvement in the capital position of the banks. This is clearly indicative of the strong financial health of these banks. Also, all the GCC countries are taking steps so that their banks can align their capital requirements with the BASEL 2 capital standards. To this effect, a number of initiatives have been taken place in these countries. The banks have also been given the freedom to vary their capital requirements depending on the prevalent market risk in the countries. The banks were also better capitalized mainly due to the strong regulation put in place in terms of minimum capital requirements. The only GCC country with banks that did not have a strong minimum capital requirement was Saudi Arabia (Ayadi, Groen, Chmelar, and Pyykko, 2013). Evolution of the Regulatory Process in GCC Countries By the turn of this century the regulatory structure in GCC countries was very minimal indeed. Most of the member countries did not give regulation of financial institutions any importance partially because of lack of developed financial institutions in place. The private sector banks were very few and their activities was very limited. Therefore, there was no need to control their activities. All the financial sector activities were mainly entrusted in the hands of the public sector banks that were the main channels through which any financial activity took place. The regulation that prevailed at that time was mainly with reference to public sector banks only. Surprisingly, it is essential to note that some countries in the GCC did not have a central banking structure in place and it just shows how the lack of desired interest to regulate. However, once the central banks were established in the GCC they were instructed with the responsibility of regulating other financial institutions in the form of investment banks and other related institutions. The supervision of insurance were under the watchful eyes of the Ministries of Commerce of the respected governments. There was no proper regulation of stock markets. In effects, the stock market were governed by themselves and this ensured that no one was responsible for what went on in the largest financial world. Gradually, the authorities in the GCC countries came to a realization that this system of improper regulation could not continue forever and that sooner rather than latter they will have to come up with regulation. Hence, they decided to change the very fabric of the regulatory mechanism. We will now present a case analysis and see the kind of regulatory intervention that has taken place since the time GCC was conceived (Clayson, and Lynch, 2012). Bahrain Financial regulation were put in place for the first time in Bahrain in the year 2006. However, the process had started from the time the Monetary Agency was established. The establishment of the Monetary Agency in Bahrain in the year 1973 soon after independence was to ensure that the responsibility of regulating the insurance sector along with capital markets would lie with this agency. However, the authorities, in the year 2006, discovered that the country should institute practices that would be in uniformity with those carried forward in the world. The creation of Central Bank of Bahrain (CBB) in the month of September, 2006 was aimed at replacing the Monetary Agency as the main regulatory authority. This was a major change that attempted to create a single regulatory body that would manage the country efficiently by regulating the financial institutions. With its inception, the Central Bank of Bahrain (CBB) became the first GCC country to implement large scale changes in the way the financial industry was to be managed. Immediately after its conception it was agreed upon by the bank authorities that any individual who does not own a license to carry on banking activities cannot undertake banking activities in the country. There was also an attempt to bring to light and specify the activities that would constitute the banking services that then would be controlled by the CBB. The law that led to the creation of the CBB also specifically stated that the bank should resort to regulation in order to conduct prudent and sound management of the banking system. There were also strict code of conduct for the bank to follow. The CBB rulebook which is issued by the central banking authority of Bahrain contains all the provisions by which all the banks have to comply with. The rule book is divided into seven Volumes altogether. The first and the second volume contains issues related to conventional banks and Islamic banks. The insurance license is covered in volume 3 while investment business is covered in volume 4. The volume 5 covers specialised licensees whereas the volume 6 covers capital markets. The last volume covers provisions relating to investment undertakings. Since the volumes have been established it is expected that the commercial banks will follow all the rules that have been laid out in the volumes. In case, any bank is found neglecting these prefixed rules the Central Bank, in that case, has the power to take punitive actions against those banks. The punitive measures range from a warning to cancellation of the bank licensees or, in some cases, fine against any of the individuals. The wide scope of responsibilities means that a consistent regulatory framework exists in Bahrain that covers all the financial domain and it leads to uniformity of structure in regulation that will help the regulators deal with problems in the larger financial world. Results indicate that this has helped the economy and led to efficient allocation of funds by bringing down the percentage of bad loans. Essentially, it has to be pointed out this wave of new regulatory mechanism has spread to other countries in the region too. The Saudi Arabian Monetary Agency has gone to the extent of creating a distinct capital market authority that would look into issues of managing the capital markets. Also the Saudi Arabian Monetary Agency has assumed greater role in its supervision of the financial market activities in the insurance sector. Qatar Financial Markets were created that would try to effectively regulate the Doha stock market. It would not be wrong to assert that this region is witnessing widespread transformations in the way the financial institutions are managed. Apparently, it can be noticed that most countries in the GCC have come to an understanding that regulation of the financial industries has to be strengthened and made more efficient and strong. Having said this, countries need to derive institutional structures that best suit their economic conditions. It has to be brought out that the single regulator model in place in Qatar and Dubai has been a success and thinking in this direction would not be wrong especially given that it has obvious cost advantages. Kuwait The regulation of financial institutions in Kuwait is led mainly by two institutes one of which was established lately ?? Central Bank of Kuwait (CBK) and Capital Markets Authority (CMA). The supervision of all the banking activities in Kuwait fall under the domain of the former institute with it assuming the role of the central bank. One of its most important function is discerning the distribution of licenses for banking activities. It also acts as lender of the last resort in the country for the government.In performs all the functions that any central bank is expected to perform. Laws relating to securities market transactions were enacted in the year 2010 due to increased pressure from within and outside to regulate its capital market that led to the establishment of latter ?? Capital Market Authority (CMA). For the first time, the government in Kuwait set up an institute that would manage the transactions taking place in the securities and the capital market. Its main responsibilities are supervising the activities of the capital market players so as to lead to more trust among the investor community. It decides on matters such as who should participate in the market as fund managers, asset managers, brokers or as other stakeholders. It tries to create an even playing field for all participants to take part in the capital market. Some of its main activities include ?? oversee the offer and sale of securities in Kuwait, overseeing deals of mergers of acquisitions, establishing norms of the licenses to be needed and others. It also tries to establish the rules for corporate governance rules the board of directors to adhere to. By aiming to do this the authority hopes to create enabling conditions for sustained economic growth. An additional regulatory feature in the form of Law No. 106 of 2013 was implemented in order to make the financial institutions more attune to the global banking practices. It is one of the most important and relevant financial regulation in the history of Kuwait financial market development. The objectives of this regulation was twofold. Firstly, this regulation will aim at controlling the laundering of money and/or finance from the banks located in the country. Essentially, this will be mainly to curb activities in the illegal market. . Secondly, it will also aim to at curb the financing of money from the local banks that were used to fund the terrorist activity. To achieve this an additional unit was also created that will monitor the banking activities related to the two issues critically. Hence, the Financial Intelligence Unit (FIU) is the main investigating body constituted specifically to meet the two stated objectives above (Maraj, 2007). Oman The Oman Central Bank (OCB), created in the year 1974, acts as the countrys central bank. It also operates as the primary regulatory agency in the country. The OCB has complete autonomy and full independence unlike some of the other central banks in the GCC countries. Incidentally, the OCB is also the first public banks that was given this status in this area. The first attempt at regulation of the banks commenced in the year 2000 with the passing of Sultani Decree number 114/2000. The main objectives of this regulation was to ensure smooth development of banking institutions that led to financial stability. Further, the central bank should work to create enabling conditions for investment and growth that encourage the development of the free market economy of Oman. Essentially, it should lead to fiscal and monetary development of Oman by being able to partake in the worldwide financial community. The main objective is that these regulations would lead to greater degree of involvement from agencies based externally to create a more resolute economy of Oman. By encouraging foreign banks to participate in the economy is seen as one of the most important ways to achieve that. OCB has ensured that the stability of the banking system is not compromised and to achieve it has curbed the distribution of licenses. It determines, based on a number of parameters, if the agency is fit to carry on with the banking activities in the country. OCB has gone forward to even define new activities as to what constitutes banking behaviour or not. Hence, it is clearly certain that a number of changes have taken place in the banking circle in Oman. CMA undertakes all decision making activities of the trading and supervising the sale of stocks and securities. It is also instructed to supervise all kinds of companies to undertake the best business decisions. It also aims at monitoring the credit rating agencies so that they can guide the investors appropriately in order to undertake the best investment decision. Essentially, this is one of the most important activities that has been given importance to by the central bank. The authorities in Oman have also created number of committees whose purpose is to try to ensure the financial laws and norms in the country are followed up by all the institutes in the best manner possible and that these laws should aid in the economic development of the country. To achieve this a number of changes were brought in including, for example, Anti Money Laundering and Combating Terrorism Law. It aims to look into the transaction and identify any activities by giving the banks additional duty to look into the transactions more carefully. The provisioning of Islamic financing products was also made possible by the law. Hence, in this way, it becomes one of the first country to bring into jurisdiction the practices of Islamic banking activity (Ayadi, Groen, Chmelar, and Pyykko, 2013). Saudi Arabia The establishment of the Saudi Arabian Monetary Agency (SAMA) took place in the year 1952. It can be considered a relatively older institutes in the set-up of the financial industries in the GCC countries. Basically, all the functions undertaken by SAMA are same as any Central Bank of the country. It is important to highlight that most of the function have been updated recently. The development of the financial sector in the kingdom of Saudi Arabia has come a long way since its inception. Before any regulations were put in place of any sort the interaction between the lender and borrower were hardly any. It could mainly be laid down to the lack of the presence of banks in the country. Essentially, with no regulation in place meant that there was no incentive for borrowers and lenders to participate in the commercial activity as neither side were under formal supervision. Either the lender or the borrower could back out of the contract which were not properly proper monitored by any institution. Presently, the country boasts of 10 commercial that have more than 200 branches spread throughout the country (Chaoul, 2013). Recently, in the year 2012 the financial sector in the kingdom of Saudi Arabia witnessed some large scale and pervasive changes that all these changes were designed in a way that would make the financial industry in Saudi Arabia more secure and safer. Most of he changes that were put in place were mainly targeted to make sure that the banking norms are aligned with the prevalent international standards of finance and banking in other developed and developing countries. Essentially, a large proportion of these laws were mainly targeted in the real estate market and/or in the home ownership market. Essentially, it was because of a very fundamental micro economic issue facing the country. The rates of homeownership in the country, despite of it being very rich, were very poor especially if one compared it with developed countries. To bring some degree of involvement for financial institutions for take part in the housing market some key changes were brought in by the government in the year 2012. In recognition of the very fact that the home ownership is a very low the Saudi Establishment initiated important phase of reforms namely Real Estate Finance Law and the Finance Lease Law. SAMA through its revolutionary ??Real Estate Finance Law aims to oversee the development of the real estate market in a number of ways including distributing licenses to the players, overseeing the kind of information to be included in the real estate contract law, information to be included in the credit report of the borrower, and information on the set-up of real-estate refinancing corporation. Further, The Finance Lease law that was brought in aims to deal with the immovable assets which are governed by laws relating to financial leases. This new financial lease law gives a very specific and explicit analysis of the magnitude, nature and the quality of financial lease to be dealt with. It gives a very exhaustive and detailed coverage of all the aspects of financial lease or related activities that come under its provision. It deals with issues such as registration of such leased assets especially as the kind of assets that can be treated and/or termed as leased assets, the responsibilities of the lessor and lessee and nature of duties they are expected to perform and undertake. The above two laws were mainly targeted at the real estate market and the main target is aimed at giving a boost to the real estate market so that the homeownership rates can improve. There was another very important law passed in the financial market. The law was named as Law on Supervision of Financial Companied. This is one of the most important landmark development in so far as the regulation of financial industry is concerned. It essentially aims at laying down the structure of the regulatory policies under which all the companies including financial companies, banks, and other such companied are expected to operate. Through this law SAMA wished to conduct a detailed analysis and determine if the companies meet the minimum requirement to operate in the financial industry of Saudi Arabia. It also lays down the punitive action that SAMA can take against any company if found guilty of breaking the law. Consequently, it is apparently clear that with this law the SAMA hopes to create a striving financial market where the lender and borrower can interact with ease and with confidence. Many experts have argued that these laws will help the housing market to expand (Chaoul, 2013). Qatar The Qatar Central Bank (QCB) is the main regulator of financial institutions in the country. The year 2012 witnessed major developments in the Qatar Financial market. The QCB expanded its domain by bringing in the insurance companies under the scope of its regulatory mechanism. It also expanded to cover the Qatar Financial Center. A number of features were brought into the law for the first time. For instance, the law gave for the first time inclusion to Islamic banking, merge and acquisition of financial institutions, credit rating agencies, treating consumer fairly, and also the resolution of failing banks. The law also established a dispute resolution committee which is entitled to review complaints from agencies fined by the QCB. This agency sees that all the disputes are settled in the best possible manner to the satisfaction of all the parties involved (Ayadi, Groen, Chmelar, and Pyykko, 2013). United Arab Emirates (Expand more in this section narrow it down to UAE be specific in UAE: Outline the regulation events in UAE and the specific dates. Everything that you write is very general. How does regulation in UAE fits with Basle II and Basle III Acts. BE SPECIFIC The regulatory mechanism of United Arab Emirates is different from other GCC countries. Apparently, there are two financial laws governing the country and the geographical location of the financial institutions determines which law regulates the same. Dubai, the countrys capital, has developed a Dubai International Financial Center (DIFC). The financial jurisdiction that applies to this land is different from the rest of the country. The DIFC is a financial service HUB covering an area of more than 100 acres of space. The main and sole regulatory body is the Dubai Financial Services Authority (DFSA). The DFSA is essentially an independent body that aims to regulate all the financial services firms based in this region. The main functions typically include licensing, authorizing, and registering business and most of its laws are derived from the best practiced system for financial jurisdiction around the world. All the financial services from the smallest to the largest including banking, insurance, capital market institutions, money lenders and other are supervised by the institute. The institute also has a number of divisions that look into specific areas which are very crucial for the economy such as the trade flow, exchange rates, interest rates and other important parameters. For instance, there is a separate division for clearing house that look into clearing of business. This aspect of organization of their business is in line with the global practices for fina
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