G20 Watchdog Says Investment Fund Vulnerable Amidst Pandemic

Financial Stability Board (FSB) Chairman Randal Quarles speaks at a news conference following the "1+6" Roundtable meeting at the Diaoyutai state guesthouse in Beijing, China November 21, 2019. REUTERS/Florence Lo/File Photo
Financial Stability Board (FSB) Chairman Randal Quarles speaks at a news conference following the "1+6" Roundtable meeting at the Diaoyutai state guesthouse in Beijing, China November 21, 2019. REUTERS/Florence Lo/File Photo
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G20 Watchdog Says Investment Fund Vulnerable Amidst Pandemic

Financial Stability Board (FSB) Chairman Randal Quarles speaks at a news conference following the "1+6" Roundtable meeting at the Diaoyutai state guesthouse in Beijing, China November 21, 2019. REUTERS/Florence Lo/File Photo
Financial Stability Board (FSB) Chairman Randal Quarles speaks at a news conference following the "1+6" Roundtable meeting at the Diaoyutai state guesthouse in Beijing, China November 21, 2019. REUTERS/Florence Lo/File Photo

Non-bank financial firms such as investment funds have exhibited vulnerabilities during the coronavirus crisis that may need fixing to help economies recover, a global regulatory watchdog said on Tuesday.

The Financial Stability Board (FSB), which coordinates financial rules for the Group of 20 (G20) economies, said that although an initial wave of volatility has ebbed, markets remain under great strain and in some cases illiquid.

FSB Chair Randal Quarles said the impact of the coronavirus pandemic on credit markets and investment funds has highlighted potential vulnerabilities and the need to understand the risks and resulting policy implications.

"It is more important than ever to ensure that we can reap the benefits of this dynamic part of the financial system without risking financial stability," Quarles said in a letter to G20 finance ministers and central banks, who are holding a virtual meeting this week.

The FSB said it has set up a group to fine-tune work on investment funds and credit markets, which have been a source of conflict between market regulators and central banks in the past over how stringently they should be regulated.

"Shadow banking", which also includes money market funds, hedge funds, and private equity, has grown significantly since the financial crisis a decade ago, moving into bank-like activities such as credit as traditional lenders became more risk averse.

Quarles, who is also Federal Reserve vice chair for banking supervision, said FSB members have been involved in intensive, daily information exchanges to coordinate national responses.

Regulators have come under heavy pressure from banks to loosen capital buffers and ease provisioning requirements for bad loans as businesses struggle to stay afloat during lockdowns.

Quarles said the FSB was guiding G20 members on using existing flexibility in global rules, while also preserving collective support for the standards.

"It will become increasingly important to assess the impact of measures taken and to ensure that these policies are effective in the near term, and, eventually, to give a strong basis for deciding on when, and how, to return to more normal operations in the financial sector," Quarles said.

Fallout from the coronavirus crisis has led to speculation that regulators will have to push back an end of 2021 deadline for ending the use of the Libor interest rate benchmark that banks were fined billions of dollars for trying to rig.

The rate is used in contracts like home loans and credit cards worth around $400 trillion globally, and ending its use is one of the biggest challenges faced by markets in decades.

"The financial stability risks that would be associated with an unsuccessful transition away from Libor are as relevant in the current environment as they were before," Quarles said.

The FSB will set out for G20 finance ministers in July the remaining challenges to shifting away from Libor and explore ways to address them, Quarles said.



Saudi Arabia Targets Bureaucracy to Attract Foreign Investment

The King Abdullah Financial District in Riyadh, Saudi Arabia. (Asharq Al-Awsat)
The King Abdullah Financial District in Riyadh, Saudi Arabia. (Asharq Al-Awsat)
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Saudi Arabia Targets Bureaucracy to Attract Foreign Investment

The King Abdullah Financial District in Riyadh, Saudi Arabia. (Asharq Al-Awsat)
The King Abdullah Financial District in Riyadh, Saudi Arabia. (Asharq Al-Awsat)

Saudi Arabia is making serious efforts to cut through the red tape that blocks foreign investment by continually updating its regulations.

The Saudi Ministry of Investment, for example, has announced new and streamlined investment rules designed to facilitate foreign investment in the Kingdom.

These updated regulations are part of an effort to attract more international investors by simplifying the investment process and creating a more favorable business environment.

The ministry emphasized that the revised rules will remove the need for numerous licenses and prior approvals, significantly cutting down on paperwork and reducing bureaucratic obstacles.

In addition, Saudi Arabia has recently launched an e-visa service for business visitors, known as the “Investor Visitor” visa. This service is available worldwide and is part of the Kingdom’s broader Vision 2030 plan, which seeks to attract more global investors, improve the investment environment, and facilitate business operations.

Saudi Arabia has also introduced a new investor business residency program for those interested in investing in the Kingdom. The program provides residency for investors and their families, including parents, spouses, and children. Benefits include no fees for expatriates and dependents, family visit visas, and the ability to conduct business and own property.

In December 2023, the Ministry of Investment, along with the Ministry of Finance and the Zakat, Tax, and Customs Authority, rolled out a 30-year tax incentive package. The initiative aims to attract global companies to set up their regional headquarters in Saudi Arabia by simplifying the process and offering appealing benefits.

The program, a collaboration between the Ministry of Investment and the Royal Commission for Riyadh City, aims to make Saudi Arabia the top choice for regional headquarters in the Middle East and North Africa by providing various benefits and support services.

Saudi Arabia has unveiled a 30-year tax exemption for companies setting up regional headquarters in the country. This includes a 0% tax rate on income and withholding taxes for approved activities. The benefits will be available from the date the regional headquarters license is issued.

Moreover, Saudi Arabia updated its investment system in August 2024, which will take effect in early 2025. This reform aims to attract global investments, improve the investment environment, support economic diversification, and create jobs in line with Vision 2030.

The new system, approved by the Cabinet and part of the National Investment Strategy launched by Prince Mohammed bin Salman, Crown Prince and Prime Minister, aims to attract over $100 billion in foreign direct investment annually by 2030.

Key changes include enhanced investor rights, better protection of intellectual property, and streamlined procedures.

The system replaces the old investment license with a simplified registration process, providing more protection and flexibility for investors. It treats local and foreign investors equally and aims to resolve disputes efficiently.

The National Investment Strategy, launched in October 2021, supports the goals of Vision 2030. These goals include increasing private sector GDP contribution to 65%, boosting foreign direct investment to 5.7% of GDP, raising non-oil exports to 50% of non-oil GDP, reducing unemployment to 7%, and improving Saudi Arabia’s position in global competitiveness rankings.