STRICTLY PRIVATE AND CONFIDENTIAL
ADVOCACY INSIGHTS
Q2 - 2020
Foreword
Dear Reader
CFA Society Doha is excited to launch and share the first quarterly edition
of "CFA Society Doha Advocacy Insights" with you.
We hope this advocacy initiative can (i) serve as a platform to share
perspectives of regulators, advocacy stakeholders and investment
community in Qatar; and (ii) provide thought leadership on key local and
international policy and regulatory matters.
Our inaugural edition covers wide-ranging issues including Global and
Local market investment sentiment surveys, Regulatory, Financial
Reporting and ESG updates.
We look forward to your feedback to improve our advocacy efforts further.
Thank you
Usman Zafar, CFA
Board Member and Advocacy Chair
CFA Society Doha
2
Contents
Global Market Update – CFA Institute’s Survey Results on impact of COVID-19
Qatar Updates – CFA Society Doha Investment Sentiment Survey Results
Regulatory Updates: LIBOR Transition
1
2
3
4 Financial Reporting and Audit Updates
5 ESG, Disclosure Practice and Islamic Finance
Survey Theme Response Highlights
• Shape of a potential economic
recovery
• Majority of the respondents expect a Medium-term (Hockey stick–
shaped) or a slow-paced economic recovery (U-shaped)
• Market impact on volatility,
liquidity and price formation
• No immediate panic measures required or changes to strategic asset
allocations. However, real risk of current stress resulting in asset
mispricing imbalances
• Interventionism of public
authorities
• Overwhelmingly, respondents are for interventionism and for
supporting economies and markets in these times, however opinions
differed regarding when to discontinue such support
• Regulatory response
• Majority of the respondents believe that conduct rules should not be
relaxed in times of crisis, yet regulators should consult with industry on
appropriate measures
Please read the full survey report for more information.
Global Market Updates – CFA Institute’s Global Membership Survey Results on impacts of COVID - 19 situation (1/4)
4
Survey Theme Response Highlights
• Ethics
• 45% of the respondents believe that current stressed conditions will
generate unethical behaviour in the industry (esp. in less developed
markets) and hence monitoring should be increased
• Financial markets and changes
to business models
• Majority of the respondents expect large scale bankruptcies and
consolidation of firms and acceleration of process automations and
outsourcing to reduce fixed costs
• The Active versus Passive
debate
• 42% of the respondents believed it was unlikely the crisis would
reverse the steady shift into passive investments from active investing,
but 31% thought it would. Rest remained neutral
• Impact on employment in the
financial industry
• While vast majority (77%) of respondents reported no change to their
roles, nearly half reported that their firms had either frozen hiring (36%)
or had commenced downsizing (9%)
Please read the full survey report for more information.
Global Market Updates – CFA Institute’s Global Membership Survey Results on impacts of COVID - 19 situation (2/4)
5
6
Expected shape of a potential economic recovery
Global Market Updates – CFA Institute’s Global Membership Survey Results on impacts of COVID - 19 situation (3/4)
Global Market Updates – CFA Institute’s Global Membership Survey Results on impacts of COVID - 19 situation (4/4)
7
CFA Institute’s COVID -19 Survey Demographics
Contents
Global Market Update – CFA Institute’s Survey Results on impact of COVID-19
Qatar Updates – CFA Society Doha Investment Sentiment Survey Results
Regulatory Updates: LIBOR Transition
1
2
3
4 Financial Reporting and Audit Updates
5 ESG, Disclosure Practice and Islamic Finance
Investors Investment Sentiment Expectations about Global macroeconomic conditions - next 12 months
Expectations about Business and Economic conditions in Qatar - next 12 months
Asset classes expected to offer best risk adjusted returns - next 12 months
9
Qatar Market Updates – CFA Society Doha Investment Sentiment Survey
Contents
Global Market Update – CFA Institute’s Survey Results on impact of COVID-19
Qatar Updates – CFA Society Doha Investment Sentiment Survey Results
Regulatory Updates: LIBOR Transition – Status and Key Challenges for MENA
1
2
3
4 Financial Reporting and Audit Updates
5 ESG, Disclosure Practice and Islamic Finance
Regulatory Updates: LIBOR Transition – Background
11
• On 27 July 2017 Financial Conduct Authority (“FCA”) announced that it did not intend to use its power
to compel panel banks to submit to the London Interbank Offered Rate (“LIBOR”) beyond 2021 and
that market participants should not rely on LIBOR being available in its current form after 2021.
• The announcement by the FCA was the first step in an attempt to implement an orderly transition
away from LIBOR to risk free rates (“RFRs”).
• International Swaps and Derivatives Association (“ISDA”) and Alternative Reference Rates Committee
(“ARRC”) have completed several consultations for cash and derivative products since then.
• it is clear that the preference of markets is to select a compounded RFR and an adjustment spread for
a replacement benchmark or fallback rate as a standard solution.
• Despite Covid-19 crisis legislators, regulators, industry leaders, and working groups continue to
emphasize the end-of-2021 cessation deadline and the need to focus on transition planning.
• They also expect that market participants will be adequately prepared to transition notwithstanding that
some interim deadlines – like stop producing LIBOR referencing loans – have been delayed. Panel
banks are expected to cease contribution so even if there was a LIBOR screen rate it would not be
representative after 2021. We have only few months left to be prepared for this major change...
Regulatory Updates: LIBOR Transition – Timeline of Changes
12
Key Challenge Insights
Reliance on
development of
term rates
• Market participants should not rely on the development of Term SOFR as a substitute for
LIBOR.
• No certainty as to when such a benchmark would be developed (or if it will be developed
at all).
• The use of Term Rates must be limited while working groups acknowledged that there are
certain financial products where a TSRR would be beneficial.
Products
incompatible with
compounded RFR
• Certain variable rate mortgages or Islamic facilities (murabaha or Iijara) would fall within a
“product exception” where the use of term rates would be appropriate and permitted.
• It would not be possible to determine the profit rate at beginning of the period using the
compounded in arrears RFRs where the rate for each day in the period would only be
known at the end of the period.
• Once solution is to use a term rate the other is Tgranting a rebate.
Hedge accounting• Banks that use derivatives under ISDA to hedge non-ISDA products (loans, FRNs) – a
basis risk which is not there at the moment – might emerge and create additional
complications and risks.
Regulatory Updates: LIBOR Transition – Key challenges for MENA Region (1/2)
13
Key Challenge Insights
Contractual
remediation
• Clients need to be convinced that the adjustment spread is not an increase of their existing
credit spread.
• Moreover, the fallback spread adjustment and market quoted basis spread is slightly
different.
• It might be difficult to obtain the client consent for all loan products (retail clients may not
even respond) or FRNs where a certain majority of all investor need to approve.
Flooring interest
to zero
• It will be challenging to define the flooring of compounded RFR only or together with the
adjustment spread to maintain the same deal economics of a deal when only LIBOR is
floored today.
IT system
readiness
• IT systems need to be prepared to calculate compounding in arrears with multiple
conventions while being able to operate with forward looking rates also.
• The lead time to deploy and test treasury and loan analytical or core banking systems is
very long.
Reliance on
fallbacks
• Banks should not rely on fallbacks, but there is no intention for the central counterparties
to actively restructure the derivatives outstanding from LIBOR to the new RFRs, wait for
the fallback trigger instead, and therefore the amount of legacy trades cleared won’t
necessarily reduce quicker than bilateral trades.
Regulatory Updates: LIBOR Transition – Key challenges for MENA Region (2/2)
14
Contents
Global Market Update – CFA Institute’s Survey Results on impact of COVID-19
Qatar Updates – CFA Society Doha Investment Sentiment Survey Results
Regulatory Updates: LIBOR Transition
1
2
3
4 Financial Reporting and Audit Updates
5 ESG, Disclosure Practice and Islamic Finance
https://www.ifrs.org/news-and-events/2020/05/iasb-
issues-amendment-to-ifrs-standard-on-leases/
IASB issues amendment to IFRS 16 Leases to
make it easier for lessees to account for
covid19-related rent concessions
Financial Reporting and Audit Updates
https://www.iaasb.org/news-events/2020-05/isa-540-
revised-implementation-illustrative-examples-auditing-
simple-and-complex-accounting
ISA 540 (Revised) Implementation: Illustrative
Examples for Auditing Simple and Complex
Accounting Estimates
https://blogs.cfainstitute.org/marketintegrity/2020/04/09/co
vid-19-may-permanently-quarantine-inflexible-leases/
CFA Institute’s Webinar: COVID-19 May
Permanently Quarantine Inflexible Leases
Comment letter to the IASB for rent concession accounting:https://www.cfainstitute.org/-/media/documents/comment-letter/2020-2024/20200514.ashx
EU NFRD comment letter:https://www.cfainstitute.org/-/media/documents/comment-letter/2020-2024/20200612.ashx
https://blogs.cfainstitute.org/marketintegrity/2020/07/14/second-quarter-2020-amid-covid-19-investor-and-audit-committee-considerations/
CFA Institute’s selected publications and letters on Financial Reporting and Audit matters
https://www.iaasb.org/news-events/2020-05/iaasb-
releases-covid-19-related-guidance-auditor-reporting
IAASB publishes 'Guidance On Auditor
Reporting in Current Evolving Environment
due to COVID-19'
16
Contents
Global Market Update - CFA Institute’s Survey Results on impact of COVID-19
Qatar Updates – CFA Society Doha Investment Sentiment Survey Results
Regulatory Updates: LIBOR Transition
1
2
3
4 Financial Reporting and Audit Updates
5 ESG, Disclosure Practice and Islamic Finance
ESG – Disclosures and Practices
• CFA Institute organized a webinar on ESG Disclosure, Practice and Dialogue
• The growing recognition of the impact that material ESG factors have on companies’ long-term
prospects has resulted in the strong demand for quality ESG reporting from investors, stock exchanges
and regulators.
• When it comes to ESG reporting we often deal with a list of acronyms, with each representing a
different standard or framework.
• To provide better clarity and consistency for both corporates and investors, there are efforts underway
to harmonize these frameworks and standards
• Global standard setter GRI has been producing documents to show linkages between the GRI
standards to that of the exchanges.
18
ESG and Islamic Finance
• Drawing on Islamic finance stakeholders and
instruments can help mobilize resources and align
them with the most pressing economic needs,
particularly in light of current crisis.
• An interactive webinar was organized on 8th July
where Aamir A. Rehman, senior fellow at Columbia
University and senior advisor to the UN Development
Programme Islamic Finance
• Aamir explained the potential role and advantages of
instruments such as Sukuk bonds, Waqf endowments,
Zakat philanthropy, blended finance, and asset-based
financing in abating the economic crisis.
19
Islamic Finance Instruments for Economic
Recovery
• Sustainable, responsible, and impact (SRI) investing
and Islamic finance share similar origins and
aspirations.
• CFA Institute recently released new research that aims
to articulate the similarities—and differences—between
SRI investing and Islamic finance. Though having
different historical and cultural backgrounds, both
approaches share a focus on ethical considerations of
stewardship and social responsibility. This publication
also analyses emerging points of convergence between
the two approaches. Link to the publication is as follows:
https://www.cfainstitute.org/-/media/documents/survey/sri-
investing-and-islamic-finance.ashx
Contributors
20
Usman Zafar, CFA
Board Member and Advocacy Chair
CFA Society Doha
Syed Arfin, CFA
Board Member
CFA Society Doha
Dr. Arpad Borock
Head of Market risk
QNB Group
Questions / Feedback
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@cfasocietydoha
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