Financial regulators must take some responsibility for the ongoing credit crisis, the head of the Dubai Financial Services Authority (DFSA) told the audience at DIFC Week on Tuesday.
David Knott, CEO of the DFSA, which regulates financial organisations in Dubai International Financial Centre (DIFC), said that globalisation has brought a new opacity to the worldwide banking system, which was shown by the failure to accurately monitor the true risk of assets held by major financial institutions.
Knott said: "Banking regulators were deluded into thinking that because the banks didn't hold the paper the risk wouldn't come back to bite them."
He added: "I think the regulators need to learn from this, as well as the institutions. I think you let the regulators off too easily by saying this is all a market forces issue."
He also said that offshore jurisdictions with relatively lax regulatory regimes would find themselves under pressure to improve standards, and added that hedge funds should also increase their level of transparency.
"I'm not worried about hedge funds per se, but I am worried that we don't know where the risk is," said Knott.
"I'm not advocating an attempt by regulators to micro-manage the transactions of hedge funds. I think there is an unknown degree of leverage and therefore an unknown degree of risk in the system."For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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