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

Please contact us on

board@doha.cfasociety.org; or

usman.zafar@doha.cfasociety.org

Follow us

www.cfasociety.org/doha

@cfasocietydoha

www.facebook.com/cfasocietyqatar

https://www.linkedin.com/groups/2611755/