Baker Tilly Kuwait Moves to New Premises

During December 2014, Baker Tilly Kuwait will move to its new premises located in:

Kuwait City
Sharq
Khalid Ibn Al Waleed Street
25 February Tower
Floor 19

The move comes in line with the expansion plan set at the end of 2013 and implemented during 2014. According to the plan, the expansion should consider the following:

1. Office Location
   The office should be in one of the new distinct towers that mark building intelligence, overlooking the Arabian Gulf, is located at the heart of the Capital and is easy accessible.


2. Dccor and Design
   Streamlined, logical and open design taking into consideration the privacy, and safety of human resources and files, and providing access to sunlight.


3. Infrastructure
   Infrastructure should be flexible and of high tech, covering the entire floor space, and allowing for any modifications that might arise by time.


4. Furniture
   Luxurious brand furniture featuring economic footprint, splendid colors, and harmony of all parts.


5. Centralized Data Room
   The room should include our local server, AC units, licenses of the programs required to operate the server effectively and efficiently.


6. Record Keeping Room
   The record keeping room should be semi-automated and of high tech, accessed by only the authorized personnel using secret code system that logs the names of users when accessing and leaving the room, as well as the document accessed , and the purpose of use. This aims at preserving the confidentiality of the documents’ information and data.


7. Devices
   Devices are of renowned trademarks and high tech. Telephones, computers, photocopiers and printers have been purchased from Cisco, Dell, Richo and Xerox, respectively.


8. Services
   Services include a hotline with memorable number. The hotline comprises 30 sub-lines to ensure customers' calls are answered on timely manner. In addition, a high speed internet connection is available with capacity that can serve the entire employees simultaneously.

Noteworthy is that our move to the new premises comes in response to the development of the needs of our customers, driven by our keenness to always fulfill such needs effectively and efficiently.

Public Private Partnership Law Enacted

State of Kuwait seeks to create appropriate investment climate through suitable investment opportunities that allow the attraction of private equity, up-to-date technology and knowledge by implementing strategic projects based on Public Private Partnership (PPP) schemes. In addition to providing citizens with opportunities to participate in such project, promote savings and realize additional income sources.

In this connection, State of Kuwait enacted Law No 116 of 2014 regarding Public Private Partnership (PPP) on 23rd July 2014. The Law was published on the official gazette "Kuwait Al-Youm" on volume No. 1197 dated 17th August 2014.

Issuance of such a Law is a logical development to treat certain gaps in Law No. 7 of 2008 concerning regulation of B.O.T, and other similar schemes, and certain provisions of Law Decree No. 105 of 1980 regarding State Property.

The Law contains 48 articles, where Article (46) thereof obliges Minister of Finance to issue the Executive Regulations within 6 months from the publishing date thereof on the Official Gazette.

Law No 116 of 2014 regarding Public Private Partnership established a set of new criteria that can be summarized as follows:

1. Correction of generic title of the law:
   The Law was titled Public Private Partnership. It pointed out that B.O.T. and all other similar schemes are types of schemes that fall under the title “Public Private Partnership” scheme.


2. Formation of Supreme Committee on PPP projects and defining its functions:
   Article (2) of the Law sets out the formation of Supreme Committee on PPP Projects and defines its functions. Such Committee shall replace Supreme Committee on Projects constructed on the State’s real estate properties, which was formed pursuant to Decree No 145 of 2008. It shall undertake functions and powers of the Authority Board of Directors.


3. Creation of a Public Authority named PPP projects authority and defining its functions:
   Article (4) of the Law sets out the creation of such authority, which shall replace “Partnerships Technical Bureau”, in order to legalize the status of the entity that will offer partnership projects given its multiple technical, preparatory, or executive responsibilities.


4. Regularization of the status of projects existing prior to effective date of the law:
   Article (7) of the Law addresses the contracts concluded in accordance with the partnership scheme prior to the effective date of the Law emphasizing its implementation. Thereof as per the terms contained internally and in order to maintain stability of existing legal positions and apply the basic principle of “pacta sunt servanda” or “the consent makes the law”; provided that such contracts shall be terminated upon expiry of the term thereof as set forth in the respective contract and may not be extended or renewed in violation of the provisions of this Law.


5. Offering PPP projects with total cost not exceeding KD 60 million through competition. An investor may hold the entire share capital of the project company:
   Article (12) of the Law handles the PPP projects with total cost not exceeding KD 60 million where it assigns the Authority to cooperate with the public entity in offering such projects through a competition among the investors interested in investing in the project. The successful investor may incorporate the project company or consortium company.It is self-evident that the successful investor or consortium in this case will hold the entire share capital of the project company.Needless to mention that the provision permitting the successful investor to solely incorporate the project company and possess its entire capital is an exception to the basic rule set forth under Companies Law No 25 of 2012, as amended, concerning the minimum number of incorporators and shareholders in a shareholding closed company. The same provision shall apply to the consortium company if the parties to the consortium are less than the minimum limit required for incorporating and holding the entire share capital of via closed shareholding company in accordance with Companies Law.


6. Empowering PPP projects authority to subscribe for the share allocated to the citizens:
   Article (14) of the Law sets forth that the Authority shall subscribe for the share allocated to the citizens pending the project operation, particularly that the project is not expected to generate any revenues before this. The Authority is also authorized to subscribe for the share allocated to public bodies in order to maintain integrity of the company’s capital and eliminate obstacles hindering the incorporation of public shareholding companies, and hence determine the method whereby such shares shall be distributed after subscription by the Authority and when the project is in operation.


7. Council of Ministry is authorized to make decisions on offering certain projects with cost not exceeding KD 250 million through competition:
   Article (16) of the Law allows Council of Ministers to make decisions on offering certain projects with cost not exceeding KD 250 million through competition instead of incorporating a public shareholding company. This is an exception to the provisions of Article (13) of this Law in order to provide more flexibility in involving the private sector to contribute to investment projects of private nature.


8. Increasing the contract term to 50 years:
   Article (18) of the Law fixes the maximum term of the contract to fifty years. Such term shall be calculated effective from the completion date of construction and fit-out works.


9. Premium initiatives and projects:
   Article (20) of the Law sets a specific mechanism for the benefits that the concept originator would obtain. Such benefits are dependent on the concept nature if it is determined to be a distinct initiative or project.


10. Intellectual property rights are reserved for the concept originator:
    Article (22) of the Law reserves intellectual property rights for the concept originator. It also reserves the State’s right to benefit from such concepts.


11. Project financing:
    Article (23) of the Law has primary significance as it permits the investor to adopt the financing methods set out therein including pledge of proceeds and shares held by them through creating the necessary guarantees to finance and execute the project.This Article includes a provision stating that the borrowing amount may not exceed the percentage specified in the project documents as well as not exceeding the period set for the project or the remaining period thereof. It is also prohibited to pledge or sell the land on which the project is constructed.

International Professional Certificate in Regulatory Compliance

Baker Tilly Kuwait Audit, Tax and Consulting Services is always keen to provide professional certificates that enhance the capabilities and knowledge of individuals with the aim of enabling them to match the changes that take place in the business environment; such changes led and guided by the regulatory authorities, mainly represented in the Central Bank of Kuwait (CBK), Capital Markets Authority (CMA) and the Ministry of Commerce and Industry (MOCI) through the laws, resolutions and instructions issued by such regulatory bodies to the banks and companies subject to their supervision, with the aim of executing such laws, resolutions and instructions, while conducting their services for securing a sound business environment marked by transparency and equity.

In this regard, it became crucial for banks and companies licensed to conduct securities activity to create the title “Compliance Officer” within their organizational structure. It is stipulated that this job should be registered with the Central Bank of Kuwait and the Capital Markets Authority; which means that the approval of the said regulatory bodies of the qualifications, criminal record and the experience of the person occupying this job is required before recruiting him. The occupant of this job will be the official point of contact between the regulatory bodies and the banks and companies licensed to conduct the securities activity to ensure the validity of communication methods in terms of the relevant laws, resolutions and instructions and to ensure taking the necessary action for executing the same within the business entities referred to herein.

As the said job is newly created, Baker Tilly Kuwait has, several times, conducted the “Professional Compliance Officer (PCO)” training course which was attended by the occupants of this job who praised the value added in the study material, in addition to the academic expertise of the instructors who led this program. A lot of those who attended the training program have stated that they, for a long time, wished that an international professional certificate in regulatory compliance could be conducted in Kuwait to be able to join it with the aim of improving their skills and knowledge, thus contributing to developing their career path, along with professional application of the regulatory compliance in the business entities they work for.

Baker Tilly Kuwait Auditing, Tax and Consulting Services has undertaken the task to turn such desire into a reality for their clients as Baker Tilly Kuwait is in the process of signing a memorandum of understanding to deliver the review course of “The Regulatory Compliance Certificate- Advanced Level” offered by “The International Compliance Association (ICA)” in association with the University of Manchester Business School, UK.

The certificate will be conducted three times per year; twice in Arabic Language and one time in English Language, with the aim of overcoming the language barrier. Upon conducting the same in the Arabic language, the course material will be in Arabic and the exam which will be in the same language. In the case of English version, the course material will be in English and the exam which will be in the same language. The course material of this certificate will be distinguished, as it will contain the regulatory rules issued by the regulatory bodies in the State of Kuwait; which is a simulation of the international and local rules in terms of application.

The review course will be conducted in one of the training venues in a 5 star hotel over three days starting from 9:30 am to 4:30 PM and at the end of the third day an exam will be conducted, adopting the handwriting technique. It is expected that the first session of the program will be conducted from 10 - 12 November, 2014.

CBK Mandates Basel III Capital Adequacy Ratio

Dr. Mohammad Al-Hashel, Governor – Central Bank of Kuwait (CBK), stated that the Bank’s Board of Directors has adopted the regulatory capital structure for Basel III Capital Adequacy Ratio (CAR), and the transitional stage for the application of this ratio, among the standards included in the Basel III reforms issued by Basel Committee on Banking Supervision.

“Basel III Capital Adequacy Ratio reflects major alterations to Basel II Capital Adequacy Ratio, representing an increase in the overall ratio of regulatory capital, while re-defining the regulatory capital, with a set of standards that aim at improving its quality.” Dr. Al-Hashel said.

“Among those standards are setting a minimum for the items in the form of common equity, setting additional margins in the form of conservation capital buffers, and counter-cyclical capital buffer, setting stricter terms for Tier II Capital, rescinding Tier III, which was allowed under Basel II, in addition to further ratios of domestically systemically important banks (DSIBs).” He added.

“Basel III set of reforms also includes the application of other standards, representing maximum limits for leverage ratio, and two new liquidity ratios; one is a short-term liquidity ratio, i.e. liquidity coverage ratio, and the other is a long-term liquidity ratio, i.e. the main stable funding ratio.” He elaborated.

The Governor explained that the amendments made by Basel Committee on Banking Supervision to Basel II Capital Adequacy Ratio aim at improving the capital quality and increasing the regulatory capital ratio, thus helping absorb losses, in addition to building extra capital buffers, within the framework of the overall hedging policy applied by regulators to mitigate systemic risk and enhance financial stabilization.

A Grace Period for Banks

The Governor stated that, owing to these facts, Basel III Guidelines allow the application of capital adequacy ratio over time stages commencing 1/1/2013 and ending 1/1/2019, giving banks a grace period for gradual build-up of the required capital, in both quality and quantity, to avoid any credit shrinkage. This takes into consideration that it is difficult for many global banks to comply with the new controls of the ratio during such transitional period.

“As CBK is keenly desirous to apply Basel III set of reforms and the included guidelines, CBK, since the issuance of such set of reforms, has initiated the actions necessary to apply these guidelines, whereby Kuwait will be in the avant-garde of the countries applying the best international banking control standards.” Dr. Al-Hashel continued.

“Kuwait was one of the first countries to apply Basel II, which was welcomed and appreciated by global institutions, and served as a boost to the reputation of the Kuwaiti banking sector at the global level. This includes the global credit rating agencies, thus reflecting in upgrading the credit rating notches of the Kuwaiti banks.” He clarified.

“In application of Basel III guidelines, a steering committee, chaired by CBK, with two members representing Kuwaiti banks, is formed, and consultants are selected to contribute to drafting Basel III and preparing the quantitative impact study (QIS) to apply capital adequacy instructions, liquidity and leverage ratios, in addition to training the staff of CBK and banks on the mechanism of application of the instructions.” He stated.

“In July and August last year, CBK issued draft instructions to conventional and Islamic banks, upon which the QIS was built.” He added.

Multi-Stage Application

About CBK Board resolution regarding the application of Basel III Capital Adequacy Ratio, and the stages of application, CBK Governor indicated that in light of the findings of the QIS on Kuwaiti banks, and taking into account the standard application stages as per Basel III guidelines, as well as the global tendency by central banks in other countries regarding the application of the ratio, CBK Board of Directors has adopted an overall capital adequacy ratio with a minimum of 13%. Such ratio is to be applied over stages: at the outset of 2014, a ratio of 12%, at the outset of 2015, a ratio of 12.5%, and at the outset of 2016, a ratio of 13%.

“While applying the ratio over stages, CBK also considered that capital adequacy at Kuwaiti banks remain at the ratios that boost their ability to continue their expansionary policy, specifically to meet any expansion in lending, within the framework of financing the country’s economic development projects, whereby they maintain their competitive edge as opposed to other banks.” He highlighted.

“Kuwaiti banks will provide CBK with capital adequacy data, with effect from December 2013 statements, in parallel with Basel II Ratio data. Those banks had commenced experimental testing with effect from the statements of 31 December 2012.” He stated.

“QIS produced positive findings that reflect the bank's ability to meet Basel III Capital Adequacy Ratio requirements, despite the additional requirements of this ratio relating to regulatory capital, in light of the above-cited amendments.” He explained.

“Those positive findings of the QIS were arrived at as banks maintained high ratios of capital adequacy (Basel II), owing to conservative policy applied by CBK within the framework of balanced, gradual methodology in implementing banking controls.

CBK, in collaboration with Kuwaiti banks and consultants, is working on implementing the capital adequacy ratio instructions in their final format, which will be disclosed in the first half of this year.

CBK, in collaboration with these parties, is moving forward toward accomplishing the other standards of Basel III set of reforms, representing leverage and liquidity ratios, in line with a well-studied time frame and taking into consideration the findings of the QIS.

CBK is persistently upgrading its regulatory tools in line with the regulations that cope with the best practices and enhance the banks’ flexibility to face the shocks, capitalizing on the balanced, gradual methodology it adopts within the regulatory policies that aim at strengthening the banking and financial system, without affecting the requirements of economic growth. He concluded.

Source: KUNA, Dated: 01 February, 2014