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Dubai’s government-owned Dubai International Financial Centre has dismissed its two chief regulators in a move bankers say could add to doubts over the organisation’s credibility.
The DIFC said in a statement that chairman Ian Hay Davison would be replaced by Habib al-Mulla, a Dubai Financial Services Authority board member. It said chief executive Phillip Thorpe is being replaced by David King, the DFSA’s managing director of supervision.

The statement didn’t explain the changes.

But Davison says the dismissals follow the DFSA board’s raising of concerns about the quality of corporate governance at the centre.

“I’m extremely disappointed that the efforts of my colleagues and myself to establish standards of corporate behaviour in the DIFC have not been dealt with by (DIFC chairman Anis) al-Jallaf,” Davison has declared. “He’s dismissed my CEO and me rather than dealing with conflicts of interest at the DIFC.”

Bankers say the dismissals could add to the questions about the independence of the DFSA, a body set up to regulate financial firms working in the DIFC, a financial centre and international exchange expected to open for business later this year, after final laws are passed.

One of those laws is expected to give the DFSA full independence and a reporting line to Crown Prince Sheikh Mohammed bin Rashid Al Maktoum, the de facto ruler of Dubai. In the meantime, however, it reported to the DIFC.

The DIFC’s move comes after its chairman, al-Jallaf, and another board member, Majid Radpay, drew attention from inside and outside the DIFC for insider deals that critics said raised questions about business ethics behind the organisation, a multi-billion-dollar project aimed at further diversifying the emirate’s economy.

Al-Jallaf has acknowledged in a DIFC statement that an independent regulator would be crucial to the centre. “The DIFC concept is entirely dependent on the establishment of an independent regulatory body worthy of the world’s respect and trust,” he said.

But bankers said they were worried the sackings would have the opposite effect, undermining the DIFC’s claims about commitment to integrity and transparency.

Potential investors will ask why two respected regulators were dismissed and could draw unfavourable conclusions about DIFC’s commitment to setting up a level playing field for foreign companies.

Without clear evidence that vested interests won’t be able to influence the regulatory authority, foreign financial institutions could be reluctant to move in to the centre.

The two regulators are the highest profile dismissals by DIFC management, although several other employees who pushed for more open disclosure of contracts and land deals resigned or were pushed out of the centre, according to people close to the situation.

DIFC and government officials say al-Jallaf and DIFC chief executive Naser Nabulsi told a board member and other officials in the past month that they planned to dismiss Thorpe for allegedly leaking sensitive information.

Questions about ethics arose when the al-Jallaf-led DIFC chose Union Properties, another company chaired by al-Jallaf, to develop two of its properties. In another instance, DIFC board member Radpay negotiated a US$260mn development deal with Nexus Capital, a Swiss-based firm in which Radpay is a shareholder, according to a Nexus executive.

Two more companies linked to al-Jallaf received contracts to provide glass for the new buildings and to insure the centre’s headquarters.

In interviews over the past three months, Nabulsi acknowledged the transactions, but said the DIFC board and the government were aware of them and denied any wrongdoing.

Al-Jallaf has declined to comment. But in a press statement several weeks ago, al-Jallaf said the government had approved the land deals.

DIFC officials say such deals are common in a small, closely-knit business community, and that they don’t violate local laws.

Around 44 international firms, including Deutsche Bank, Julius Baer, Credit Suisse Group and Standard Chartered, have signed letters of intent to operate at the centre.