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Middle East Market Report 2011 - market commentary

As recruitment consultants the one reaction to the financial crisis we are likely to notice is an increase in demand for corporate governance staff. Since the start of 2010, most likely as a result of regulatory pressure, the financial sector in the UK and other regions of the world have responded by investing heavily in the recruitment of corporate governance staff. Substantial investment is being made right across internal audit, risk, compliance, legal and information security functions. We have been a little sceptical about this recruitment. The people who are being recruited and the roles they are performing are essentially the same as those before the financial crisis. Given that they failed to stop the crisis the first time around it is perhaps reasonable to ask what has changed? Corporate governance is not cheap. It is estimated that regulation costs the UK financial services industry $4 billion per year. Without doubt it brings benefits even if not insurance against excessive risk taking.

What is clear is that the significant pick up in recruitment that is happening in other regions of the world has yet to happen in the GCC. In terms of internal auditors, economic recovery has not translated into significant demand for internal audit expertise. As might be expected, one outcome of the credit crisis and recession has been a reflection on its causes and the role of corporate governance. There have been wide ranging discussions, conferences and initiatives within the GCC during the past year.
Their conclusions are the same. Corporate governance promotes transparency and best practice and as in other regions of the world, investment and economic development. A recent study revealed that only 3 out of 17 countries that make up the MENA region do not operate to corporate governance codes or guidelines. More telling, however, is how unlike in the UK, Europe and other regions of the world where regulatory enforcement is becoming more rigorous, enforcement has yet to have any serious impact in the GCC.

Having recruited internal auditors in the GCC for almost twenty years there is no doubt that there have been positive developments within the region. However the quality of internal audit functions is still behind the standards in more economically developed economies. This is understandable given that it is only recently that the GCC has become to be more properly integrated into the global economy. Following the issues of control and transparency that emerged as a result of the financial crisis, and the discussions and working groups that have taken place, it is disappointing that there has not been more investment in the region’s internal audit functions.

There are initiatives, notably the Abu Dhabi Accountability Authority. The Authority is promoting the active development of audit methodologies and audit personnel. This, in tandem with local training programmes and the promotion of a strong control culture, should assist the development of internal auditing and the demand for internal auditors. However, across the wider region progress remains slow. No doubt budget limitations are still hindering substantial investment in internal auditing as is the lack of accountability and transparency. A lack of transparency is particularly prevalent in the family controlled conglomerates that make up much of the private sector. Not surprisingly, as a result of regulatory pressure, the financial services sector is leading the way.

Whilst the pick up in demand for internal auditors in the GCC has lagged behind other regions, market conditions are certainly improving. Within commerce and industry and banking there have been a number of reorganisations where Heads of Audit have been appointed to effect change and develop the internal audit team. There are also internal audit start ups in the investment groups responsible for the capital projects that are ommencing. We expect this recruitment to continue during 2011 and a more broadly based recovery to develop as the year progresses.

Financial Crime

Financial crime is becoming a significant area of recruitment. Whilst financial crime in banking usually sits within compliance, in industry and commerce it is the responsibility of internal audit. The main areas addressed by financial crime are Sanctions – the suppression of financing of terrorism; Bribery and Corruption, particularly in relation to the US Bribery and Corruption Act and the recent UK Bribery Act; Fraud; Money Laundering; and Market Abuse.

Whilst these are global phenomena, there has been notable activity across the Middle East where governments are now responding and taking a more robust approach to combating it. There are initiatives to improve risk management and there is increased demand not only for fraud investigation and forensics, but also for professionals to develop anti-fraud measures and training programmes. Whilst it is an area where previous financial crime experience is normally required, it is developing as a career option for internal auditors
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