As the world digests Obama’s Glass-Steagall for the 21st Century, are there any possible implications for financial services employment in the Middle East?

Obama sent shockwaves through Wall Street yesterday after revealing his intentions to…“work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.”

Regulatory arbitrage

Predictably, considering the need for political point-scoring, there’s already been speculation that the UK could follow in Obama’s footsteps. The Conservative party has said it would implement similar curbs if elected, and that a crackdown on prop trading was “definitely something we think needs to be done”.

The likes of the DIFC and Qatar Financial Centre Authority have been explicit about their desire to move up the global food chain and their light-touch regulatory approach has the potential to sway more financial firms to expand their Middle Eastern footprint.

Barclays’ chief Marcus Agius has already raised concerns about so-called regulatory arbitrage – where banks deliberately target countries with weaker regulatory oversight. Obama’s plans have the potential to exacerbate this and benefit the Gulf.

More prop trading pros?

The plans to bar prop trading in the US are also likely to prevent banks like JPMorgan or Goldman Sachs simply moving these desks to less regulatory restrictive places like Dubai.

However, it could mean an exodus of prop traders from the institutions. As Ralph Fogel, investment strategist at Fogel Neale Partners told City AM: “They are not going to want to lose the kind of talent they have on those desks.”

Prop trading stars could be simply tempted to rush towards established hedge funds, or there’s the chance they may decide to go it alone. If this is the case, the favourable tax regime in the Middle East could prove alluring to these individuals.

However, prop trading is an increasingly small part of banks’ operations – at Goldman it accounts for around 10% of trading revenues, while in European firms like Credit Suisse, UBS and Deutsche Bank, this is closer to 5%.

Enhanced appeal to hedgies

The US crackdown could lure more hedge fund professionals to the Middle East. Dubai has traditionally struggled to attract not only funds to be domiciled in Dubai International Financial Centre, but also boutique fund managers launching and managing funds. But there have been some signs of progress.

Recent entrants include Liongate Capital Management and Gulfmena Alternative Investments and more are expected this year. Obama could have sped this trend up.

This is all slightly premature, of course. The new plans lack detail, and still have to get the thumbs up from Congress. What’s more, there’s the suggestion that banks have already discovered loopholes.