Fintech Review 2020- United Arab Emirates
By Alia Noor, FCMA, CIMA, MBA, Oxford fintech programme, GCC VAT Comp Dip,COSO Framework.
Associate Partner Ahmad Alagbari Chartered Accountants, UAE
The United Arab Emirates (UAE) is the largest fintech hub in the Middle East and North Africa (MENA) . As of November 2020, the UAE accounted for over 60% of funds raised in MENA for venture capital investment. In 2020 Dubai International Financial Centre (DIFC) ,Dubai Financial Services Authority (DFSA) and the Abu Dhabi Global Market (ADGM) took various intiatives , introducied new regulations to provide a favorable landscape for fintech companies in the sector to thrive.
Key Developments in year 2020 UAE’s Fintech Industry
UAE Central Bank launches Fintech Office
At the federal level, the UAE Central Bank unveiled numerous fintech initiatives in 2020. In November, the regulator launched the Fintech Office, which has been tasked to help develop a mature fintech ecosystem within the UAE and position the nation as a fintech hub regionally and globally.
The office will be working with the industry and regulatory authorities to facilitate innovation and help attract international and regional fintech companies.
New Fintech Regulations for Stored Value Facilities and Cryptoassets
The UAE Central Bank’s SVF Regulation, released in November 2020, repeals and replaces the 2016 Regulatory Framework for Stored Values and Electronic Payment Systems (SVF Regulations).
The updated regulatory guidelines apply to local Fintech companies and various other non-bank payment service providers. Scope includes licensing ,supervision and enforcement requirements that may be applicable to Fintech firms and local payment services.There’s a 1-year transitional period that will begin on the date when the regulations go into effect (or are enforced).
In October, the UAE Securities and Commodities Authority (SCA) approved a draft Issuing and Offering Crypto Assets Regulation (ICAR). The legislation covers two topics: the creation, issuing and marketing of crypto assets in the country, as well as the licensing of crypto markets, crowd funding platforms and all activities related to crypto assets.
BUNA Payment Platform launched by Arab Monetary Fund
The Arab Monetary Fund launched “Buna” which is a multicurrency platform providing clearing and settlement services to financial institutions, facilitating cross-border payments within the Middle East and North Africa region.
UAE Dirham and Egyptian Pound and Saudi Riyal are settlement currencies in Buna’s payment platform. “Buna’ – first transaction is carried out in the UAE dirham between Mashreq Bank and Banque Misr in Egypt.
UAE’s Insurance Authority Merges with Central Bank
The UAE Insurance Authority was merged with the UAE Central Bank, creating one consolidated financial services regulator to regulate financial services in the banking and insurances sectors. The Securities and Commodities Authority. Further details of the consolidated regulatory framework, as well as the new framework applicable to the Securities and Commodities Authority, are yet to be announced.
Electronic Attendance and voting for listed companies General Assembly Meeting
The Securities and Commodities Authority in the UAE has taken steps to help business continuity for listed companies during the disruption caused by Covid-19. The SCA has issued circulars to listed public joint stock companies in the UAE requiring them to allow electronic attendance and voting at shareholder meetings, together with guidance on business continuity planning.
Dubai International Financial Centre (DIFC)
DIFC Fintech Community continues to grow
DIFC continued to attract fintech companies in 2020, adding some 87 new ones into its fintech community during just the first half of the year, a year-on-year increase of 74%. As of November 2020, DIFC was home to more than 240 fintech related firms, representing over 50% of all fintech entities in the Gulf Cooperation Council (GCC).
Foreign fintech companies continued to select DIFC as their gateway to the Middle East, with companies like Singaporean robo-advisor StashAway and Swiss wealthtech Additiv establishing a presence in the free zone in 2020
DIFC launches New Innovation licence for Tech Startups and Entrepreneurs
Dubai International Financial Centre (DIFC) has launched an “Innovation License” a new license for startups and technology firms that operate within the freezone. The new innovation licence is designed to attract technology-led businesses aiming to disrupt the technology and financial sectors. This development enhances the DIFC’s existing supportive environment for tech start-ups, of which the FinTech Hive, FinTech Fund and now the new innovation testing licence programme are key features.
DIFC New Data Protection Law
The DIFC Data Protection Law No.5 of 2020 and new Data Protection Regulations come into effect from 1 July 2020.Companies in the DIFC must comply with the new regime by 1 October 2020, at the end of the three-month grace period. The new law aligns the DIFC’s data protection regime more closely with international best practice (such as the EU’s GDPR).
The new framework revises rules on the collection, handling, disclosure and use of personal data in the DIFC. It includes enhanced accountability and responsibility for those controlling and processing data (with provisions relating to compliance obligations, impact assessments and data protection officers, for example). It offers greater protections for the individuals and their personal data, including where their personal data is generated, used or stored in the latest technologies such as blockchain and artificial intelligence.
Money Services in the DIFC
The Dubai Financial Services Authority (“DFSA”), the Financial Services Regulator in the Dubai International Finance Centre (“DIFC”), amended its legislation to introduce money/payment services business as one of the regulated activities within DIFC. Prior to the amendment, the financial service of “Providing Money Services” was a prohibited activity under the DFSA regulations. In the recent amendment, the DFSA introduced a comprehensive framework for money services business.
The amended regulation is covered under various DFSA Rulebooks including Conduct of Business, General, AML, Prudential Rules and Auditor. These rulebooks provide detailed regulatory framework and applicable rules in relation to conduct of business, compliance and AML for a range of money services business that can be undertaken in and from DIFC.
New start-up Accelerator for the DIFC
Regional fintech start-up companies will now be able to apply to a new accelerator programme known as the FinTech Hive Scale Up programme. It is designed for start-up companies who have already gone through Series A financing round, which is the first significant round of financing from external investors, and whose target market is in the MENA region. Launched by the DIFC’s FinTech Hive, the new programme is designed to help these types of businesses grow further and faster through access to funding, resources, support services and venture capital investor networks.
Dubai Financial Services Authority (DFSA)
The DFSA launched its “Cyber Threat Intelligence Platform”
The Dubai Financial Services Authority (DFSA) launched the first financial regulator-led Cyber Threat Intelligence Platform in the region. The platform is available to all DIFC registered companies. The platform provides its users with various different indicators of a number of cyber threats to information security. The platform also allows information sharing between the DIFC community aimed at mitigating cyber threats and limiting their impact on operational resilience.
Abu Dhabi Global Market (ADGM)
Changes to Cryptoasset Regulation in ADGM
The FSRA has amended its framework to regulate crypto asset activities conducted in or from the ADGM. The framework was introduced in 2018 and was the first of its kind in the MENA region. Virtual Assets will no longer be regulated as a separate category of activity – “Operating a Crypto Asset Business” – and specified activities related to Virtual Assets will instead be regulated within existing categories of activities (such as Providing Custody, Operating a Multilateral Trading Facility, Dealing in Investments, etc.)
ADGM’s financial regulator launched in April three pilot initiatives aimed at reducing regulatory costs and burden, as well as helping financial services firms achieve better compliance and risk management outcomes.
The first initiative, called RegBot, is an artificial intelligence (AI)-enabled solution that helps automate the FSRA’s license application process. The second regtech solution utilizes APIs to allow the regulator to monitor client money held by non-bank licensed firms such as asset managers and broker deals.
The FSRA has also embarked on a pilot project to digitize its regulations, leveraging semantics and natural language processing (NLP). The ambition here is to create so-called “Regulations in a Box” where firms would be able to use the FSRA’s digital regulations to test and deploy innovations that are compliant by design
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