On the 6th March 2017 the Dubai Financial Services Authority (the “DFSA”) has released its Consultation Paper (112) with guidance on how its regime will accommodate and regulate testing financial technology (“FinTech”) innovations. Since the release there have been a number of developments that have led to amendments in the DFSA General Module Rulebook and cooperation between the DFSA and international authorities.
WHAT IS FINANCIAL TECHNOLOGY?
Financial Technology is an industry consisting of companies that use new technology and innovation with available resources in order to compete in the market of traditional financial institutions and intermediaries in the delivery of financial services.
FinTech opens up the possibility to the following:
- Improves interaction between financial services firms and customers, including bringing new players into the financial services arena
- Improves the efficiency, structure and competitiveness of markets (including value chains)
- Makes new financial products available
- Improves risk management by financial services firms
- Reduces both the risks and the costs of many financial services back office processes and
- Improves efficiency and security in the provision of financial services
REGULATION OF FINTECH INNOVATION IN DIFC
The DFSA has expressed its cooperation and its willingness to work in conjunction with the Dubai International Financial Centre Authority (the “DIFC Authority”) in order to engage with innovators and creators who are at a point where the DFSA financial regulation will usually apply.[1]
The DFSA’s intention is to consider using its power to create a simplified regulatory framework- one that is tailored to specific business proposals, on a case by case basis.
On the 6th March 2017 the DFSA published its Consultation Paper (112) providing guidance on how its regime will accommodate and regulate testing FinTech. The contents of that Consultation Paper have now been included in an Appendix to the General (GEN) Module of the DFSA Rule book.
The Consultation Paper provided the following criteria for a business proposal to be considered by the DFSA:
- Must involve the use of financial technology
- Involve an activity that, if conducted in or from the DIFC, would involve the carrying out of one or more financial services regulated by the DFSA
- Must be ready to start ‘live’ testing
- The firm must intend to implement its business proposition, model, service or product more widely, in or from the DIFC
In addition, the DFSA provided guidance on the application process and various stages of approval (Details of which can be found in the first Dubai May 2017 Newsletter).
Developments in Regulation
On the 24th May 2017, the DFSA amended its General (GEN) Module to include new Guidance on the regulatory framework that will apply to FinTech.[2]
The DFSA has added an Appendix to the General (GEN) Module of the DFSA Rule book that explains in further detail the process and procedure with regards to obtaining an Innovation Testing license (“ITL”). There have been no significant changes in the application process and qualifying criteria from its Consultation Paper (112), however the inclusion and elaboration on such guidance in the DFSA Rule Book is evidence of the commitment by the DFSA and the Dubai International Financial Centre (the “DIFC”) Authority to drive innovation and encourage the development of new technologies for the financial sector.
FINTECH HIVE AT THE DIFC
In creating Fintech Hive, the region’s first FinTech accelerator, the DIFC aims to create a platform that drives innovation, by identifying leading technology companies and offering opportunity to develop, test and modify their innovations with executives from the DIFC. The accelerator program identifies entrepreneurs within the financial services industry and grants them access to and feedback from potential customers and funders.
On the 21st August 2017 FinTech Hive at DIFC announced the commencement of its inaugural accelerator program. The program features 11 finalists and brings together an emerging generation of technology leaders and entrepreneurs to address the evolving needs of the region’s financial services industry. Participating companies will benefit from the ITL, which allows qualifying FinTech firms to develop and test their concepts from within the DIFC without being subject to the regulatory requirements that normally apply to regulated firms.
INTERNATIONAL COOPERATION
Malaysia’s Securities Commission
During the first week of September, the DFSA and the Securities Commission Malaysia (SC) entered into an agreement to cooperate in the development of FinTech innovation. The agreement was signed by Mr Ian Johnston, Chief Executive of the DFSA and Tan Sri Ranjit Ajit Singh, Chairman of the SC. The aim is for the authorities to share information on developments and innovations in FinTech and to consider participating in joint innovation projects on the application of new approached to FinTech in their respective markets.[3]
Hong Kong’s SFC
The DFSA and the Securities and Futures Commission (“SFC”) in Hong Kong entered into an Agreement on 28 August 2017 to establish a framework of cooperation on FinTech innovation.[4]
The agreement aims to further strengthen the efforts of both authorities to develop an innovations-friendly ecosystem in their respective markets.
The agreement was signed between Mr. Ian Johnston, Chief Executive of the DFSA and Mr Ashley Alder, Chief Executive of the SFC, in Hong Kong.
The agreement extends the existing relationship between the SFC and the DFSA with a joint commitment to maintain the highest standards of cooperation. Both regulators are signatories to the IOSCO Multi-lateral Memorandum of Understanding.
CONCLUSION
In conclusion, the DFSA has evidenced its intention and willingness to engage with innovators and creators, by creating a simplified regulatory framework and by establishing relationships on an international level. By entering into such international cooperation, the DFSA has committed itself to developing and leading the FinTech industry in the region.
Footnotes in this article
[1] Testing Fintech Innovation in the DIFC, DFSA Consultation Paper 112, available at http://dfsa.complinet.com/net_file_store/new_rulebooks/c/p/CP_112_TESTINGFINTECHINNOVATIONSINTHEDIFC.pdf
[2] General Module of DFSA Rule Book, available at http://dfsa.complinet.com/en/display/display.htmlrbid=1547&element_id=23452
[3] More information available at, https://www.dfsa.ae/en/MediaRelease/News/DFSA-and-Malaysia%E2%80%99s-Securities-Commission-sign-Fin?newsid=79
[4] More information available at, https://www.dfsa.ae/en/MediaRelease/News/DFSA-and-Hong-Kong%E2%80%99s-SFC-sign-FinTech-Cooperation?newsid=65
