The UAE's evolving fintech landscape – Regulatory changes and recent initiatives in the region

Financial technology has grown exponentially in the United Arab Emirates in recent years.

Three drivers have fuelled this growth:

• the UAE's tech-enabled population, who are keen to adopt fintech innovation

• the progressive structures of its financial free zones and supportive government policies, and 
• a thriving venture capital sector interested in partnering with pioneering start-ups to develop the field. 

In 2010, H.H. Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE launched UAE Vision 2021. Fintech is deeply rooted in this initiative, which urges the UAE's population to embrace technology as part of their way of life.

Here, we look at how Dubai's regulatory landscape is keeping pace with tech development and highlight the latest initiatives in the wider region.

How is Dubai's regulatory landscape keeping up with new technologies?

ADGM open banking framework

Open banking, which gives third-party financial service providers open access to consumer banking, transaction and other financial data through application programming interfaces, is set to reshape the industry. Prior to the COVID-19 pandemic, 88% of banks anticipated deploying open banking in the following year. 

In April, the Abu Dhabi Global Market introduced a framework to supervise third party fintech companies that provide these services. Specifically, there are data privacy concerns around open banking, since open banking allows lending parties to share detailed customer data like spending patterns and transaction histories. The framework regulates how third party fintech companies obtain access, transfer and process data alongside including requirements of privacy, AML, counter terrorist financing and data protection. 

Cryptoasset regulations

In late 2020, the UAE’S Securities and Commodities Authority published the SCA Chairman’s Decision No. 23 of 2020 Concerning Crypto Assets Activities Regulation (the Regulation). This established a regime for anyone who wishes to offer cryptoassets within the UAE. 

The Regulation applies to exchanges, crowdfunding platforms, ICOs and any other related financial services based upon leveraging crypto assets. Providers who want to offer crypto assets must:

• be incorporated within the UAE (either onshore or within a free zone) 
• be licensed by the SCA
• demonstrate compliance with all the authority’s laws, including cyber security and data protection legislation.  

In March, the Dubai Financial Services Authority also published its own consultation paper, Framework for Regulating Security Tokens. The proposed regulation is a key milestone in the DIFC’s plan for the free zones. It supports issuers who wish to raise capital in or from the DIFC using distributed ledger technology and for those firms that want to provide financial services in this market. 

Latest initiatives in the region

Fintech Abu Dhabi 2021

Last month, the Abu Dhabi Global Market launched its annual FinTech Abu Dhabi Festival, bringing together global stakeholders to launch progressive initiatives within the fintech ecosystem. The Festival hosted an Innovation Challenge, in which fintech firms presented on specific problem statements in return for specialist deployment support from key players in the industry.

DMCC Crypto Centre

In May, the Dubai based free zone DMCC launched its Crypto Centre, a hub designed to support businesses operating in the crypto and blockchain sectors. The DMCC already uses distributed ledger technologies with its blockchain agri commodities trading platform Agnota and international trading platform Digital Sugar. The free zone is aiming to offer all types of services, including incubation and investment opportunities for early-stage start-ups, educational events and advisory and innovation services. 

DIFC Blockchain Week

Last week, the DIFC launched a series of events – including seminars, keynote addresses, and roundtable discussions with leading regional market practitioners – to discuss and explore the potential impact of blockchain technology as it spreads throughout the fintech landscape. 

Issues faced by large fintech firms

Data processing restrictions within the region can mean that fintech businesses which collect and process data from UAE customers must hold and retain the data physically inside the UAE and not transfer it outside of the country. If you intend to do business in the UAE, this means you'll need to set-up a physical hub to store data or engage a service provider in the UAE to host your business’s servers or data. 

Any foreign businesses that want to access UAE customers need to be locally licensed to carry out their intended activities. This process is more complex when it comes to digital businesses or those where the company itself is located outside of the UAE but still interacts with local customers, as the legal framework is not always clear cut for these developing digital industries. 

How can we help?

The UAE has recently seen and continues to see rapid change in its fintech regulatory environment and is the most globally competitive country in the MENA region. UAE regulators are constantly updating regulations to match the evolution of financial services and technology innovation in the country. For more information on how we can help your business navigation this constantly changing regulatory landscape, please reach out to a member of our Fintech team.