Tag: Technology

Financial technology has revolutionized how banking institutions deliver their commercial services. Remarkable innovations such as blockchain, Artificial Intelligence (AI), and mobile payments have rapidly transformed the industry.

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market has approved a new measure to meet the increasing demands of financial institutions. Recently, the Authority announced it will accept applications to establish digital banks in its International Financial Centre in Abu Dhabi. It also released its “Guide to the Authorization of Digital Banks in Abu Dhabi Global Market.”

The FSRA stated it developed the Guidance in response to regional and international requests from financiers that sought a proven and conducive financial ecosystem that encouraged economic opportunities and growth. Furthermore, the area is an ideal jurisdiction for digital banks. The technical innovations will also anchor activities and support growth in MENA.

“This announcement and the Guidance comes in response to the substantive interest from the industry, and demonstrates ADGM‘s track record in advancing innovation and supporting growth while managing risks to promote a strong and sustainable financial ecosystem,” explained Richard Teng, Chief Executive Officer, FSRA of ADGM.

Digital banks are financial institutions that conduct business through electronic or digital means. The banks accept deposits, transactions, and related services through online platforms. They also provide novel and innovative solutions for their customers.

Digital institutions face similar risks that conventional banks (who accept deposits under the FSRA prudential Category 1 license) face. These include issues with credit, market, interest rates, and liquidity.

The FSRA recognizes that digital banks have specific operational challenges involving cybersecurity and information technology. Digital bank applicants must provide proof they can comply with the same regulatory obligations and authorization criteria that conventional banks meet.

The regulators believe that digital banks in the ADGM will increase the value of the SME, and corporate and wholesale sectors. Additionally, they say digital banks will boost the bottom line of the financial ecosystem.

“Digital banks can address the needs of many segments that are currently underserved by conventional institutions such as the credit gap faced by small and medium enterprises,” Teng said, in a statement. “We welcome innovative models to bring about greater financial inclusion, meet the needs of underserved segments and reduce the cost for consumers. Digital banks will further complement Abu Dhabi and the region’s financial and banking sector, reinforcing its competitiveness, vibrancy, and resilience.”

The FSRA will only accept applications from three sources. Applicants should be conventional banks who want to create digital banks or branches; firms that have innovative value propositions; or partnerships between tech companies and banking institutions.

The Authority will consider applicants that meet threshold conditions outlined in the Financial Services and Market Regulation (FSMR) and the FSRA’s General Rules (GEN) Chapter 5. Businesses must have adequate financial resources and fitness before launching their enterprise. They must have effective supervision, compliance arrangements, procedures, and policies.

The FSRA requires digital bank applicants to have a base capital of USD 10 million. This amount satisfies the FSRA’s prudential requirements and safeguards the system’s stability. Additionally, all applicants should have robust compliance, governance, IT security, and risk management policies. The regulators also require mandatory appointments in senior management.

Tips for a Successful Digital Banking Application

Here are nine additional conditions that companies should satisfy when they submit their application to start a digital bank in the ADGM.

1. Submit a Business Plan

Applicants must submit a credible business plan with a sustainable model and comprehensive regulation. Each application should present the rationale for launching the digital banking venture. It must list all highlighted activities, including those related to banking, such as accepting deposits.

2. Legal Structure

The FSRA’s Prudential – Investment, Insurance Intermediation, and Banking Rules (PRU) require digital bank applicants to be majority-owned by an existing deposit-taking institution. The Authority considers some rule modifications for start-up banks that do not meet this requirement and can issue exceptions for startups that possess adequate resources, credible shareholders, financial soundness, and suitable management. Applicants should have a digital banking license and observe Federal restrictions on accepting deposits in the UAE dirham or the State’s markets. Institutions must maintain premises in ADGM and registered or incorporated under the ADGM’s authority.

3. Ownership and Control

The FSRA requires applicants to provide information about all beneficial owners, corporations, or natural person controllers that own more than 10 percent of its entity. The Authority will review all persons, conflicts of interest, and connected businesses within the company’s structure.

4. Staffing

All applicants must explain their proposed human resources. Their staff should be the appropriate number and have the experience to conduct the digital bank’s proposed activities. Additionally, there should be a board of directors. The FSRA does not mandate the board’s size, but it will assess individual members and its overall composition. It will also determine how these persons would anticipate banking balances, governing experience, financial technology, and independent, non-executive directors. Digital banks should have a UAE-based Senior Executive Officer that has technical and senior management experience. The FSRA requires additional mandatory positions, including anti-money laundering, finance, and compliance.

5. Governance: Management, Systems, and Control

Digital banking board and senior administrators must maintain a mix of employees who have appropriate knowledge, skills, expertise, and time to carry out their duties. Applicants should have clearly defined responsibilities, roles, and reporting lines. Companies must enforce adequate segregation between control and business functions.

6. Outsourcing

The FSRA does not object to companies outsourcing functions; however, the company will remain responsible for any operations carried out by third parties, whether they belong to the companies or not. Digital banks must explain all material arrangements of outsourcing in their applications.

7. Risk Management

Digital banks should manage their risks, just like traditional financial institutions. They must have the proper oversight, controls, and systems to identify risks and measure, manage, or monitor them. Applicants must consolidate their approaches to risk in an Internal Risk Assessment Process document and submit it as part of applications.

8. Information Technology Risk and Cyber Security

Digital bank applicants should have robust IT structures. The organization requires applicants to test their IT structures for potential vulnerabilities. Additionally, companies should have adequate cybersecurity and hire an independent, third-party specialist to probe the system for security issues. The FSRA accepts cloud-based solutions to data management.

9. Financial Crimes

Applicants must have policies and procedures in place to address financial crimes such as money laundering, fraud, and financing of illegal activities. Read the requirements in the Anti-Money Laundering and Sanction Rules and Guidance (AML) Rules for more details.

According to MSN News, firms seeking to deploy e-commerce solutions in payment areas such as tokens, stored value cards, e-wallets, can consider other licenses that will have lower capital and regulatory burden than a digital banking license. Businesses should confer with the ADGM’s “Authorisation of Digital Banks in Abu Dhabi Global Market” for a full list of guidelines.

Hammad & Al-Mehdar Law Firm is a leading regional law firm in Saudi Arabia and the UAE with more than 35 years of experience serving the corporate, financial, and technology sectors. Contact us today to schedule a discussion with one of our team members.

MENA Fintech Association (MFTA), a non-profit organization founded to shape the future of technological innovations, products, and business models in the financial services sector within the MENA region, officially launched on Sunday, 23 June 2019, at Abu Dhabi Global Market (ADGM).

Industry stakeholders that attended the event included 22 financial regulators from MENA countries, Fintech leaders, government representatives, international and regional companies, and members of the MFTA fraternity. At the exclusive event, various guests and speakers acknowledged and cherished the strides the organization has made toward pushing the frontiers of Fintech innovation and financial inclusion in the region since its inception at a Fintech Abu Dhabi event in 2018.

During the MFTA launch event, leaders and stakeholders also unveiled several initiatives aimed at shaping enhanced financial services in MENA, going forward.

MFTA’s recent achievements include setting up 46 country bridges globally to facilitate cross-border collaborations and the exchange of ideas among Fintech professionals and consumers. The organization created and provided a platform for global experts to address the local Fintech community, and it mobilized the MFTA community to participate in social life-transforming activities.

More than 1000 individuals have benefited from the life-changing technical and social events that MFTA has organized in the past. By collaborating with the Arab Monetary Fund, the organization managed to create a Fintech framework within a short duration.

MFTA has been liaising with corporate organizations through its global talent exchange program, which has enabled it to prepare and launch “Regulation Simplified,” the community’s first publication.

MENA Fintech Association struck a couple of deals at the launch ceremony, including with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). This partnership aims at developing strategic initiatives on financial inclusion and advancement of financial services within the region.

Also, MFTA signed an alliance with the American University of Dubai. The two organizations agreed to collaborate on specific academic initiatives and programs to create the ecosystem that Fintech startups and industry stakeholders need to flourish. Identified areas of collaboration include curriculum and capacity building and accelerator programs.

In yet another exciting deal, MFTA and Anghami have agreed to work together on an upcoming podcast series focusing on the topic of Fintech in MENA. Anghami is the most popular legal music streaming platform in the region, with over 50 million subscribers.

Commenting on the launch, founding board member and chairman of MFTA, Nameer Khan, said the team was happy to unveil the organization—a first-of-its-kind in MENA. He added that MFTA will bring together the entire Fintech fraternity in the region, including various associations, and that the nonprofit will advance the interests of all stakeholders, foster collaboration, facilitate the development of industry standards, and promote an environment that’s conducive for extensive Fintech deliberations.

The chairman acknowledged the critical role that the MFTA board membership played in organizing a successful launch. The founding board members are Umair Hameed, partner at KPMG, Nihal Abughattas of TEMENOS, Irina Heaver from Bolton Holdings, Kokila Alagh of KARM, and Altaf Ahmed (Etisalat).

At the launch, MFTA hosted a panel discussion titled ‘Shaping the Future of Fintech.’ Industry leaders with Fintech expertise participated in the forum, including Michael O’ Loughlin (TOKEN, Inc), Kaiser Naseem (MFTA advisor), and Wai Lum Kwok (FSRA at ADGM). The panelists focused on the need to build a Fintech ecosystem throughout MENA. They pinpointed deficiencies and agreed on practical measures that have to be implemented to establish an ideal environment. Their objective is to bring regulators within industry stakeholders’ reach, increase the accessibility of startup funding, and bridge the Fintech skills gap in MENA through specific academic programs.

Education is one of the tools MFTA plans on using to define the future of financial services in the region, according to the organization’s website. To achieve that goal, MFTA will be providing a virtual and physical knowledge-sharing platform that existing industry experts and ecosystem stakeholders may leverage to promote robust Fintech growth within MENA.

Another area of focus at the event was significant upcoming developments in MENA’s Fintech industry. Navin Gupta from Ripple and Richard Teng from the Financial Services Regulatory Authority of ADGM delivered the relevant highlights.

Mr. Teng emphasized the importance of the Fintech community working together and speaking with one voice to achieve intended goals.

“As the Fintech ecosystem in the region grows, the community needs to collaborate more closely for a common effective voice to interact with the likes of regulators, policymakers and institutions. I would like to congratulate the MENA Fintech Association on its official launch and applaud Nameer and the founding team for stepping up to lead this important effort.”—Mr. Teng

The MFTA also invited attendees to tour the HUB 71 at the exclusive launch event. The center is reportedly MENA’s top innovation and technology hub.

After launching MFTA, the organization intends on reaching out to different groups and stakeholders to have meaningful discussions that will promote the Fintech industry in the region. They’ll be talking to and collaborating with innovators, startups, and entrepreneurs. Technology vendors will play a vital role in Fintech development too.

Besides working with Fintech professionals, scholars, and academic institutions, MFTA will be engaging corporate organizations, banks and lenders, investors, and accelerators. Over the next few months or years, the association will be collaborating with relevant government authorities and policymakers on the creation of a supportive regulatory framework for Fintech development and utilization across MENA.

MFTA hopes to extract in-depth insights and views on Fintech from the disparate groups and parties it will bring together under one roof. Bringing everybody on board will make it much easier to come up with and implement viable measures that advance a shared agenda, which is to accelerate the growth of Fintech investment in MENA. The organization will also be building partnerships and engagements that add value to each participating party, individual, or group.

The MENA Fintech Association plans on making the most out of the rapidly growing and maturing Fintech scene. Their goal is to turn the MENA region into an inclusive financial hub in which both established and emerging businesses can thrive. Local and cross-border collaboration on ecosystem development will play a vital part in executing MFTA’s strategies.