In October 2017, Abu Dhabi hit an important milestone in its quest to develop a fintech sector that can serve the UAE and the wider Middle East region, and perhaps even make a mark on the rest of the world.
The city’s financial services hub, Abu Dhabi Global Market (ADGM), evaluated almost two dozen companies wanting to join its fintech RegLab, and on 22 October 2017 announced the names of the 11 successful applicants. They are the second wave of entrants into the scheme, which was launched in November 2016. A second cohort joining the programme is an important signal that it is no flash in the pan and suggests it could provide a foundation for a vibrant local fintech sector in the future.
What is the RegLab programme?
As with other regulatory sandboxes, the RegLab offers companies a controlled environment in which they can test services and products without being subjected to a full suite of regulations. The programme is open to applicants both large and small, start-up or established, but there are a few criteria they have to meet to qualify: they must have a technological solution that is both innovative and ready for testing, and it also needs to contribute to the development of the financial sector in the UAE.
Fintech in the Gulf region
Abu Dhabi is one of a growing number of cities around the world to have started a programme like this. Within the Gulf region, as well as Bahrain’s regulatory sandbox there is also the FinTech Hive scheme at the Dubai International Financial Centre (DIFC).
The nature of these programmes varies. The Dubai scheme, for example, is targeted at early-stage companies still developing their solutions and services. It is based around a 12-week accelerator programme, which gives start-ups access to potential customers and partners in the DIFC.
The Dubai Financial Services Authority (DFSA), which regulates the DIFC, has been “very impressed” with the start-ups involved in Hive, according to Peter Smith, managing director and head of policy and strategy at the DFSA and a member of the CISI’s National Advisory Council for the UAE. It is anticipating some might stick around beyond the 12-week course. In the spring, the DFSA announced an innovation testing licence (ITL) – a sort of regulatory sandbox in which fintech firms are given a restricted licence to develop and test innovative concepts without being subject to the full suite of regulations that normally apply. “We expect to have a handful of firms from the Hive apply for an ITL or full financial services licence as the next step in their development,” says Peter.
Those that are accepted will be given two years to test and develop their solution within the RegLab.
Who’s on the programme?
The first five joined in May 2017. They include two from the UAE: Now Money, which uses mobile technology to provide low-income migrant workers with banking and remittance services (and which is also a participant in the Central Bank of Bahrain’s regulatory sandbox); and Titanium Escrow, an automated escrow service that aims to increase trust among counterparties. Also involved are two Indian firms developing online loan services, CapitaWorld and Rubique, and US-based Finalytix, which has a robo-advisory platform.
Since May 2017, these companies have received guidance from ADGM’s fintech team, as well as support from some of the programme’s partners, which include KPMG and New York University Abu Dhabi. There are also mentors who offer help in areas such as legal services, PR and marketing, and compliance.
As the assortment of companies involved makes clear, the RegLab has a distinctly international flavour. This has been reinforced with the second group of applicants, with 22 companies from at least 11 countries, including Canada, Egypt, Saudi Arabia, Lebanon, Hong Kong and, naturally enough, the UAE.
How does Abu Dhabi benefit?
There are plenty of potential advantages for companies in the programme, but there are also a number of benefits for Abu Dhabi. The authorities have identified financial innovation as a key driver for economic growth in the future and this offers it a role in promoting that trend. By bringing pioneering companies and products into its territory, it also gains an insight into the needs of the fintech sector, which will help it create the right environment to foster innovation and advance the fintech market more broadly.
“Fintech is going to be the future, so we need to embrace this innovation and think of how we can update our rules along the way, to make sure we can support the adoption of technology,” explains Wai-Lum Kwok, executive director of capital markets at ADGM and the person in charge of its fintech strategy. “We need to have a platform for us to get near the fintech players.”
How does the RegLab fit into the ‘bigger picture’?
ADGM’s RegLab is part of a portfolio of initiatives by Abu Dhabi to establish itself as a hub for innovative companies. Among the other efforts is the FinTech Abu Dhabi conference, held in October 2017, which included, among other things, a fintech innovation challenge. This competition saw 11 finalists (out of 166 applicants) compete to find solutions to problems in areas such as financial and investment management, financial inclusion and trade finance.
ADGM has also been developing tailored regulatory environments for different sections, which could indirectly help more start-ups develop locally. For example, in May the hub’s Financial Services Regulatory Authority unveiled a framework for venture capital firms, and Wai-Lum says it is looking at other regulatory regimes.
What’s the ‘ultimate aim’?
The ultimate aim is to create a self-sustaining innovation ecosystem. But even once that happens, there will still be a need for a regulator that is alert and flexible to meet the changing needs of the financial services sector. “The sector may come up with new solutions that require some tweaks to our rules,” says Wai-Lum. “So we see our job as continually renewing ourselves to make sure we are relevant to the sector and that business thrives.”
There is also an important role for CISI members in all this. As Peter Smith, managing director and head of policy and strategy at the Dubai International Financial Centre and a member of the CISI’s National Advisory Council for the UAE, points out, fintech involves people carrying out financial activities via their phones, tablets or laptops and without face-to-face contact, which in turn necessitates great trust. “The commitment of CISI members and their employers to act in an ethical manner and with integrity provides a foundation on which trust in new ways of doing business – in fintech – can be built,” he says.
This will be vital if the fintech sector is to make the most of the opportunity in front of it.
This article was originally published in the Q4 2017 print edition of The Review and entitled 'A helping hand'. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.
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