Fintech Regulations in the UAE
What is the current investment in the Fintech sector of the UAE?
The United Arab Emirates is one of the largest fintech hub for start-ups in the MENA region. The country taking the lead in this industry in MENA is Bahrain. UAE is second in place with the increase in surge of capital infusion and ever-accepting laws and regulations that concerned authorities are enforcing for the benefit of this Industry.
Does UAE have any inter-institution data sharing policies for the fintech sector?
Fair-play policies, such as the sharing of data between financial institutions in order to induce competition, are not currently in place within the UAE. Furthermore, financial institutions collecting data from the public and storing the same are under a duty of confidentiality, a breach of which attracts criminal liability. The UAE Central Bank is also mandated to keep banking data confidential.
However, regulations concerning digital payments impose interoperability requirements and access regimes on payment service providers.
What are the policies for the immigration of talent for the fintech sector?
The population of the United Arab Emirates roughly stands at 80% expatriates and 20% nationals. As such, it is fair to say that the country has fairly open immigration policies. While the country does not have any immigration caps or quotas in place, it is prudent to note that companies whose workforce exceeds 100 employees are required to recruit stipulated numbers of UAE citizens in order to ensure a minimum percentage of participation of nationals in the economy. The requirement varies from sector to sector.
How are the traditional financial institutions responding to fintech policies of UAE?
Incumbent financial institutions have been active in positively responding to the digital shift. Incubator programmes are a plenty, and as mentioned earlier, UAE diverts a large chunk of funding for Fintech in the MENA region. Many of the incumbents have launched variety of programmes to grow their engagement with fintech.
Are there any tax benefits for fintech firms in UAE?
While no specific tax benefits currently exist for the fintech sector, the region is tax friendly for firms in general. No corporate income taxes are charged in the UAE. While a value added tax of 5% is charge on the services/goods which are performed/sold in return for an explicit fee, or discount, or other monetary benefit such as rebates or similar payments, and the recipient of such services/goods is a consumer situated in the UAE.
Which arm of the government regulates fintech operations in UAE?
The primary bodies that regulates fintech operations in the UAE
are the United Arab Emirates Central Bank (for financial services), the Securities and Commodities Authority (for activities relating to securities and capital markets), and the Insurance Authority (for insurance related services). For financial services in either the DIFC or the ADGM, the regulators are the DFSA and the FSRA respectively.
I wish to set up a firm for providing loans to consumers onshore. What are the regulations I should be aware of?
Any entity willing to engage in providing loans and other financial facilities to third parties will have to seek approval and license from the UAE Central Bank under the UAE Federal Law No. No. 14 of 2018 (“Financial Institutions Law”), which mandates the Central Bank to regulate credit facilities of all types. As such, approval from the Central Bank is a necessary prerequisite to the operations of a consumer lending firm.
What are the regulations governing to set up a firm for providing loans to consumers in the DIFC or the ADGM??
If the firm provides such services in or form the DIFC or the ADGM area, it would require a license from the DFSA or the FSRA, as such services are considered to be services for providing credit. Even if the firm’s role is only advisory in the jurisdictions, a license still ought to be acquired from the respective regulators. If such services are merely promoted in the economic regions and the operations of the firm do not fall within the previously discussed heads, a license from the Representative Office is required.
Can financial entities trade loans in a secondary market under the regulations of the United Arab Emirates?
The trading of loans as an asset amongst investors is a regulated activity onshore, and is understood by the UAE Central Bank to construe “primary lending”, regardless of the disbursement status of the loan. Even within the DIFC or the ADGM, the same is a regulated financial services activity.
What are the laws I should be aware of to set up a Collective Investment Scheme (CIS)? (lex)
Unregistered CIS are prohibited by the Government, unless registered with the Securities and Commodities Authority. This prohibition applies to both public or private promotions. However, such prohibition does not apply to the promotion of foreign funds to qualified corporations, the details of which are present in the rules promulgated by the Securities and Commodities Authority. In order to market foreign funds to a natural person, a SCA licensed promoter is required, amongst other conditions.
What are the regulations for the setting up CIS in DIFC or ADGM?
There are similar prohibitions on the marketing of unregistered funds in the DIFC area. Unregistered funds must register with a DFSA licensed intermediary, along with the applicable license, for their marketing unless exempted from the same. Foreign funds cannot carry out distribution in the area. It is important to note that most funds marketed in the DIFC area are foreign, and thus, registered.
The ADGM also has similar regulations in place.
Is invoice trading permissible in the UAE?
With regards to invoice trading on-shore, a firm dealing with invoice trading may require a license from either the Central Bank, or the Securities and Commodities Authority. A firm falls under the former if it engages in providing credit, while the latter’s jurisdiction is invoked if the invoices are considered to a financial product under the Promoting and Introducing Regulations (Regulation 3/RM of 2017). Invoice trading is considered to be an activity concerning the arrangement of credit within both the DIFC (regulated by the DFSA) as well as the ADGM.
In the event that such services are only promoted in the UAE, a license from the concerned Representative Office shall be required.
Are there any regulations for payment services in the UAE?
The Government of the USE has published a regulatory framework for the digital payments i.e. the The Regulatory Framework for Stored Values and Electronic Payment Systems 2017 (“Digital Payment Regulations”), which pertains to four distinct payment services: retail service providers, micropayment providers, government providers and non-issuing providers. The framework regulates any digital processes which enable –
- cash to be stored in a payment account,
- withdrawal of cash from a payment account,
- retail credit/debit payments,
- peer to peer payments,
- monetary remittance.
Are there any payment services that are exempt from the regulations?
The Digital Payment Regulation delineates certain payment services, and keep the same outside purview of the Digital Payment Regulations. These are –
- Payments in cash without intermediaries;
- Payments via credit/debit cards;
- Payments via checks;
- Closed loop payment instruments which subsist only for the purchase of goods/services provided by the issuer;
- Transactions within a payments settlement system between financial institutions;
- Payments within payment service providers for their own accounts; and,
- Technical service providers.
However, such services may still come under the ambit of the Central Bank by means of other regulations in the specific field of operations.
Which regulations govern a fintech providing insurance?
While insurance fintech is not specifically regulated in the United Arab Emirates, the general regulation of the insurance sector would be the compliance check required for such companies. The UAE has an Insurance Authority, which was established under the Federal Insurance Law (Federal Law No. 9 of 2007). Onshore firms must comply with the regulations and notifications of the Insurance Authority.
What are the regulations regarding credit rating services?
The Securities and Commodities Authority has issued regulations concerning the licensing of the credit rating agencies (Regulation 18/RM of 2018). It defines credit rating as a periodic measure determining and assessing the ability on an entity to fulfil their financial liabilities, the risks affecting the same, as well as the risk an investor into the enterprise may shoulder. In order to carry out credit rating activities, firms require a license, the eligibility for which includes a minimum capital of 2 million UAE dirhams and consent from the UAE Central Bank.
Is there any public credit reporting agency in the UAE?
Individuals and corporations can obtain credit information through the Al Etihad Credit Bureau, an initiative of the Federal Government. The UAE Government has established the Bureau which is mandated to collect credit information from financial and non-financial entities alike, the Bureau is also tasked with the production of credit scores and reports after analysis and aggregation of the collected information. The Federal Government has also been in contemplation of increasing the scope of the Bureau’s collection of information to information related to real estate, utilities, etc. All financial institutions are obliged under law to provide relevant information to the Bureau at a monthly basis.
Adv. Shayan Dasgupta
Corporate & Commercial Law | M&A | FinTech, Blockchain & AI