Dubai Financial Services Authority Creates Special License for Fintech to Foster Innovation

The Dubai Financial Services Authority (DFSA) is looking to streamline the process of financial innovation by creating a special license for Fintech firms called the “Innovation Testing License” or ITL.  The DFSE said the ITL signals the “next phase” in their regulatory roadmap to increase Fintech development.

The new licence will allow qualifying Fintech firms to develop and test concepts from within the Dubai International Financial Centre (DIFC), without being subject to all the regulatory requirements that normally apply to regulated firms. The DFSA will work with applicants to understand the business proposal and establish the appropriate controls for the safety of any customers involved, on a case-by-case basis. The ITL is similar in operation to the widely copied UK FCA Fintech Sandbox. Many of the most evolved securities regulators around the world have sought to lessen the barriers to entry by creating streamlined approaches for financial innovators. 

“Fintech is changing the landscape for financial services, providing more opportunities to seek financing and increasing financial inclusion. As regulators, it is our responsibility to provide a framework which supports the sustainable development of this industry while protecting consumers and financial stability,” explained Ian Johnston, Chief Executive at the DFSA.

The DFSA’s approach is said to be aligned with the National Innovation Strategy set out by UAE Vice President, Prime Minister and Ruler of Dubai, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, to create an innovation-friendly ecosystem.  The DFSA is also formalizing its approach to loan-based and investment-based crowdfunding platforms. Specifically, loan-based crowdfunding has become a valuable source of financing for SMEs in several jurisdictions.

Johnston said their effort to create a regulatory framework that promotes growth and innovation was good for consumers and beneficial to Dubai’s greater vision of becoming an “information-based society and a smart city.”

The DFSA says that Fintech firms will be able to use the restricted license to test an innovative product or service for six to 12 months. In exceptional cases, the DFSA will consider extending that period.

If a firm has met the outcomes in the regulatory test plan, and it can meet the full DFSA Authorization requirements, it will migrate to full authorization. If it does not, the company will have to cease carrying on activities in the DIFC that need regulation.

This initiative follows the launch of the Fintech Hive at DIFC (if you are interested in applying you may contact the DFSA here [email protected]), which will bring together the next generation of leaders and entrepreneurs to compete and address the growing needs of the region’s financial services industry, using innovative technology solutions. Fintech Hive expects to catalyze growth and efficiency in a variety of areas including trade finance, alternative finance and Sharia-based services.

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