CENTRAL BANK TO SET UP OFFICE FOR FINTECH ACTIVITIES

▶ The unit will oversee regulations and study issues related to the sector

The Central Bank of the UAE is setting up a dedicated FinTech office to develop countrywide regulations for financial technology companies as the banking regulator charts a road map and looks to build an ecosystem for the sector.

FinTech is recognised as “a key growth area” as the central bank consolidates departments handling the sector into the new body.

In the future the unit will also examine issues such as cryptocurrencies, which the banking regulator does not approve of “at the moment”, Mubarak Al Mansouri told the Middle East Banking Forum in Abu Dhabi yesterday.

“The aim of the office will be to position the Central Bank as the co-ordinating authority, as an author of prudential and market conduct regulatory requirements and as an enabler and facilitator of FinTech activities in the UAE,” Mr Al Mansouri said. “It [the new office] will ensure that financial innovation continues in the banking sector.”

Financial sectors across the globe are grappling with disruptive technologies, which threaten banks’ conventional business models by offering consumers cheaper and easier ways of investing or transferring funds and putting income from commissions and fees under pressure.

Banks are increasingly looking to partner with FinTechs, or in some cases buy them out to incorporate their technology in to their systems in a bid to improve product offerings and protect their market share.

Investment in the FinTech sector rose 120 per cent last year to $111.8 billion (Dh410.6bn), but dropped back by 40 per cent to $37.9bn in the first half of this year, according to KPMG’s Pulse of FinTech report.

The UAE is trying to develop a FinTech ecosystem. SmarDubai, the Dubai government office charged with facilitating the emirate’s smart transformation, and the financial free zones in Abu Dhabi and Dubai – Dubai International Financial Centre and Abu Dhabi Global Market – are all running initiatives to nurture the sector.

The governor said the new Central Bank body will not compete with existing initiatives such as financial free zone sandboxes. These allow FinTech companies, banks and others to co-create and test products with regulator guidance to deliver better services for clients.

“For FinTechs to flourish they need regulatory acceptance and this acceptance is not there [for] onshore [companies]. You are by default eliminating a big chunk of the country,” he said.

“Our effort is to co-operate with our colleagues so that we have a UAE approved regulatory framework,” he said. Once that step is done, the Central Bank will push its agenda regionally for UAE companies to operate across the borders, he added.

The new office’s future mandate will also include examining assets such as cryptocurrencies.

“Cryptocurrency is a big issue now and there’s a lot of debate … we at the central bank are not supportive of cryptocurrencies,” Mr Al Mansouri said.

“It remains to be studied further and this is hopefully the mandate of the new FinTech office to look into such things and also to co-ordinate with our colleagues, the central banks in the region.”

Citing examples of transactions where illicit groups and terrorists have hidden behind cryptocurrencies, Mr Al Mansouri said there is no visibility on who is behind such transactions and cryptocurrencies have no store of value.

“You have seen the Bitcoin yo-yo – it went up and down – you can’t really entrust your economy or [your] currency with such a mechanism,” he added.

The Central Bank is working with the Saudi regulator on a digital currency project, unveiled in January. The first phase of the venture involves testing the local transfer of the currency in central bank to local bank transactions – once it is successful, the idea will be tested on cross-border transactions.

“It is still a study ... we will learn from it and we will take it to the next step if it is successful,” Mr Al Mansouri said.

For FinTechs to flourish they need regulatory acceptance and this is not there for onshore companies