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The DFSA - Innovation and Financial Technology

  • The DFSA recognises the importance of innovation and technology to support and enable financial services business models, products and services.
  • Financial Technology, or FinTech, can enhance and improve the efficiency of markets and provide better services and solutions.
  • The DFSA will allow firms to apply for a restricted class of financial services licence which we refer to as an Innovation Testing Licence (ITL).
  • The ITL will enable FinTech firms to test new products, services and business models whilst only complying with Rules appropriate for testing.

WHAT IS THE OBJECTIVE OF THE DFSA’S ITL?

The DFSA’s ITL provides a controlled environment for a firm to develop and test innovative FinTech ideas without being subject to all the regulatory requirements that would otherwise apply to it as an Authorised Firm.

WHAT ARE THE ELGIBILITY CRITERIA?

To be considered for this type of Licence, firms need to meet the following criteria:

a) it must involve innovation and the use of FinTech;

In assessing if a business involves innovation and the use of FinTech, the DFSA will consider, if the business model, product or service uses new, emerging or existing technology in an innovative way, and if it brings a new benefit to consumers or industry

b) it must involve an activity that, if carried on in the DIFC, would amount to a Financial Service (or combination of Financial Services);

In order to obtain a DFSA Licence, the activity proposed must involve a Financial Service within the scope of the DFSA’s regulatory regime, for example, arranging deals in investments or advising on financial products.

c) it must be ready (or soon be ready) to start testing with customers or industry;

In assessing if a business is ready to start testing, the DFSA will want to see a regulatory test plan that, for example, sets out the objectives and parameters for testing, and the timeline and key milestones for that testing

d) the firm must intend to roll out its business on a broader scale in or from the DIFC after it has successfully completed testing

The DFSA will want to see evidence of how the operator intends to roll out its business at the end of the test period.

WHAT ARE THE AUTHORISATION REQUIREMENTS?

If the eligibility criteria are met, in order to be licensed, a firm must complete an ITL application form and regulatory test plan that describes the proposed business model, product or service and the details of how that will be tested and ready for regulation. The DFSA will help applicants navigate through this process.

WHAT RULES WILL APPLY?

The DFSA will work with a firm to establish which Rules should apply during the testing period. While the DFSA will give waivers from, and modifications to, some Rules, there are some key requirements that must be met. These include, being located in the DIFC, complying with UAE Federal Laws, and acting with integrity and due skill, care and diligence.

WILL THERE BE ANY RESTRICTIONS?

Some limits will be placed on the testing activities to ensure appropriate controls for the safety of any customers involved. These include, for example, restrictions on the number and type of customers that may take part in testing.

HOW LONG IS THE TESTING PERIOD?

The testing period will be for a finite period of time, normally six to twelve months. In exceptional cases, the DFSA will consider extending that period

WHAT HAPPENS AT THE END OF THE TEST PERIOD?

If a firm has met the outcomes in the test plan and has shown it can meet the full DFSA authorisation requirements, it will migrate to a full licence. If it does not, it will have to employ an exit strategy.

Authorised Firms and ITL

If you are an existing Authorised Firm with a valid DFSA Financial Services Licence, and wish to test an innovative FinTech business model, product or service, you do not need to apply for an ITL. Instead, if you already have the authorisation for the activity you wish to carry out, you can apply to the DFSA for relevant waivers or modifications if there are DFSA Rules that are not appropriate for testing.

Alternatively, if you do not have the particular authorisation for the activity you wish to carry out, you would need to seek to amend your licence to obtain that authorisation. You can then apply to the DFSA for waivers or modifications if there are Rules that are not appropriate for testing.

The DFSA will treat this aspect of the Authorised Firm's business as an ITL and work with you to establish the right regulatory test plan.

Contact us

All interested firms should contact the DFSA at FinTech@dfsa.ae

Other useful information

  • Consultation Paper 112 - Facilitating the Testing of Financial Innovations in the DIFC - click here
  • Facilitating the Testing of FinTech Innovations – ITL Guidance - click here

DIFC and UAE Initiatives