The Dubai Financial Services Authority (DFSA) has introduced a restricted financial services license allowing qualifying fintech firms to trial run new concepts.
In advanced stages of formalizing its regulatory framework for loan-based and investment-based crowdfunding services in a bid to attract both Shariah and conventional crowdfunding, the DFSA hopes to entice a broader range of fintech providers with its Innovation Testing License (ITL), which allows companies to test fintech concepts in a ‘regulatory-light’ environment.
“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,” it said.
The regulator’s approach differs from that taken by the Central Bank of Bahrain (CBB) this month, although the overarching objectives of their initiatives do mirror each other (See IFN Fintech Report pg 4). Unlike the CBB which allows experimentation to be conducted remotely through its virtual platform, an ITL licensee will need to be based in the Dubai International Financial Center (DIFC), although the CBB does require fintech firms to deploy their services on a broader scale in Bahrain post-testing. And unlike Bahrain which imposes a nine-month testing period (with a maximum three-month extension if required), the DFSA is more flexible, allowing ITL licensees to extend their testing period in exceptional cases should they exceed the six to 12-month time frame. Both regulators require applicants to be ready (or soon to be ready) to begin testing with customers.
ITL holders will be granted a full license upon achieving all outcomes as intended in their regulatory test plan and meeting all DFSA authorization criteria. If they do not, they will have to employ an exit strategy.
The DFSA’s latest initiative follows the launch of the FinTech Hive at the DIFC, which received over 100 applications from over 32 countries for its inaugural accelerator program. Among concepts covered by applicants include big data and analytics, blockchain, payments, peer-to-peer and crowdfunding, robo-advisory and mobility. Shariah-based services, alternative finance and trade finance are strong focus areas for the DIFC.