When it comes to attracting fintech start-ups and promoting fintech innovation in the GCC, Bahrain and the UAE are the undisputed leaders with their vocal support and regulatory infrastructure to create a holistic fintech ecosystem; but now, neighboring economic powerhouse Saudi Arabia is also throwing its hat into the ring. Could this signal a change in dynamics?
Over the last year, Bahrain and the UAE have been busy pushing out new regulatory measures and carving out regulatory sandboxes (or something similar) in their drive for fintech innovation while Saudi Arabia have stayed relatively quiet, but things are beginning to stir in the Kingdom. This change is sparked by the Saudi Capital Markets Authority (CMA) which launched its Fintech Lab this month, an initiative to attract start-ups to test and deploy new solutions and products in a regulatory-light environment. Bahrain and the UAE introduced similar measures (Bahrain, a regulatory sandbox and Dubai, an innovation testing license) six months ago.
Before accepting any applications to the Fintech Lab, the primary objective of the new unit is to first engineer a new regulatory framework for fintech, particularly those operating in the capital markets.
“The fintech regulation will be designed to promote and to develop fintech where participants can deploy and test their innovative fintech products, services and business models related to capital market within specified parameters and timeframes,” the CMA explained.
Similar to Dubai, CMA will create a new class of license for fintech companies or financial institutions working on fintech solutions, known as the Financial Technology Experimental Permit, or Fintech ExPermit. It plans to start accepting applications for the Fintech ExPermit before February 2018.
As the framework would only cover capital market activities, banking and insurance-specific solutions would be excluded as these two sectors are regulated by the Saudi Arabian Monetary Authority (SAMA). SAMA has yet to introduce any fintech rules for the banking and insurance industry, however, Governor Dr Ahmed Abdulkarim AlKholifey in April 2017 did affirm that the central bank is embarking on a number of programs to elevate the standards of digital services and enhance operating models for that purpose. He highlighted that the regulator’s key priorities are to establish an innovation center to facilitate the implementation of innovative ideas and the development of related operating models; to create a regulatory sandbox; and to introduce a fintech space.
Admittedly, as compared with its GCC peers, the Kingdom has to play catch-up: both Bahrain and Dubai already have crowdfunding regulations, Bahrain is scheduled to launch its Bahrain Fintech Bay in February and Dubai’s fintech accelerator program is already up and running. Nonetheless, with Saudi Arabia now taking concrete steps to build its fintech ecosystem, the play in the GCC has gotten a lot more interesting especially in the Islamic fintech space because there is little doubt that any fintech initiatives taken by the Saudi regulators would have Shariah considerations. After all, Saudi Arabia is one of the largest Islamic finance markets in the world, making it one of the top markets to penetrate for many Islamic fintech start-ups.