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UAE Central Bank to collaborate with DIFC and ADGM on fintech initiatives: Increased collaboration between the Central Bank and the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) is expected to further enhance the enabling environment for the fintech sector (in particular regarding sandbox testing environments), following agreements signed between the Central Bank and the two free zone regulators in October 2021. Areas of collaboration may include strategies to support fintech companies to scale, including through the DIFC’s Fintech Hive and the ADGM’s RegLab and Digital Sandbox.
A new digital currency is expected: The Central Bank is expected to further develop its plans to introduce a new digital currency, following the announcement of the new currency as part of its 2023-2026 strategy. “Central Bank Digital Currencies” are an electronic form of central bank currency, potentially accessible to all citizens and companies as an alternative to cash.
Guidelines on the use of new technologies to be issued: UAE regulators are expected to issue guidelines for banks and financial institutions regarding the use of new technologies to offer innovative products and services, such as application programming interfaces (APIs), artificial intelligence and distributed ledger technology (DLTs). A joint consultation between the UAE Central Bank, the Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) in the DIFC and the Financial Services Regulatory Authority (FSRA) in the ADGM was launched in June 2021.
Licensing of cryptoasset activities: In the coming year, we may see the first examples of licensing of entities under the new cryptoasset regulatory regime adopted by the SCA – activity may be focused on the Dubai Multi Commodities Centre (DMCC) and the Dubai World Trade Centre Authority (DWTCA) which are positioning themselves as cryptoasset hubs.
Grace period to upgrade SCA licences to end: SCA licence holders must upgrade their current financial services licences by 17 May 2022 in line with the new licensing regime set out in the SCA Rulebook and adopted by SCA Decision No.13/R.M of 2021. The Rulebook sets out the types of licences and categories of licensed financial activities. It also sets out provisions as to the licensing of financial activities (including financial promotion) and approved functions, and the conduct of business.
Possible EIBOR replacement consultation: As the wave of global interest rate reform continues and interbank offered rates used in loans and other conventional and Islamic financial products are replaced with risk-free rates, 2022 may see the Central Bank consult on the process to replace the Emirates Interbank Offered Rate (EIBOR). To date, the Central Bank has not published any official communications on this point. All GBP LIBOR benchmark settings will cease immediately after 31 December 2021, requiring banks, asset managers and corporates to have transitioned any products which reference LIBOR to the new benchmark rates before that date.
New regime for cryptoassets and security tokens expected: A new regulatory regime for “Security Tokens” – including cryptoassets or tokens using DLT or similar technology – is expected to be published following a consultation on the proposed regime in March 2021. The DFSA is expected to consult on the proposed regime for other types of tokens that are not “Security Tokens”, such as exchange tokens and utility tokens, in the coming months.
Joint UAE and DIFC fintech initiatives: Increased collaboration between the DIFC and the UAE Central Bank to further enhance the enabling environment for the fintech sector is expected in the coming year, as initiatives under the agreement signed between the two regulators on 13 October 2021 take shape. Expected initiatives include the development of a sandbox programme under DIFC’s existing frameworks and joint regulations and guidance.
DFSA proposes leverage ratio adjustments in line with Basel III: Revised prudential rules for banks regulated in the DIFC may be adopted, to bring the regime in line with recent revisions to the rules outlined by the Basel Committee on Banking Supervision in Basel III (Consultation Paper No.139 – Updating the Leverage Ratio). The key reform would see the introduction of a minimum level for the Leverage Ratio (LVR) of 3% following the introduction of this minimum LVR by the Basel Committee on Banking Supervision, with effect from 1 January 2023.
Reforms to adopt aspects of international best practice: Further reforms to the ADGM’s regulations promise to adopt best practice emerging from the latest global developments, as the ADGM continues its efforts to position itself as a progressive, international financial centre. We expect that the adoption of legislative measures in the course of 2022 will continue to drive activity in the ADGM, especially in the Fintech space.
Fintech regulation: Further regulation to support the fintech ecosystem and promote technological innovation in the financial services industry in ADGM is expected, as the ADGM looks to cement its position as a global fintech hub. Payment systems are expected to be a particular focus as consumer preference for digital payments grows, accelerated by the Covid-19 pandemic, and government support for tech-focused solutions continues.
Joint UAE and ADGM fintech initiatives: Increased collaboration between the ADGM and the UAE Central Bank to further enhance the enabling environment for the Fintech sector is expected in the coming year, as initiatives under the agreement signed between the two regulators on 13 October 2021 take shape. Expected initiatives include the development of a sandbox programme under ADGM’s existing frameworks and joint regulations and guidance.
Companies to comply new data protection regime: ADGM companies must take action to ensure they comply with new ADGM Data Protection Regulations 2021 by the time the grace period for compliance ends on 14 February 2022.