Driven by the United Arab Emirates (the “UAE”) National Innovation Strategy and Dubai Plan  , and the Dubai International Financial Centre (the “DIFC”) 2024 strategy  , the emergence and developments of Financial technology (“FinTech”) is being used to transform and leverage the DIFC into a global FinTech innovation hub, linking the United States, European, Middle East, Africa and South Asian markets. The Dubai Financial Services Authority (the “DFSA”) has released its Consultation Paper (112) with guidance on how its regime will accommodate and regulate testing FinTech innovations.
WHAT IS FINANCIAL TECHNOLOGY?
Financial Technology is an industry consisting of companies that use new technology and innovation with available resources in order to compete in the market of traditional financial institutions and intermediaries in the delivery of financial services.
FinTech opens up the possibility to the following:
- Improves interaction between financial services firms and customers, including bringing new players into the financial services arena;
- Improves the efficiency, structure and competitiveness of markets (including value chains);
- Makes new financial products available.
- Improves risk management by financial services firms;
- Reduces both the risks and the costs of many financial services back office processes; and
- Improves efficiency and security in the provision of financial services.
FINTECH HIVE AT THE DIFC
The Dubai International Financial Centre has launched its first accelerator called FinTech Hive, which aims to link global innovation across three other FinTech hubs; New York, London and Hong Kong.
By creating Fintech Hive, the DIFC aims to create a platform that drives innovation, by identifying leading technology companies and offering opportunity to develop, test and modify their innovations with executives from the DIFC. The accelerator program identifies entrepreneurs within the financial services industry and grants them access to and feedback from potential customers and funders.
REGULATION OF FINTECH INNOVATION IN DIFC
The DFSA has expressed its cooperation and its willingness to work in conjunction with the DIFC Authority in order to engage with innovators and creators who are at a point where the DFSA financial regulation will usually apply. 
The DFSA’s intention is to consider using its power to create a simplified regulatory framework- one that is tailored to specific business proposals, on a case by case basis.
The following qualifying criteria have been put in place by the DFSA, in order for a business proposal to be considered:
- Must involve the use of financial technology,
- Involve an activity that, if conducted in or from the DIFC, would involve the carrying out of one or more financial services regulated by the DFSA,
- Must be ready to start ‘live’ testing; and
- The firm must intend to implement its business proposition, model, service or product more widely, in or from the DIFC.
Step 1: Exploratory Stage
The DFSA will work with the firm to establish what regulatory requirements should apply and what requirements should be waived or modified. There are a number of requirements that the DFSA would expect to apply in all cases where regulation is needed. These include, but are not limited to:
- The fitness and propriety of the applicant;
- The need for the firm to act with integrity;
- The need for the firm to act with due skill, care and diligence;
- The firm to communicate information to customers in a way that is fair, clear and not misleading;
- Being open and co-operative with the DFSA;
- Having an office in the DIFC; and
- Complying with all UAE Federal law prohibitions.
Step 2: Application Stage
Upon confirmation that the proposal is in line with the criteria above, the firm would apply for and receive a Financial Service License from the DFSA referred to as an Innovation Testing Licence (“ITL”). The licence will include a number of restrictions and conditions regarding the activities that a FinTech firm can carry out, to ensure that the testing is controlled.
Step 3: Testing Phase
The DFSA would expect the firm to use the simplified regulatory framework under the ITL for a limited period of time only. The period will generally be six to twelve months.
Step 4: Completion Phase
At the end of the testing period the FinTech firm would be expected to notify the DFSA of its results. If the firm becomes fully operational, it would be expected to comply with all relevant regulatory requirements.
GUIDANCE RATHER THAN NEW RULES
The regulation of FinTech innovations in the DIFC by the DFSA, as outlined above, will be carried out through the issuance of ITLs. The DFSA has emphasized that the existing regime is flexible enough to accommodate testing without introducing new rules or new types of financial service activities. Instead, they have provided guidance on how to use the flexibility of the regime. 
FINTECH IN THE UNITED ARAB EMIRATES
The presence and importance of FinTech can be seen throughout the UAE strategy. As FinTech startups become a part of the global financial system, an appropriate environment is required to understand and leverage opportunities presented by new entrants. This is evidenced by UAE Vice President, Prime Minister and Ruler of Dubai, His Highness Sheikh Mohammed Bin Rashid Al
Maktoum, National Innovation Strategy to create an innovation-friendly ecosystem.
Abu Dhabi Global Market (“ADGM”), the International Financial Centre in Abu Dhabi, launched its Regulatory Laboratory (“RegLab”) with the implementation of its FinTech legislative framework with effect from 2 November 2016. ADGM’s RegLab is a tailored regulatory regime for FinTech participants. It is designed to foster innovation within the UAE financial services market for both new
market entrants and existing financial institutions.
Dubai has gained attention in the recent years for being an attractive location for both entrepreneurs and investors. A new Innovation and Creativity Lab is coming to Dubai through the strategic partnership of the government corporation Nedaa and Nokia. The technology innovator will support Dubai’s ongoing ‘Smart City” goals.
Blockchain technology, a technology that Dubai’s government has given full support through its 20/20 plan to underline all of its documents and transactions, has become increasingly popular and in demand. Indeed, there have been a number of FinTech-related seminars held in Dubai, including more recently, the World Government Summit which took place from 12-14 April 2017.
lecocqassociate arabia dmcc provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.
This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact us for any questions.
 UAE National Innovation Strategy, available at http://www.uaeinnovates.gov.ae/docs/default-source/pdfs/national-innovation-strategy-en.pdfsfvrsn=2
 DIFC 2024 Strategy, available at https://www.difc.ae/newsroom/press-releases/dubai-international-financial-centre-set-triple-size-2024-part-centres-newly-announced-2024-strategy
 Testing Fintech Innovation in the DIFC, DFSA Consultation Paper 112, available at http://dfsa.complinet.com/net_file_store/new_rulebooks/c/p/CP_112_TESTINGFINTECHINNOVATIONSINTHEDIFC.pdf
 The proposed guidelines to the General Module Rulebook on ‘Facilitating Fintech Innovation’ available