The United Arab Emirates (UAE) is attracting financial technology (FinTech) companies to develop innovative solutions by implementing regulatory sandboxes.  These regulatory sandboxes allow FinTech companies to test their solutions in a live environment but with some regulatory requirements waived.  

Dubai International Financial Centre

The Dubai International Financial Centre (DIFC)’s Innovation Testing Licence (ITL) Programme focuses on a tailored regulatory framework recognising the innovative nature of business and therefore, waives certain inappropriate or disproportionate regulatory requirements.  Among others, it provides a controlled environment to test innovative financial products and services for 12 to 24 months, generally.  

To qualify under the ITL Programme, a FinTech company must show the Dubai Financial Services Authority (DFSA) that:

• there is a genuine need to test innovative technology;

• it is ready to begin live-testing;  

• it understands the DIFC requirements and how use of innovative technology might affect its ability to comply with those requirements; and  

• it plans to scale the technology within or from the DIFC after successful testing.  

If the innovative technology qualifies for the ITL Programme, a FinTech company must apply for the ITL before testing, unless it is already authorised by the DFSA for the relevant business activity.

The DFSA may declare that certain rules will not apply or may be modified in relation to the innovative technology under testing.  However, some rules may not be waived, such as those relating to fitness and propriety, conduct, having an office in the DIFC and anti-money laundering requirements.  Additionally, the DFSA may impose conditions on the ITL, such as limitations on the duration and scope of testing.  Overall, DFSA will aim to create a simplified regulatory framework tailored to the specific business proposal.  

Abu Dhabi Global Market

The Abu Dhabi Global Market (ADGM)’s version of the regulatory sandbox, the Regulatory Laboratory (RegLab) is similar to the DIFC’s ITL Programme.  RegLab allows companies to test FinTech products in the UAE for up to 2 years without full regulatory compliance and supports those already operating in the UAE who wish to further develop and enhance their offerings.  

To qualify for the RegLab framework, the FinTech product:

• must promote innovation;

• must be sufficiently advanced for live testing;

• must have the potential for wider deployment in the ADGM or the UAE, or contribute to the ADGM’s growth as a financial centre; and

• is capable of promoting significant growth, efficiency or competition, or risk management and regulatory outcomes in the financial sector.  

Similar to DIFC’s regulatory sandbox, participants in RegLab are required to obtain a Financial Services Permission from the Financial Services Regulatory Authority (FSRA).  However, participants will have bespoke regulatory requirements according to the specific identified risks and characteristics associated with the FinTech product.  The FSRA may also vary regulatory waivers and modifications during the testing period, as participants progress through different stages of testing their FinTech solution.  

Central Bank of the United Arab Emirates

The Central Bank of the United Arab Emirates (CBUAE) has also issued its Sandbox Conditions Regulation (CBUAE Sandbox Regulation) for its regulatory sandbox environment, which allows testing for 6 to 12 months.  The CBUAE Sandbox Regulation does not apply to:

• deposit-taking activities, insurance activities, or principal-based activities in financial products that affect the applicant’s financial position; and  

• licensed financial institutions.  

To be eligible for the CBUAE regulatory sandbox:

• an applicant must be a UAE-based start-up, established UAE-based company in any sector or financial free zone company, provided it serves the UAE financial services market or is a UAE citizen; and

• a product or service must be innovative, benefit consumers and/or the financial services industry, demonstrate a clear need for sandbox testing and show intent for wider deployment in the UAE after testing.  

Like the regulatory sandboxes in the DIFC and ADGM, the CBUAE’s regulatory sandbox offers a bespoke regulatory framework that is suited to the unique circumstances of the innovation being tested.  

Conclusion

The UAE is a key hub for FinTech companies seeking to launch or expand in the Middle East. Its regulatory sandboxes offer a controlled environment with lighter, tailored regulations for product testing. With multiple sandbox options available, FinTech firms should carefully evaluate which programme best fits their business model and ensure they understand the relevant frameworks before entering the market.  

For More Information

OrionW regularly advises clients on FinTech and payment services matters.  For more information about FinTech and payment services regulatory compliance, or if you have questions about this article, please contact us at fintech@orionw.com.  

Disclaimer: This article is for general information only and does not constitute legal advice.

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