By Gulf Business Staff / Gulf Business - Image Credit: Gulf Business
SOURCE: Gulf Business - Developing the UAE’s legal framework for innovation
As the UAE economy diversifies away from oil and gas, innovation and entrepreneurship are high up on the government agenda. The UAE has had a national innovation strategy in place since 2014 and is going to great efforts to ensure the country is among the most innovative nations in the world.
Each government ministry has been mandated to allocate 1 per cent of their spending to innovation.
The UAE is fast emerging as a fintech hub. According to the Fintech Middle East 2017 report, the UAE hosts one-third of all fintech start-ups in the Middle East.
While this is a brilliant statistic, it does present a major challenge for the regulators. The rapid rate of change within the fintech sector means regulation is playing a game of catch up. Lawmakers, regulators and legal systems must be agile and flexible in adapting to market needs during a period of rapid change.
Our work with clients including peer-to-peer lenders, robo advisory wealth management providers and crowdfunding platforms highlights the need for regulators to be innovative themselves. There is a wide ranging existing set of rules and regulations that govern financial services in the UAE. Regulators face a choice on whether to foster innovation and allow financial technology to develop organically, adapting to the changes, or to set the boundaries within which the innovation and technology can develop. As the intervals of innovation continue to shrink, regulators may struggle to be proactive.
Abu Dhabi Global Market and Dubai International Financial Centre have each introduced a special licensing regime to deal with start-ups in the fintech space.
The ADGM Regulatory Laboratory (RegLab) and the DIFC Innovation Testing Licence (ITL) are each offering a test environment for start-ups to commercialise their innovations under regulatory supervision, offering participants exemptions from existing rules and regulations. Ultimately, this will lead to new types of financial services licences being issued, for activities currently not contemplated or that are prohibited under the law. These initiatives underscore the importance of innovation and entrepreneurship to the government’s economic strategy going forward.