Last year, the UAE accounted for 47 per cent of all fintech deals in the region. It also topped (50 per cent) in overall funding for fintech start-ups since 2015.

The UAE’s unique demographic, with a majority expatriate population made up of a diverse mix of nationalities, makes it a strategic jurisdiction for a number of international operations connecting people to services from their home countries. Local fintechs are also on the rise with a number of incubator programmes run by local regulators focusing on developing home-grown start-ups.

The focus on fintech that we are seeing has mostly originated from non-traditional financial services companies rather than traditional financial institutions. Nonetheless, traditional financial institutions have been exploring and, in some cases adopting, new financial technologies.

As fintech lowers the barriers to entry and changes consumer habits and preferences, traditional financial institutions need to innovate to maintain market share. Fintech services have the potential to save a huge amount of operating costs — for example, by automating traditionally labour-intensive tasks such as KYC checks — and reduce compliance risk if used correctly.

Getting it right

There are a variety of stakeholders who have vested interests in the development of fintech. New entrants are clearly concerned about the legality of their business model and set up. Traditional financial institutions explore how they can use new technologies to offer new products, or offer existing products through new platforms and the associated conduct risk that that entails.

Regulators are also not immune to the challenges that Fintech raises and they seek to ensure that new technologies do not compromise the stability of the financial system, consumer rights and the ever-ongoing fight against financial crime.

We expect to see continued and more coordinated scrutiny of the moves by Big Tech into finance by regulators in the finance, data and competition spheres, with the potential for more enforcement action as regulators focus on the protection of consumers.

It’s all about resilience

We also expect firms to intensify their focus on operational resilience to address commercial risks and meet mounting concerns among regulators. This is in the wake of larger and more frequent systems failures and hacks globally, and in the context of certain systemic risks being concentrated as firms increasingly outsource key functions.

Firms will look to collaborate where appropriate including on cybersecurity arrangements.

Reaching out

Policymakers will prioritise public-private engagement and industry outreach to find tech-driven solutions to cyber crime threats, including on threat assessment and action plans, information sharing, payments systems and authorised push payment fraud, digital identity services, the use of cryptoassets for money laundering, and the detection and reporting of suspicious transactions (including through the innovative use of cryptography and machine learning).

While some of the necessary tech already notionally exists, regulators and major firms will strive to agree on marketwide solutions that are more effective than siloed efforts.

One of the challenges in the expansion of fintech relates to the regulatory classification of the products and services. In many jurisdictions in the Middle East, temporary regulatory sandboxes have been created but more permanent licensing regimes remain nascent.

The UAE Government is committed to making the country a regional and world leader for fintech. We therefore expect the Government’s strategy of moving early to implement regulations and making significant amounts of capital available to fintech start-ups to continue.

The UAE’s Securities and Commodities Authority released the initial draft of its Regulation for Issuing and Offering Crypto Assets in October last for feedback from interested parties. This year, this regulation will be finalised and brought into law, making the UAE one of the first countries in the world to have a comprehensive legislative approach to crypto assets.

The UAE Central Bank has announced that it will be creating a fintech office. This office will legislate at a federal level and aim to coordinate across the UAE’s various jurisdictions and fintech initiatives.

Fintech has had a good start — now it’s time to consolidate the gains it’s made so far.

Reem Alsayegh is Counsel, while Waleed Rasromani is Head of Corporate — Saudi Arabia at Linklaters.