UAE regulators issue guidelines to financial institutions on use of enabling technologies

The recommendations will help the financial institutions to 'proactively and appropriately' manage risks arising from innovative technologies

The final guidelines are issued after a public consultation that was launched in June 2021. Nicole Hill / The National

Regulators of banks and financial free zones in the UAE have jointly issued guidelines to help financial institutions safely adopt enabling technologies as the Covid-19 hastens digitisation.

The guidelines were issued by the Central Bank of the UAE (CBUAE), the Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) of the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM).

The guidelines set out best practices for financial institutions when adopting enabling technologies such as application programming interfaces, which allow FinTechs to work with banks’ software; Big Data analytics; artificial intelligence; biometrics; cloud computing and distributed ledger technology.

These are expected to help banks and other financial services companies proactively and appropriately manage risks arising from introduction of technology, the regulators said.

"Through the guidelines, we aim to direct licensed financial institutions to adopt technologies that enable modern financial services and promote innovation," said Saif Al Dhaheri, assistant governor – strategy, financial infrastructure and digital transformation at the central bank.

"These guidelines reflect the central bank's keenness to team up with regulatory authorities in various fields, including issuing unified and common guidelines to achieve the growth of the UAE’s economic sectors.”

The issuance of the final guidelines follows a public consultation that was launched in June 2021 as regulators sought to bolster protection of investors.

Digital payments and investor appetite for digital tokens and cryptocurrencies have been soaring in the wake of the Covid-19 pandemic. At least half of institutional investors in the UAE surveyed by London-based Nickel Digital Asset Management this year said they plan to dramatically increase their exposure to cryptocurrency assets between now and 2023.

However, regulation of security tokens and cryptocurrencies is at different stages among various authorities around the world, making investors vulnerable to fraud and other scams.

The UAE banking regulator does not accept or acknowledge any cryptocurrency in the country, where the only legal tender remains the UAE dirham. However, the ADGM licenses a couple of cryptocurrency exchanges and continuously refines its regulatory framework to licence them.

Meanwhile, DFSA unveiled its regulatory framework overseeing digital assets in October.

The guidelines issued by the UAE regulators have considered international standards, industry best practices and the feedback received from market participants during the public consultation, it said.

The guidelines will apply to all financial institutions that are licensed and supervised by the regulators and use the enabling technologies, irrespective of the financial activities conducted.

“Modern financial institutions need their technology to be robust and resilient," said Emmanuel Givanakis, chief executive of the FSRA at the ADGM.

"These guidelines will help financial institutions by providing best practices on how to manage and mitigate risks arising from the use of innovative technologies. In turn, this will let institutions better serve their customers."