UAE and international companies apply for digital banking licences with ADGM

The financial hub has awarded licences to five digital asset exchanges and approved five more in principle

Richard Teng, chief executive of the ADGM Financial Services Regulatory Authority. Chris Whiteoak / The National

The Abu Dhabi Global Market has received interest from several firms in the UAE, the Middle East and Asia-Pacific to establish digital banks in the emirate’s international financial free zone, the head of its Financial Services Regulatory Authority said.

"We have approved one last year … [and] we have several more interested parties that are applying both from the region as well as [from] international [markets], Richard Teng, chief executive of the FSRA told The National in an interview.

“Once those approvals are given and players are ready, they will make their announcements to the market,” he said, without giving the number of applicants or the timeline for approvals.

Interested parties include existing conventional banks looking to set up their digital arms and firms looking to expand virtually, Mr Teng said.

“They could be tech giants, they could be different players with ambitions in digital payments and digital banking that has strong synergies with their [existing] businesses,” he said. “We are looking at applicants from different businesses and different geographies.”

Last year, ADGM granted the first digital banking licence to Anglo-Gulf Trade Bank. The lender, a joint venture between AGTB Holdings and Mubadala Investment Company, defines itself as the first digital trade finance bank looking to facilitate commerce between companies in the Middle East, UK and Asia through blockchain technology.

Conventional lenders and technology giants across the globe are investing heavily in digital financial services as the virtual economy grows. The mobile wallet market in the UAE alone is predicted to hit $2.3 billion (Dh8.4bn) by 2022, according to the latest report by US-based consulting firm TechSci Research.

With growth in mobile phones and internet penetration, global giants such as Google Pay, Samsung Pay and Apple Pay are already making significant inroads into the market. Local and international banks and players including Etisalat and Beam are also competing for market share.

Mr Teng said the Covid 19 crisis has compressed the timeline of digitalisation for financial institutions and other firms looking to transform their businesses.

“What we thought would take another four to five years, in terms of digital adoptions and digital deployment, has been compressed into a period of three months by the Covid-19 situation, he said.

It was a “wake-up call to financial institutions and many other firms”, who had no option but to turn to electronic transactions and on boarding their customers digitally during Covid-19 restrictions on movement, he added.

What we though would take another four to five years in terms of digital adoptions and digital deployment, has been compressed into a period of three months by the Covid-19 situation

Despite the pandemic that has tipped the global economy into the deepest recession since the 1930s, the number of companies applying for licences at ADGM has grown in 2020.

“We had a record year [in 2019] in terms of the number of firms applying for licences. This year, we are expected to surpass that number despite the Covid-19 situation,” he said, declining to give the numbers.

ADGM, one of the fastest-growing asset management and financial services hubs in the Mena region, has also awarded licences to five digital asset exchanges and approved in principle five more permits for exchanges.

“This represents the best-in-class exchanges globally that we have attracted here,” Mr Teng said.

The companies bring expertise in blockchain and asset trading, including tokenisation and securitisation, which will allow more liquidity to flow into the market, he said.

“The five that have gotten licences; they are in the final stages of testing,” Mr Teng said. “As and when they are ready, they will come to the market place … starting from the fourth quarter of this year. I envisage all 10 should be operational by the end of next year.”

In June, Leon Smith, the founder and chief executive of DEX, a crypto asset exchange licenced by ADGM, received a greenlight from the market regulator to go live within three months to trade four of the most common cryptocurrencies – Bitcoin, Ethereum, Bitcoin Cash and Litecoin. DEX joins ADGM-licenced trading platforms Matrix and Glomax.

Over the past decade, crypto assets have gone from niche, unregulated and under-the-radar electronic currencies to being a mainstream and increasingly regulated asset class.

In turn, hundreds of trading platforms have proliferated. Last week, US FinTech giant PayPal unveiled plans to offer direct sales of crypto assets to its 305 million customers.

ADGM is also developing several financial services ecosystems including sustainable finance. The hub signed an agreement with the International Renewable Energy Agency earlier this year to boost green financing in the UAE and the wider GCC, which "is taking on a more important role in the post-Covid world”, Mr Teng said.

ADGM continues to focus on financial technologies and being a centre of innovation. The hub, along with the Central Bank of the UAE is holding the fourth edition of its annual FinTech Abu Dhabi Innovation Challenge from November 24-26.

This year’s event is focused on developing solutions to serve the financing needs of small and medium-sized enterprises and driving regulatory technology.