Ease of doing business and 'insane access' to regulators key to rapid growth of UAE FinTechs

DFSA looks at best practices globally and makes it fit for purpose locally

Representatives from FinTech companies, banks, regulators and venture capital funds are out in full force at the Dubai FinTech Summit. Antonie Robertson / The National

The ease of doing business and the open-door policy of regulators are a boon for FinTech companies and make the Emirates a magnet for companies from across the globe seeking a rapid pace of growth, according to participants at the Dubai FinTech Summit.

FinTechs have “insane access” in this market, for instance, if they seek engagement with regulators, it is very accessible and it is a lot more difficult in other markets, Sacha Haider, chief strategy officer at AstraTech, the Dubai-based technology-focused investment company backed by Abu Dhabi’s G42, said on Monday.

“FinTech players in other markets have to reach a certain scale to be able to interact with the regulator. [But] here, there's very proactive movement from the regulator around any type of FinTech innovation,” Ms Haider said.

“There's a co-creation between companies and the regulator around what the regulation should look like.”

Justin Baldacchino, managing director of supervision at Dubai Financial Services Authority, said the financial free zone does not wish to put more regulatory burden on FinTech firms. Antonie Robertson / The National

The size of the UAE FinTech market is estimated to hit $3.56 billion in 2025, and is expected to reach $6.43 billion by 2030, at a compound annual growth rate of 12.6 per cent during the forecast period, driven by a progressive regulatory environment and the rapid adoption of digital banking solutions, according to market advisory company Mordor Intelligence.

Ease of doing business

“The ecosystem is set up in a way where you have access to people you want to connect with, from a business perspective and a growth perspective,” said Ms Haider.

“There's few other places in the world where there's such a concentrated focus on enabling companies to do business.”

Offering a regulator’s perspective, Justin Baldacchino, managing director of supervision at Dubai Financial Services Authority (DFSA), said the financial free zone does not wish to put more regulatory burden on FinTech firms because that kills innovation.

The DFSA does encourage the growth of FinTech companies, but at the same time, monitors the speed at which they grow. Customer protection, governance and controls for investor protection are among the things constantly on the regulator's radar.

The DFSA interacts “quite heavily” with the industry, some regulators globally do not have those interactions, Mr Baldacchino pointed out.

Gautam Jain, operating member at SC Ventures, said innovation needs to happen in business models. Antonie Robertson / The National

Fostering innovation

“We ask the industry about their innovations and then put an overlay on that to ensure we don't slow down innovation but instead foster it to grow further. By getting feedback, we're able to adjust our regime to make it fit for purpose for the industry, but at the same time also making sure we protect the clients that are investing in the firms,” he said.

“We're looking at international regulators, but we're taking the best components of what we see globally and making it fit for purpose for Dubai, but also for the greater UAE.”

The DFSA has nearly 1,000 authorised and registered companies in the DIFC, and the majority of that growth has come in the past two to three years, Mr Baldacchino added.

What VCs seek in FinTechs

Innovation needs to happen in business models and technology is just an enabler, according to Gautam Jain, operating member at SC Ventures, Standard Chartered’s global FinTech and ventures investment arm.

He recommended FinTechs to come up with a differentiated value proposition that solves a real problem. Secondly, they must show sustainable growth towards profitability. Thirdly, they need to incorporate technologies like artificial intelligence in their product.

“If you're not incorporating AI in whatever you are doing, my submission is that you will be un-investable very soon,” he warned.

Ms Haider said the robustness of regulatory frameworks have also made the Emirates a “darling of the international venture world” in the past few years.

US and other global funds like General Atlantic are making a foray into this market, not just by doing their first deals here but also by setting up offices and earmarking more permanent capital within the region.

In the FinTech space, QED Investors did their first transaction in the market earlier this year, and that was “a big signal of how people are starting to take this region a lot more seriously”, she added.

Joseph Ziolkowski, chief executive and founder of Relm Insurance, said FinTechs should not view risk management as an afterthought. Antonie Robertson / The National

Shortcomings

Joseph Ziolkowski, chief executive and founder of Relm Insurance, a DFSA-authorised entity, said when early-stage companies approach institutional investors or regulators, instead of having a “sophisticated perspective” on risk management, such as having the appropriate insurance coverages in place, most companies see it as an “afterthought”.

These companies need to start looking at the risk management component as part of their differentiated strategy, not just an afterthought, he suggested.

Relm Insurance supports companies operating in the digital asset and Web3 space with insurance products.

“For instance, as a prospective licensee seeking authorisation through the Virtual Assets Regulatory Authority, a condition of obtaining the license is satisfying minimum insurance requirements for directors and officers liability insurance, professional indemnity insurance and crime. If you can't secure that coverage, you can't obtain a license,” he warned.

Legacy players play catch up

Legacy financial institutions are realising that, like any business, if they do not evolve, they will get left behind, said Siobhan Byron, executive vice president of universal banking at Finastra, a financial services technology provider.

There is a lot of tech-led legacy for financial institutions. They can catch up by embracing change through a “symbiosis approach”, she suggested.

“It means transforming your tech over a structured journey, so that you don't have to do it all at once. They need to understand that they are not going to be the best at everything,” Ms Byron added.

Visitors at the Dubai FinTech Summit. Antonie Robertson / The National

“Understand what your customers want, what the market has to offer, and then figure out the best way of putting that together to drive your business to success.”

Ms Byron warned that FinTechs are starting to see a bump-up in regulatory requirements.

They need to be prepared, make sure they can survive from a financial perspective and also focus on security as banks want to make sure customer data is protected.