UAE Central Bank launches programme to boost digital transformation in financial services

Initiatives include a new digital currency, open finance and a domestic card payment platform

The Central Bank of the UAE plans to adopt 'advanced' supervisory technologies and data management solutions. Photo: UAE Central Bank

The UAE's Central Bank has announced a new programme to accelerate digital transformation in the financial services sector, with initiatives spanning open finance and a new digital currency.

The Financial Infrastructure Transformation Programme also includes a domestic card scheme, an instant payments platform, financial cloud and supervisory technology, the Central Bank said in a statement on Sunday.

The new Central Bank Digital Currency (CBDC) will be used for both cross-border payments and domestic usage to “address the problems and inefficiency of cross-border payments and help drive innovation for domestic payments respectively”, the regulator said.

“The FIT programme embodies the directions and aspirations of our wise leadership towards digitising the economy and developing the financial sector,” said Khaled Balama, the Governor of the Central Bank.

“We are proud to be building an infrastructure that will support a thriving UAE financial ecosystem and its future growth.”

Central banks are looking into the development of digital currencies amid the growing popularity of cryptocurrencies as an asset class among retail and institutional investors.

The Bank of England and Treasury have set out a plan to introduce a new central bank currency, including a new state-backed digital pound that could be launched this decade.

Last year, the Reserve Bank of India rolled out its first pilot scheme for the e-rupee, allowing some banks to use the digital rupee to settle secondary market transactions in government bonds. The RBI plans to start testing the retail uses of the digital form of the Indian rupee.

Oman's central bank is also developing a digital currency and open banking services, the country's state news agency reported last year.

The rapid development of CBDCs could help to boost financial inclusion and stability, according to Fitch Ratings.

CBDCs will continue to gain momentum as regulators keep tailoring them to complement cash with digital central bank money, Boston Consulting Group said in a recent report.

The payments industry revenue in the UAE is expected to grow to $18.7 billion by 2031, driven by the young and tech-savvy population in the country, the report added.

Through the FIT programme, the UAE Central Bank will strengthen its digital leadership by adopting “advanced” supervisory technologies and data management solutions, it said.

It will also seek to develop and implement a number of digital infrastructures, including the establishment of eKYC (electronic know your customer) and an innovation hub to support the development of financial technology.

The new domestic card scheme will feature the UAE’s “first unified, secured and efficient card payment platform to facilitate the growth of e-commerce and digital transactions in the country”, the Central Bank said.

“These digital infrastructures will improve regulatory compliance, reduce cost of operation, enhance innovation and customer experience, and most importantly, strengthen their security and operational resilience,” the regulator said.

Last month, the Central Bank issued new guidelines for licensed financial institutions, including banks, finance companies, exchange houses and insurance companies, agents and brokers, to combat money laundering and the financing of terrorism.

The new guidelines focus on the use of digital identification systems by licensed financial institutions, or LFIs, to address customer due diligence obligations.