A glance on the transformation and innovation of the UAE’s financial services sector

A glance on the transformation and innovation of the UAE’s financial services sector

Financial Services Focus

In recent years, the financial sector in the UAE has experienced profound transformation, driven by technological advancements, regulatory initiatives, and a growing appetite for innovation.Contents

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Law Update: Issue 365 - Financial Services Focus

A glance on the transformation and innovation of the UAE’s financial services sector

Ahmad Saleh
Partner,
Head of Innovation, Patents & Industrial Property

Mariam Fanous
Senior Business Advisor,
Innovation, Patents & Industrial Property

Amelito II Mutuc
Trainee Solicitor,
Innovation, Patents & Industrial Property

In recent years, the financial sector in the UAE has experienced profound transformation, driven by technological advancements, regulatory initiatives, and a growing appetite for innovation. This transformation has given a rise to a dynamic FinTech ecosystem placing the UAE’s FinTech sector 6^th globally with a 92% surge in investments;[1] contrast to a 48.3% downturn of investments in financial technology globally.[2] In 2022, the UAE emerged as a global leader in financial services innovation with 71% of financial institutions in the UAE regarding open finance as a ‘must have’. [3]Much of these successes are due to R&D investments and technology focused initiatives that have revolutionised the way financial institutions conduct business, leading to improved services, increased accessibility, and overall improved competitiveness. This article will explore how the UAE’s investment in R&D has transformed the financial services sector through innovations such as FinTech, blockchain and the Digital Dirham. In addition, we will discuss the importance of protecting innovations and the complexities associated with technology.UAE’S STRATEGIC VISION AND DIRECTIONBehind every transformative effort is a vision; in 2022, the UAE launched the Digital Economy Strategy, with the aim to double the contribution of the digital economy to the UAE's non-oil GDP from 11.7% in 2022 to over 20% within 10 years. This was followed by the launch of Dubai Economic Agenda ‘D33’ and the Financial Infrastructure Transformation Program by the Central Bank of the UAE. Both aim to drive digitalisation, innovation, and R&D which will enable the UAE to become the financial and digital payment hub and a centre of excellence for innovation and digital transformation. These strategies are paving the way for digital transformation across the financial services sector. DIGITAL INFRASTRUCTUREToday, the UAE is one of the leading countries adopting blockchain technology; this achievement was initiated by the launch of the Emirates Blockchain Strategy 2021 and Dubai Blockchain Strategy. Ambitions of the strategy included uncovering ~3.75 million fraudulent transactions in the UAE per annum which equals to $435 million in savings.[4]In addition, the UAE is one of the world’s biggest adopters of digital banking, ranked 6th in digital banking penetration, with a 42% increase in the number of E-banking services. Several digital banks have emerged across the UAE including Al Maryah Community Bank, “the first specialised digital bank in the UAE”, and Zand Bank, the first fully licensed digital bank to provide retail and corporate banking services.Further initiatives include a signing ceremony between CBUAE, G42 cloud and R3[5] to implement the CBUAE Digital Currency Strategy. This was followed by the first cross-border payment of AED 50 million ($13.6 million) using Digital Dirham, a Central Bank digital currency, which is a significant step in the UAE’s commitment to becoming the financial and digital payment hub.ENTREPRENEURIAL ECOSYSTEM Following the success of the 2023 Dubai FinTech Summit, the DIFC continues to reaffirm its status as one of the world’s leading FinTech hubs, providing an environment conducive to innovation. In his keynote address, DIFC Governor, H.E. Essa Kazim noted that “a key growth driver over the past three years has been FinTech and innovation companies contributing over 27 per cent to the centre’s overall client growth”.[6] Indeed, the number of firms in DIFC’s FinTech and Innovation sectors alone grew 35% year-on-year from 599 to 811.[7] Part of this growth may be attributed to initiatives such as the Regulatory Sandbox, that allow live and time-bound testing of innovations in a controlled environment. In addition, recent changes to the UAE’s Commercial Companies Law (regulating foreign ownership) in conjunction with immigration policies (such as the Golden Visa and Green Visa) that attract foreign investors make the UAE an attractive option for FinTech entrepreneurs looking to set up or expand their businesses.To propel the expansion of FinTech across the UAE, the CBUAE established the FinTech Office in 2020. Tasked with developing a mature FinTech ecosystem in the UAE, the office acts as a regulatory interface between market participants and regulators; facilitating talent development; maintaining partnerships with key onshore and cross-border stakeholders and promoting the exchange of ideas on innovative FinTech initiatives.[8]KEY TAKEAWAYS AND FUTURE OUTLOOKObserving the pace at which the financial services sector is evolving, it is key that that the UAE legislative framework is equipped with the right legislations, regulations, and policies to help boost R&D in this sector. Also, financial institutions and tech companies should develop a comprehensive understanding of legal rights, including IPRs, pertaining to this sector, put in place suitable policies (including IP and data protection) within their organisations, ensure proper commercial agreements (including IP licensing) are in place amongst all commercial partners, and implement suitable mechanisms to ensure comprehensive protection and commercialisation of legal rights pertaining to their innovation projects. These can take the form of a revenue sharing model, joint venture, merger, acquisition, or other form of commercial arrangement depending on the situation. Looking ahead, the financial sector in the UAE is poised for further growth, driven by ongoing investments, collaborative efforts, and a commitment to staying at the forefront of global financial innovation.
[1]UAE’s Fintech Sector Rank 6^th Place In Global Ranking With A Remarkable 92% Surge [2] Global Fintech Investments, Deals Plunge In 2023 Amid Economic Headwinds[3] UAE tops in appetite for financial services innovation [4]Blockchain Technology Application In The UAE Banking Industry (2022) [5] CBUAE Launches The Central Bank Digital Currency Strategy “The Digital Dirham”[6] Dubai Emerges As A Leading Fintech Hub Attracting Global Investment And Innovation [7] DIFC’s H1 2023 Performance Strengthens Dubai’s Position As A Global Finance And Innovation Hub[8] FinTech & Digital Transformation

For further information,
please contact Ahmad Saleh, Mariam Fanous and
Amelito II Mutuc.

^{Published in February 2024}