The last few years have seen rapid development in the fintech space, as a greater number of fintech startups have emerged to make financial transactions easier for customers. In response to such developments, a regulatory framework for Stored Value Facilities (SVF) – a digital payment facility that lets you store money to pay for goods and services; was initially put forth by Central Bank of the UAE (CBUAE) in 2017. 

The regulatory framework included the following implications: 

• Licensing system was made mandatory for digital payment service providers 
• Proper safety protocol was made compulsory for the security of user data/information 
• Set of rules were established for outsourcing the services to the third party 
• The Payment Service Providers were obliged to make a Customer Service Agreement with individuals/corporates who availed their services 

The CBUAE, being the sole authority with the power to regulate existing and future digital payment mechanisms onshore in the UAE has now updated the regulations after three years. The newly revised regulation rolled out on the 3rd of November 2020 ensures the safety and security of digital payments. The regulations cover Stored Value Facilities that hold digital money on e-wallets, phones and other devices. Once published in the Official Gazette the regulation will replace the previously issued regulatory framework. 

Scope of the New Regulation 

The regulation aims to make easier access to the UAE market while continuing to ensure the safety of customer funds, thus facilitating further development in digital payment services. The scope includes licensing, supervision and enforcement provisions to all the fintech companies and payment providers. According to the revised regulations, the users can now store digital or cryptocurrencies with custodians or in wallets to process payments.  

As mentioned in the announcement, there will be a one-year transitional period to comply with the new regulation. Organizations with existing SVF license which is granted under the previous regulatory guidelines can continue their payment services but will have to complete the revised regulatory requirements within the time limit to ensure compliance. 

Besides, the UAE Securities and Commodities Authority (SCA) has also drafted a resolution on regulating the crypto assets thereby providing better clarity to the crypto-related projects. This crypto-assets legislation recognizes the digital tokens as financial products or real assets that will be subjected to the regulatory framework established by SCA. 

H.E. Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE, said: 

“We are confident that the new SVF regulation will strengthen the public’s confidence in the use of digital products and services and foster further development and innovation across the payments industry.”  

He confirmed that the new regulation will definitely be a milestone in the development of a robust regulatory framework for SVF and fintech companies. The revised regulations are in compliance with the CBUAE’s objectives that are aimed at safeguarding the financial system and payment infrastructure of the country. 

“This regulation will ensure a level playing field for market participants and will help maintain the UAE’s status as an international financial centre and a leading payment hub.” He added.  

To conclude, the ongoing pandemic has forced certain trends in the UAE market and digital payments are gaining significant growth. Digital payments, once a convenience has become a necessity to make the payments contactless. With most of the fintech and payment sectors still in a state of flux, we can be certain that the UAE government is taking necessary measures for facilitating secure transactions.