ADGM invites applications for digital banking licences

The Financial Services Regulatory Authority (FRSA) of the ADGM is seeking applications from conventional banks seeking to establish a digital bank or digital bank branch, as well as firms offering innovative solutions to customers and partnerships between technology companies and financial institutions.

Digital banking is one of five banking-related areas of focus for the ADGM, which is the second largest financial 'free zone' in the United Arab Emirates (UAE). The others are corporate transaction banking; private banking and wealth management; investment banking; and money service businesses.

Financial services expert Marie Chowdhry of Pinsent Masons, the law firm behind Out-Law, welcomed the ADGM's announcement, which she said would benefit businesses and consumers alike.

"Today's modern Middle Eastern customer – often younger and more social media savvy – is going to expect, if they haven't already demanded, some changes to the way that they receive financial services going forward," she said. "Customers want greater access to self-service capabilities so that they can choose the services that they want, at the time that they want. Accordingly, established banks in the region, like their peers around the world, are increasingly moving away from a conventional banking model with expensive physical branches, and instead investing heavily in digitalising their products and services, so that customers can be serviced in real time."

Tom Bicknell, Pinsent Masons' Middle East head of finance, added: "The new ADGM digital banking licenses offer an interesting proposition and investment opportunity for financial institutions not already established in the UAE and/or the Middle East. The ADGM's direct application of English common law offers legal certainty not commonly associated with businesses operating out of the Middle East, and therefore presents a compelling proposition for local and international players looking to exploit this area of financial services."

Applicants for an ADGM digital banking licence can expect "appropriate" assessment depending on the type of product they intend to offer, according to guidance published by the FSRA. For this reason, it has suggested that firms only seeking to offer innovative payment solutions such as e-wallets, tokens and stored value cards should instead consider another form of licence that will attract a lower regulatory and capital burden.

The FSRA will require applicants of the new digital banking licence to hold USD$10 million in base capital. They will also be required to demonstrate robust governance structure, compliance and risk management policies, IT security measures and certain mandatory senior management appointments as part of their application.