UAE issues new exchange business regulations in fintech boost

Marie Chowdhry and Jessica White of Pinsent Masons were commenting as the country’s Central Bank introduces a series of new exchange business regulations, including the provision of currency exchange and money transfer services, domestic and cross-border remittances, salary processing and digital remittance services.

Under the new rules, four licence categories have been introduced, including a new digital remittance licence that permits up to 100% foreign ownership. Paid-up capital requirements will also be increased up to AED 25 million (approx. US$6.8m).

The Central Bank will also be given enhanced supervisory and inspection powers to decide whether a licence should be granted, to conduct ongoing supervision of licensed entities and individuals and, where necessary, impose sanctions for non-compliance.

In line with international standards, the framework will also introduce new rules on governance, internal controls and risk management practices, as well as a stronger emphasis on anti-money laundering (AML) and countering the financing of terrorism (CFT) obligations.

The regulations are also expected to boost transparency, reduce financial crime and lead to effective consumer protection policies and procedures.

The rules will replace the Central Bank’s previous exchange business regulations that have been in place since 2014.

Chowdhry said the new regulations would provide further reassurance of the benefits the country’s business climate could offer global fintech companies. “The introduction of a dedicated digital remittance licence, paired with 100% foreign ownership eligibility and an AED25 million capital requirement, signals a bold move by the UAE to attract serious, globally minded fintechs,” she said. “This opens the door for new entrants to establish a fully digital presence in a highly regulated and innovation friendly environment.”

Compliance officers and in-house advisers will be required to align their operations to meet the new regulatory standards. This will involve assessing their eligibility for a licence under the new regulations, reviewing and updating compliance frameworks to ensure policies align with the requirements; educating their in-house teams on the new regulations, particularly in relation to capital adequacy, compliance, reporting and governance; and seeking expert guidance to interpret and implement the regulations effectively.

The new regulations will also be particularly relevant to exchange houses and remittance providers operating in the UAE, said White. “For existing exchange houses, the new regulations require them to adapt to invest in stronger compliance infrastructure that takes into account the Central Bank’s enhanced supervisory powers, stricter AML/CFT obligations and new governance expectations.”

These developments follow recent moves by the UAE to update its regulatory framework for digital assets and virtual assets activity rulebooks to enhance the country’s position as an attractive destination for fintech growth.