The Financial Services Regulatory Authority, FSRA, of the Abu Dhabi Global Market, ADGM, has announced local and global applications to establish digital banks in its International Financial Centre based in Abu Dhabi as digitalisation has led to a rapid transformation of the banking industry.
This initiative comes in response to regional and international enquiries seeking a proven and conducive ecosystem that fosters opportunities and market development. With innovation, supporting growth and anchoring activities in MENA for the benefit of the region as its ethos, ADGM provides an ideal jurisdiction and environment for the digital bank model.
A digital bank is one that accepts deposits, and carries on other related financial services activities, primarily through online, digital or electronic means rather than through physical interaction with customers. Digital banks are financial institutions that seek to provide novel customer and transactional solutions. The FSRA is of the view that, amongst others, digital banks in ADGM will add significant value to the SME, corporate and wholesale sectors and further contribute to the development of the overall financial ecosystem, promoting inclusion, and enhancing financial services and intermediation in ADGM and more widely.
Commenting on the announcement, Richard Teng, Chief Executive Officer, FSRA of ADGM, said, “This announcement and the Guidance comes in response to substantive interest from the industry, and demonstrates ADGM’s track record in advancing innovation and supporting growth while managing risks to promote a strong and sustainable financial ecosystem. Digital banks can address the needs of many segments that are currently underserved by conventional institutions, such as the credit gap faced by small and medium enterprises. We welcome innovative models to bring about greater financial inclusion, meet the needs of underserved segments and reduce costs for consumers. Digital banks will further complement Abu Dhabi and the region’s financial and banking sector, reinforcing its competitiveness, vibrancy and resilience.”
The FSRA will accept applications from conventional banks to establish digital banks or branches of digital banks as well as applications from firms with innovative value propositions. ADGM also welcomes partnerships between technology companies and financial institutions in seeking to apply for a digital banking licence.
To assure high quality applicants that meet prudential requirements and safeguard systemic stability, the FSRA will require a base capital requirement of US$10 million, robust governance structures, compliance and risk management policies, IT security measures, and certain mandatory senior management appointments. In conjunction with this announcement, the FSRA is issuing a Guide to the Authorisation of Digital Banks in ADGM.
Depending on the type of innovative solutions to be provided, all applicants will be assessed appropriately for a digital banking licence. Firms looking to deploy innovative solutions in the payment space, such as e-wallets, tokens, and stored value card, can consider other form of licences that will attract a lower regulatory and capital burden than a full digital banking licence.