Exclusive: ADGM on boosting open finance in Abu Dhabi 

Across forward-looking countries all around the world, we have seen a new wave wash over the banking sector, pushing towards the democratization of this historically rigid sector. This has been mainly thanks to technological innovations that have allowed third-party enterprises like fintechs to innovate outdated or niche aspects of the banking experience, as well as governments introducing new legislation and regulations allowing the sector to adapt and evolve with the times. 

This changing ecosystem has led to what we know today as open finance. 

Crytopedia describes open finance as follows: 

“Through the use of integrative protocols, banks can provide fintech companies with secure access to financial data. In turn, both parties can collaborate to bring new products and services to consumers. The result of this cooperative relationship is known as open finance.”

Abu Dhabi boosts open finance in the Emirate

Last month, the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) introduced a new regulatory framework for the authorization and supervision of fintech firms (also known as Third Party Providers, or TPPs) providing third-party services to customers of financial institutions.

With the new framework in place, TPPs will be able to work alongside financial institutions in a secure and efficient manner that facilitates customer transactions, whilst protecting the data and interests of those customers. 

The new framework will also provide a foundation to support the growth of open finance, with the focus being on giving customers and businesses more control over a wider range of their financial data, such as investment and other financial products. 

This is all part of ADGM’s ongoing efforts to develop a sound and progressive fintech ecosystem that fosters innovation and new models to deliver financial services.

“We see an opportunity to prepare the financial industry and ecosystem for the advent of open finance in the region,” ADGM told the Abu Dhabi SME Hub. “Third party providers (“TPPs”) are key players in an open finance ecosystem because they provide new services to customers that leverage on the customers’ own data. By creating a sound regulatory framework for TPPs, we are able to help them work together with financial institutions securely and efficiently, letting customers reap the benefits of innovation while also protecting their data and interests.”

The entire ecosystem benefits

As we’ve seen across the world, innovative frameworks such as this help better involve TPPs in the banking sector, bringing great benefits to the overarching financial ecosystem, as per ADGM:

• “Fintech startups will be able to better engage financial institutions to offer payment and information related services;”

• “Financial institutions can be reassured that the fintechs they engage with are appropriately regulated and can be held to account for appropriately managing risks.” 

• “Similarly, SMEs will be able to benefit from new types of services that allow them to handle their relationships across multiple banks.  For example, they may be able to use a single interface provided by a fintech startup to schedule payments and get a regularly updated consolidated balance across their various bank accounts.”

Attracting international fintechs to Abu Dhabi

At a time when the UAE continues to be the fintech hub of the MENA region, with the largest number of Fintech startups (166 as of Q1 2021), it is paramount to attract international fintechs to cross-pollinate and innovate the local ecosystem for the mutual benefit of all parties.

According to ADGM, their new regulatory framework is based on “international best practices, taking reference from other open banking frameworks in the EU, Singapore, and Australia.

“However, our framework extends the concept of open banking such that it can easily adapt to other types of financial services such as investment or insurance. 

“This should help attract global fintechs because they will be able to build on a regulatory foundation that they are used to from other jurisdictions but also be able to engage in new and innovative fintech services.”

Find out more about ADGM's regularly updated regulations here.