The UAE Central Bank recently issued the Open Finance Regulation which establishes a framework for the licensing, supervision and operation of an open finance framework for the cross-sectoral sharing of data and initiation of transactions on behalf of customers (the Open Finance Framework) which incorporates both open banking and open insurance components.
The Open Finance Framework signifies a major development for the UAE Central Bank’s financial services regime and is one of nine initiatives within the UAE Central Bank’s Financial Infrastructure Transformation Programme. The UAE Central Bank has also noted that it is the first regulator globally to implement a consolidated trust framework and centralised API as part of its Open Finance Framework. This will establish a single secure, and centralised connection to facilitate cross-sectoral sharing of data and the initiation of transactions on behalf of uses with their express consent.
Payment account information services and payment initiation services were already permitted under the existing UAE Central Bank Retail Payment Services and Card Schemes Regulation. However, the scope of the new Open Finance Framework is broader than these existing activities and applies to a wide range of UAE Central Bank licensees including banks, finance companies, payment service providers, stored value facility providers, insurance brokers and companies, exchange houses and loan-based crowd-funding operators.
A number of jurisdictions globally have introduced open banking regimes. These include the UK in 2017, the European Union members states in 2018 and Australia in 2019. However, the scope of those regimes focused on payment accounts maintained by banks and other payment service providers, so are significantly narrower than the UAE Open Finance Framework.
The UAE Central Bank has confirmed that the Open Finance Framework is an essential part of its ongoing efforts to achieve its vision and strategic objectives by providing new opportunities in the financial services sector including enhancing digital financial inclusion.
What products are regulated by the Open Finance Framework?
The Open Finance Framework regulates a wide range of accounts and financial products that are offered or issued in the onshore UAE jurisdiction across the banking and insurance sectors, including:
| Open banking | Deposits Payment accounts and services Savings accounts and term deposits Credit, debit and charge card accounts and products (including acquiring and processing card transactions) Standing orders Direct debits Stored value facilities and prepaid payment accounts Part-paid payment accounts Foreign exchange accounts and products Credit, loans and any other personal finance accounts and products Mortgages and other loans secured on property or other assets Virtual accounts or products providing for the items above |
| Open insurance | Insurance products, including life and general insurance |
Who will be impacted by the Open Finance Framework?
It is not currently clear when the full Open Finance Framework will be implemented but the UAE Central Bank has noted that it will do so in phases and plans for the majority of customers to have access in 2024. The first phase will include a number of banks currently licensed by the UAE Central Bank and we expect that more information about further phases will be released in due course.
Certain entities that are already licensed by the UAE Central Bank will be deemed to hold a licence under the Open Finance Framework. These include banks, finance companies, retail payment service providers, stored value facility providers and insurance brokers and companies. These deemed licensees will be required to obtain the approval of the UAE Central Bank to conduct activities that fall within the Open Finance Framework and such approval will be subject to the deemed licensees satisfying the governance, control, capital and insurance requirements that sit within the Open Finance Framework.
Persons or entities that are currently not licensed by the UAE Central Bank and are seeking to conduct open financial services in the onshore UAE jurisdiction are required by the Open Finance Framework to seek a licence to do so (Open Finance Licence). The steps required to file an application with the UAE Central Bank for an Open Finance Licence are set out in the Open Finance Regulations.
We note that existing financial services providers that are domiciled in the UAE financial freezones (the Abu Dhabi Global Market and the Dubai International Financial Centre) are not subject to the Open Finance Framework unless they are intending on conducting open financial services in the onshore UAE jurisdiction. Where this is relevant for these financial services providers, they will need to apply for an Open Finance Licence from the UAE Central Bank.
What actions need to be taken by financial services providers?
Existing UAE Central Bank licensees will need to remain vigilant for any updates published by the UAE Central Bank in relation to the phased roll out of the Open Finance Framework. They should also review their existing obligations as a licensee with respect to governance, control, capital and insurance requirements to ensure that they are able to effectively plan for any adjustments that are required to be made to meet the obligations set out under the Open Finance Framework.
Persons or entities that are seeking to obtain an Open Finance Licence should ensure they receive adequate legal and professional advice to support their application under the new Open Finance Framework.
How can we assist you with the Open Finance Framework?
We can provide you with support around evaluating how the Open Finance Framework may impact your existing or developing business. This could include initial advice that considers whether your business model will be impacted by the Open Finance Framework, assistance to obtain authorisations (if necessary) and drafting client facing documentation and internal policies as needed.
If you would like more information about the Open Finance Framework and how it may affect you, please reach out to our local experts Gregory Man and Jessica White.
For further information, please contact:
Gregory Man, Partner, Bird & Bird
greg.man@twobirds.com
