Mr. Serdar Güner, Director – Supervision Division at the Dubai Financial Services Authority answered our questions about FinTech ecosystem, regulations and relations between them.
– Mr. Güner would you like to tell us about yourself and your organization?
My name is Serdar Güner. I have been a financial services regulator for almost 30 years and have worked in several jurisdictions including New York, London, Tokyo, and now Dubai for the past 6 years. During my regulatory experience, I have had wide responsibilities ranging from Islamic Banking, Retail and Wholesale Banking operations, Broker/ Dealers, Asset/Wealth Managers and Anti-Money Laundering,. At the DFSA, my team is responsible for the supervision of operational risk issues and now includes financial technology (FinTech) Firms operating in or from the DIFC.
The Dubai Financial Services Authority (DFSA) is the independent regulator of financial services conducted in or from the Dubai International Financial Centre (DIFC), a purpose-built financial free zone in Dubai, United Arab Emirates (UAE). The DFSA was formally established as an independent entity in 2004 under Dubai Law No. 9 of 2004. The DFSA regulates the DIFC, a jurisdiction designed to bridge financial services between the region and the international markets.
Today the DFSA supervises and regulates 594 entities, 457 Authorised Firms, 119 DNFBPs, 16 Registered Auditors and 2 Authorised Market Institutions. The DFSA’s regulatory mandate includes asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange, and an international commodities derivatives exchange. In addition to regulating financial and ancillary services, the DFSA is responsible for supervising and enforcing Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) requirements applicable in the DIFC.
– As a FinTech related organisation how do you evaluate the FinTech ecosystem in EMEA? How do you evaluate the position of Dubai regarding to FinTech ecosystem in EMEA?
As with most regulatory agencies around the globe, we are new to the world of FinTech. Similarly, like the rest of the world, the FinTech ecosystem in EMEA is evolving rapidly, particularly with payments applications and crowdfunding platforms. FinTech is hard to define precisely, but it is clearly a borderless business. Even though we tend to draw lines in order to meet country or jurisdiction specific requirements, FinTech is a force that must be recognised beyond these borders.
The banking and finance industries have, over time, become information technology industries. Financial institutions have large quantities of data, but much of it remains unstructured because of legacy systems and processes. FinTech companies are now deconstructing a bank’s activities and replicating their products and services, often in a more effective and efficient manner.
Dubai is well-positioned to be a significant player in the FinTech regional and global ecosystem due to its geographic location and, more importantly, due to its traditional innovative and entrepreneurial spirit. Dubai’s National Innovation Strategy is specifically designed to create an innovation-friendly ecosystem. The DFSA’s is developing a regulatory framework that also promotes growth and innovation while protecting consumers and fostering financial stability, and the DFSA is very much aligned to Dubai’s greater vision of becoming an information-based society and a smart city.
– What are the main motivation points, those supported by regulations, for the FinTechs to develop innovation? How do you position DFSA for this relations?
The main motivation points for a regulator should be aligned with the needs of society. People want a full range of products and services from the financial services industry, and they want those services to be provided at a reasonable cost. People also want to be treated fairly.
Regulators need to consider the financial stability issues raised by the FinTech movement, which might include the risk of systemic misconduct. FinTech regulation, in our opinion, should be focused on fair treatment of customers and ensuring proper and not misleading disclosure. As a side note, we also believe that governments need to focus much more time and attention to financial literacy, even starting with early education programmes.
Innovation is now one of the key strategic themes at the DFSA. The changes happening in the financial services are not just around who and what we regulate, but also how we regulate.
– DFSA has been also developing relations with the other international FinTech hubs. From this perspective do you have any suggestions to other regulation organizations? What should be the right way for a “FinTech Regulatory Approach”?
We are in close contact with many other regulators, not only in the GCC, but also across Asia and Europe. As I briefly mentioned above the borderless nature of FinTech business models has to be recognised and it is increasingly important to have international co-ordination and co-operation among the regulators. The speed of FinTech services might necessitate that regulators to re-evaluate the speed of information sharing as well.
In terms of the regulatory approach, I see that it is evolving. As these businesses challenge the existing way of doing business, they also present challenges to the regulators in terms of supervision and regulation. We believe our regulatory framework is appropriately flexible to manage these new business models, but we are evaluating several changes to our regulatory backdrop, our supervisory approach, and our own use of technology as well.
Since the start of the year, we have published two consultation papers on crowdfunding, which will formalise our approach to both loan-based and investment-based platforms. Loan-based crowdfunding in particular has become a valuable source of financing for the SME sector in several jurisdictions. We believe that well-regulated crowdfunding can contribute to the development of this important sector for Dubai and the UAE economy. Our approach is to engage in this area in a facilitative and positive manner, taking a risk-based approach, as we do in all our regulatory and supervisory activities.
– You have some works about sandboxing environments for the FinTechs. Could you inform us about those efforts? Why those are important? May those efforts be a guiding map for the Turkish regulation?
We are now operationalising our ‘Innovation Testing Licence’ that will allow FinTech firms to test out their FinTech strategy in the DIFC, within our existing regulatory framework. A “sandbox” environment is really a new concept and it is a sign of changing times for the regulators across the globe. Only a few years ago, it might not have been possible to think of regulators as being involved in such experiments and testing. It really is a sign of changing times, and it is a welcome change. FinTech firms are forcing us to consider having these new developments. Similar approaches have been adopted across the globe in other financial centres and there is might be some benefit in having these testing environments established in Turkey, if they are not established already.
It is always better to have a new product, business model tested under controlled conditions rather than have them spread through the markets with no checks and balances and deal with unintended consequences on a much wider scope. It just makes sense. FinTech companies are not waiting for regulatory blessings, but many of them wish to be regulated, so regulators need to consider their remit to ensure that society is not harmed.
– How do you evaluate Turkey’s financial outlook? What do you think about the financial and FinTech outlook of Turkey?
As I mentioned above, the global reach of FinTech really encourages us to have more collaboration across borders and consider business in a borderless sphere. It would simply be natural to have collaboration in FinTech on a bi-lateral basis to encourage other participants in the region to do the same.
– With the rising trend of FinTech in general, what are the challenges, threats and opportunities for banks, financial institutions and FinTech companies in the upcoming years? How do you evaluate those topics? What roles should regulatory organisation have to fill the gaps between FinTechs and banks?
The disruption of FinTech in banking and financial institutions sphere has been a matter of discussion for a while now. We should remember the origins of this trend and recognise that banks’ traditional role as intermediaries and their role in this regard has been the primary target of most of the FinTech firms. It is not unusual to see a focused activity, especially supported by advanced technology and an established platform (internet) serving end-users efficiently and rivalling the incumbents.
It seems new proposed RegTech solutions from know-your-customer processes, credit ratings and evaluations, and myriad of other operational areas are surfacing. In this regard, the challenge for the incumbents is the ability and agility of them to embrace these new business models as a part of their existing operational model. I know that the industry is spending resources and time to achieve this but coming up with a cost effective solution that addresses regulatory and business concerns is a major challenge.
– What are your recommendations for FinTech companies and start-ups?
FinTech start-ups take great pride is breaking through traditional paradigms for delivery of financial services. These same start-ups should also understand that reputation risk is critically important to financial services firms. If the FinTech industry gains a reputation for misleading customers or placing their investments in a harmful manner, then customers will cease using their services and governments will demand more action in terms of regulation. FinTech firms must understanding the impact of their business models on society. FinTech companies will also need to pay attention to data protection and privacy. With the rising tide of FinTech, we need to use, manage and guard data in a much better way to guard against cyber risks.