INNOVATION ABOVE ALL ELSE

Dubai 2018 | FINANCE | INTERVIEW

TBY talks to Ian Johnston, CEO of Dubai Financial Services Authority (DFSA), on its approach to encouraging the development of fintech, its innovative regulatory sandbox, and new crowdfunding rules.

Ian Johnston
BIOGRAPHY
Ian Johnston joined the DFSA in November 2006 as Managing Director heading the Policy and Legal Services Division. He practiced law in Australia in the early 1980s and spent most of his career in the private sector. He held a number of senior positions within Australia’s financial sector. In 1999, Johnston joined the Australian Securities and Investments Commission (ASIC), where he became Executive Director of Financial Services Regulation, and spent several terms as an Acting Commissioner. In 2005, he took up a position as a Special Advisor with the Hong Kong Securities and Futures Commission (HKSFC). He is also a member of the Financial Stability and Technical Committee of the IAIS, and was a member of the Board of Directors of the Financial Planning Standards Board from 2011 to 2016.

How is innovation being incorporated into DFSA's business plan moving forward?

As a regulator, we recognize the importance of innovation and technology to support and enable financial services business models, products, and services. Fintech can enhance and improve the efficiency of markets, and provide better services and solutions. We encourage the development of fintech in the sector and also apply advances in regulatory technology in our own processes. DFSA's fostering of fintech, and use of technology itself, is reflected by the addition of a new strategic theme—innovation—to DFSA strategic priorities. In this way, we are strongly aligned with the National Innovation Strategy set out by UAE Vice President, Prime Minister and Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, to create an innovation-friendly ecosystem.

How does DFSA's Innovation Testing License (ITL) model work, and what have been the key advantages so far?

We launched ITL in May 2017, which is what other places might call a regulatory sandbox. This enables firms to operate in a controlled environment with reduced regulatory requirements. We need to ensure, first, that their operating model provides the market with something new and innovative. While they are testing out the concept under an ITL, we can determine if there are real benefits, if the product is truly innovative, and whether it can be properly regulated. We might then grant them a full license, and these companies can then go out into the market with a fully-fledged financial product. We have two firms that are already using the license: an automated investment advice service, Sarwa Digital, and real estate crowdfunding platform, SmartCrowd. We continue to receive healthy interest in the ITL from all over the world including the UAE, the UK, the US, Singapore, India, Azerbaijan, and Kazakhstan, covering a wide range of fintech activities. These include remittances via blockchain, digital wallet operations, and various wealth management solutions.

How has fintech impacted the economy in Dubai so far, and what is in store for the future?

Over recent years the Dubai government has made significant advances in providing online and mobile services, using technology to be more efficient and effective in the provision of public services. The Dubai Plan 2021 sets out goals that would take this even further, putting development and use of technology even more at the center of the Dubai economy. DFSA is contributing to these efforts. In August 2017, we announced new crowdfunding rules—a first for the GCC. These are in line with the goals of the Dubai Plan 2021 and will contribute to the development of this funding source for SMEs and the Dubai and UAE economies, with crowdfunding expected to become a more established form of financing for this important sector. There have been a number of crowdfunding offerings opening up in Dubai, and these quickly provide liquidity into the financial system, particularly boosting SME funding.

More specifically, what impact can cryptocurrencies have within the financial landscape?

Cryptocurrencies have had a significant impact over the last 18 months, fueled by the increase in the price of Bitcoin and the growth of initial coin offerings (ICOs) as a tool for raising money from the public. Using the underlying Distributed Ledger Technology as a vehicle for transactions that can take place quicker, cheaper, and in a more secure manner is highly attractive. Digital assets themselves are not without risks; they are not legal tender and can also lend themselves to anonymous transactions, posing risks of money laundering and terrorism financing. Some ICOs are not based on genuine business or economic propositions, and have effectively been frauds. It remains to be seen how the global regulatory community will respond to digital assets. Like many others, we are assessing our risk tolerance in this area.