Exclusive: ‘From fossil fuels to fintech’ – Chris Kiew-mith, Financial Services Regulation Authority in “The Fintech Magazine”

Famous for its wealth, amassed largely thanks to the ‘black gold’ it mines in abundance, the UAE is making a seismic shift towards a new economy focussed on finance, says Chris Kiew-Smith, Head of Technology for the Financial Services Regulation Authority.

It’s fortuitous that the United Arab Emirates (UAE) began embracing one of the biggest economic changes in its history at a time when the value of the substance it built its riches on plummeted to decades-busting lows.

Demand for oil in April fell by as much as 25 million barrels a day, prompting crude prices to tank towards US$20 a barrel as the COVID-19 pandemic brought industry and transport to a standstill. But a dramatic contraction in demand – some predict by as much as a third this year – has exaggerated a trend towards less reliance on fossil fuels in favour of greener energy.

Anticipating this change in world order, the UAE is attempting to redefine itself as a leading global financial powerhouse – and it means business, pouring a significant amount of its riches into making sure it stands out in a crowded space.

The organisation leading the onslaught is the ADGM (Abu Dhabi Global Market) fintech growth catalyst, an entity created five years ago which includes many leading lights from the Western financial, legal and regulatory worlds, such as the UK’s Financial Conduct Authority (FCA) and British supreme court judges, who have relocated to this ‘promised land’ of innovation.

A driving force behind ADGM’s inception was providing some of the globe’s wealthiest people, who live in the region, with the ability to manage their finances and assets at home, rather than via financial centres like London and Switzerland.

The ADGM and its sister body, the Financial Services Regulatory Authority (FSRA) – Abu Dhabi’s bespoke regulatory system, established to help fuel its growth – are backed by Saudi’s super rich, including its royal family, as well as other state funds, to the tune of US$1.5billion. This lucrative funding pot is helping to persuade firms from fintech startups to co-locating incumbents, to head to the UAE, which sees itself as a ‘gateway to China’ and the rest of the Middle East and North Africa (MENA) region with their seemingly boundless growth opportunities in financial services. In fact, ADGM has already signed partnership agreements with state-owned Chinese organisations and opened its first international office in Beijing, to help regionally based firms access this large and lucrative market. 

Low-cost global payments unicorn TransferWise is the latest fintech to exploit the UAE’s unique position, setting up an office in Abu Dhabi last October. It says it was attracted by the territory’s exceptional global payments opportunity, fuelled by a populace made up of 90 per cent ex-pats as well as pent-up demand across MENA.

The territory is proud of its enabling ecosystem, characterised by a flexible, digitally-powered, legacy-free and independent legal and regulatory framework, modelled on those in the West; a state-of-the-art sandbox and a RegLab for safely testing new concepts. 

No surprise, then, that the ADGM has notched up a serious list of firsts already, including the first digital sandbox with a participating regulator; the first fintech regulatory sandbox; the first application programming interface (API) framework; the  first calibrated venture capital manager in MENA and the world’s first compliant cryptoasset regulatory framework.

At the same time, ADGM is partner in and home to the recently launched global tech ecosystem, Hub71, in which it has invested Dh100billion to enable it to drive tech transformation with input from capital providers, business enablers and strategic partners. The regional Mubadala Investment Company is leading this initiative, with influential partners like Microsoft and the SoftBank Vision Fund.

Homegrown and foreign fintechs benefitting from this fertile economic breeding ground so far span segments from payments to digital banking, among them Ant Financial’s global payments pioneer WorldFirst and blockchain-based payment technology company Pyypl.

The Dubai International Financial Centre (DIFC) is now home to 737 active financial firms, up 18 per cent since 2018, and 64 per cent since inception, and with a current market worth of around US$700billion. 

Incumbents find it attractive, too. Standard Chartered and BNY Mellon have recently set up offices in Abu Dhabi, to help their regional clients seize the significant opportunities a stone’s throw away. 

The UAE’s ambitions seem boundless. In April, it announced plans to launch regulated digital asset trading in the second quarter of 2020, with secure, decentralised digital asset exchange DEX among the first companies granted in-principle approval. Its founder and CEO Leon Smith heralded this as a ‘landmark moment for ADGM but also the wider Middle East financial industry’. 

Innovations, so far, include three regtech pilot initiatives aimed at helping financial services firms achieve better compliance and risk management outcomes, faster and more cost-effectively – including an artificial intelligence (AI)-enabled regbot to speed up licence applications through automation, and a partnership with financial technology as a service (TaaS) company OneConnect to develop the ADGM digital lab, described as ‘a platform where financial institutions and fintech firms can collaborate, test and develop innovative solutions with direct participation from the FSRA’. 

These are just some of the ways in which those oil pipelines are being replaced with digital ones, made possible by the UAE’s homegrown, state-of-the-art legal, regulatory and licensing framework,

Chris Kiew-Smith, Head of Technology for the FSRA, and formerly of the UK’s Financial Conduct Authority, explains that the area also boasts a registration bureau and will soon have its own exchange, facilitated by Singapore.

“As a government agency, we have an objective to grow the GDP of the national economy,” he says. “To do that, we’re trying to grow a best-in-class technology ecosystem.”

This includes $18billion invested in SoftBank’s Vision Fund 1 by sovereign wealth fund, Mubadala, for technological development. The central Abu Dhabi Ghadan 21 Ventures Fund is a Dh50billion, (£10billion), stimulus package coming from the Crown Prince’s Office for various sectors of the economy. This fund has also given US$145billion for early-stage startups, with the Abu Dhabi government co-investing with venture capital (VC) funds to also help grow the area’s VC fund industry. 

Helping companies at all stages of their development is clearly important, and another fund, the Mubadala Catalyst Fund, is ploughing US$1billion into later-stage companies with established products that are pushing for scale.

“We are open to any sector within financial services getting involved in the ecosystem here – banking, capital markets, asset management, insurance or payments, a startup or a mature company,” says Kiew-Smith, who explains that the regulator sees itself as fulfilling an enabling role.

“We’ve tried to think as futuristically as we can, in terms of what regulatory frameworks a next-generation financial market would need. If we imagine, for a moment, that everyone is application programming interface (API)-enabled, tokenisation is real and digital security and digital assets can be freely traded, what, from a regulatory point of view, would make that clearer?” he adds. “Because, from a regulatory perspective, it’s not about making it easy, it’s about making it clear and transparent,” he says.

“For example, in June 2018 we released a cryptoasset regulatory framework, which people immediately think of as a risky market – which is precisely why financial sustainability, appropriateness of operation and strong regulation are so important. Some people would call ours an onerous framework, and that’s deliberate. We regulate for anti-money laundering (AML), custody, technology, governance, market integrity and consumer protection, and I’m passionate about that.

“No other cryptoasset regulatory framework in the world regulates for market integrity, preventing insider trading, market manipulation and market abuse.”

Which areas of financial services does Kiew-Smith see coming to the fore? 

“If I had to pick three areas they would be capital markets, asset management and commercial banking,” he says. 

“We’re trying to offer next-generation financial services [to these and others], using the best technology available. People say banks should think more like Apple, Netflix and similar firms. We take the pillars that make them successful as our inspiration: research and development; having the best tools and talent; investing heavily; and growing the ecosystem and creating new marketplaces, like the Apple App Store or Netflix boxsets. We’re doing all those other things – and, with the cryptoasset regime, creating our new markets, too. Our Digital Lab will create an entirely new fintech marketplace, hosted online and run by the financial centre with the regulator deeply involved. 

“If you have a blank sheet of paper, as we’ve had, and combine that with incredible enthusiasm for technology and a willing and hungry market for new products, it’s an extremely exciting time.”

 

 


 

This article was published in The Fintech Magazine: Issue #16, Page 24-25.

Author: Laimis Bilys

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