UNITED ARAB EMIRATES Law and Practice Contributed by: Arnold Krutilins and Gabrielle Margerison (nee Lowe), White & Case LLP
provide a secure environment to test technological solutions to facilitate the growth of regtech in the UAE. The DIFC has established the DIFC Innovation Hub, the largest innovation community and fintech accel - erator in the region, which also looks to support the development of regtech services. Regtech has recently become more of a focus for UAE regulators as the country looks to further develop its status as a thriving financial centre in the Middle East and is therefore increasingly interested in combating money laundering activities. As such, UAE regulators are looking to utilise regtech to help manage the grow - ing AML requirements and risks associated with its increasingly sophisticated and active financial market. 9.2 Contractual Terms to Ensure Performance and Accuracy Regulatory requirements related to outsourcing will need to be reflected in the contracts between the regtech provider and regulated FSPs. The extent to which these requirements will need to be applied may depend on the type of regulated FSP in question, the applicable regulatory regime and the particular regtech solution provided. Where a regu - lated FSP outsources a function directly related to its regulated financial activity, the General Rulebook Modules of the FSRA and the DFSA stipulate that a written agreement must be in place but are largely not prescriptive with respect to the contents of these agreements. By contrast, with respect to banks, the CBUAE’s Outsourcing Regulation details in more substantive terms the provisions that outsourcing agreements must contain. These requirements largely centre on data security and confidentiality and the permissibility of subcontracting within the outsourcing relationship. Obligations in respect of outsourcing also exist under other CBUAE regulations, including, for instance, the RPSCS Regulation and the SVF Regulation. Where a regtech provider offers insourcing solutions, contractual safeguards will need to be put in place to account for any risks arising out of the reliance on these solutions by the regulated FSP. As dictated
largely by industry custom, these agreements often require provisions regarding (among other things) the maintenance of appropriate insurance policies, audit - ing rights in favour of the regulated FSP and reporting requirements. The requirements set out in the DIFC, the ADGM and the “onshore UAE” data protection laws will also need to be considered. 10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry Please see 1.1 Evolution of the Fintech Market , 2.1 Predominant Business Models and 2.2 Regulatory Regime on the development of blockchain and virtual assets in the UAE. 10.2 Local Regulators’ Approach to Blockchain The UAE’s regulators have reacted quickly to the growth in the use of blockchain within the financial services markets, particularly in respect of assets traded and stored on blockchain technologies: virtual assets. All of the relevant UAE regulatory authorities set out a definition for virtual assets (or similar term) and contemplate the impact and use of decentralised ledger technologies (DLTs), such as blockchain, within the provision of regulated financial activities. The UAE’s regulatory landscape is continuously evolv - ing in this space as it looks to attract blockchain tech - nologies to the region with transparent regulation and practical solutions. For example, in November 2023, the ADGM released the Distributed Ledger Technol - ogy Foundations Regulations 2023, marking a sig - nificant milestone in the evolution of digital assets regulatory frameworks across the region and at an international level. 10.3 Classification of Blockchain Assets The UAE financial services regulatory frameworks each govern virtual assets to differing degrees, includ - ing those that are represented and stored on DLTs, ie, blockchain assets. The VA Decision defines virtual assets as “a digital representation of value that can be digitally traded or
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