KUWAIT Trends and Developments Contributed by: Yousef Al Shereedah, Abdulrahman Al-Roumi and Bashayer Al-Tuwais, International Counsel Bureau – Lawyers and Legal Consultants
ing solutions or payment services that may be launched by Kuwait-based entrepreneurs or entrepreneurs/investors entering the Kuwaiti market. Relatedly, in May 2023, the CBK substantially updated its “Instructions for Regulating the Electronic Payment of Funds”. These regula - tions apply widely to any service provider that handles payments or funds electronically, either directly or using agents. The updated regulation introduces a structured licensing framework for service providers, including five distinct types of licenses to accommodate varying transac - tion volumes and service types. This truncated licensing regime allows smaller players to enter the market. Among the most notable inclusions are digital wallets and electronic money institu - tions (EMIs), reflecting the growing importance of digital financial services in Kuwait. Kuwait is seeing an upward trend in financial inclusion, driven primarily by the increasing dig - itisation of banking services. The rise of new financial solutions, particularly the digitisation of buy now, pay later (BNPL) services, appears to provide viable alternatives to traditional credit services in Kuwait. Digital BNPL services pro - vided by cross-border service providers have also been strictly regulated by the CBK, and as late as February 2024, it clarified through a circular the strict requirements for such cross- border providers to operate in Kuwait. These include strict bank guarantees in favour of the CBK, in addition to limitations on how disputes with customers are to be handled. Here, the CBK’s licensing of such activities provides the CBK with wide scope to dictate the shape and manner in which BNPL services are provided. In line with protecting consumers around BNPL services, the CBK has introduced a regulatory
sandbox initiative. Designed to balance the intro - duction of new-to-the-market financial technolo - gies with essential consumer protections and financial sector trust, the sandbox provides a controlled environment for fintech start-ups and established players to test innovative products under the CBK’s supervision. By offering a framework that encourages experi - mentation, the CBK allows participants to devel - op and trial solutions like digital payment, open banking, and other fintech products while main - taining strict oversight. Notably, the regulatory sandbox now includes start-ups in the open banking space and various digital payment sys - tems. As the CBK sandbox continues to evolve, we anticipate growth in microfinancing and crowd financing platforms, which will cater to small businesses and underbanked populations, aim - ing to enhance financial inclusion. Additionally, the sandbox may foster a shift in the CBK’s his - torical stance on blockchain, potentially allowing for more blockchain-based solutions like cross- border payments and secure transactions. As the sandbox matures, it is also likely to produce a wave of AI-driven financial tools and auto - mated lending platforms, further modernising Kuwait’s financial services. Finally, another major trend occupying the CBK’s regulatory focus, related to the digitisa - tion of banking activities, is its AML/CFT regula - tory response. On 16 February 2023, the CBK revised its regulations requiring the same client and risk identification procedures for electronic service providers. Notably, in July 2023, in a cir - cular addressed to all banks, Kuwait (in a break with international trends) confirmed its strict pro - hibition on the use of virtual assets as payment instruments or to be recognised as currency in
317 CHAMBERS.COM
Powered by FlippingBook