Mena market regulators keen to further boost FinTech sector development, study finds

Regulators have created enabling environment for FinTech development through innovative frameworks, Cambridge Centre for Alternative Finance says

The Dubai International Financial Centre is among Mena jurisdictions promoting the development of FinTech. Photo: DIFC

The Covid-19 pandemic has boosted support and efforts by Middle East and North African market regulators to put in place frameworks that enable the development of the FinTech sector in the region.

Regulators in Mena consider FinTech to be more “supportive to their objectives” than the global average, the Cambridge Centre for Alternative Finance (CCAF) said in its latest survey of regional regulators.

The difference is “striking” in terms of market development, with 85 per cent of Mena regulators perceiving that FinTech is favourable to their objective, compared to 61 per cent globally. In promoting competition, 62 per cent of regional regulators favoured it compared with 47 per cent globally, CCAF University of Cambridge said in the report.

“In the Middle East and North Africa region, regulators have taken positive steps to create an enabling environment for FinTech through a combination of regulatory frameworks and regulatory innovation initiatives,” said Robert Wardrop, director and co-founder of the CCAF.

“This study assesses how a range of FinTech activities are regulated in the region, including understanding which regulators have a mandate for specific FinTech verticals, and whether activities are regulated by existing or bespoke frameworks, as well as noting which regulators plan to introduce regulatory frameworks in the near term.”

The study, which is the second in a series of three, reviewed how regulators are meeting FinTech and wider digital financial services challenges in their jurisdictions.

It considered regulatory frameworks for e-money, digital payments, peer-to-peer (P2P) lending, equity crowdfunding and international remittances. It also analysed existing frameworks for cross-sectoral themes that affect FinTech, including data protection, anti-money laundering (AML), cyber security, financial consumer protection, electronic know-your-customer (eKYC) and open banking.

As a response to the challenges related to the pandemic, 46 per cent of regulators surveyed introduced new measures relating to KYC, AML and digital identity. Almost half of them have launched initiatives to support economic relief, 38 per cent took measures for business continuity and 23 per cent beefed up cyber security.

Three quarters of respondents “perceived” an increase in cybersecurity risk related to FinTech during the pandemic. It is in addition to a perceived increase in operational risks (67 per cent), fraud and scams (33 per cent) and consumer protection risks (25 per cent).

Concerns of Mena regulators in terms of cybersecurity and operational risks were mostly in line with their peers around the world.

More than 90 per cent of jurisdictions sampled in the study have established regulatory frameworks for payments, with 8 per cent of these specific to digital payments. This underlines the dominance of the payments subsector relative to other FinTech verticals in terms of the level of business and start-up activity, the report said.

Similarly, 92 per cent of Mena jurisdictions have regulatory frameworks in place for e-money, with 42 per cent creating a specific framework for the purpose and 50 per cent regulating through a general payments framework, the report added.

As to data protection, an area of concern elevated by the pandemic, 69 per cent of sampled jurisdictions have a broad framework in place, with a further 23 per cent planning to introduce one.

“The Mena region has seen a rapid increase in FinTech activity and there is evidence of regulators adapting,” said Alexander Apostolides, acting lead of regulatory innovation at CCAF.

“However, the existence of regulatory frameworks is uneven, both in FinTech verticals and in terms of jurisdictions.”