The guidance outlines regulatory permissions that may be required to provide digital investment services as well as how the regulator will apply its authorisation criteria in key existing areas of technology governance, suitability and disclosure, and newer areas such as algorithm governance.
Monday 22, July 2019 BY KUDAKWASHE MUZORIWA
Moody’s said that the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market's (ADGM) robo-advisors regulation and digital banks guidance are credit positive for the UAE banking industry.
The rating agency stated that these frameworks are credit positive for the UAE's banking system because they maintain high regulatory barriers to entry protecting incumbent banks while safeguarding systemic stability through a well-regulated environment for fintechs.
The FSRA’s frameworks also offer incumbent banks a conducive regulatory framework to set up digital challengers on their own or in partnership with technology companies, which expected to improve efficiency and support business volumes.
The regulator will require digital banks to have base capital of at least $10 million, robust governance structures as well as compliance and risk management policies, and certain mandatory senior management appointments.
Additionally, the FRSA requirements for robo-advisors include human oversight, base capital requirements and the need to ensure that the outcomes produced by the algorithm model are explainable, traceable and repeatable.
According to Moody’s, the FRSA anticipates applications to establish digital banks from various types of entities, including conventional banks seeking to establish digital banks or branches of digital banks, firms with innovative value propositions as well as partnerships between technology companies and financial institutions.