MONEY SERVICES REGIME IN DIFC
The Dubai Financial Services Authority (“DFSA”), the Financial Services Regulator in the Dubai International Finance Centre (“DIFC”), recently amended its legislation to introduce money/payment services business as one of the regulated activities within DIFC.
The amended regulation is covered under various DFSA Rulebooks including Conduct of Business, General, AML, Prudential Rules and Auditor. These rulebooks provide detailed regulatory framework and applicable rules in relation to conduct of business, compliance and AML for a range of money services business that can be undertaken in and from DIFC.
What has changed?
Prior to the amendment, the financial service of “Providing Money Services” was a prohibited activity under the DFSA regulations. In the recent amendment, the DFSA introduced a comprehensive framework for money services business.
What is the regulatory framework for Money Services Business?
The DFSA designed the framework to capture “Money Services” into different categories as below:
The activity of Currency Exchange (as a standalone services) is still considered as a prohibited activity.
Depending on the service offering by Money Services Businesses, the regulated activity can be categorized under:
- Providing Money Services (PMS)
- Arranging & Advising on Money Services (AAMS)
A range of service offerings are covered under “Providing Money Services”. The explanation of various elements/terminologies is provided below:
Unique areas of service offerings are covered under “Arranging & Advising on Money Services”. The explanation of various elements/terminologies is provided below:
The two main services provided through AAMS are Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs):
- AISPs acts as provider of aggregate information about the user’s account balance across multiple payment accounts, tracks user’s spending patterns, facilitate budgeting and financial planning.
- PISPs acts a bridge by establishing a software “bridge” between the merchant website and the online banking platform of user’s payment account provider.
What are the key business and compliance rules?
- Allow PMS activity in relation to electronic currency only (no physical cash).
- Any PMS transaction in AED to be cleared and settled through a UAE bank.
- Introduction of Arranging or Advising on Money Services (AAMS) as a separate regulated activity. The arrangers or advisors would not hold or control funds of PMS users.
- Additional information and risk disclosure requirements thereby enhancing protection for user’s rights
- Stricter and detailed complaint management and dispute resolution mechanism
- Rights and obligations of users and business
- Submission of Money Services Auditor’s Report
- Specific rules apply on AML/KYC
- Apply the existing DFSA rules in relation to operational risk to AAMS and PMS firms with exception to some rules
- Client reporting requirements
- Additional requirement for issues of stored value (including limit of total value up to USD 5,000 and single transaction up to USD 1,000)
- Requirement for strong customer authentication and user security credentials, including adequate systems and controls in place to detect the fraud as well as report such frauds
- Introduce controls relating to third party-initiated transactions and firm’s ability to block user funds
What is the regulatory capital requirement?
The regulatory capital requirement is linked to:
- the risk profile;
- the nature of service offerings;
- the extent of business operations; and
- the regulated services that the business falls into.
The capital requirement is the highest of the following capital:
- Base capital – A fixed amount prescribed under the DFSA’s Prudential rules
- Expenditure based capital – Dependent on the annual operating expenses
- Risk based capital – Dependent on other criteria such as transactions and stored value.
Is there any other requirement for regulatory capital?
- The regulatory capital must be injected once the in-principal approval is received and the bank account is opened.
- The capital injection is required to obtain the Final License.
- The regulatory capital must be kept at all times in a ring-fenced bank account and cannot be utilized for any capital or operating expenses.
Regulatory Costs for set-up
* In light of COVID-19 situation
With advances in technology and to remain competitive globally as a regulated jurisdiction, DFSA’s introduction of regulating Money Services activity is a well thought through approach and one of the important milestones for DIFC in promoting the growth of regulated financial services activities and to provide greater protection and choices to users of money services.
Any businesses (including fintech players) proposing to provide money services in and from DIFC would require to undertake a thorough analysis of the prudential category and financial services activity that it may fall into.
How can we help?
We are a team of highly skilled and qualified professionals, specialized expertise as a certified anti-money laundering specialist including a FATF trained legal expert examiner, experience across financial services industry and multiple related fields from reputable jurisdictions.
- Completed – We have successfully assisted a UK based service provider in obtaining a money services license (ADGM) and currently pursuing additional licensing in DIFC.
Completed – We have successfully assisted a FinTech related MSB startup in attaining FSP through RegLab ADGM.
- Ongoing – We are currently working on three (3) applications for seeking money services license both in DIFC and ADGM.
Our approach places significant importance on ensuring that our clients fully understand their options and we work closely with applicant firms to ensure their business control environment is clearly explained throughout the application.
We provide the following services in relation to authorization of a regulated entity:
- Analysis of the business model and providing compliance advice on the applicable regulatory framework and application process
- Preparing application for authorization, Regulatory Business Plan, process flow charts, and financial projections
- Drafting policies and procedures aligned with the relevant regulatory obligations and the business operations
- Liaising with the Regulator and Registrar for financial services permission and company set-up
Value Added Services:
- We also provide mandatory functions of Compliance Officer, Money Laundering Reporting Officer and Finance Officer on an outsourced basis.
- Our team of senior members also act as Non-Executive Board members or Board Committee members assisting in strengthening corporate governance and oversight.
Partner & Head – Regulatory & Compliance Services
Senior Manager – Regulatory & Compliance Services