Variable Capital requirements introduced by DFSA
When we think of money, stored value means anything that is not cash, but one can still use it to transfer value – checks, debit cards, gift cards, and forms like that. These are used to transport some dollar/ currency amount which we can later exchange for goods and services.
Each of these forms of stored value has its advantages and disadvantages, along with some properties that make them unique. Difference between “Stored Value” and Money
Money has value because we all agree it has value, and so we can use it as a medium of exchange. Forms of Stored Value simply are a storage system for money, meaning they do not have any value in and of themselves. This means that if you write me a check, I only think that the check has value, if I can exchange it directly for cash. If I do not think you have enough money in your bank account to cash this check, then I probably am not going to assign it very much value.
Bitcoins and Other Virtual Currencies
Bitcoins and virtual currencies have become very popular in the last few years, but it is not always easy to tell if they are a form of money in and of themselves, or they are just a stored value of money. Their actual definition shifts based on how you, the consumer use them.
For example, if you convert your dollars into bitcoins, then visit a shop that lists their prices in bitcoins and accepts bitcoins as payment, it is acting like similar to traditional money. However, if that shop lists all their prices in dollars, but they take bitcoins as payment with a conversion rate, then your bitcoins are just acting as a ‘stored value’ for dollars.
To make things more complicated, you can also buy a bitcoin because you think its value will go up over time. This means that you are treating it not as stored value or money, but as an investment, and are using “speculation” to try to turn a profit.
DFSA’s capital requirements when a money services provider issues stored value –
The money services firm which issues stored value must calculate its Stored Value Capital Requirement as an amount equal to 3% of the average daily outstanding Stored Value of the firm
The average daily outstanding Stored Value of a firm means the average total of financial liabilities related to Stored Value in issue at the end of each calendar day where that average is calculated over the previous six calendar months.
Any arm of these companies in SVF business which may operate in the State (mainland), needs to obtain a license from CBUAE.
Central Bank of UAE regulations for Providers of Stored Value Facilities in the UAE –
As the one-year transitional period completes on 30th September 2021 for the Stored Value Facilities Regulation issued by CB UAE, full compliance is required by all licensees. Pursuant to this all licensees are required to complete the required implementation and submit their assessment reports to the central authorities. The capital requirement listed by CBUAE is as follows:
A Licensee must maintain the following:
- Paid-up capital of at least 15 million Dirham (15,000,000 AED) or an equivalent amount in any other currency approved by the Central Bank
- Aggregate Capital Funds must be at least 5% of the total Float received from all Customers
There are a number of types of stored value facilities which are exempted from these regulations, such as:
- SVF is used for certain cash reward schemes. Examples include loyalty schemes provided by shops and supermarkets which offer cash rewards for customer loyalty;
- SVF is used for purchasing certain digital products. Examples include the purchase of digital content such as ringtones, music, videos, electronic books, games and applications that can be used on smartphones, computers or other information technology devices;
- SVF is used for certain bonus point schemes. Examples are airline mileage programs and customer loyalty schemes that provide non-cash points to customers to reward their patronage, and whereby such points and value stored, if any, are not redeemable for cash
- SVF can only be used within a limited group of goods or services providers
- the aggregate amount of the Float of the facilities does not exceed (500,000 AED) or its equivalent, and the aggregate number of Customers is not more than 100. If a potential SVF Issuer wishes to apply for this particular exemption, the SVF is required to test out its product before making a full launch of SVF. In this regard, the relevant issuer is required to participate in the Central Bank’s FinTech Office sandboxing arrangement for a possible trial run.
SENIOR FINANCE MANAGER
Source: CBUAE SVF regulations and also views of industry experts. Happy reading! 😊