On 7 December 2017 the Dubai Financial Services Authority (DFSA), the financial services regulator for the Dubai International Financial Centre financial free zone in Dubai signed two separate bilateral cooperation agreements with the Hong Kong Insurance Authority (IA) and the Hong Kong Monetary Authority (HKMA) aimed at enhancing collaboration in the area of financial technology (FinTech) innovation. The DFSA has now signed FinTech cooperation agreements with all three key financial services regulators in Hong Kong, having previously signed an agreement with the Hong Kong Securities and Futures Commission (SFC) in August.

Objectives

The FinTech cooperation agreements seek to strengthen ties between the DFSA and its Hong Kong counterparts in the areas of information sharing and joint innovation projects. The regulators also aim to create and foster business opportunities for FinTech firms by agreeing to refer to each other innovative businesses which wish to operate in each other's jurisdictions. Cooperation agreements of this nature will ultimately also allow regulators to simultaneously consider the impact of new market developments on existing regulatory frameworks and the development of laws, regulations and guidance. The rise of FinTech across the globe has seen regulators internationally introduce various initiatives to assist licensees to navigate their respective regulatory frameworks without compromising investor and consumer confidence. All three agreements allow for collaboration on joint innovation projects.

Regulatory initiatives

The DFSA's steps to enhance ties with its peers in Hong Kong reflect the regulators' mutual recognition of the importance of innovation and technology in improving the efficiency of markets by supporting and enabling financial services firms to develop their businesses, and provide enhanced products and service solutions to their client.

  • In this context, the DFSA has recently introduced a new restricted class of financial services licence, the Innovation Testing Licence (ITL). The ITL seeks to facilitate firms in the development and testing of innovative FinTech concepts in a controlled environment while being subject to the DFSA's regulatory regime. Consideration for an ITL will require applicants to meet specific criteria including whether the business model, product or service uses new, emerging or existing technology in an innovative way and if it brings new benefit to consumers and the industry.

  • In Hong Kong, the SFC and the IA announced in September 2017 the launch of their FinTech Regulatory Sandbox and the Insurtech Sandbox respectively. The HKMA has also recently enhanced its FinTech Supervisory Sandbox (which includes a chatroom via which the HKMA can provide speedy feedback). The sandboxes are linked up across the regulators via a common interface to provide a single point of entry for pilot trials of cross-sector FinTech products and services. Further details are provided in our e-bulletin of October 2017. The HKMA has also announced that it will work on a number of other "smart banking" initiatives, such as a faster payment system, promotion of virtual banking, closer cross-border collaboration, enhanced research and talent development.

Cross-border cooperation

The cooperation agreements between the DFSA and the Hong Kong regulators reflect a global rise in financial services regulators entering into cooperation agreements relating to FinTech collaboration and cooperation with counterparts in other jurisdictions. As regulators recognise and seek to explore opportunities to develop the FinTech ecosystem and the regulation of financial services, we have seen many regulators around the globe enter into cross-border cooperation agreements, including the UK Financial Conduct Authority, the Australian Securities and Investments Commission, the Japan Financial Services Agency, the Malaysia Securities Commission, the Monetary Authority of Singapore, Indonesia's Otoritas Jas Keuangan, the Capital Markets Authority of Kenya and the Ontario Securities Commission.