Innovation

The Innovation Testing Licence (ITL) Programme is the DFSA’s version of a regulatory sandbox. It provides a controlled environment within which ITL holders can test and develop their innovative products and services. As it is a licenced-sandbox, applicants must apply to the DFSA and complete an authorisation process. 

Licences under the ITL Programme typically work in the following way:

• Applicants are required to develop a Test Plan for the business model, products or services they are seeking to test. The test must be technology-related and not, for example, to explore customer interest in their products or services. 
• Eligible applicants may receive a temporary relaxation of a limited set of regulatory requirements, but this will cease once the applicant completes the ITL testing period. 
• Eligible applicants will be allowed to test for a specific period (typically 12 months) but subject to certain restrictions on their activities. e.g. limited clients and transaction volume and values
• Upon the completion of the 12-month testing period, the ITL holder must submit an application to the DFSA (i) to remove the restrictions on its licence and exit the ITL Programme or (ii) to withdraw its ITL.
• In order to exit the ITL Programme, the ITL holder will be required to demonstrate to the DFSA that it meets all regulatory requirements to hold an unrestricted licence. 
• If the DFSA rejects the ITL holder’s application to remove the restrictions and exit the ITL Programme, the ITL holder must submit an application to the DFSA to withdraw its ITL.

To be eligible for the ITL Programme, an applicant and its business must meet the below criteria set out in Paragraph 4 of GEN Chapter 13 “Guidance on Facilitating Fintech Innovation”.

• a) it must involve innovation, by offering a new type of product or service or applying innovative technology to an existing product or service;
• b) it must involve an activity that, if carried on in or from the DIFC, is a Financial Service (i.e. it is within the scope of the activities that the DFSA regulates);
• c) applicant must be ready to start live-testing of its business with customers;
• d) Applicant must intend to roll-out its business on a broader scale in or from the DIFC once it has successfully completed testing;

In addition to the above, the applicant must be able to demonstrate the following:

• a) Applicant must have enough funding to meet the minimum capital requirements for the activity you are applying for;
• b) Applicant’s management must have minimum 2-3 years experience in the specific business model/sector (this is an operational requirement and does not mean all promoters must have the relevant experience); and
• c) Applicant must ensure that they have knowledge and understanding of the relevant DFSA and DIFC rules/regs.

In assessing if a business activity involves innovation, the DFSA will consider if the product or service uses new or emerging technology or uses technology in an innovative way and also if it addresses a problem or brings potential benefits to consumers or industry. That is, the applicant must be able to demonstrate that the business uses innovative Fintech. (See GEN Chapter 13)

The DFSA will also assess the stage of development of the product or service to check that it is ready to start-live testing with customers. If a proposal is only at a conceptual stage and not yet ready to start testing, then it is unlikely a Licence will be required as no Financial Service is being carried on. By contrast, if the business is already fully operational and it has the appropriate regulatory compliance infrastructure, then the applicant should consider applying for a Licence under the conventional application processes and not for an ITL.

In addition to the above, an applicant will need to satisfy the requirements in GEN chapter 7. For example, an applicant should be able to demonstrate that it has adequate resources including financial resources, that it is fit and proper and that it has adequate compliance arrangements.

In order to apply to the ITL Programme, you must first complete and submit the ITL Pre-application Form. This is a short document that is meant to provide the DFSA with an overarching view of your business model and intended financial products and services. If you meet the ITL eligibility criteria, you will be invited to complete and submit the ITL Application Form. The DFSA will assess the ITL Application Form and decide whether or not to grant you an ITL.

For further information, please see the ITL FAQs. ITL Pre-application Form can be accessed here. Inquiries about the ITL should be sent to [email protected]