What it is
The Innovation Testing Licence (ITL) Programme is the DFSA’s version of a regulatory sandbox.
Some of the key ways in which the DFSA supports innovation are:
Below, we provide more information on each area.
In order to apply to the ITL Programme, you must first complete and submit the ITL Pre-application Form which provides the DFSA with basic information about your firm’s business model and innovation. The DFSA will review and assess the ITL Pre-application Forms and only firms that meet the ITL eligibility criteria will be allowed to apply to the ITL Programme by completing and submitting the ITL Application Form. Acceptance of the ITL Pre-application Form does not automatically mean the firm will be granted an ITL.
The Innovation Testing Licence (ITL) Programme is the DFSA’s version of a regulatory sandbox.
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:
Licences under the ITL Programme typically work in the following way:
To be eligible for the ITL Programme, an applicant and its business must meet the criteria as set out in DFSA Rule, GEN 13.4
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”.
In addition to the above, the applicant must be able to demonstrate the following:
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.
Fill In the Pre-application Form to Apply.
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.
Contacts and FAQs.
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]
The financial services sector is one of the largest users of digital technologies, using solutions like digital identification, mobile applications, artificial intelligence, distributed ledger technology, and cloud technology. These solutions have rapidly transformed the way customers access financial services as well as the way financial services providers conduct their business to meet the changing needs of their customers and global interconnected markets.
These developments present benefits to consumers such as financial inclusion, access to a wider range of financial products and greater convenience and efficiency; but they are not risk free. They present risks to data privacy, mis-selling and a general lack of consumer understanding about how these new products and services work. There are also risks to the financial sector such as legal and regulatory uncertainty, cybersecurity, fraud and money laundering and the financing of terrorism.
While the DFSA recognises the important role innovation and technology plays in enabling a wide range of financial services business models and products and services, the DFSA also recognises its own role in providing clear regulatory direction for Authorised Firms providing, and for customers accessing, innovative financial products and services.
The DFSA has an extensive regulatory regime enabling many different types of financial services business models and products and services. In many cases, innovative companies or those using innovative technologies are able to operate their business under the existing regulatory regimes. In some cases, certain activities or uses of technology may require amendments to existing regimes.
Please contact [email protected] if you are unsure about which particular regulatory regime applies to your innovative financial product or service.
We aim to be accessible and open in our thinking and our focus to create a dynamic and sustainable innovative ecosystem in the DIFC.
We aim to foster an open and transformative environment in the DIFC to discuss and promote financial and technological innovation and the associated challenges, risks, benefits and opportunities.
We are committed to actively engaging and growing with the wider financial services markets and understand the value, confidence and transparency that such engagement brings. We frequently engage with the global community and attend international, regional, and local events, both as delegates and speakers.
We are committed to a future of innovative and dedicate specific resources and expertise to grow our innovative DIFC community.
A Market Overview of Digital Custody for Digital Assets – Digital Custodian Whitepaper
Risks, Threats and Potential Opportunities for the Financial Services Industry
Bryan Stirewalt, CEO, DFSA
The Deloitte Regulatory and Financial Crime Conference
Digital Disruption in Financial Services from Local, Regional, and global Perspectives
Peter Smith, MD, DFSA
at the Banker Middle East Summit
|1||Australia||Australian Securities and Investments Commission (2017)|
|2||Japan||Financial Services Agency of Japan (2018)|
|3||Hong Kong||Hong Kong Insurance Authority (2017)|
|4||Hong Kong||Securities and Futures Commission (2017)|
|5||Singapore||Monetary Authority of Singapore (2018)|
|6||Luxembourg||Commission de Surveillance du Secteur Financier (2019)|
|7||Malaysia||Securities Commission Malaysia (2018)|
|8||Hong Kong||Hong Kong Monetary Authority (2017)|
|9||Thailand||The Securities and Exchange Commission of Thailand (2022)|
In March 2022, the DFSA published CP 143 – Regulation of Crypto Tokens, which set out a proposed regulatory regime for persons providing financial services and carrying on other activities in or from the DIFC relating to Crypto Tokens. The Rules for the regulatory regime have now been made the DFSA Board, and relevant law changes have been approved by His Highness the Ruler of Dubai. The amendments to the law and to the DFSA Rules will commence on 1 November 2022.
The regime is comprehensive and puts in place requirements intended to protect users or potential users of financial services relating to Crypto Tokens and to address a range of risks associated with Crypto Token business, including risks relating to AML/CTF, technology, governance, custody, disclosure, market abuse and fraud.
Please see our most recent publication on this regime - Feedback Statement to CP143 - where we explain our thinking in various areas we consulted on, our thoughts on other issues relating to the regulation of Crypto Tokens, and also our approach to implementing the new regime.
We anticipate considerable interest in this regime, both from firms we currently authorise, who may wish to vary their Financial Services licence to carry on crypto business, and from new firms, who may seek to obtain a Financial Services licence in the DIFC. To assist firms to prepare for the application process, we set out below our approach regarding a pre-application process for crypto businesses from 1 November (when the new regime commences).
Our approach is designed to ensure the efficient allocation of our regulatory resources and to ensure we give appropriate attention to those businesses that are most prepared for the authorisation process and to operate a regulated financial services business.
Who needs to apply?
From 1 November, all firms who are currently providing, or want to provide, Financial Services relating to Crypto Tokens in or from the DIFC will need to obtain the appropriate authorisation or licence from the DFSA. To obtain this, firms will first need to submit a pre-application to the DFSA via the DFSA website. For the avoidance of doubt, this includes existing DFSA Authorised Firms who wish to vary their Licence to include Crypto Tokens, whether or not they are currently conducting crypto business.
If you are unsure if you need to submit a pre-application, for example, for those entities who are established in the DIFC but who are not yet regulated by the DFSA, we urge you to look at CP143, the Feedback Statement we issued on 17 October 2022, and at the new rules relating to Crypto Tokens and GEN 2.2 in the DFSA Rulebook, which sets out the relevant Financial Services activities.
How do I apply?
You will need to complete a “General Enquiries Contact Form ". In that form we ask for information about your firm that will help us determine your readiness to operate a Crypto Token business. Amongst other topics, we will assess:
· your proposed business model and your understanding of how the relevant DFSA Rules would apply;
· the level and fitness of your human and financial resources; and
· the level of preparation you have carried out to operate a regulated crypto token business (for example, whether you have prepared/implemented AML/CFT policies and procedures as per the relevant Federal AML legislation and the DFSA’s AML Module).
We expect all information provided to us to be up to date and specific to each request in the form. Do not reuse old documents, or documents you may have submitted to other regulators, as part of this process, unless you have thoroughly reviewed them and verified that they are relevant to our specific request.
It is important that you fully disclose the information we ask for. We take any non-disclosure of information that could affect our assessment seriously, especially if there is an attempt to mislead us. It is better to disclose information rather than withhold it.
We will then review the information provided. In making this pre-assessment, if we do not believe that you understand the product or service you wish to provide, or do not have sufficient financial, technical or human resources, we will not accept an application for a licence or licence variation. Rather, we will then ask you to consider these areas again before submitting another pre-application form.
General Enquiries Contact Form can be found here.
What if I do not submit a General Enquiries Contact Form?
Everyone needs to submit a General Enquiries Contact Form which will be reviewed as a pre-application submission. If you are a DFSA Authorised Firm and were, immediately before the commencement of the regime, carrying on business relating to Crypto Tokens, you will have six months to obtain the appropriate approvals in order to continue to operate with Crypto Tokens (during which time you may continue to carry on that same activity but may not expand those activities).
If you are a person in the DIFC who does not have a Financial Services licence, and have been carrying on a Financial Services activity in relation to Crypto Tokens before 1 November 2022, you will have to submit a General Enquiries Contact Form to the DFSA and obtain the relevant authorisation before continuing to carry on that activity. If you do not have a licence to do this, you will be in breach of the law and our rules.
The chart above sets out a brief overview of the Token ecosystem in the DIFC.
Financial Services and various other activities can only be undertaken with a Crypto Token that is Recognised. This means Tokens that the DFSA has recognised as meeting the criteria set out in GEN 3A.3.4. This prohibition extends to Derivatives relating to Crypto Tokens, and to Funds or portfolio managers that invest directly or indirectly (e.g., through other fund structures, including ETFs or indices) in Crypto Tokens. See GEN 3A.2.1(1) for the exact details of this prohibition.
There are two ways a Crypto Token can be recognised by the DFSA. First, if it is included in the one-off Initial List of Crypto Tokens published by the DFSA on the commencement of the regime. Then only if a person applies to the DFSA for recognition of a specific Crypto Token and the DFSA recognises the Crypto Token (where it is satisfied that the criteria in GEN 3A.3.4 have been met). An application for recognition of a Crypto Token may be made by an issuer or developer of the Crypto Token, an Authorised Person (such as an operator of a Multilateral Trading Facility (MTF)) or by an applicant to be an Authorised Person. The applicant will have to apply using the appropriate form specified by the DFSA and provide information relevant to an assessment of the Crypto Token against the criteria set out in GEN 3A.3. This includes providing information as to the regulatory status of the Token in other jurisdictions; whether there is adequate transparency relating to the Token; the size, liquidity and volatility of any existing market for it; the adequacy and suitability of the technology used; and, for Fiat Crypto Tokens, in addition, information referred to in GEN Rule 3A.3.4 (4) such as information about the adequacy of reserves, demonstrating that it is able to maintain a stable price, and that a person is clearly responsible and liable to investors for the Token. The DFSA will then assess the application and decide whether the Crypto Token should be recognised. When the DFSA recognises a Crypto Token, it will publish notice of the recognition on the DFSA webpage. In accordance with the Regulatory Law, the DFSA will also publish and maintain a register of Recognised Crypto Tokens.
In order to submit an application for Token recognition, an enquiry should be sent to innovatio[email protected] and a Token Recognition Application Form will be sent out.
The DFSA has published its Initial List of Recognised Crypto Tokens. The list can be found here.
The DFSA will publish Notice as and when any further Crypto Tokens are recognised by it (i.e. where an application for recognition has been made).
We are actively engaged with the DIFC FinTech Hive and the innovative businesses that participate in the Hive’s various innovation programmes including the FinTech Accelerator Programme, Scale-up Programme, and Startup Bootcamp.
To find out more about the DIFC FinTech HiveVisit Here
The DFSA is a founding member of the GFIN and currently sits on the GFIN Coordination Group, which is responsible for setting the strategic direction of GFIN. We are also actively engaged across all GFIN work-streams including the Cross-Border Testing Pilot, where in the 2019 Cohort, the DFSA worked with two Cross-Border applicants.
To find out more about GFIN, visit www.theGFIN.org / www.theGFIN.com
One of the first things to understand is whether you need to be regulated. To do so, you need to check the DFSA Rulebook to ascertain whether your proposed business activity is a regulated financial services activity. This will help in determining whether you need to be licensed by the DFSA to operate your business in or from the DIFC.
If the products or services you offer, or business activities you propose to conduct, fall within a regulated financial service, you have two options.
If your products or services or business activities are not a regulated financial service, you will not require a licence from the DFSA to operate in or from the DIFC. This could be because you are a technology provider or are partnering with regulated firms. However, the DFSA may still be interested in hearing more about what you are doing if your business or service offering involves an innovative technology.
It may not be clear whether the service you provide, or intend to provide, is a financial service that requires DFSA Authorisation. If this is the case, take a look at GEN Rule 2.2 in the DFSA Rulebook Modules and review our recent consultation papers. If you are still uncertain, you may wish to consider seeking advice from appropriate legal and other professional advisers specialising. If after seeking advice, you are still uncertain, you may contact the DFSA.
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