While the first year of operations for Abu Dhabi Global Market (ADGM) has brought much attention for its licensed financial institutions, and the regulatory and judicial infrastructure within which they operate, 2017 is likely to see more emphasis on the zone’s strategy to develop as a broad-based financial centre.

This means pursuing growth beyond the core areas of private banking, wealth management and asset management. A key element of this wider mandate is the development within ADGM of a thriving financial technology (fintech) segment, a rapidly expanding area of financial services which ADGM estimates attracted $19bn in global investment in 2015.

New Framework

One of the key challenges facing any jurisdiction wishing to nurture a fintech segment is regulation. Fintech companies are generally start-ups, their principal goal being the disruption of incumbent technologies and processes. Their targeted segments are many and various, from the back office functions in which the modern iteration of fintech began, to retail banking innovations such as digital wallets, financial literacy and education tools such as robo-adviser sites, online peer-to-peer lending, crowdfunding, and the increasing array of money management tools available to corporate and individual investors.

The recent growth of the fintech industry has been rapid, and the sector has shown itself to be one of the most volatile in the financial services arena. The timescales encompassing analysis, research, specification, development and implementation are often short. Ideas are picked up and dropped with great frequency, with outcomes often differing significantly from the original ideation stage as concepts are trimmed, expanded or combined depending on market responses and demand.

All of these characteristics are a poor match for traditional regulatory frameworks, which have a tendency to stifle innovation and ramp up development costs. Fintech tends to thrive where regulation is light, cost-efficient and tailored to encourage rather than “front-run” innovation. The challenge for regulators, therefore, is to establish a framework that is nimble enough to meet the specific needs of fintech players, while maintaining the prudential safeguards that are essential to the sector’s long-term stability.

In 2016 the Financial Services Regulatory Authority (FSRA) of ADGM revealed the model that it believes will satisfy these divergent requirements. The Regulatory Laboratory (RegLab) is a tailored framework developed by ADGM to enable fintech players to conduct activities in a controlled yet cost-effective environment, and is the first initiative of its type in the MENA region.

Bespoke Regulation

The principal novelty of the RegLab is its blank-sheet approach to regulation, whereby fintech participants will not be subjected to the full array of rules from the outset, and will instead be governed by a customised set of regulations that will vary depending on the business model, technology deployed and risk profile of the company.

Fintech participants are granted a two-year period to develop and test their products, after which viable business models are transferred to the full authorisation and supervisory framework, while those that are not ready to launch will exit the RegLab framework. “Our fintech laboratory is showing the innovation component of what we do,” Richard Teng, CEO at the ADGM’s FSRA, told OBG. “It allows companies to establish themselves under a more lenient regulatory code, test products, and then once proven successful, evolve to a normal tier of regulation. It is a first in the region.”

In the past, this “sandbox” model of regulation has been used in developing economies such as the Philippines and Tanzania, both of which allowed regulation to follow change rather than lead it as they nurtured their digital financial services segments. In these jurisdictions, the risk resulting from the lifting of the normal level of regulatory oversight was mitigated by the authorities allowing only a limited amount of reputable entities to operate under the test-and-learn framework.

In developing the RegLab, however, Abu Dhabi joins a small number of regulators that are applying the sandbox approach to a wider range of fintech players, many of which will have little or no track record. This approach has been adopted by some of the world’s leading regulatory bodies, including the UK’s Financial Conduct Authority (FCA), the Monetary Authority of Singapore and the Australian Securities and Investments Commission, all of which have recently launched frameworks that adopt a similar model to ADGM’s RegLab.

In Practice

There are numerous differences in the strategies adopted by global regulators. Singapore’s, for example, is limiting the trial phase of fintech products to no more than 50 customers for a period of six months. ADGM’s RegLab grants more time to companies attempting to bring innovative products to the UAE market. The UK’s FCA is accepting firms into its regulatory sandbox in a series of cohorts, the first of which was processed in 2016, and has left the geographical scope of the scheme loosely defined, stating only that it is likely that fintech firms will be required to have a “significant UK nexus”.


The focus of Abu Dhabi’s initiative is on companies that wish to live-test an untested product that has a lot of potential to serve the domestic market, as well as fintech providers that might have already established a product in the UAE but wish to continue researching and developing it. Companies wishing to participate in the RegLab must demonstrate that their product promotes fintech innovation and has the potential to promote growth, efficiency or competition in the financial sector, result in better risk management solutions, or improve the choices and welfare of clients. Proposed products should also be at a sufficiently advanced stage to mount a live test, and applicants must be able to demonstrate how they will be deployed in ADGM or in the wider UAE on completion of the two-year validity period.

Fintech initiatives which meet these criteria are granted an FSRA Financial Services Permission to carry out development activity within the RegLab and establish a commercial presence in ADGM. The tailored regulatory requirements that will be applied to them will, according to ADGM, be “responsive and risk appropriate”. In practical terms, the regulator will work with the applicant to identify those rules that are not relevant to the proposal, which may then be waived or modified accordingly. At this point the regulator will establish the limits of the fintech participant’s test activities, both in terms of customer numbers and geographical scope, a flexible approach which establishes the ADGM model as one of the more nimble sandbox frameworks in the current trend. As the trial progresses, the regulator may vary the waivers and modifications imposed at the outset, subject to the changing risks which the product is exposed to.


ADGM’s fintech strategy has an added layer of security that will considerably mitigate the risk associated with start-ups, in the form of in-house development infrastructure. In May 2016 it signed an agreement with Flat6Labs which will see the start-up accelerator act as strategic partner of ADGM in developing its fintech activity. Flat6Labs provides seed funding, strategic mentorship, workspaces, business training and access to a network of investors from five locations in the MENA region. It is also part of the Global Accelerator Network, which has a presence in six continents and 100 cities. The network’s membership has collectively raised $4bn in financing to date.

More development infrastructure comes as a result of a September 2016 agreement between ADGM and GlassQube Coworking (GQC), by which both entities will share expertise and engage in joint efforts to spur the development of the fintech ecosystem in Abu Dhabi. GQC is a leading workspace provider for entrepreneurs and the start-up community. Its first location is in Abu Dhabi’s Sky Tower, and at the close of 2016 it was expanding this site over 20,000 sq feet of the building’s 35th floor. It is also developing a dedicated facility, the GlassQube Flagship Building, which will add 13,000 sq metres to its footprint, and will include engineering and start-up labs. As with Flat6Labs, GQC brings with it a number of useful alliances, including agreements with Amazon Web Service, Dubai SME, Microsoft and the US Chamber of Commerce.

ADGM has also tapped into Abu Dhabi’s rapidly expanding tertiary education sector in the bid to develop its fintech capacity. In June 2016 it inked a deal with New York University Abu Dhabi (NYUAD) which will see NYUAD offer ADGM’s RegLab participants access to its entrepreneurship training and skills development programmes, while ADGM will provide domain knowledge and fintech expertise to the NYUAD community of entrepreneurs. ADGM has also inked the first fintech bridge in the MENA region with the Monetary Authority of Singapore to help fintech players gain greater access to markets, capital and regulatory cooperation.

Further agreements are expected to be struck over the coming year as ADGM endeavours to co-opt local expertise in the furthering of its fintech ambitions.