The CBUAE Central Bank issued the Open Finance Regulation (the OFR), which is part of its broader Financial Infrastructure Transformation Programme (FIT Programme) aimed at modernizing the financial sector. The regulation, which was published in the Official Gazette on 15 April 2024, establishes an Open Finance Framework to enable secure and efficient sharing of financial data across banks, insurers, and other financial institutions, fostering innovation and enhancing customer experiences.
Open Finance refers to the practice of securely sharing financial data between consumers, financial institutions, and third-party providers (like Fintech companies) through standardized and consent-driven mechanisms, typically via Application Programming Interfaces (APIs). It builds on the concept of open banking, which focuses on payment accounts and services, to include a broader range of financial products such as savings, loans, insurance, mortgages, and investments.
Key features include:
2. Scope and Impact:
Any Person seeking to provide Open Finance services in the UAE will require a license, which will comprise:
- Data sharing - an online service to provide a person with consolidated data relating to accounts or products held with another licensed financial services provider; and
- Service Initiation - initiating, by electronic means, a transaction relating to an account or product with a financial services provider.
The framework covers various financial products, including deposits, payment services, loans, insurance, and more. It expands beyond open banking to include open insurance.
Licensed entities like banks, insurers, and payment service providers must comply by sharing data and enabling transaction initiation, subject to user consent.
3. Licensing and Compliance:
New entities must obtain an Open Finance License with a minimum capital requirement and professional indemnity insurance. Existing licensees, including banks and insurers, are deemed licensed but must comply with governance, control and capital standards and are required to obtain the approval of the CBUAE prior to commencing such activities.
It is important to note that an Open Finance License is granted solely in relation to the provision of Open Finance services- any other type of licensed activity that an entity may wish to undertake will be required to be licensed accordingly.
4. Phased Rollout:
The implementation of the OFR is being rolled out in stages, starting with banks and followed by additional financial institutions and insurance companies.
5. Consumer Protection and Privacy:
Strict data protection measures are in place, requiring clear, informed user consent and adherence to privacy laws. Firms are liable for data breaches and unauthorized access.
As the implementation of the OFR is following a phased approach, it would be prudent for licensees to monitor developments and regulatory updates in this space as well as proactively assessing their current interfaces and data storage and retention policies in order to ensure compliance with the OFR. The OFR positions the UAE as a global leader in Open Finance by integrating both Open Banking and
Open Insurance sectors into a unified Open Finance Framework, encouraging innovation while ensuring transparency and security.