UAE: New Stored Value Facilities Regulation (SVF)
The Central Bank of UAE has issued new regulations, published in the Official Gazette on 15th October 2020. The regulations aim to support digital payment services (for example, e-wallets and prepaid cards) in the UAE with effect from 15th November 2020 and therefore repeals the Regulatory Framework for Stored Values and Electronic Payment Systems. Under these regulations, the Central Bank is empowered to make decisions regarding grant of SVF licenses, conduct supervision of existing licenses and examine and impose sanctions of licenses as and when required.
The introduction of these regulations aims to bring about a change in Fintech by providing Fintech firms and other non-banking service providers with easy access to the UAE market. The scope of these regulations further includes licensing, supervisory oversight and enforcement action concerning Stored value Facilities in the country. It is imperative to note that, the financial free zones remain outside the ambit of these regulations, however, in case any company that lies within the financial free zones and wishes to conduct onshore SVF activities, they must obtain a license for the same. A one-year transitional period has been granted from the effective date so that companies can streamline their operations with these regulations.
Important provisions of the Regulations
The regulations require every entity that wishes to engage in issuing and operate SVF in the country to obtain a license from the Central Bank. Any activities conducted without obtaining such license is prohibited except in the case of a single purpose stored value facility. There are certain SVF that are exempted from these licensing requirements, as follows;
SVF used for cash reward schemes, for example, loyalty schemes by shops and supermarkets that offer cash rewards for customer loyalty.
Purchase of digital content, like ringtones, music, videos, e-books, games and applications for smartphones or any other electronic devices.
Bonus point schemes that are used for storing points, such as airlines mileage programs, non-cash schemes rewarding customers for their patronage etc.
SVF that can be used within a group of goods and service providers, provided the aggregate amount of float does not exceed half a million dirhams or its equivalent and the aggregate number of customers is not more than 100.
The Regulations set out who can apply for a license;
The applicant must be a company incorporated in the UAE, including free zones but excluding financial free zones.
Licensed firms are required to demonstrate their ability to comply with the regulations and ongoing requirements.
The applicant must disclose all their secondary and ancillary activities, or their plans to conduct such activities.
Corporate governance, risk management and internal control provisions are also required to be adhered to in order to render the entity fit and proper for licensing.
The Central Bank has expanded and consolidated its control over licensing and supervising of overseas SVF schemes, it provides guidance on factors that apply to overseas SVF schemes and the scope of licensing that may apply. The Central Bank can practice its discretion in setting out any additional factors since the regulations are not conclusive or exhaustive and allow the Central Bank to judge each case as per their merits.
Licensed banks are required to obtain necessary approvals in case they plan to conduct SVF activities, however, obtaining a license is not necessary for such banks.
Licensed SVF businesses are permitted to outsource their activities to independent third parties or other companies within their group provided such outsourcing is approved by the Central Bank.