The “Financial Infrastructure Transformation Programme” launched by the Central Bank of the United Arab Emirates (CBUAE) nearly two years ago is currently “85 percent” complete, as announced by the authority this week. This multi-faceted plan aims to spearhead the digital transformation of financial services within the UAE, embracing a vision to enhance digital payments, foster financial inclusion, promote payment innovation, security, and efficiency, and ultimately transition to a cashless society.
The Ambitious FIT Programme
Strategic Initiatives and Milestones
The FIT Programme, established in 2023 with a target for full integration by 2026, includes nine strategic initiatives. Over the past 12 months, the CBUAE has achieved several significant milestones. These include the issuance of a groundbreaking open finance regulation, the approval of a new licensing system for stablecoins, the launch of a domestic card scheme known as ‘Jaywan,’ and the completion of the first cross-border payment using the CBUAE’s central bank digital currency (CBDC) – the digital dirham – with China via the blockchain-based ledger ‘mBridge.’
The ambitious project clearly lays the groundwork for what could be a radical shift in how financial transactions are carried out in the UAE. By introducing regulations and tools that streamline digital payments and cross-border transactions, the CBUAE is creating a more connected and efficient financial landscape. Initiatives like the Jaywan card scheme not only localize financial tools but also instill a sense of national pride and ownership in the financial ecosystem. Meanwhile, the introduction of the digital dirham signifies a leap toward integrating blockchain technology into everyday transactions, exemplifying a modern approach to finance that can serve as a model for other nations.
Integration with National Visions
The FIT Programme is intrinsically linked to the ‘We the UAE 2031’ vision, rolled out in November 2022, and the ‘UAE Digital Economy Strategy,’ introduced in April 2022. This strategy aims to double the contribution of the digital economy to the UAE’s non-oil GDP from 11.7 percent to over 20 percent within a decade. Al Etihad Payments, a national entity created in 2023 to develop and operate financial markets infrastructure in the UAE, plays a crucial role in this transformation effort.
The alignment with broader national visions cannot be overstated. By correspondingly aligning the FIT Programme with these visionary frameworks, the CBUAE is ensuring that the benefits of digital transformation permeate through various sectors of the economy. The anticipated boost in the digital economy’s contribution to the non-oil GDP underscores the broader economic impact these efforts intend to achieve. Al Etihad Payments emerges as a pivotal player in this equation, tasked with the operational responsibilities required to support and sustain this monumental shift. Its establishment represents a foundational step toward creating a seamless, modernized financial market infrastructure.
Open Finance Regulation
Components and Implementation
The CBUAE stresses the significance of its open finance regulation, issued seven months ago in June 2024. Considered one of the most ambitious implementations globally, this regulation consists of a ‘trust framework,’ an ‘API Hub,’ and ‘Common Infrastructural Services.’ These components ensure open finance access, facilitating cross-sectoral data sharing and transaction initiations. Participation is mandatory for all financial institutions under the supervision of the CBUAE.
The introduction of a robust open finance regulation serves as a landmark achievement, ushering in a new era of financial interoperability and transparency. The ‘trust framework’ forms the backbone of this transformation, setting stringent standards for data sharing while safeguarding consumer privacy and data integrity. The API Hub, on the other hand, is expected to pave the way for unprecedented levels of financial innovation, enabling third-party developers to create new services and products with ease. Together with the Common Infrastructural Services, these elements provide a cohesive mechanism for integrating diverse financial services, ensuring seamless user experiences.
Development and Global Standards
The central infrastructure required is being developed by a consortium that includes Abu Dhabi-based Core42 and two London-headquartered firms, Ozone API and Raidiam. Raidiam, tasked with providing the trust framework through its ‘Raidiam Connect’ platform, already operates in other countries, amplifying the UAE’s efforts to establish a consolidated trust framework and centralized API hub. This advancement will allow secure, regulated access to the entire banking and insurance markets while maintaining strict customer consent protocols for third-party access.
The collaborative efforts with international firms such as Core42, Ozone API, and Raidiam emphasize the UAE’s commitment to establishing a world-class open finance system. The involvement of Raidiam, in particular, is notable given its proven track record in other jurisdictions. The trust framework provided by Raidiam Connect stands as a cornerstone in ensuring that the financial data flow is not only secure but also complies with global standards of data protection and privacy. This move will likely elevate the UAE’s financial system to be on par with leading global markets, fostering a more transparent and dynamic financial ecosystem that benefits both consumers and businesses.
Broader Developments and International Collaboration
Financial Sector Achievements
The broader CBUAE announcement, titled ‘CBUAE’s 2024 Achievements Drive Momentum Towards a Bright Future for the Financial Sector,’ encapsulates a myriad of developments beyond open finance. It includes insights into the central bank’s financial results and the size of the UAE’s banking sector. Open finance, the next evolutionary step from open banking, involves the sharing of financial data across sectors like insurance, investments, and pensions with fintech companies. This evolution is underpinned by the use of open APIs, which enable secure interactions between different systems.
As open finance begins to take center stage, the pivotal developments achieved so far reflect an accelerated momentum toward a more cohesive and inclusive financial environment. The increased size and robustness of the UAE’s banking sector further underscore the successful integration and expansion fueled by these digital initiatives. The evolution from open banking to open finance is not merely a technological shift but a holistic transformation in how different financial sectors interact, sharing data seamlessly with fintech companies through secure APIs. This interconnectedness is expected to drive new levels of innovation, fostering a more integrated financial ecosystem that benefits the entire economy.
Global Initiatives and Collaborations
On the international collaboration front, the CBUAE has joined ‘Project Aperta,’ a global initiative launched in October 2024 by the Bank for International Settlements (BIS). This project aims to link domestic open finance infrastructures across jurisdictions to reduce costs and frictions in global finance by enabling seamless cross-border data portability. This collaboration includes several international entities such as the Banco Central do Brasil, UK’s Financial Conduct Authority (FCA), and Hong Kong Monetary Authority, reinforcing the UAE’s engagement in cross-border financial innovations.
Through its participation in Project Aperta, the UAE sets itself apart as a proactive and forward-thinking nation in the realm of digital finance. By linking domestic open finance infrastructures to those in other countries, Project Aperta aims to create a seamless financial network that transcends borders, reducing transactional costs and enhancing efficiency on a global scale. This collaborative approach not only reinforces the UAE’s commitment to financial innovation but also places it at the forefront of a potential global financial revolution. The involvement of key international players further strengthens the project’s credibility and underscores the UAE’s strategic role in shaping the future of global finance.
Advancements in CBDC and Fintech Regulations
CBDC Milestones
The CBUAE’s advancements in CBDC, particularly through the mBridge platform, are equally notable. Initiated as ‘Project mBridge’ in 2021 in collaboration with the BIS Innovation Hub, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, and the Hong Kong Monetary Authority, with the Saudi Central Bank joining in 2024. The UAE’s first cross-border payment using the ‘digital dirham,’ valued at AED 50 million, was completed in January 2024. This milestone underscores the CBUAE’s goal to leverage CBDC for both domestic and international transactions, addressing inefficiencies, and fostering payment innovations.
The successful execution of the first cross-border payment using the digital dirham marks a significant breakthrough for the UAE in the realm of Central Bank Digital Currency (CBDC). The mBridge platform demonstrates the profound potential of CBDCs to revolutionize cross-border transactions by reducing costs, increasing speed, and enhancing transparency. By collaborating with global financial authorities like the BIS Innovation Hub and central banks from China and Thailand, the UAE not only showcases its technological prowess but also its commitment to fostering an inclusive financial ecosystem that addresses inefficiencies and promotes innovation on a global scale.
Fintech Regulations and Market Expansion
The “Financial Infrastructure Transformation Programme,” initiated by the Central Bank of the United Arab Emirates (CBUAE) almost two years ago, is now reported to be “85 percent” complete, according to recent announcements from the authority. This extensive and multifaceted initiative is designed to lead the digital transformation of financial services within the UAE. The program’s primary focus is on enhancing digital payments, improving financial inclusion, and promoting innovation within the payment systems. Additionally, it strives to bolster security and efficiency throughout the financial sector, with the ultimate goal of transitioning towards a cashless society. The CBUAE’s visionary program is a crucial step in aligning the UAE’s financial infrastructure with global digital standards, ensuring that the nation remains competitive and forward-thinking in financial services. By fostering technological advancements and promoting accessibility, the initiative aims to provide a more inclusive and secure financial environment for all residents and businesses in the UAE.
