An evolving landscape: The state of open banking regulations in Mena
Abdulla Almoayed is the founder and CEO of open banking platform Tarabut Gateway. Here, he discusses how government regulations are shaping the future of banking in the region
The global open banking agenda has exploded in recent years, with Bahrain playing a pioneering role in fostering similar projects in the Middle East and North Africa (Mena). However, as open banking has gained traction in the region, the UAE and Saudi Arabia have taken constructive measures to make it a regional reality.
The Central Bank of Bahrain (CBB) has successfully improved the fintech ecosystem through a number of initiatives, including the establishment of a regulatory sandbox in May 2017 and the implementation of Open Banking regulations in November 2018, both of which were firsts for the region. In November 2020, further strengthening the ecosystem, the Central Bank of Bahrain released a second phase of regulations called the Bahrain Open Banking Framework (BOBF), setting a precedent for how Open Banking is deployed across Mena.
The initial regulations in 2018 focused on security and confidentiality, while the BOBF introduced a range of new use cases as well as opportunities for stakeholders to monetise them. It also tightened the implementation process including improvement of API structures, customer consent and authentication procedures, testing and operational guidelines, and frameworks for conformance and compliance for banks and licensed third parties.
In practice, this has created a challenge for current and legacy systems of financial institutions, requiring the adoption of new agile approaches and more robust, advanced and secure technologies. However, through adoption of the framework, Bahrain is set to continue to lead the way when it comes to regional open banking regulation. This collaborative approach between technology platforms, banks, fintechs and regulators has accelerated the journey towards generating new revenue streams and driving better customer experiences through product innovation.
It is clear that Bahrain has set the tone for open banking in the region, but both the UAE and Saudi Arabia are hot on their heels. These jurisdictions have identified the potential for open banking and are setting about making it a reality at a rate that has not been seen before across the world. In most other global territories, open banking has been coming to fruition for a decade or more, However, both the UAE and Saudi Arabia are keen to break records in the speed of implementation, while balancing the requirements of financial institutions in line with regulations and policies.
Dubai Financial Services Authority (DFSA) commenced the UAE’s involvement in the open banking sector by granting specific licenses in April 2020. These activities were constrained to the Dubai International Financial Centre (DIFC) and were issued for Account Information Service Provider (AISP) and Payment Initiation Service Provider (PISP) activities. Since then, the Central Bank of the United Arab Emirates (CBUAE) and Abu Dhabi Global Markets (ADGM) have amplified their own interest in open banking. In line with this, according to research by Finastra, 88 per cent of banks in the UAE expect to enable open banking by the end of 2021.
In Saudi Arabia, the Saudi Central Bank (SAMA) issued their first open banking Policy earlier this year. It outlines three different phases of their open banking implementation plan in the Kingdom, starting with the design phase in the first half of 2021, market implementation in second half of 2021 and going live in 2022. The purpose of the open banking policy in the Kingdom, is to foster collaboration amongst financial market players by building a framework that addresses the needs of the ecosystem. On a wider note, financial inclusion, innovation and economic development are cornerstones of the Saudi Vision 2030, which is empowering much of the change to financial ecosystems.
Across different industries, it often takes time for regulations to catch-up with the rapid pace of technological innovation. This has been seen with disruptors through various sectors, from transport to travel, from social media to sport. Where ingenuity and invention exist, it will always take time for regulations to be discussed and implemented. What is more important is ensuring a standardised open banking framework that would be available across multiple jurisdictions in the Mena region to support collaboration between financial institutions and FinTechs and ultimately allow fintech solutions to grow and scale across the region – benefiting all the ecosystem participants.
By bringing national regulators and central banks from across the region together and aligning on the future of open banking, it could stimulate a consistent framework and environment for fintech innovation. The Arabian Peninsula has the opportunity to set new global benchmarks with open banking and become a connected hub for financial enlightenment.
Over history, there have been many great centres of finance. In the 17th Century, Amsterdam became the first modern commercial and financial centre. By the early 19th Century, London had taken over as the world’s financial capital. Paris, Berlin and New York all grew as major finance hubs, while Brussels, Geneva and Zurich became highly influential in banking through niche services. Since the 1980s, Asian cities like Tokyo, Singapore, Shanghai and Hong Kong have become major financial zones. The rise of these financial centres had something in common; clear models and principles for the banks and financial institutions operating in their jurisdictions. Through a coherent, aligned framework for open banking, the Mena region has the potential to be a hotbed for the next generation of finance.