Highlight & stories

09 December 2021, by ADGM's Staff Editor

The MENA FinTech Association (MFTA) Open Banking Working Group have published a landmark report “Open Finance – A framework for the Arab region is more than a question of scope” in collaboration with the Arab Regional FinTech Working Group and Abu Dhabi Global Market (ADGM).

The report explains why open finance is a step change, and why it offers unique opportunities for the Arab region including opportunities, regulatory intervention, technological standards and the cultural shift of how open finance is perceived relative to open banking. It also highlights the regulatory framework on third-party financial technology services issued by The Financial Services Regulatory Authority (FSRA) of ADGM. The framework serves as the basis for open finance by allowing for the expansion of specified information types as demand for new third-party services increases. Existing and new third-party providers should be able to adapt to demand for open finance services.

Like other UAE regulators, the FSRA maintains a facilitated approach on the grounds that prescriptive regulation can improve adoption but stifle innovation. The FSRA works with industry players to develop appropriate technology standards while establishing strict regulatory requirements to ensure that third-party providers are robust and able to protect their customers’ data and interests.

Open Finance scope

Barely a year has passed since the publication of the report Open banking: A vision from the Arab world. One of the more prescient sections of the report discussed the emerging shift from open banking to open finance. This year, open finance merits a report of its own.

Open finance brings together a host of participants across financial services. Any hierarchical notion of data providers and third-party recipients is long gone. In its place is a level playing field where all parties may share or receive data as part of a collaborative ecosystem.

Yet open finance is more than open banking with a broader scope. Where an open banking framework is designed to spur the innovation of products and services, open finance takes those products and services and then connects them across a shared framework as well. The result is a consistent and richer customer experience regardless of the businesses involved.

Such a cross-sectoral approach calls for at least some regulatory oversight of technology standards—even in countries where open banking has been largely market led. But the type and degree of centralised control will ultimately depend on the industry sectors and their markets.

Whether looking to improve financial inclusion, boost liquidity for small businesses, or facilitate know-your-customer (KYC) verifications, open finance is poised to lay the foundation for the future of finance across the Arab region. That’s both an opportunity and a challenge for banks. It’s also a development that chimes well with the economic diversification agendas and relatively youthful workforces of Arab countries.

Arab countries will increasingly depend on open finance for financial inclusion and innovative financing for the small businesses that employ much of the population. The Arab region won’t be unique in this regard, but the age structure of its population does provide it with an uncommon opportunity. Roughly two-thirds of its population is under 34 years of age at a time when many regions around the world are concerned about their aging workforces.22 Sufficient provision of jobs will be critical in harnessing the economic potential of this youthful majority. Open finance looks set to do just that.

This report on open finance is a product of the Open Banking Working Group of the MENA FinTech Association in collaboration with the Arab Regional Fintech Working Group:

• Abu Dhabi Global Market (ADGM)
• Arab Monetary Fund (AMF)
• Arthur D. Little
• Codebase Technologies
• Dubai International Financial Center (DIFC)
• Mastercard
• OneConnect Financial Technology
• Tarabut Gateway
• The London Institute of Banking and Finance (LIBF)

Click here to read the full report: MFTA - Open Finance White Paper