Exemptions for SVFs under CBUAE Regulations

Pursuant to Article 65 of the Decretal Federal Law No. 14 of 2018 regarding the Central Bank & the Organization of Financial Institutions and Activities, the provision of Stored Value Facility (SVF) services is subject to a licensing regime administered by the Central Bank of the United Arab Emirates (CBUAE).

To commence, it is imperative to establish the definition of an SVF. An SVF, as defined by the CBUAE, is a facility where a customer deposits money or its equivalent (including reward points, crypto-assets, or digital tokens), which is then used for:

(a) Storing the deposited value, either wholly or partially; and

(b) Providing a relevant undertaking by the licensee, who holds an SVF license, to either supply/make payments for goods or services, or to make payments to another person, as per the facility’s operating rules, upon the customer’s use of the SVF as a means for payment for goods and services, or payment to another person.?

Following the definition, an SVF encompasses both Device-Based SVFs and Non-Device-Based SVFs. Device-Based SVFs are facilities that require a physical device, such as a smart card, pre-paid cards or mobile device, to store and manage value. To the contrary, Non-Device-Based SVFs do not require a physical device. Instead, value is stored and managed electronically, often through online accounts or virtual wallets. In essence, SVFs include any system for storing value, whether or not it involves a physical device.

With the definition established, we can proceed to explore the exemptions outlined in the CBUAE regulations. According to CBUAE regulations, the following SVFs are exempt:

1) When the SVF is used for cash reward schemes:

In this case, the funds in the SVF can be provided either by the issuer of the SVF or by an individual who enters into an agreement with the issuer to deposit money into the SVF. The deposited funds are restricted to purchasing goods or services offered by the SVF and must be used in accordance with the specific terms and conditions of the SVF.

For instance, let’s consider a shop that has a loyalty program where customers can earn points for every purchase. These points are stored electronically in an SVF issued by the shop. The customer can then use the funds stored in their SVF to:

• Pay for Future Purchases: Use the funds to pay for goods or services at the same shop or its partners.
• Redeem Rewards: Exchange funds for special rewards, discounts, or promotional offers as specified by the loyalty program.

2) When the SVF is used for purchasing certain digital products:

It’s a facility where stored value can be used specifically for buying items or services that are;

1. Delivered to;?
2. Used through; and?
3. Paid through a telecommunication, digital or technology device.

For instance, an individual has a stored value account with a digital wallet app on their smartphone. To purchase the latest album by their favorite artist, the process works as follows:

• Purchase: The individual opens the music store app on their smartphone and browses the catalog. They select the new album and choose to purchase it.
• Delivery: Once the transaction is confirmed, the album is instantly delivered to the individual’s smartphone. The music files are downloaded directly to the device or made available for streaming through the app.
• Usage: The individual opens the music player app on their smartphone, which syncs with the music store app. The album can now be listened to at any time through the music player app.
• Payment: During the purchase process, the individual uses the stored value in their digital wallet app to pay for the album. The stored value is deducted from the account balance, and the transaction is processed electronically through the smartphone.

3) When the SVF is used for certain bonus schemes:

This SVF is used only for storing points that are either value added by the customer, value received in the customer’s SVF account or value redeemed by the customer, including, reward points, crypto-assets, or virtual assets, provided by:?

1. The issuer of the SVF; or
2. An individual who agrees to provide goods or services to the customer under an agreement with the issuer.

Subsequently, the customer may use these points to make payments for goods or services provided by the issuer or the individual in one of the following ways:

• By using only the points; or
• By combining the points with a sum of money (in any currency) that is temporarily stored on the facility solely for the purpose of completing the payment. The temporarily stored sum of money is not redeemable for cash.

For instance, airline mileage programs allow customers to earn and use points for travel-related rewards, with the points not being convertible into cash but usable within a defined rewards ecosystem.

4) When the SVF is only used within a limited group of goods or service providers:

Such SVF may be used exclusively for making payments for goods or services provided by:?

1. The issuer
2. An individual who agrees to provide goods or services to the customer under an agreement with the issuer.

In this case, payments can only be made to designated providers, meaning the SVF cannot be used for general-purpose transactions or outside of this restricted group. Additionally, since the regulations specifically stipulate that this SVF can only be used for "making payments only for goods or services," the stored value is not redeemable for cash and can only be used for payments within the designated network of providers.

5) When the SVF meets the following criteria:

1. The aggregate amount of the float of the SVF does not exceed half a million Dirham (500,000 AED) or its equivalent; and
2. ?The aggregate number of customers is not more than 100.

To qualify for this specific exemption, the SVF must test its products before launch. This means the relevant issuer is required to participate in the CBAE Fintech Office’s sandbox arrangement for a trial run.

Ultimately, if your business model falls into one of the categories mentioned above, you are likely to qualify as an exempt SVF. However, this does not occur automatically. As specified by the regulations, the exemption is granted "upon application by the issuer," meaning that the individual must apply for the exemption. The CBUAE will then assess whether the SVF should be exempted from licensing requirements. This assessment considers various factors, including the risk the SVF poses to its (potential) customers, their funds, and the overall financial system. Based on this evaluation, the CBUAE may grant an exemption from the licensing requirements.?

At Rasma Legal, our team is ready to assist with the application process and support you throughout, ensuring it proceeds as smoothly as possible and ensuring that all requirements for the exemption are complied with.?