The Legislative Sources Governing Payment Regulations in the UAE

Q: What characterizes the regulatory landscape governing payment services in the United Arab Emirates (UAE)?

A: The regulatory landscape in UAE is diverse, with various regulators and regimes. At the forefront of this regulatory framework stands the Central Bank of the UAE (CB UAE), the principal monetary and financial services regulator at the federal level.

Q: Under what legislation does the CB UAE operate?

A: The CB UAE operates under the ambit of Federal Decree-Law No. (14) of 2018 concerning the Central Bank and the Regulation of Financial Institutions and Activities. The CB UAE oversees a comprehensive licensing regime for payment services within the UAE. As such, any entity seeking to provide payment services in the UAE must obtain a license from the CB UAE, thereby ensuring compliance with regulatory standards and fostering consumer protection.

Q: What are the main objectives of the CB UAE in regulating payment systems?

A: The CB UAE plays a pivotal role in upholding the integrity and efficiency of payment systems, thereby safeguarding the stability of the financial sector. Through its regulatory oversight, the CB UAE aims to promote innovation, enhance transparency, and facilitate the seamless operation of payment services within the UAE.

Q: What is the Stored Virtual Facilities Regulation 2020 (SVF Regulation)?

A: The SVF Regulation, which came into effect on the 15th of November, 2020, governs the supervision and licensing of stored virtual facilities (SVF) issuers, such as digital wallets, in the UAE, excluding financial free zones.

Q: What are the key highlights of the SVF Regulation?

A:

·?????? Licensing and Scope: Operating SVFs requires a license from the CB UAE, except for "single purpose SVFs" like closed-loop payment schemes.

·?????? Inclusion of Crypto-assets: The Regulation expands its scope to include crypto-assets within the scope of SVF business and within the definition of SVFs and virtual assets. Crypto-assets are defined as digital representations of value or contractual rights using distributed ledger technology. This reflects the regulatory response to technological advancements and developments in this field. Therefore, any entity involved in issuing or operating in the crypto-asset realm outside of the financial free zones or on a cross-border basis must obtain the necessary licensing or approvals, depending on its current regulatory standing.

·?????? Licensing Requirements: To apply for a license, the applicant must be a UAE-incorporated company, excluding financial free zones like DIFC and ADGM. This change allows global players to enter the UAE market more easily, departing from the previous requirement of partnership with commercial banks for retail payment service providers.

·?????? Standards for entity governance: The Regulation imposes strict standards for corporate governance, overall risk management, internal controls, and accounting systems.

·?????? Principal Business: Licensed SVF businesses must primarily engage in issuing SVFs, with exceptions subject to CB UAE approval.

·?????? Licensed Banks: Banks holding licenses are not required to obtain an additional license for SVF schemes but must secure approvals to issue SVFs. They also have separate requirements regarding governance, risk management, and internal controls.

Q: What is the Retail Payment Services and Card Schemes Regulation 2021 (RPSCS Regulation)?

A: The RPSCS Regulation, introduced by the CB UAE on June 6, 2021, outlines the criteria and regulations for obtaining a license to offer retail payment services in the UAE.

Q: What are the licensing categories under the RPSCS Regulation?

A: The Regulations outline four (4) license categories based on the type and quantity of services an entity intends to offer, along with requirements such as legal structure and capitalization.

For instance, a payment service provider wishing to offer services like issuing payment accounts, merchant acquiring, payment aggregation, payment instrument provision, or domestic fund transfers can apply for either a category I, II, or III payments license. In practical terms, this implies that PSPs focusing solely on one or more of these four retail payment services will probably aim to secure the most suitable and cost-effective of the three available payments licenses. The initial capital requirements for each payments license are likely to significantly influence this decision.

It is also important to note that the RPSCS does not extend to the following:

·?????? Payment transactions utilizing stored value facilities (as defined and regulated under the 2020 Stored Value Regulation).

·?????? Transactions involving commodity or security tokens.

·?????? Transactions involving virtual asset tokens.

·?????? Payment transactions encompassing remittances. The Regulations specify that "Remittance" pertains to cases where the payer lacks a payment account with the PSP.

·?????? Currency exchange operations where funds are not maintained in a payment account.

·?????? Any service beyond payment initiation and payment account information provision.

Q: What services are included under the categories of the RPSCS Regulation?

A: These services encompass various digital payment offerings, and encompass 9 services: Payment Account Issuance, Payment Instrument Issuance, Merchant Acquiring, Payment Aggregation, Fund Transfer (Domestic and Cross-border), Payment Token, Payment Initiation, and Payment Account Information Services.

Furthermore, the RPSCS Regulation mandates that card schemes must also acquire a license from the CB UAE, specifying conditions for obtaining and maintaining such licenses. It empowers the CB UAE to monitor and potentially regulate the fees and charges levied by card schemes, if deemed necessary.

According to the RPSCS Regulation, no individual or entity may engage in the promotion of retail payment services without first obtaining the necessary license, except for banks licensed by the CB UAE that offer such services, and finance companies issuing credit cards, provided they adhere to specific conditions.

Q: What is the Retail Payment Systems Regulation 2021 (RPS Regulation)?

A: The RPS Regulation is crafted with the main objective of safeguarding the safety and efficiency of financial infrastructure systems, thereby fostering their seamless and effective operation.

This regulatory framework delineates the major obligations and requirements incumbent upon designated RPS, while also outlining the CB UAE’s authority in overseeing their operations.

Notably, this regulation extends its purview to systematically important RPS meeting specific criteria, including those operating within the UAE or facilitating payment obligations denominated in the UAE's currency or any other regulated medium of exchange.

Q: What types of payment systems fall under the RPS Regulation?

A: The term "Retail Payment System" includes a range of fund transfer mechanisms such as cheques, credit transfers, direct debits, card payments, or any regulated medium of exchange, handling substantial volumes of relatively low-value transactions.

Through the RPS Regulation, the CB UAE elucidates its policies and procedures concerning the licensing and designation of RPS. It articulates the types of RPS covered, interprets key designation criteria, outlines the licensing and designation processes, specifies ongoing requirements for designated RPS, and provides an avenue for appeals regarding licensing, designation, and related actions.

Q: What is the Large Value Payment Systems Regulation 2021 (LVPS Regulation)?

A: Circular No. 9/2020, effective from 10/2/2021, in relation to Large Value Payment Systems (LVPS) Regulation addresses licensing prerequisites concerning LVPS and delineates the obligations and continual requisites applicable to designated LVPS.

Large value payment systems are defined, according to this regulation as: “a Clearing and Settlement System that is designed primarily to process large-value and/or wholesale payments typically among financial market participants (so-called wholesale payments) or involving money market, foreign exchange or many commercial transactions, excluding bilateral clearing and settlement arrangements and relationships which do not constitute a “system”.

Q: What entities fall under the LVPS Regulation?

A: The LVPS Regulation extends its scope to encompass two primary categories:

·?????? LVPS operated within the UAE.

·?????? LVPS facilitating the clearing or settlement of transfer orders denominated in AED currency, irrespective of their location, whether within or outside the UAE.

Q: How does the CB UAE ascertain the eligibility of an LVPS for designation and compliance with the designation criteria?

A: The CB UAE is empowered to request information or documents related to the LVPS. This authority to request information or documents applies to LVPS, individuals, or corporations established, located, or incorporated within or outside the UAE.

Moreover, the CB UAE may collaborate with competent regulatory authorities, such as the Securities & Commodities Authority, or other relevant authorities in different jurisdictions to procure the necessary information and documents.

In essence, the LVPS Regulation underscores the CB UAE’s commitment to thorough oversight and regulation of LVPS, ensuring transparency, integrity, and compliance with regulatory standards, both domestically and internationally.

Q: What is the role of financial free zones in the UAE’s payment regulation?

A: Within the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) financial services, including payment services, are regulated by the Financial Services Regulatory Authority (FSRA) and the Dubai Financial Service Authority (DFSA), respectively. In ADGM, the regulatory framework is established under the Financial Services and Market Regulations 2015 (FSMR), along with its associated rulebooks. Similarly, in DIFC, the regulatory framework is governed by DIFC Law No.1/2004 and its rulebooks. Both frameworks categorize payment services under the 'Providing Money Services' license.

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