The Dubai Financial Services Authority (DFSA) stands at a pivotal juncture. As the independent regulator of the Dubai International Financial Centre (DIFC), its actions will shape the future of a financial hub poised for continued expansion and diversification.
In an exclusive interview with Finance Middle East, DFSA Chief Executive Ian Johnston sheds light on the regulator’s key priorities for 2024, offering insights into its approach to streamlining procedures, fostering innovation, and bolstering its position as a leader in the regional financial landscape.
“Throughout 2024 and beyond, the DFSA will be actively engaged in a series of pivotal projects that traverse four strategic themes: delivery, engagement, innovation, and sustainability,” elucidated Johnston. This signifies a multifaceted and holistic approach that the regulatory body plans to adopt in the upcoming year, addressing both immediate concerns and long-term objectives.
A significant aspect of DFSA’s agenda for 2024 includes a meticulous review of its digital assets regime and policy frameworks. The primary objective is to ensure these frameworks remain up-to-date and seamlessly aligned with emerging international standards. Johnston underscored the importance of staying at the forefront of regulatory practices, particularly in the dynamic and rapidly evolving landscape of digital assets.
Beyond digital assets, cybersecurity awareness has been earmarked as another central focus area for the DIFC regulator. Johnston reiterated the growing emphasis on cyber resilience: “Our priorities for 2024 will encompass a comprehensive strategy to improve cybersecurity awareness in DIFC, promoting the sharing of cyber-threat intelligence, and supporting the continued development of cyber resilience within the regulated community.”
The DFSA’s legacy
The DFSA’s role as the independent regulator of the DIFC assumes greater significance given the centre’s status as a pivotal regional business hub connecting the East and West. Home to 17 of the world’s top 20 banks and employing over 40,000 individuals, the DIFC plays an indispensable role in the global financial ecosystem.
As new technologies emerge and the market evolves, we remain committed to ensuring that our regulations are continually aligned with international standards
Ian Johnston
He drew attention to the significance of 2023, which emerged as the busiest year to date for licensing, with 117 new firms licensed and registered, signalling the centre’s growing influence as firms increasingly utilise the DIFC as a booking centre.
In addition to its licensing activities, the DFSA has made noteworthy progress in regulatory frameworks. In 2020, it developed a recovery and resolution framework, marking the region’s inaugural initiative for potential crises. “We actively participate in the work of global financial sector standard-setters, setting global standards across various domains, including digital assets and sustainability,” remarked Johnston.
Enforcement actions form a crucial component of the DFSA’s regulatory measures. Johnston asserted that when firms fail to meet regulatory obligations, enforcement actions, including financial penalties, may become necessary.
Last year, the DFSA notably imposed the following financial penalties:
● $3 million on a bank for having inadequate anti-money laundering systems and controls;
● $33,220 on the former CFO of a listed REIT for being knowingly concerned in misleading statements and accounting breaches;
● $370,000 on a private bank for having inadequate systems and controls to identify, assess and report trading;
● $1.37 million on a firm for failing to have adequate compliance resources to ensure its business met its regulatory obligations.
Key measures
Talking about the recent enforcement actions, Johnston provided insights into the DFSA’s proactive approach to maintaining compliance, emphasising that resources are allocated to raise awareness of regulatory compliance obligations.
Introducing measures such as whistle-blowing email addresses, protections, and obligations on firms to implement internal whistle-blowing programs, the DIFC regulator aims to create a robust regulatory framework. “We apply supervisory measures where deficiencies in operating practices are identified, including risk-mitigation programmes and occasional restrictions on business,” explained Johnston.
In the context of technological innovation, Johnston expounded on how the DFSA balances innovation and risk management. Adopting an outcome-focused and risk-based approach, the regulatory body introduced the Investment Token regime in 2021 and a comprehensive framework for regulating financial services using Crypto Tokens the following year.
“Our technology-neutral regulatory regime allows firms to offer a broad range of financial services with Crypto Tokens, incorporating specific requirements where Distributed Ledger Technology introduces additional risks,” said Johnston. The DFSA CEO also highlighted the extension of the Innovation Testing Licence Programme (ITL Programme) to startup entities within specific sectors, providing them with time to demonstrate sufficient regulatory compliance capability.
The ITL Programme has attracted interest from diverse sectors, including payment and money transmission services, wealth management, and tokenised payment services. “Embracing the swift technological advancements in the financial sector, we continuously review our supervisory approach and actively champion innovation in financial services,” Johnston stated.
Key trends to watch in 2024
Looking ahead, Johnston identified key trends in the financial landscape. The rapid acceleration of adopting advanced technologies to enhance the delivery of financial services stands out, with a shift from disruptive innovations to leveraging technology for improvement and inclusivity.
He highlighted the focal points of blockchain and crypto tokens, particularly with the UAE and Dubai emerging as significant digital hubs.
The convergence of artificial intelligence (AI) trends and the rise of AI-focused entities like ChatGPT have thrust AI into the public spotlight. Johnston pointed out that the government of Dubai, reinforcing this trend, launched the Dubai Centre for Artificial Intelligence to leverage these innovations.
“Within the DIFC, these developments align with the Dubai AI and Web3 Campus objectives led by the DIFC Authority,” Johnston reiterated. “The DFSA recognises that Fintech can undoubtedly play an important role in stimulating innovation and technological development.”
In addition to technological trends, Johnston highlighted the growing importance of environmental, social, and governance (ESG) considerations. “The DIFC has become a prominent listing venue for green and sustainability-linked bonds and sukuk.”
Johnston also emphasised the ongoing global geopolitical shifts and Dubai’s strategic position in the Middle East, Africa, and South Asia. He reckons this positioning has made Dubai a crucial time-zone bridge between the West and the East, leading to financial flows shifting through new routes in the region, further adding complexity to the evolving landscape of the financial services industry.
In summary, the DFSA is poised to navigate the intricate challenges of the financial services landscape in 2024 with a comprehensive approach encompassing regulatory efficiency, cybersecurity, technological innovation, and compliance enforcement. As the financial industry continues to evolve, the DFSA remains steadfast in its commitment to cultivating an environment that encourages innovation, attracts investments, and fuels sustainable economic growth.
The multifaceted strategies outlined by Johnston reflect the regulatory body’s commitment to meet the financial ecosystem’s immediate demands and proactively shape its trajectory towards a resilient and innovative future.