UAE: The Dubai Financial Services Authority (DFSA) is considering subjecting Shariah compliant equity crowdfunding (ECF) platforms to the same rules applied to traditional Islamic financial institutions as it mulls carving a new financial service category to regulate both peer-to-peer lending and investment crowdfunding activities.
This is revealed in the regulator’s latest consultation paper on regulating crowdfunding platforms in the Dubai International Financial Center, viewed by IFN. The consultation, second in a series of papers to drive its fintech industry, addresses unique risks tied to investment-based crowdfunding; the first paper being on loan-based crowdfunding, released in January (See IFN Report Vol 14 Issue 6: ‘Dubai to regulate Islamic peer-to-peer platforms’).
While the development of the fintech sector is part of the emirate’s broader vision of transforming itself into one of the smartest cities in the world, it is also driven by the government’s ambition to assist SMEs gain greater access to much-needed financing.
Affirming that crowdfunding is an important funding source to the UAE’s small and medium businesses, Ian Johnston, CEO of DFSA, shared: “Our approach remains consistent for loan-based and investment-based crowdfunding platforms in its aim to define a clear structure for the sustainable development of this industry.”
Under its proposed guidelines, as with loan-based platforms, ECF operators will also need to comply with existing DFSA Islamic Finance Rules, although the regulator is open alternative Shariah standard governance measures more suited to the crowdfunding business model. Other key suggestions made include allowing ECF operators the flexibility to extend a facility assisting investors to dispose of their investments; they will however, not be allowed to manage collective investment funds.
The paper focuses on seven key areas: customizing a regime for ECF platforms; putting in place appropriate systems and controls; ensuring operational transparency; implementing suitable checks on issuers and investors; safeguarding client assets; developing business cessation plans and allowing the transfer of securities between investors.