The COVID-19 pandemic has increased the prioritization of fintech among regulators in the Middle East and North Africa (MENA) region.
These have moved fintech up the regulatory agency and introduced a number of measures to harness the opportunities introduced by technology-enabled financial services all the while mitigating the new risks brought about by these novel solutions, a new report by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School says.
A report titled Fintech Regulation in the Middle East and North Africa shares findings from a study that sought to review how MENA jurisdictions have responded to the opportunities and challenges associated with fintech through their regulatory efforts.
It draws data from previous 2020 and 2021 studies, and complements it with direct surveys with a select number of sampled regulators from jurisdictions such as Morocco, Tunisia, Egypt, Saudi Arabia and the United Arab Emirates (UAE), as well as free zones the Dubai International Financial Centre (DIFC), and the Abu Dhabi Global Market (ADGM).
Findings show that the global pandemic made financial regulators realize the importance of fintech, with surveyed regulators indicating perceiving fintech to be supportive in market development (85%), promoting financial inclusion (77%), promoting competition (69%), and promoting the broader adoption of digital financial services (62%).
Against this backdrop, regulators introduced a number of measures during the pandemic, focusing primarily on facilitating remote onboarding. 46% of surveyed regulators in MENA said they had introduced new measures relating to know-your-customer (KYC), anti-money laundering (AML) and digital identity during COVID-19. These come in addition to measures and initiatives to support economic relief (46%), business continuity (38%) and cybersecurity (23%), the research found.
Digital payment, cybersecurity, consumer protection regulatory frameworks in place in most jurisdictions
Looking more broadly at the fintech areas MENA regulators have been focusing on throughout the years, the study found that nearly all of the sampled jurisdictions have established regulatory frameworks for payments (92%), e-money (92%) and international remittances (80%).
Financial consumer protection and cybersecurity are other areas covered in most MENA jurisdictions, with 92% of the sampled jurisdictions indicating having frameworks in place for either one of these issues.
As COVID-19 accelerates digitalization, cybersecurity has become a top priority for stakeholders and financial regulators as risks intensify and cyber incidents become more frequent, costly and damaging.
In 2021, the world saw an alarming 105% surge in ransomware cyberattacks, according to the 2022 Cyber Threat Report by cybersecurity company SonicWall. Attacks targeting governments and the health care industry soared by a staggering 1,885% and 755%, respectively, the research found.
IBM estimates that the cost of a data breach to an organization rose from US$3.86 million per incident in 2020 to US$4.24 million in 2021, the highest average total cost in the 17-year history of the firm’s annual Cost of a Data Breach Report.
Reflective of this trend, up to 75% of regulators in MENA who responded to the CCAF survey considered cybersecurity risk to have increased and 67% reported increased operational risks.
P2P lending, equity crowdfunding, data protection and open banking frameworks in the works
Besides digital payments, consumer protection and cybersecurity, the CCAF study found that most MENA jurisdictions have regulatory frameworks in place for data protection (69%), peer-to-peer (P2P) lending (67%), and equity crowdfunding (69%).
Of those that have not introduced such frameworks yet, 23%, 17% and 8% indicated planning to release rules covering data protection, P2P lending, and equity crowdfunding, respectively, indicating that efforts are being made to foster these segments of fintech.
Increased focus on data protection comes as regulators are waking up to the opportunities brought about open banking. Originated in Europe, open banking refers the use of open APIs to enable the sharing of banking data to deliver enhanced capabilities to customers including improved experiences and more tailored products and services.
In MENA, Bahrain is a pioneer in open banking, having introduced back in 2018 open banking regulations that mandate all retail banks to grant licensed third-party providers access to customer data when consent is granted.
Bahrain’s early involvement in the space has led to a burgeoning open banking ecosystem which comprises regional leaders such as Tarabut Gateway and 15 participating banks including the National Bank of Bahrain (NBB), Ahli United Bank (AUB), and Al Baraka Banking Group.
Bahrain is among the 23% of the sampled jurisdictions in MENA to have a formal or compulsory open banking regime in place. Of the remaining, 54% are planning to introduce an open banking framework. The figure makes MENA the world leader in planned frameworks, ahead of Asia-Pacific and Sub-Saharan Africa where only 30% and 23% of jurisdictions, respectively, have open banking rules and guidelines in the pipeline.