ABU DHABI — In light of the increasing importance for promoting digital payments and the transition to digital financial services, the significant role played by digital wallet service providers has emerged to facilitate the adoption of innovative solutions for digital payments, enhancing financial inclusion and competition by providing new business models and use cases for digital financial services.

Acknowledging this importance, the Arab Monetary Fund, through the Arab Regional Fintech Working Group, recently issued guiding principles on “Best Practices and Recent Developments for Digital Wallet Providers”; as part of the AMF ongoing efforts to support digital financial transformation in the Arab countries, which plays a major role in enhancing financial inclusion and enabling innovative financial services.

The guide, which was prepared by members of the Arab Regional Fintech Working Group, aims to set guiding principles that enable the development of a solid and modern framework for regulating digital wallets providers’ services, in order to be used by the supervisory authorities when they initiate regulatory framework for organizing and developing the services of digital wallet providers, including licensing issues and requirements, aspects of capital, governance, the scope of available services, supervision as well as control needs.

The guide includes a set of principles, addressing the importance of enabling competition and increasing the number of digital wallet service providers, capital requirements for digital wallet providers, within a clear definition for the scope of payment services provided.

The principles also highlight allowing innovative agent models, and considering providing appropriate flexibility in setting limits and balances for payments in digital wallets by providers, in addition to considering enabling Digital Wallet Providers to generate a return on safeguarded funds while requiring diversification of such funds.

The principles also cover issues of sound governance and opportunities for digital wallet providers to evolve into digital financial institutions. Finally, the guiding principles tackle a range of risk management issues and compliance requirements, including anti-money laundering and terrorist financing, data protection, cyber resilience, and customer protection, in addition to corporate governance requirements. The guide presented along the principles different legislative and regulatory models based on leading Arab and international experiences.

In this context, the principles emphasize the importance of having a direct licensing of digital wallet providers and Fintech companies in general within the framework of clear simplified controls that encourage the expansion of the number of providers and the development of their services.

The principles also stress the flexibility in licensing without requiring partnerships with commercial banks to allow independent digital wallet providers to access the market, considering the proportionality in capital requirements and the gradual progression in the business volume.

On this occasion, Dr. Abdulrahman Bin Abdullah Al Hamidy, director general and chairman of the Board of Directors of the Arab Monetary Fund, expressed his happiness with the continuation of efforts of the Arab Regional Fintech Working Group in issuing guidelines and guiding principles with the aim of contributing to promoting Fintech industry in the Arab countries, pointing the importance of the principles incorporated in this guide to support them in stimulating the growth of digital wallet services, in a way that serves to enhance financial inclusion and digital financial transformation in the Arab countries. — SG