Dubai ponders regulatory framework for loan-based crowdfunding platforms
The Dubai Financial Services Authority (DFSA) has issued a consultation paper, “Crowdfunding: SME Financing Through Lending”. The paper proposes a regulatory framework for anyone looking to operate a loan-based crowdfunding platform in the Dubai International Financial Centre (DIFC).
The UAE government recognises the contribution that SMEs make to the economy, the paper says. According to the 2014 figures, SMEs make up 85% of businesses in the country, contribute 50% to the GDP, and employ up to 65% of its workforce – and yet, 70% of SMEs have been unsuccessful at securing a loan from a conventional bank.
The DFSA believes that loan-based crowdfunding platforms may help many of these SMEs secure the funds they need to grow, but would also like to make sure that lenders understand the various risks and implications of operating and investing in such a platform.
The paper lists the various stages of starting and running a loan-based crowdfunding platform, various activities involved, and the rules that might apply at each stage. The DFSA also makes it clear that it intends to charge an application fee ($5,000) and a nominal annual fee ($10,000) to those applying for and running such a platform, with provisions to increase the annual fee for firms incurring additional expenditures.
The regulatory framework outlined in the paper seems robust, and covers insurance requirements, guidelines to protect borrowers and lenders, managing conflict of interest and fraud, due diligence requirements, business cessation planning, and AML requirements.
At this stage, the paper is simply a draft and is intended to be the first in a series of consultation papers which will help the DFSA create suitable regulations for crowdfunding and fintech in general.
The DFSA is seeking comments from anyone who is interested in operating, investing in, or providing services to crowdfunding platforms in the DIFC. This can be done via email email@example.com, with “CP109” in the subject line. Comments should be submitted by 2nd March 2017.
By Soumik Roy, editorial contributor to Banking Technology