Dfsa Innovation Testing License - 10 Leaves

By Author: Himaja Teki
Total Articles: 21
Comment this article

The Innovation Testing License is a regulatory sandbox offered by the Dubai FinancialServices Authority (or DFSA), which is the independent regulator of all financial servicescompanies that seek authorisation or are currently authorised in the DIFC.

The objective of the DFSA ITL is to provide a controlled environment where startups cantest innovative products and services. The ITL does not eliminate regulation, rather, itprovides a gateway to innovative firms, especially startups, to test their products with liveclients.

The ITL process:
Step 1:
DFSA Cohort – expression of interest:
The DFSA typically opens for ITL applications in cohorts, once a year. July 2021 was themost recent cohort.

The expression of interest period is typically one month. Interested firms are required tofill in a form and submit the same online. The DFSA reviews the application over aperiod of 2 weeks and then invites successful cohort applicants to make a detailedapplication.

Step 2:
ITL Application Process:
The detailed application comprises a comprehensive Regulatory Testing Plan, in whichthe ...
... applicant details their arrangements for systems and resources, along with theirtesting objectives. This step also involves filling out detailed KYC forms and informationfor all the prospective Authorised Individuals, which include shareholders, directors and
senior management.

The DFSA typically takes eight weeks to review the ITL application, following whichthey issue an In-Principle Approval (IPA), if the application is successful.

Step 3;
Fulfilling the In-Principle conditions:
The IPA is subject to some conditions, which usually include:
a. Setting up the legal structure of the entity
b. Opening a bank account in the name of the company
c. Appointment of outsourced functions such as the Compliance Officer, Finance
Officer and Risk Officer
d. Submission of the Compliance, AML and Risk Management Policies
In general, the DFSA expects that the applicant become operationally ready. Once done,the Innovation Testing License is issued.

What kind of firms are eligible for the DFSA Innovation Testing
License?

The proposed business should meet certain criteria to be eligible for the ITL. Thesecriteria include:

a. Use of innovative fintech – offer of a new type of product or service, or
application of an innovative fintech to existing products or services
b. The intended activity should be considered a financial service
c. The business must be ready to commence live-testing with actual customers
The goal of the ITL is to prepare the startup for eventual full-scale licensing in the DIFC.

The stage of development of the product or service is also assessed. If too early, thenthere is no product or service to offer, and hence no requirement for regulation. On th eother hand, if the startup is already operational with customers, then they can also consider applying for the full-scale license directly. Read here to know more about the
licensing categories in the DIFC.

What kind of details are required for the ITL application?

The DFSA requires details on the background of the applicant, it’s shareholders, directorsand senior management, the proposed activities, technology and third-party partners andproviders. It also requires details on sources of funding, proof of funding, financial
models and in some cases, stress-testing of the financial model.

How long is the testing period in the ITL?
The testing period is normally twelve months, but can be as low as six months in somecases.

What is the “Regulatory Test Plan”?
The RTP is the core document of the application, and details the product/service, thetechnology involved and the firm’s plans for the testing period.

What information is required in the Regulatory Test Plan?
The RTP typically details the following information:
● The firm’s business model and the proposed product/service;
● The objective and parameters for the testing;
● The timeline and key milestones for testing;
● The number and type of clients that will take part in testing;
● How clients will be sourced for the purposes of testing;
● The key risks involved and plans for their mitigation;
● How the firm ensures that clients understand that the product or service is being
tested and the resulting risks;
● The safeguards that will be put in place to protect clients in the event of a problem
arising from use of the technology or the failure of the business;
● Handling of client communication, including how the firm deals with questions,
feedback and complaints;
● How the success of the testing will be measured;
● How testing progress will be reported to the DFSA;
● The next steps if the testing is successful;
● A clear exit plan if the testing is not successful, including how the firm will fulfil
its obligations to its testing clients;
● Financial projections for the testing period; and
● Other relevant information requested by the DFSA.

Can the firm begin operations or testing once the In-Principle Approvals areobtained?
No. The IPA, as the name suggests, is a conditional approval. The firm will have tosatisfy certain conditions as laid down by the DFSA in the IPA, in order to commence testing.

I am Himaja Teki From Bangalore, India. Working as a Content Writer.