FinTech Lab

What is FinTech

Financial Technologies or “FinTech” is a new financial industry that applies technology to improve financial activities. It includes a variety of innovative business models and emerging technologies that have the potential to transform the financial services industry.

 

Benefits of FinTech

FinTech has rapidly developed internationally, notably in the kingdom, the FinTech industry has grown significantly between 2017 to 2019 with an  increased rate of 18% per year of transaction value; raising to $ 20 billion in 2019 with an expecting growth to reach $ 33 billion by 2023 (FinTech Saudi Arabia, 2020).

Innovative FinTech companies are offering competing products and services in many of the key business lines of traditional intermediaries, including assets management and financing. In addition, most of the countries around the world demonstrate directly or indirectly their support for the innovated FinTech solutions. Thus, the Capital Market Regulators realized the importance of FinTech and took steps to accommodate entrepreneurs and innovations. This support came because of several advantages presented by FinTech innovations including the facilitation of investors and companies' access to financial markets by providing reduced cost of investment and financial tools along with improving the efficiency of the offered capital market activities.

In general, FinTech project will support Theme one (Facilitating Funding) and Theme two (Encouraging Investment) of the Financial Leadership 2020 Program and it is in line with Saudi Vision 2030 by opening new channel for financing and investment.

 

 

The Objectives of FinTech Lab

The Capital Market Authority aims to diversify the investment products and mechanisms available in the financial market, through supporting FinTech projects in the capital market by providing regulatory framework that is conducive for the innovation of FinTech within the Kingdom of Saudi Arabia.

The FinTech regulation will be designed to promote and to develop FinTech where participants can deploy and test their innovative FinTech products, services, and business models related to capital market within specified parameters and timeframes.

The FinTech lab welcomes local and international applicants to experiment financial products and services related to securities activity with innovative business models and ready for testing in an experimental environment


 

Financial Technology Experimental permit (FinTech ExPermit)

The FinTech ExPermit enables applicants to participate in the FinTech Lab to deploy and test their innovative FinTech products related to capital market with specified parameters and timeframes.

The FinTech ExPermit provides a maximum of two years for the testing permit. Upon the completion of the testing, the applicant can choose to either: execute the exit strategy, or proceed to deploy the FinTech product on a wider scale based on a proposed strategy. To accomplish this both the authority and the applicant must be satisfied with the achievement of the intended test outcomes of the FinTech ExPermit. Moreover, the applicant must be able and willing to fully comply with the Capital Market Law and its Implementing Regulations.

The proposed FinTech product or service should meet the following criteria in order to enter the FinTech Lab:

  1. It must involve securities activity.
  2. It promotes FinTech innovation.
  3. It is at a sufficiently advanced stage of development to mount a live test FinTech
  4. It promotes significant growth, efficiency or competition in the capital market.

For more details, you can refer to Financial Technology Experimental Permit Instructions.

 

Some of the Permitted  Business Model in The FinTech Lab

 

1-      Equity Crowd Funding

Equity crowdfunding platform allows investors to participate in funding small and medium size enterprises in exchange for shares in such enterprises. The service is provided through an electronic platform owned and monitored by the permitted company.

 

2-      Robo-Advisory

It is a platform which allows clients to get advice on securities or investment scheme through direct access to automated online platform (or application). Additionally, the platform is able to offer automated online discretionary investment management, where the clients can automatically make investments through the platform or the application by giving the management of the company the responsibility to invest on the client's behalf, within parameters and mandates agreed with the client, on an ongoing basis. The service is provided through an electronic online platform (or application) owned and monitored by the management of the company. 

 

3-      Offering and Investment in Debt Instruments

It is a platform for offering and investment in debt instruments which enables SMEs to obtain the required funding by arranging the offering of Sukuk to finance projects, and offering them to the collective investors registered in the platform.

 

4-      The use of Distributed Ledger Technology (DLT) to arrange the offering of securities and custody services

It is a platform that uses Distributed Ledger Technology (DLT) to arrange the offering of securities (Sukuk as a preliminary stage) to investors, in coordination with the Issuer and the Authorized Person (AP) assigned by the Issuer as an Offering Advisor.

 

5-      Social Trading:

Social Trading platform allows a group of clients (followers' clients) to access the investment portfolios of other clients (followed clients) and the executed transaction in their portfolios, in order to seek guidance from their investment strategies.

 

For further information you can communicate with CMA through the following email: FinTech.Expermit@cma.org.sa

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