As the UAE economy diversifies away from oil and gas, innovation and entrepreneurship are high up on the government agenda. The UAE has had a national innovation strategy in place since 2014 and is going to great efforts to ensure the country is among the most innovative nations in the world.
Each government ministry has been mandated to allocate 1 per cent of their spending to innovation.
The UAE is fast emerging as a fintech hub. According to the Fintech Middle East 2017 report, the UAE hosts one-third of all fintech start-ups in the Middle East.
While this is a brilliant statistic, it does present a major challenge for the regulators. The rapid rate of change within the fintech sector means regulation is playing a game of catch up. Lawmakers, regulators and legal systems must be agile and flexible in adapting to market needs during a period of rapid change.
Our work with clients including peer-to-peer lenders, robo advisory wealth management providers and crowdfunding platforms highlights the need for regulators to be innovative themselves. There is a wide ranging existing set of rules and regulations that govern financial services in the UAE. Regulators face a choice on whether to foster innovation and allow financial technology to develop organically, adapting to the changes, or to set the boundaries within which the innovation and technology can develop. As the intervals of innovation continue to shrink, regulators may struggle to be proactive.
Abu Dhabi Global Market and Dubai International Financial Centre have each introduced a special licensing regime to deal with start-ups in the fintech space.
The ADGM Regulatory Laboratory (RegLab) and the DIFC Innovation Testing Licence (ITL) are each offering a test environment for start-ups to commercialise their innovations under regulatory supervision, offering participants exemptions from existing rules and regulations. Ultimately, this will lead to new types of financial services licences being issued, for activities currently not contemplated or that are prohibited under the law. These initiatives underscore the importance of innovation and entrepreneurship to the government’s economic strategy going forward.
In 2016, the new UAE Bankruptcy Law and formation of the Committee of Financial Restructuring was a welcomed development for the start-up community. Entrepreneurs can operate to mitigate the risk of having to file for bankruptcy, or imprisonment, providing they consider their legal position at the outset. This allows entrepreneurs to focus on their innovation strategies and welcome, rather than fear, the future.
More recently, proposed reforms to the UAE Commercial Companies Law would see certain sectors exempt from the requirement that 51 per cent of shares in a company must be held by a UAE national. This forward-thinking move by the UAE government to ease the foreign investment restrictions further indicates efforts are being made to break down perceived barriers to establishing a commercial entity in the country. Given that the UAE remains a relatively small economy, this change would help attract more inward investment, which is crucial for improving the funding ecosystem for local start-ups. Government-backed incentives for start-ups, and investors into start-ups, would also encourage more foreign and regional investment.
For the UAE to become a true global innovation hub, its intellectual property laws require attention. A key to innovation is a robust intellectual property protection framework. Start-ups need a straightforward registration process for patents and other intellectual property rights. Emerging companies need confidence that the enforcement system has sufficient strength to make pursuing a claim to protect their IP a worthwhile exercise, given the time and cost involved. According to the World Economic Forum Index for the Protection of Intellectual Property, the UAE currently ranks 18th globally.
We applaud the legal innovation taking place in the UAE. However, navigating the ever-changing legal framework presents a challenge. Entrepreneurs and start-ups may not be able to afford access to dedicated legal counsel in the region and, arguably, they have the greatest need for expert advice.
We are committed to protecting and propelling the start-up community by banning the billable hour and using technology to provide cost-efficient access to world-class lawyers, around the clock.
Patrick Rogers is co-founder and principal at Support Legal