How are Open Banking Regulations Evolving in MENA?

Share on facebook
Share on twitter
Share on email
Share on linkedin

The past few years have seen a spike in the global Open Banking agenda, where Bahrain has taken an initial leading role in nurturing related initiatives in MENA. However as Open Banking has been gaining great momentum across the region, the UAE and KSA have also been taking proactive steps to making this a region-wide reality.   

The Central Bank of Bahrain (CBB) has actively enhanced the FinTech environment through many initiatives, including launching a regulatory sandbox in May 2017 and introducing OB regulations during November 2018, both being unique initiatives in the region. To then further strengthen the ecosystem, the CBB during November 2020 released the second phase of OB regulations, the Bahrain Open Banking Framework (BOBF). 

Whilst the first phase of OB regulations focused on security and confidentiality to pave the way forward, the BOBF brings a wealth of changes to the OB landscape by introducing new OB use cases and opportunities for stakeholders to monetize from the same. Being more disruptive than its predecessor, the BOBF mandates a much more demanding implementation process, where some selective areas of interest are: 

  • New Business Use-Cases: Emphasis on use cases relating to Account Information and Payment Initiation services, setting the stage for monetization opportunities for banks  
  • API Structures: Improvement of current API structures to accommodate new APIs altogether – also allowing for new and innovative use cases for banks and fintechs, and improving the overall customer journey and experiences  
  • Consent Journey: Customer consent has improved to provide more granular control on the data and the periods for which customers can choose to grant access to licensed third parties 
  • Authentication Security: Further strengthening of the security framework and authentication journey 
  • Sandbox Testing: Guidelines on the testing environments and data that the banks need to provide to FinTechs and third parties to collaborate and test their technologies  
  • Operational Guidelines: Improved guidelines covering – uptime, response time, regulatory reporting, dispute management and such have been outlined  
  • Conformance:  Establishment for a new framework for compliance conformance for both banks and licensed third parties  

 

The above areas of the BOBF expand on the initial regulations to provide a more holistic and structured compliance framework, impacting different areas of the business and shaping the governance required to protect customer data. Managing the disruption these bring to the current (and in some cases legacy) systems of financial institutions is challenging, and adopting new, agile, well-founded and most importantly secure technologies can prove effective in overcoming such challenges. 

 As banks must promptly react to meeting the BOBF’s implementation deadline, OB is also a reality that will continue Bahrain’s journey in leading the regional FinTech program and help accelerate the growth of local industry players, by generating new revenue streams and meeting the modern-day customer expectations. The CBB’s proactive measures towards OB is an indicator of the country’s drive for innovation and desire for building a more transparent, inclusive and continuously evolving financial eco-system. 

 Moving deeper into the region, we are seeing other jurisdictions following suit. In April of 2020, Dubai Financial Services Authority (DFSA) issued licenses for Account Information Service Provider (AISP) & Payment Initiation Service Provider (PISP) enabling Open Banking activities within the special economic zone, Dubai International Financial Centre (DIFC). The UAE’s Central Bank and Abu-Dhabi Global Markets (ADGM) have also shown their support and interest in driving the Open Banking movement and are expected to take the next steps as well. In addition, Saudi Arabia’ Central Bank (SAMA) have issued their ‘Open Banking Policy’ earlier this year. It outlines three different phases of their Open Banking implementation plan in the Kingdom. Starting with the design phase in the first half of 2021, market implementation in second half of 2021 and going live in 2022. The purpose is to foster collaboration amongst financial market players by building a framework that addresses the needs of the ecosystem.  

Open Banking goes beyond only satisfying regulations, where it enables banks and financial institutions to take on more competition while maintaining security and stability. Regulatory frameworks are purposed to encourage collaboration amongst diverse players, harnessing both innovation and healthy competition, ultimately producing a dynamic and efficient marketplace. With this marketplace and through leveraging Open Banking technology, financial institutions can grow the customer base, expand their financial offerings and do so with lower operating costs and improving efficiency.  

It is also important to note that while regulation does certainly support the growth and move towards Open Banking, what is even more important is the standardized Open Banking frameworks that would be available across multiple jurisdictions in the MENA region to support collaboration between financial institutions and FinTechs and ultimately allow fintech solutions to grow and scale across the region – benefiting all the ecosystem participants.

Sign Up for Our Newsletter