The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has opened its Regulatory Laboratory (RegLab) sandbox programme for the 5th cohort of applications today. The 5th Reglab application is open until 15th July 2022 and will focus on innovation in financial services powered by decentralised applications and protocols.
ADGM’s Reglab is a tailored regulatory regime for FinTech participants which is designed to foster innovation within the UAE financial services market, for both new entrants and existing financial and regulated companies. The theme of the 5th Reglab is “DeFi”, an emerging part of the global financial ecosystem that holds the promise of delivering more efficient and tailored financial services.
DeFi has gained traction in recent years and created opportunities to transform the delivery of financial services. DeFi enables direct access to financial services without the need for an intermediary financial institution by interacting with smart contracts based on distributed ledger technology (DLT) and virtual assets, thereby reducing intermediation costs. For instance, a decentralised autonomous organisation (DAO) that operates a multi-signature wallet to manage community treasuries can be a form of DeFi. The development of robust and efficient DeFi services can help develop a strong foundation for Web 3.0 by creating an effective mechanism for managing the transfer of value between decentralised Web 3.0 services.
While DeFi has the potential to positively impact the financial services sector, it has some associated risks. The FSRA recently issued a discussion paper to establish a dialogue with the industry, which can provide valuable insights for the FSRA in developing future policy choices to address these risks through appropriate regulations. Any future regulatory framework must ensure the relevant risks are mitigated, in order to fully realise the potential benefits of DeFi.
Testing DeFi Solutions on ADGM’s Digital Sandbox Infrastructure
To further enhance its engagement with this new generation of solutions, the FSRA is looking to the DeFi community to recruit the next cohort of applications for its RegLab programme. This would also include innovative solutions that can enhance the FSRA’s capability to appropriately supervise DeFi applications.
The RegLab allows fintech innovators to develop and test their applications and protocols in a controlled environment under the supervision and guidance of the FSRA. To aid the development and tests of the DeFi solutions with the regulator, applicants will have direct access to the Digital Lab, an online sandbox environment provided by the FSRA. The application period will close on 15 July 2022.
“As the financial services sector continues to evolve globally at a rapid pace, the FSRA needs to remain agile in policy thinking and regulatory tools to address emerging risks while supporting the opportunities that DeFi can bring. To this end, the formulation of an appropriate regulatory framework will be a key to ensuring trust and confidence in the deployment of DeFi protocols. Through the RegLab programme, we are committed to working closely with the Web 3.0 community of talent in tapping the potential of DeFi” said Mr Emmanuel Givanakis, Chief Executive Officer of the FSRA.