Smaller FinTech companies like us are the ones that drive financial inclusion,” says Linnea Troeng, Bank Audit and Compliance Manager at NOW Money.

The Dubai-based company offers easy access to digital payroll and banking services to Gulf Cooperation Council (GCC) workers who wouldn’t qualify for a traditional bank account.

In a similar vein, NOW Money has had to navigate a regulatory world built with larger businesses in mind. However, Dubai’s more agile approach to regulation and sandbox programmes have made it possible for smaller companies like NOW Money to grow.

“This regulatory world previously did not exist for smaller tech companies like us,” Troeng adds, “but the UAE and GCC region’s authorities want to support financial inclusion. Now, stricter regulations and an ever-changing regulatory environment not only means big changes for the small players, but it also makes it clearer to route the way to wholesome and new solutions that both promote financial inclusion and financial stability.”

Regulating new technology is a delicate balance between protecting the public from untested ideas and allowing room for much-needed experimentation to encourage innovation. Troeng says there are three tacks regulators commonly adopt: “a ‘wait and see’ approach, a ‘test and learn’ approach, and completely banning new business models.”

At the forefront of ‘test and learn’ is Dubai, which has recently announced its Sandbox Dubai initiative as part of the Dubai Economic Agenda, ‘D33’. In doing so, it is creating a space where the future leaders of FinTech may well emerge.

Testing the sandbox

“When we wanted to launch Sarwa,” says Nadine Mezher, Co-Founder and Chief Marketing Officer of the smart investing platform, “we worked with the regulators to develop the frameworks.”

The company combines app-based access and automated algorithms to make investing affordable, accessible, and smart.

Sarwa’s story highlights the need for regulatory transformation at the borders of innovation: typically around the world, if the solution is novel enough, the current rules may not cover it – a precarious position where it may not be explicitly outlawed, nor explicitly permitted either. And Sarwa’s story also shines a light on how Dubai is leading that transformation.

“An ever-changing regulatory environment means big changes for the small players.”

— Linnea Troeng, Bank Audit and Compliance Manager at NOW Money

“Dubai has always been a city of innovation,” says Mezher. “It recognizes the importance of creating a regulatory environment that balances growth and management. For example, the Dubai International Finance Center (DIFC) and the Dubai Financial Services Authority (DFSA) were pioneers that developed a dedicated, regulatory sandbox: allowing fintech companies to test new products and services in a controlled environment.”

As a startup that launched out of the FinTech Hive accelerator at the DIFC, Sarwa themselves were able to obtain an Innovation Testing Licence (ITL) from the DFSA, which put them into that sandbox. It granted them the freedom to explore their product outside of the traditional setup, while working with the DFSA to co-create an appropriate regulatory framework for their initial offerings.

“We approached it like an open dialogue,” says Mezher. “We met with regulators on a weekly basis in the beginning, to take them through the business model. As trust developed, the meetings turned into biweekly, then monthly. It was a collaboration to make sure we had the right frameworks.”

As the first graduates of the DFSA, Sarwa proved the sandbox model that is expanding throughout Dubai. The platform now has more than 180,000 registered users and, in 2022, Sarwa’s annual trading volume grew to USD $550 million – a 25 times increase compared to 2021.

A global laboratory

And it’s not just the FinTech sector who benefits from Dubai’s flexible approach; while DFSA’s ITL is focused squarely on those startups, the UAE Regulations Lab – or RegLab for short – expands the model to other tech startups, in four principal areas: mobility, health, 3D printing, and AI.

The program is a partnership between the Dubai Future Foundation and the UAE government, giving RegLab legal authority to issue licences for pilot projects. Successful outcomes are used to make the case for changing, scaling, or even introducing new laws on a national scale.

“As trust developed, the meetings turned into biweekly, then monthly. It was a collaboration to make sure we had the right frameworks.”

— Nadine Mezher, Co-Founder and Chief Marketing Officer at Sarwa

Sandbox Dubai is extending the model further, applying it to a wider variety of sectors. Participants will also have access to other resources for building their business, such as facilities, funding opportunities, and networking with like-minded peers and potential partners.

It’s an approach that builds on the emirate’s extensive network of incubators and accelerators, and capitalizes on the magnet effect of its existing sandboxes.

Dubai’s approach to regulation has “created a business-friendly environment with a streamlined regulatory system and advanced technological infrastructure,” says Mezher. “This approach attracts businesses and entrepreneurs to the city, particularly in the FinTech sector.”

Indeed, with RegLab open to multinationals as well as Dubai-based businesses, the emirate has positioned itself as a global tech laboratory: a safe regulatory space in which to experiment, develop, and take a solution to market; establishing credibility that can be spent elsewhere.

Writing the future

As new technologies and world-changing solutions emerge, cities around the world need to be prepared to move quickly but carefully.

Sandboxing may indeed hold the key – making space to experiment alongside regulators who are open to collaborate, but who can keep a close eye. Dubai’s approach is especially striking for how it translates into adapting existing legislation, or creating entirely new frameworks around new solutions – making it an appealing location for startups looking to bring about tomorrow’s solutions at pace.

“Sandboxes enable small companies to test innovative products without an insurmountable regulatory burden,” says Troeng. “But it’s also a place where regulators can gain knowledge on FinTech companies and how the financial transformation of change is driven. It’s a win-win for everyone.”