Introduction

In the ever-evolving landscape of financial technology (fintech), innovation serves as the vital force propelling the financial services industry forward. Fintech, characterized by its disruptive nature, holds the potential to profoundly shape the future of financial services for years to come.

However, this presents a challenge for legal specialists and practitioners, including lawyers and judges, who may find it difficult to keep up with these developments. This could potentially hinder the growth of fintech actors if they ever found themselves in a dispute.

Navigating the conventional routes of national court systems in most countries can lead to difficult administrative hurdles and to unexpected costs and delays. Moreover, the appointed judge might not align with the specific needs of the parties involved, leading to delays or further complicating the resolution process.

In this context, Alternative Dispute Resolution (ADRs) emerges as a compelling solution, offering the parties the flexibility to tailor the resolution process to their specific needs.

Notably, the fintech sector is leaning towards adopting ADRs. This can be discerned from the terms of use of prominent virtual assets exchange and custodial platforms such as Binance and Metamask, both of which have incorporated arbitration clauses. These clauses stipulated that any conflicts arising from the use of their platforms will be subject to arbitration.

In this article, we will explore why ADRs can attract fintech entrepreneurs, and what are the challenges they may encounter taking this road.

Advantages of ADRs in Fintech

ADRs encompass various resolution techniques, mainly mediation, arbitration and expert determination, all of which prioritize speed, confidentiality and expertise. These three key elements are crucial to fintech actors, who need to solve their cases at a speed that matches the rapid evolution of the fintech and virtual assets industry. Confidentiality is also vital, safeguarding innovative data and ideas from leaks and public disclosures.

Finally, of utmost importance is the expertise of the decision-makers tasked with resolving fintech cases, given the inherent complexity of such cases. Through ADR, parties gain the autonomy to select their mediators, arbitrators, or expert determinators. This unique aspect not only instills a deeper sense of involvement and responsibility in the resolution process but also ensures that the chosen expert possesses skills directly relevant to the fintech landscape.

In contrast, this element of choice does not exist in a “traditional” court system, where parties could appear before a judge who doesn’t necessarily have the requisite expertise in order to efficiently solve such cases with agility.

A growing number of ADR institutions are recognizing the importance of fintech-related matters, exemplified by organizations such as the World Intellectual Property Organization (WIPO). With over 2000 independent mediators, arbitrators and experts from more than ninety jurisdictions, WIPO's Mediation and Arbitration Center offers a robust platform for resolving disputes within the dynamic fintech sphere. Moreover, initiatives such as LawTech, backed by the United Kingdom's Ministry of Justice, underscore a commitment to fostering technological innovations within the legal sector. LawTech's “Digital Dispute Resolution Rules” guide arbitrators and experts, providing a framework for swift and tailored solutions to the intricacies of fintech cases. This convergence of expertise and innovation signifies a paradigm shift in dispute resolution, empowering parties to navigate the complexities of fintech with confidence and efficiency.

As fintech startups continue to proliferate, a rise in the adoption of ADRs is foreseeable both globally and within the UAE, given their capacity to provide tailored solutions and expedited processes. It is also worth mentioning that most UAE free zones, such as the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) have established their own arbitration courts and rules. The Dubai International Arbitration Center (DIAC) has also joined forces with the London International Arbitration Center (LIAC) and is now administered by it, showing motive to strengthen the arbitration sector in the DIFC.

The Lingering Challenges Confronting Fintech Companies

Two primary disadvantages persist in ADRs; the first being enforcement challenges, and the second, cost considerations.

While it is not always the case, ADR methods, specifically arbitration, can entail significant expenses. However, these costs may be mitigated by the speed of the arbitration process (as cases conclude quickly, resulting in lower legal fees) and by the flexibility to select the number of arbitrators overseeing the case. For instance, opting for a single arbitrator, incurs lower costs compared to convening a panel of three.

The second disadvantage would be the enforcement of the ADR decisions. In mediation, the parties have the discretion to choose whether to adhere to the mediator’s advice.

Conversely, in arbitration, if a party refuses to abide by the arbitrator’s or expert’s decision, enforcement has to be sought through national courts. While court involvement in enforcing an award may introduce some delays, the pro-arbitration legislations present now in many countries bring some sort of reassurance to the parties involved. For example, most countries, including the UAE, are signatories to the New York Convention of 1958 that sets rules for the enforcement of foreign arbitration awards.

In this regard, it is noteworthy to highlight that domestic arbitration awards are usually enforced according to the laws of the jurisdiction where they were rendered. For instance, the UAE Arbitration Law of 2018 specifies in Article 52 that an arbitration award issued in respect of this law is as enforceable as a court judgment. It also limits the grounds upon which an arbitration award can be challenged and set aside by the court in Article 53. Thus, judges are bound by specific legal parameters when considering whether to annul an award.

Conclusion

The relentless march of fintech is disrupting conventional sectors that were once considered the epitome of progress. Amidst these advancements, it has become evident that “traditional” court systems are being challenged, paving the way for the ascendance of agile and adaptable Alternative Dispute Resolution (ADR) mechanisms.

The future suggests a significant increase in ADR fintech cases, both globally and within the dynamic landscape of the United Arab Emirates (UAE). As technology continues to reshape the financial landscape, embracing ADR not only reflects the industry's evolution but also ensures expeditious and effective dispute resolution in an era defined by innovation and rapid change.