Stored Value Facilities - ADGM

During the last decade, the United Arab Emirates has rapidly positioned itself as a leader in digital innovation and financial technology over the MENA region. In this fast-paced environment, and in parallel with the fast evolution of its payment infrastructure, Stored Value Facilities (SVFs) have become a daily necessity for the financial activities of both individuals and entities.

In terms of definition, (SVFs) are prepayment systems that allow customers to digitally store funds for future use. These facilities enable users to make payments either online, typically through mobile applications, or in physical locations using associated debit or credit cards. Common examples of SVFs include Apple Pay Cash, prepaid gift cards, Google Pay Balance, and e-wallets such as PayPal Balance. These tools offer convenience, speed, and flexibility in managing everyday transactions without the need for a traditional bank account.

Legally speaking, a new era for SVFs emerged as their significance in the fintech landscape grew, particularly during the COVID-19 pandemic. In recognition to this shift, the Central Bank of the UAE (UAECB) issued specialized regulations for SVFs operating within the UAE’s onshore jurisdiction on 30 September 2020. These new regulations marked a significant update, effectively replacing the previous Regulatory Framework for Stored Values and Electronic Payment Systems issued on 13 December 2016.

In context, these regulations include provisions related to SVF licensing requirements, guidelines for regulated SVF businesses, corporate governance, and anti-money laundering procedures. Accordingly, based on Article (65) of the Central Bank Law, the provision of (SVFs) is considered a licensed financial activity. Every applicant must meet the licensing requirements set by the Central Bank to issue SVFs and must continue to comply with these requirements on an ongoing basis as a licensed entity. In order to obtain an SVF license from the UAE Central Bank, an entity must be UAE-incorporated (including free zones), maintain minimum capital of AED 15 million as well as a minimum of 5% capital funds of the total float received from the customers, meet governance, risk, and AML standards, and comply with float safeguarding and customer protection requirements.

These regulations govern any SVF operating on UAE’s mainland excluding Financial Free zones. However, any financial institution registered within the financial free zones, can run a SVF business in the State, after obtaining a license from the Central Bank.

In Abu Dhabi Global Market (ADGM), the Financial Services Regulatory Authority(FSRA) is the supervising and overseeing authority over SVFs in terms of providing the Authorized Permission for SVF Providers, setting general guidelines for their work, assigning the minimum capital for them.

Based on ADGM’s Financial Services and Markets Regulations enacted in 2015, the term “Stored Value” means that it is

“electronically, including magnetically, stored monetary value as represented by a claim on a Stored Value Provider which is issued by that Stored Value Provider on receipt of Money for the purpose of making Payment Transactions and which is accepted by a Person other than the Stored Value Provider.”

And a Stored Value means:

“an Authorized Person Selling or issuing Stored Value.”

Accordingly, we will discuss the needed authorization and adequate requirements for stored value facilities to be legally operational within the ADGM.

1. Licensing and Classification of SVFs

Any entity intending to issue or operate Stored Value Facilities (SVFs) within the Abu Dhabi Global Market (ADGM) must obtain a Financial Services Permission (FSP) from the Financial Services Regulatory Authority (FSRA). This permission must specifically cover the regulated activity of "Providing Money Services", which include the operation of SVFs.

Under the FSRA’s regulatory framework, such activities are classified under Category 3(c). As such, applicants must secure Category 3(c) authorization to be fully licensed and permitted to practice activities of SVFs within ADGM.

In order to obtain an ADGM Category 3C License from the Financial Services Regulatory Authority (FSRA), entities must pay specific application and annual supervision fees, which vary based on the regulated activities they intend to conduct. Based on the FSRA's Fees Rulebook, under Rule 3.9.1 the Category 3 (c) Application Fee costs USD 25,000.

The application process for obtaining a Category 3C license involves the following essential key steps.

1. Pre-Application Consultation: Engage with the FSRA to discuss the business model and understand regulatory requirements.

2. Prepare Documentation: Submit a comprehensive business plan, financial projections, and compliance policies.

3. Submit Application: File the application through the ADGM portal, including all required documents and fees.

4. FSRA Review: The FSRA will assess the application, conduct due diligence, and may request additional information.

5. Approval and Licensing: Upon satisfactory review, the FSRA will grant the Category 3C license, allowing the firm to commence operations. The entire process typically takes several months, depending on the complexity of the application and the firm's preparations.

2. Capital Adequacy Requirements — Variable Capital Requirement (VCR)

In principle, any entity wishing to be a holder of Category 3(c) license, shall have a base capital requirement worth of $ 250,000 as a minimum. Actual capital required will depend on the nature, quantum of business and forecasted annual expenditure, as per the financial model of the proposed firm.

In accordance with Article 3.6A.6 of the FSRA Prudential Rulebook (PR), an authorized SVF provider must maintain a Variable Capital Requirement (VCR) calculated as follows:

a- For Ongoing Operations (Established Entities):

The VCR shall be equal to 2.5% of the average daily outstanding Stored Value.
This average must be calculated on the first Business Day of each calendar month.
The calculation is based on the daily outstanding Stored Value at the end of each day over the preceding six calendar months.

b- For Newly Authorized Entities (Operating < 6 Months):

The VCR must be based on:

The actual daily outstanding Stored Value since the date of authorisation, and

The projected daily outstanding Stored Value as outlined in the entity’s approved business plan for the remainder of the six-month period.

The FSRA may require adjustments to these projections as it deems appropriate.

In 2020, FSRA has introduced enhancements to its regulatory framework for the Regulated Activity of Providing Money Services (PMS) including Stored Value Facilities. These updates ensure the entity’s commitment in improving Fintech and alignment with global best practices in the field. These enhancements were demonstrated in amending the scope of PMS to cover providing payment accounts and the issuance of stored value, alongside currency exchange and money transmission.

In addition, the FSRA released its Conduct of Business Rulebook (COBS) which entitle specific provisions tailored for payment account and stored value services as it has been added to improve consumer protection and regulatory clarity. This Rulebook applies to all Authorized Persons in ADGM conducting Regulated Activities involving client services or related activities, unless a specific provision limits its scope. Specifically, it sets out guidelines for how Authorized Persons must communicate with clients, particularly in the context of marketing their services, conflict resolution, and providing related information. In addition, this rulebook discusses Framework Contracts between Payment Service Providers and Users that facilitate the future execution of individual or recurring payment transactions, typically outlining the terms for operating payment services such as Payment Accounts or Stored Value issuance and redemption, and defining the rights and obligations of both parties. COBS rulebook sets also safeguard requirements for the payment Service Providers to safeguard all customer funds, whether held, transmitted, or used to redeem stored value, by keeping them in designated Payment Accounts. Additionally, it shows Payment Service Providers how they must:

1- Issue Stored Value at par value immediately upon receiving money from a user,
2- Redeem Stored Value at par value upon the user’s request at any time and in full or in part.
3- Cases of Charging Redemption on clients

Furthermore, more risk-sensitive capital requirements was introduced under the Prudential Rules (PRU) to better reflect the nature and scale of activities involved.

These changes reflect ADGM's strategic goal of creating a forward-looking, risk-based regulatory environment that fosters FinTech innovation while maintaining financial stability and consumer protection.