As artificial intelligence (AI) continues to integrate into everyday life, the financial services sector in Dubai’s International Financial Centre (DIFC) is no exception. Ian Johnston, the Chief Executive of the Dubai Financial Services Authority (DFSA), recently provided insights into how AI will be regulated within this rapidly evolving landscape, emphasizing a balanced approach to innovation and regulation.
In a detailed discussion, Johnston highlighted the DFSA’s commitment to fostering innovation while ensuring that any financial service involving AI is appropriately regulated. “We take a technology-neutral approach,” he stated. “We only get involved if there’s an actual financial service being provided to the customer, as opposed to just improving or making more efficient the financial services that are already in place.”
With over 1,000 fintech businesses operating within the DIFC, Johnston underscored that not all require regulation. The DFSA’s primary role is to recognize and support the benefits of innovation. “As a regulator, we do all we can to support the development of such services in DIFC and Dubai generally. Then, the question is: ‘Do these services need to be regulated?’” he explained.
Johnston was clear that once a service crosses the threshold into investment products or advice, regulation becomes necessary. “If someone is offering better technology in terms of customer delivery, that’s not necessarily something we need to regulate. But once it becomes an investment product, offering investment advice and managing clients’ money, then we would look to regulate.”
When asked about the specific regulations regarding AI-driven financial services, Johnston assured that the DFSA already has guidelines in place. “We already have guidelines in respect of the use of AI by financial services businesses. These are consistent with the UAE Central Bank and Emirates Securities & Commodities Authority (ESCA). These guidelines address the usual risks, such as governance arrangements, potential biases in AI-driven advice, and how to manage these technology risks.”
However, Johnston was quick to clarify that the DFSA does not regulate AI or computer programs directly. “In the same way that we don’t specifically regulate the computer programs, we will not specifically regulate AI,” he said. The expectation is that financial services businesses will integrate AI-related risks into their broader risk management frameworks. “We expect businesses to factor in those risks, rather than us saying, ‘Here are specific rules around AI,’” Johnston added.
Regarding capital requirements for businesses offering AI-driven financial services, Johnston stated that it depends on the application. “The best way to look at it is: ‘Are the innovations creating greater benefits for the offered financial services?’” He acknowledged that new technologies are indeed providing greater access to markets, improving efficiency, and reducing costs for clients.
Johnston also pointed out the DFSA’s innovation testing license, introduced in 2017, which functions as a regulatory sandbox. This allows firms with innovative ideas to test their products in a controlled environment before full-scale deployment. “It’s been a successful program with more than 200 firms who went through it,” Johnston noted.
Finally, Johnston addressed the broader fintech landscape, emphasizing that technology does not change the need for regulation. “In the tech space, if there’s robo financial advice, we would treat it in the same way as any other financial advice. Yes, it’s different tech being used with less human interface, but it’s still providing actual investment advice. That’s still regulated.”
As AI continues to revolutionize the financial services sector, Johnston’s comments underscore the DFSA’s commitment to balancing innovation with robust regulatory oversight, ensuring that investor protection remains paramount.
