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In association with Abu Dhabi Global Market

How Abu Dhabi aspires to define and deliver the future of finance

Operational since 2015, Abu Dhabi Global Market is an international finance centre and free zone based in the heart of the UAE capital. It encompasses three independent bodies – the Registration Authority, the Financial Services Regulatory Authority, and ADGM Courts – and is committed to consolidating and building upon the emirate’s status as a leading global financial hub, attracting the best in finance, innovation and digitalisation from across the world.

By Abu Dhabi Global Market

ADGM, Abu Dhabi
ADGM is committed to being a global leader and pioneer in developing regulations for the new-age financial sector. (Photo courtesy of ADGM)

With well over 4,000 active registered licences and in excess of $33bn of total assets under management, Abu Dhabi Global Market (ADGM) has certainly come a long way since its inception seven years ago. However, it is also important to consider the extent to which the finance industry itself has transformed in that same span of time.

In 2015, few people were talking about virtual assets, open banking was still a theory, and ESG was not a central driver in investment decision-making. These concepts, industries and marketplaces have since rapidly entered the mainstream, and ADGM has had to evolve accordingly.

Accelerating innovation uptake and supporting emerging industry trends is at the forefront of that evolution. ADGM’s cluster strategy focuses on both traditional finance and new-age finance sectors. Providing a robust regulatory framework, coupled with business development initiatives and end-to-end fully digital courts, it is geared towards developing and retaining businesses across a number of distinct sectors in order to advance Abu Dhabi’s economic and societal goals – and strengthen the region’s economy as a whole.

The future of finance in Abu Dhabi

Indeed, the combination of finance, innovation and digitalisation has already contributed significantly towards Abu Dhabi’s – and, by extension, the UAE’s – emergence as a truly modern economy and destination of choice for enterprises across an array of sectors and disciplines.

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ADGM has established an open, inclusive and innovative ecosystem, created invaluable growth opportunities, attracted world-class fintech companies to the UAE, and collaborated on cross-border initiatives that serve to foster a more dynamic, advanced and sustainable economy.

With the advent of new-age finance like crypto, fintech, healthtech and cybertech, ADGM is committed to being a global leader and pioneer in developing regulations for the new-age financial sector. For example, it has emerged as the first jurisdiction in the world to introduce a comprehensive and bespoke regulatory framework for spot virtual asset activities.

There is also the intention to increase its Digital Lab community (ADGM’s virtual environment connecting fintechs, financial institutions and regulators) from 90 to 300 entities by late 2022, building and accelerating the next generation of innovative solutions for the digital economy of the future.

This all makes for an incredibly diverse group participating within the ADGM ecosystem. One thing linking all resident businesses, investors and leadership is the desire to build something new. There exists a unique opportunity to support the extensive changes under way within the financial industry – and serve as a global melting pot for innovation at the crossroads between East and West.

Abu Dhabi: finance for good

Increasing specialisations and sophistication of the financial services industry in Abu Dhabi will only see that diversity develop further, not least in the sustainable finance space.

A commitment exists to activating and mobilising stakeholders and market participants to contribute towards measurable ESG objectives, delivering positive and sustainable changes. Indeed, despite the pandemic, the UAE has doubled down its efforts and investments on climate action and sustainability, positioning these efforts as key drivers of the UAE’s economic growth.

The UAE Net Zero 2050 strategic initiative serves as an open invitation to the world to collaborate with the UAE on three key targets: developing practical solutions, boosting sustainable collaborations, and creating opportunities for sustainable socio-economic development.

To support the UAE’s commitments on climate change efforts and goals, ADGM has been enhancing its policies and services as an international finance centre (IFC) in order to enable greater financing and flow of capital towards responsible and sustainable investments. ADGM’s mandate is to provide a progressive financial platform and holistic ecosystem that support Abu Dhabi and the UAE’s long-term economic development and sustainable growth.

Of course, as it is in all forms of financial innovation, fintech will also play a pivotal role in sustainable finance. One of the key strands of ADGM’s flagship Fintech Abu Dhabi event is Fintech for Good, a dedicated forum taking a closer look at the intersection of sustainability, technology and innovation.

The need for more sustainable finance is now very high on the agenda for the world’s largest financial institutions, but it will increasingly be the fintech sector that is providing innovations and solutions to make that a reality. Part of ADGM’s role is supporting that interaction between large institutions and fintechs, empowering innovation to happen at scale.

Enhanced market frameworks

Proposed enhancements to ADGM’s capital markets framework were submitted earlier this year, targeting the next stage of investment and growth opportunities. The paper proposed a new regulatory framework for spot commodity trading, becoming the first international financial centre in the Middle East and North Africa to offer a framework for the regulation of spot commodities and emission allowances. The enhancements are part of an objective to continue to develop ADGM’s comprehensive regulatory framework to further enhance its vibrant financing ecosystem.

An enhanced framework should also assist investors in better identifying sustainable investments, enable entities to mitigate the risks climate change presents to their business models, and broaden the financial system to include more sustainability products and services.

ADGM will provide clear criteria for green-labelled financial products and services, such as green funds, green portfolios, issuance of green bonds and green sukuks. ADGM companies will also be encouraged to include and report the climate change risks on all levels of their risk management as part of the ongoing efforts to advocate and raise ESG disclosure.

Virtual assets

While sustainable finance is fast entering the mainstream, integration of virtual assets into this landscape remains in its relative infancy. Again, this is an area in which ADGM is seeking to take a global lead. It is seeking to support the sustainable development of blockchain applications and incorporate ESG and sustainable finance requirements into its regulatory framework.

These efforts build on ADGM’s standing as the leading global jurisdiction for virtual assets, having first established a comprehensive regulatory framework in 2018. While it was quick to recognise the market’s potential, ADGM is also keenly aware of the need to ensure transparency and integrity of the marketplace.

Through the supportive ecosystem ADGM is helping to design and create for leading virtual asset players, it has become a destination of choice with 12 fully licensed and approved in-principle virtual asset players.

As the industry changes at speed, ADGM is currently consulting on its Virtual Assets Framework 2.0, including allowing regulated multilateral trading facilities and custodian groups to conduct non-fungible token activities, decentralised finance and amending requirements on both risk disclosure, and the use, sharing and reuse of public keys.

Building on success

Even in the midst of an incredibly challenging period for global economies, both ADGM and Abu Dhabi more generally has demonstrated an extraordinary ability to adapt and innovate.

These efforts have been bolstered by extensive investment in digitalisation in the years building up to the global pandemic, meaning the IFC was better prepared than most for the disruption it wrought.

The fully digital ADGM Courtroom and e-Courts platform, operational since 2018, are a case in point. The system allows people to participate in judicial proceedings from anywhere in the world at any time of day, with the judicial process remaining operational at a time when other courts around the world were closing their doors.

It speaks to a spirit of innovation and proactive approach that ADGM’s leadership believes will not only enable it to keep pace with the speed of change within the financial markets, but empower the IFC and its participants to lead from the very front.

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