Tell us more about Hub 71...
We partner across the different parts of the system from startup, acceleration, adoption and deployment. It’s a partnership between Mubadala, Microsoft and SoftBank supported by players such as Abu Dhabi Investment Office and us. This ecosystem provides investments into startups, including FinTechs. We have partnerships with the likes of New York University, and they have their own incubation program. Different partners in Abu Dhabi have their own incubation program which we support and work closely with. Another example is Plug and Play Tech Center, which is the largest VC investor in terms of global acceleration. When it comes to digital deployment, we work closely with regulators such as the central bank, as well as all the financial institutions because they are the key users of new technology.
How can digital finance advance sustainable integration and inclusion?
I do think that technology is the way to go and we are working on initiatives in the space of financial integration. So, let me give you an example of a financial integration project where we are working with other regulators in the U.S. and Australia. Nowadays, if you do product offering across jurisdictions, the cross- border process can be quite cumbersome and tough. So we are working with the U.S. and Australian regulators on a security token offering. These are compliance tokens with all the rules and regulations of the different jurisdiction holders coded in it. Let's say an issuer wishes to offer a product to accredited investors in the U.S., Australia and Abu Dhabi, and the definition of accredited investors differs from jurisdiction to jurisdiction. How do you regulate the product, make sure it is compliant, and protect investor interest? This compliance token makes sure that these types of products will be offered to accredited investors as defined in your jurisdiction and will reject anybody that is not. These are initiatives that leverage advanced technology to bring about greater financial integration in a sustainable way. They also are a way to foster greater inclusion across markets by providing access to good liquidity.
In the financial sector, there are discussions around supporting SME financing. How can digital finance support SMEs?
This is an area that needs much more attention. The biggest complaint is that the banks in general are just interested in serving the big boys — the big infrastructure and the big projects. The banks may not devote additional resources into the SME sector. But FinTech is changing all the different ways of credit analysis, the ways of understanding the risk profiles of the SMEs, and different ways of pricing. We will see more financial innovation and exciting initiatives, not only from this region but globally. At ADGM I have tried to serve that space.
How does ADGM support innovation and investor protection?
My view is they go hand in hand. In order to have a vibrant, supportive financial centre you need to manage both the growth dimension and the risk dimension. As far as growth is concerned, I should include the question: how do you support innovation? As far as risks are concerned, if you don't manage this well you won’t grow to be a meaningful financial center. However, if you overly focus on risk then your growth and innovation will take a back seat, which is what we are seeing in some jurisdictions. The easiest way for regulators to function is to say everything is high risk. But when you regulate to the most extreme, there will be no need for regulators to exist because there would be no activities to regulate. There are regulators refusing to embrace innovation or technology. They’ll say this is a new area that they don't understand. But this mindset means this area of activity won’t take root and grow. Regulators with this approach are missing out on huge opportunities in terms of supporting economic growth in the future. And we are all moving towards a digital economy.
Now, if you are overly focused on just growth, the outcome can be quite dire. Your investor protection will suffer and your economy will suffer – if you don't protect the risk adequately. I've seen financial regulators who, in the early days of digital assets, would say, “come to my jurisdiction, we have very relaxed rules around governing digital assets.” But none of the digital assets who went to those jurisdictions managed to grow and take off, because there's no acceptance by investors. Because investors would say, “you're not protecting me from risk, from AML custody risk, from exchange trading risk. If all these risks are not managed, as an investor, why should I trade on your platform?” Banks still working with them say, “I'm not going to open bank accounts with you because I have no assurance that the assets that you're trading up there will not be stolen tomorrow.” So they will not be able to grow in a sustainable fashion.
We pay particular attention to supporting growth, which includes innovation. At the same time we ask ourselves how to effectively manage risks.
To support efforts balancing growth and risk, we are co-hosting a new initiative with the Central Bank of the UAE, the ADGM Digital Laboratory. The API-enabled platform has synthetic data for testing. It allows FinTech companies and financial institutions to collaborate, experiment and innovate in this space with the guidance of regulators like ourselves and the Central Bank of the UAE. For example, banks can pose problems and they can work alongside FinTechs to solve those problems. This will shorten the time in terms of the bank’s own adoption of technology because by the time the solution has been developed it is ready for production.
Finally, what advice would you give to a tech startup wanting to succeed in Abu Dhabi?
Tech startups anywhere must understand the local needs and environment. If you go to Asia the needs and demands are slightly different from MENA, which is slightly different from Europe and the U.S. The most important thing is recognizing where the gaps are, where opportunities and needs can be met and what key drivers are in any new place that you go. Startups also need to know who their possible partners are, depending on which growth phase they are in. These will be investment funding partners for deployment, adoption of products and services partners or local governmental agency partners that can help you. Firms wishing to look at our data will find a great ecosystem. So, take time to understand the incentives and the programs that have been set out by Abu Dhabi Investment Office and take time to understand the funding opportunities of sovereign wealth funds as well as the VC opportunities.