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Insight

Q&A with Richard Teng, Abu Dhabi Global Market (ADGM)

The Financial Services Regulatory Authority (FSRA) CEO on regulation, risk and exciting opportunities in the works for the MENA region.

ADGM Richard Teng

 

Joining ADGM in March 2015, Richard Teng helped spearhead the development of the award-winning international financial center and also leads ecosystem initiatives to drive opportunity in the region.

Having navigated the organization through extraordinary circumstances, Teng is preparing to hand over the reins in March 2021. The outgoing CEO leaves behind a remarkable legacy. Under his leadership, the new financial center with no brand recognition rapidly distinguished itself not only amongst its regional peers but drawing attention internationally. For Teng, a focus on technology and collaboration with stakeholders at all levels was essential on the road to success.

Content Strategist Nicole Tovstiga talked with Teng about the future of regulation, paying greater attention to those in need and how to balance risk in a vibrant financial ecosystem.

 

How has the pandemic accelerated digital transformation in MENA?

COVID-19 has accelerated digital transformation across the globe. People started to pay attention to different modes of working including remote working. Companies that didn't quite embrace remote working previously had to change their policies overnight. The same is happening on the financial services front, we saw that during lockdown especially. There's no other mode of delivery than through the digital format. There's no other mode of opening bank accounts, doing KYC or onboarding. So, financial institutions and firms that have in the past paid less attention to their digital journey have been forced to learn very quickly. There’s been a steep learning curve in terms of adoption and deployment, and we are seeing a huge embrace of FinTech and digital adoption. 

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In Real Life

Watch our conversation with Richard Teng in which we discuss personal highlights, words to live by and what the future holds for the outgoing CEO of award-winning Financial Services Regulatory Authority, ADGM.

 

How have priorities changed today that were looking different at the beginning of 2020?

Whether it’s financial firms or on a personal basis, most people's priorities have changed drastically. Especially during the first two months of the pandemic we saw huge disruptions to supply chains around the world. So both at the country level, as well as the firm and organization level, you see a change in terms of priorities. Firms are willing to pay more, compared to the past, in terms of securing their own supply chain. In order to diversify, supply chain finance firms are spending more than traditional adoption. At a personal level, most people are proud to have changed, paying much greater attention to help those in need. When we ask, how do you bring about sustainable inclusive growth? The answer is, it's not only about your own wellbeing. It’s how to ensure that people around you do well, so that the entire community and society benefit together. 

 

ADGM’s regulatory sandbox, RegLab, is the second most active sandbox globally. What are some of the digital financial service licenses that you offer to start-ups and entrepreneurs? 

Since we launched the regulatory sandbox RegLab in November 2016, the first in the Middle East and Africa region, we have gone from strength to strength. We get up close and personal working with innovators and entrepreneurs to understand their needs and bringing new business models to the marketplace to transform financial services. At the same time, we understand inherent risks and calibrated the regulatory framework to support growth. Now we have the largest offering of digital financial services licenses available in this region. This ranges from digital banking payment service providers such as TransferWise or financial exchanges approved for digital securities offering. These licenses are for FinTechs, not necessarily just for startups. Some of the startups may not have the requisite financial resources or expertise to get a digital banking license as they are quite resource intensive. But it depends in which industry they are of course. There are startups that just want to do testing and experimenting, and we do have our regulatory sandbox until they grow to a certain level of maturity and enter the marketplace. We do have a tech license available, and that's for generic startups, not necessarily for financial services. There’s strong development in AgriTech and Health Tech hubs as well. Abu Dhabi is not just a hub for FinTech, it’s a hub to support new technological advancements across sectors.

 

“We get up close and personal working with innovators and entrepreneurs to understand their needs and bringing new business models to the marketplace to transform financial services.”
Richard Teng, CEO, Financial Services Regulatory Authority, ADGM

 

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.

 

Go deeper! Explore how Publicis Sapient is working alongside organizations like ADGM to build the next generation of banking in MENA.

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