The Central Bank shall regulate and license Loan-based Crowdfunding Activities (“LCAs”) in the United Arab Emirates (“UAE”). By issuing this Regulation, the Central Bank aims to set out the minimum standards required of LCAs. Companies providing LCAs are encouraged to strive to meet higher standards than the minimum requirements set out in this Regulation.

The objective of introducing this Regulation is to put in place a framework for licensing, regulating and monitoring LCAs and to set out the standards that the Central Bank expects in this regard. The purpose of both the framework and the requirements is to:

1. Safeguard the financial system from the risks posed by LCAs; and
    
2. Safeguard the interests of consumers in the UAE.

This Regulation is issued pursuant to the powers vested in the Central Bank by the Decretal Federal Law No (14) of 2018 regarding the Central Bank and Organization of Financial Institutions and Activities.

This Regulation shall apply to crowdfunding companies, wherever their platforms hosted, engaging in LCAs in the UAE, except in the Financial Free Zones.

A company is considered to be engaging in LCAs in the UAE if it meets one of the following conditions:

1. If the company carrying out LCAs is incorporated in, or the crowdfunding platform is hosted in the UAE; or
2. The crowdfunding platform uses a company’s address situated in the UAE for correspondence; or
3. It provides LCAs to clients residing in the UAE.

1. Borrower: A UAE registered company (including sole proprietors) seeking a loan from one or more persons.
    
2. Central Bank: Shall mean the Central Bank of the UAE.
    
3. Client: Either a Borrower or a Lender on the Crowdfunding Platform (“CFP”).
    
4. Client money: Money belonging to either the Borrower or the Lender of a CFP that is controlled by the CFP relating to loan-based crowdfunding activity.
    
5. Pricing Platform: A type of Crowdfunding model whereby the platform is responsible for pricing borrower loans and administering the loans. The platform may not give any form of advice or place Lenders funds at its own discretion.
    
6. Commitment period: the period specified by the CFP during which Lenders may commit to lending money to a particular Borrower.
    
7. Controlling interest: The holding, directly or indirectly, of voting rights in another entity, or of the power to direct or cause the direction of the management of another entity.
    
8. “Cooling-off” period: The period of at least two full business days starting at the end of the commitment period¹
    
9. Crowdfunding platform (‘CFP’): A web-based platform, social networking site or similar means used for the purpose of Crowdfunding activities.
    
10. Crowdfunding: Crowdfunding is solicitation of funds from persons through a platform for a specific purpose.
     
11. Funding goal: The amount that a borrower aims to raise on the CFP within a set time limit.
     
12. Lender: A person for whom a CFP conducts / provides or intends to conduct / provide Regulated Activities under this Regulation. There are two types of clients who may participate in a CFP:
     
    1. Retail Lender: a Client that is not a Market Counterparty; and
        
    2. Market Counterparty: a Client that can evidence net assets of over AED 2,000,000 outside of their primary residence and self-attests to being treated as a Market Counterparty. Such self-attestation appropriately reviewed and verified by the CFP.
        
13. Loan: any funds provided to borrowers under a loan-based crowdfunding agreement through a CFP.
     
14. Loan-based Crowdfunding Company: Whereby a company duly incorporated under the Federal Law No. 2 of 2015 Concerning Commercial Companies and its amendments (excluding Partnership and Limited Partnership companies), with the business objectives including E-Finance or similar activities, conducts its activity through a platform intermediating between lenders and borrowers engaging in loan-based crowdfunding activities which operates using only the pricing business model whereby lenders pick investment opportunities and the pricing of the loan is decided by the CFP.
     
15. On-Boarding: the process of evaluating new clients, ensuring understanding and agreement of legal terms and opening of a new account.
     
16. Person: natural or juridical person.
     
17. Personal loan: a loan that is given to individual borrowers, where repayments are made from a verifiable regular income from a well-defined source, as defined under the Central Bank Regulations No. (29/2011) – Regulations Regarding Bank Loans & Other Services Offered to Individual Customers (as amended), or subsequent regulations issued in this regard.
     
18. Regulated activities: Any activity that requires licensing by the Central Bank in order to be conducted legally in the UAE.

¹ The CFP may choose to provide a longer period

1. LCAs are categorised according to lending volume:
    
   1. Category 1 (Large): Cumulative loans facilitated in a calendar year AED 5,000,000 and above; or
       
   2. Category 2 (Small): Cumulative loans facilitated in a calendar year below AED 5,000,000.
       
2. For the purpose of the above, the references to lending volume shall mean either:
    
   1. Cumulative loans in the preceding year(s); or
       
   2. In the case of new applicants, the projected / forecasted volume for the current year(s).
       
3. The company wishing to undertake LCAs must apply to the Central Bank for an LCAs license. Such a license will be issued either as a Category 1 or Category 2 as per the definitions in Article 2 (1).
    
4. A crowdfunding company that is licensed to operate as Category 2 and wishes to upgrade its license to Category 1 status, must evidence that it meets all regulatory requirements for a Category 1 license before any application to upgrade can be considered.
    
5. Once a crowdfunding company is deemed to be Category 1 it cannot be deemed Category 2 again without prior written approval from the Central Bank.

Application for License:

1. A crowdfunding company shall apply to the Central Bank for a licence in the form prescribed by the Central Bank’s licensing manual.
    
2. The application and all supporting documents shall be in either Arabic or English. Documents in any other language shall be accompanied by a certified English or Arabic translation. Any financial figures should be presented in UAE Dirham (AED).
    

Category:

3. The crowdfunding company shall stipulate which Category of license it is applying for and provide reasoning for such a decision, which includes how that Category fits into its wider strategy.
    
4. The crowdfunding company shall provide details of any plans it may have to move to a different Category license over time.
    

Core Information:

5. The core information required as part of an initial application for an LCAs license is set out in further detail in Appendix 1 and in the Central Bank’s Licensing manual which will be provided to the applicant on request.
    
6. A CFP that is regulated in another jurisdiction and is applying for a license to set-up a subsidiary in the UAE shall obtain a No-Objection Letter from its home-jurisdiction regulator that is addressed to the Central Bank by its home regulator.
    
7. The Central Bank as a condition of the license may require the crowdfunding company to appoint a skilled person(s) to carry out a 3^rd party assessment of any aspect of the company’s proposed business model/systems. The findings and reports of the 3^rd party assessment will form part of the core licensing information required to be submitted by an applicant to the Central Bank.
    
8. The Central Bank shall communicate its decision considering the merits of the application and:
    
   1. Grant the licence with or without conditions and limitations; or
       
   2. Reject the application, stating the reasons for rejecting the application
       
9. Drafts may be accepted for certain documents required for the application but their content may not be changed substantially once pre-approval is provided.
    

Validity of License:

10. The licence shall be valid for a period of twelve (12) months and shall renew subject to Central Bank’s approval.
     
11. A crowdfunding company shall pay the relevant application fee at the time of submitting its application to the Central Bank and shall also annually pay a license fee to the Central Bank when it renews its licence.
     

Cancellation and Modification of License:

12. The Central Bank may cancel or modify a licence if the crowdfunding company:
     
    1. Has not commenced to operate the business within one (1) year of the date Central Bank granting the LCAs licence;
        
    2. Ceases to operate for a period exceeding six (6) months;
        
    3. Failed to fulfil its obligations under this regulation; or
        
    4. Posed undue risk to consumers or the financial system.
        
13. The Central Bank will give a notice, including its reasons, to a crowdfunding company within twenty (20) days of implementing the action.
     
14. Where a crowdfunding company voluntarily submits a request to surrender its licence, the Central Bank will evaluate and consider such a request, including the adequacy of arrangements made by the crowdfunding company for an orderly wind down and/or otherwise impose such conditions as it deems fit to ensure that continuing obligations are satisfactorily addressed.
     

Ongoing Obligations:

15. A crowdfunding company shall ensure criteria set out in this Article are met on an ongoing basis and comply with any conditions or limitations set forth on an ongoing basis.
     
16. The Central Bank may undertake site inspections or instruct crowdfunding companies to conduct independent assessments at periodic intervals confirming that the criteria and conditions under this Article are being satisfied on an ongoing basis.
     

Bank Guarantee:

17. Should the application be approved, crowdfunding companies must undertake to provide a bank guarantee drawn in favour of the Central Bank and issued by a locally incorporated UAE bank of value equal to the required paid-up capital as per Article 4.
     

Further Information:

18. The Central Bank may seek any additional information from a crowdfunding company as it deems necessary throughout the application process.
     

Capital Requirement:

1. The minimum capital for a crowdfunding company shall be:
    
   1. Category 1: AED 1,000,000; or
       
   2. Category 2: AED 300,000.
       
2. The crowdfunding company must hold the higher of:
    
   1. The capital as stated under Article 4.1; or
       
   2. Capital equivalent to 5% of the outstanding lending volume
       
   
    

1. A crowdfunding company shall have adequate staff who possess the requisite qualifications, competencies and skills to individually and collectively provide the range of skills and experience to manage its affairs in a sound and prudent manner.
    
2. A crowdfunding company shall ensure that the following relevant functions/persons are ‘fit and proper’:
    
   1. Members of the Board of Directors;
       
   2. Chief Executive Officer or General Manager;
       
   3. Chief Financial Officer or equivalent;
       
   4. Chief Risk Officer or equivalent;
       
   5. Head of Compliance or equivalent;
       
   6. Money Laundering Reporting Officer; and
       
   7. Sharia advisor, as appropriate when offering Islamic products.
       
3. To be considered ‘fit and proper’, the relevant person shall demonstrate personal integrity, honesty and good reputation, shall be competent to undertake the role assigned and shall be financially sound. The relevant person must not have:
    
   1. Served as an auditor of a crowdfunding company while concurrently serving in the board of directors of the same crowdfunding company.
       
   2. Been terminated from any senior executive position in a company engaged in financial activities on the basis of disciplinary matters or on the basis of a disciplinary action based on a court judgement.
       
   3. Been found guilty of any crime that violates honour or ethics, or that involves violence.
       
   4. Failed to honour financial liabilities to any bank or creditor.
       
   5. Declared bankruptcy or failed to reach a settlement agreement with creditors.
       
   6. Had properties confiscated; or
       
   7. Been placed under court receivership, unless he had been rehabilitated or pardoned by the relevant authorities.
       
4. All licensed crowdfunding companies must comply with applicable Emiratization requirements issued by the National Human Resources Development and Employment Authority, or any other UAE government ministry and subsequent Central Bank requirements.
    

1. The crowdfunding company must have an appropriate risk governance framework in place that identifies all material risks. This includes policies, processes, procedures, systems and controls to identify, measure, evaluate, monitor, report and control or mitigate material sources of risk on a timely basis.
    
2. A crowdfunding company’s definition and assessment of material risks must take into account its risk profile, nature, size and complexity of its business and structure.
    
3. The crowdfunding company must have in place mitigating action plans for key material risks and monitor these on an ongoing basis.
    
4. The risk governance framework shall address, amongst other key risks, the following areas:
    
   1. Operational risk;
   2. Conduct risk;
   3. Fraud by employees;
   4. Cybercrime and attacks;
   5. Money laundering;
   6. Managing defaults;
   7. Miss-selling risk;² and
   8. Terrorist financing
       
5. The board of the crowdfunding company is ultimately accountable for the risk governance framework.
    
6. The crowdfunding company shall have appropriate governance arrangements in place that include a sufficient focus on risk management and ensure that the Chief Risk Officer, or equivalent, reports directly to the Board with an appropriate reporting line to the Chief Executive Officer or General Manager.
    
7. The crowdfunding company must have a detailed exit plan to provide for the orderly wind down of the crowdfunding company business. The exit plan must also assume that in the event of failure of the crowdfunding company, loans will continue to be administered and lender funds protected.
    

² e.g. how the CFP advertises and how it sells to clients and the appropriateness of messages, among others.

Systems & controls

1. A crowdfunding company shall ensure that it has instituted adequate internal controls, ensured proper segregation of duties within the organisational structure and that its operations are undertaken within the boundaries of clearly documented policies, authorities and procedures
    

Outsourcing

2. A crowdfunding company shall seek prior approval from the Central Bank wherever it proposes to enter into a material outsourcing arrangement with other parties. The systems and controls established in relation to the crowdfunding company’s operation shall at the minimum meet the standards set by this regulation. All outsourcing arrangements shall meet the Central Bank requirements.
    
3. For the purpose of the above, an outsourcing contract is material if its failure would pose significant risk of disruption, or insolvency or detrimental impact on its ability to provide services to clients.
    

External Audit

4. A crowdfunding company shall appoint external auditors.
    
5. A crowdfunding company shall seek approval from the Central Bank before appointing or re-appointing its external auditors.
    
6. A crowdfunding company shall ensure that the external audit firm responsible for their audit does not undertake that function for more than six (6) successive years and that the Partner in charge of the audit is rotated every three (3) years.
    

Lender selection and suitability

1. A crowdfunding company must take reasonable care in on-boarding Lenders, assessing the suitability of the Lender and ensuring the Lender has a clear understanding of the risks they are undertaking. This process shall be documented and relevant employees shall have appropriate training.
    
2. In addition to other checks (e.g. for money laundering), a crowdfunding company shall verify and document the identity of a Lender and confirm their address. Such measures include (but are not limited to) the following:
    
   1. Call the client on their home or business contact numbers;
       
   2. Contact an employer to confirm employment, after gaining the client’s consent;
       
   3. Review bank statements for details of salary and other income; or
       
   4. Requesting documents confirming their identity
       
3. A crowdfunding company shall obtain sufficient information from Lenders about their financial circumstances and objectives through self-declared assessment questionnaire forms, or by any other equivalent means.
    
4. Based on the information provided and independently reviewed by the crowdfunding company, the CFP shall classify all Lenders as a Retail or Market Counterparty. The classification shall be shared with the Lender.
    

Lending structure

5. A crowdfunding company shall structure its activities in a clear, transparent format using plain language that shall be stipulated within an enforceable (lending) contract, taking into account Appendix 2 of this Regulation.
    
6. A crowdfunding company must ensure that, when a loan is made using its platform, there is a written loan agreement in place between the Borrower and Lender that is legally enforceable and sets out sufficient details of the loan, the terms of repayment and the rights and obligations of the Borrower and Lender.
    

Borrower Risk Scoring, Loan Pricing and Due Diligence

7. A crowdfunding company shall be responsible to:
    
   1. Ensure there is a sufficient and transparent risk scoring and loan pricing system in place. The basis and methodology of risk scoring, loan pricing and due diligence shall be made publically available.
       
   2. Obtain self-declared risk assessment questionnaire forms from their Borrowers.
       
   3. Take reasonable steps to confirm the information provided in the risk assessment questionnaire.
       
   4. Take adequate measures to prevent Borrowers from seeking loans for personal use.
       
   5. Requiring a range of information, including Al-Etihad Credit Bureau reports, to enable the risk scoring and loan pricing, including cash flow forecasts.
       
   6. Carry out a risk assessment on prospective Borrowers based on the information required.
       
   7. Taking reasonable care to undertake thorough anti-money laundering (AML) checks and establishing the ultimate beneficial owner of the Borrower.
       
   8. Ensure what is treated as a default is in accordance with the Central Bank definition and methodology. Default rates on projects/borrowers listed on the platform must be made publically available.
       
   9. Implement policies to manage disputes / conflicts of interest.
   
    
8. A crowdfunding company shall conduct reasonable due diligence and risk assessment on a Borrower and communicate the result of the due diligence to the Lenders within the risk scoring process.
    
9. A crowdfunding company shall review the financial situation of Borrowers at least annually and in the event of any material change, communicate its assessment to clients.
    
10. In the event that a crowdfunding company identifies any issues with the Borrower that increase the risk score of that Borrower, the crowdfunding company shall communicate its findings with the relevant Lenders and develop an action plan for how outstanding balances on any loans related to that borrower will be managed.
     
11. A crowdfunding company shall require Borrowers to declare its current and intended borrowing from other CFPs and other sources in a calendar year. A crowdfunding company should take reasonable steps to monitor whether Borrowers are accessing loans through any other sources, including regularly checking with Al Etihad Credit Bureau.
     

Ceilings on lending

12. A crowdfunding company shall impose a limit on lending per person per project (per calendar year) to:
     
    1. Retail Client: AED 20,000; and
    2. Market counterparty: AED 50,000
13. A crowdfunding company shall impose a limit on total lending per person (per calendar year) to:
     
    1. Retail Client: AED 200,000; and
    2. Market counterparty: AED 500,000

Ceilings on borrowing

14. The borrowing limit for Borrowers in any calendar year is AED 10,000,000.
     
15. Borrowers may only list themselves on one CFP per project. The crowdfunding company and its management shall be responsible for ensuring, as part of the due diligence of Borrowers, that the borrower is not listed on any other CFP for the same project.
     

Loan release

16. Crowdfunding companies shall prevent borrowers from gaining access to:
     
    1. Any amounts raised unless the borrowers raised 100% of its funding goal.
    2. Any amount exceeding the funding goal.

Client information confidentiality

17. A crowdfunding company shall maintain the strictest standards of client information confidentiality including implementing the necessary systems and controls to ensure such standards are met.
     

Client money

18. A crowdfunding company shall not accept, take, or receive the transfer of full ownership of money from clients.
     
19. A crowdfunding company shall ensure adequate protection of Client Money.
     
20. Where a crowdfunding company makes arrangements on behalf of a client to receive and disburse funds, such monies shall be maintained in segregated/ escrow accounts in the name of the client as per the agreed arrangements.
     
21. The segregated/escrow accounts holding clients’ money must be externally audited:
     
    1. on a monthly basis for Category 1 CFPs; and
    2. on a quarterly basis for Category 2 CFPs
        
22. Client funds shall only be held with local retail banks who are licensed and regulated by the Central Bank.
     

Information disclosures

23. All crowdfunding companies shall disclose the terms and conditions of their business to their Clients and any subsequent updates to these terms and conditions.
     
24. All crowdfunding companies shall provide necessary (written) warnings of material risks to Clients.
     
25. A crowdfunding company shall collaborate and coordinate with Al Etihad Credit Bureau and share information concerning both its Lender(s) and Borrower(s).
     
26. Further to the above, all crowdfunding companies shall also make Clients aware of the relevant information as set out in Appendix 3.
     

Disclosures to Lender

27. For the purposes of the above, a crowdfunding company shall disclose comprehensive information about the Borrowers linked to a specific project directly to Lenders. The information expected shall include (at a minimum) the following:
     
    1. Information on the business model or operation of the Borrower, both historical and projected.
        
    2. Critical success factors and important dependencies.
        
    3. Information on the financial condition of the Borrower.
        
    4. Risks relevant to the Borrower based on due diligence undertaken by the CFP including expected default rates.
        
    5. Other borrowing and repayment terms.
        
    6. CFP’s fees and charges on the specific project.
        
    7. Terms of repayment and controls and precautionary measures taken, and
        
    8. Right of cancellation of contracts and lawful jurisdiction applicable for any disputes.

Conflicts of interest

28. A crowdfunding company and the key personnel shall take steps to identify/disclose and prevent or manage conflicts of interest. Examples of conflicts of interest include (but not limited to) the following:
     
    1. A crowdfunding company lists a Borrower who is a related party to a CFP (or its significant shareholders / directors / employees);
        
    2. A crowdfunding company has an interest in the outcome of a service provided to the Client, which is distinct from the Client's interest in that outcome;
        
    3. A crowdfunding company has a financial or other incentive to favour the interest of another Client or group of Clients over the interests of the Client;
        
    4. A crowdfunding company receives or will receive from a person other than the Client an inducement in relation to a service provided to the Client, in the form of money, goods or services, or
        
    5. A crowdfunding company (or its significant shareholders / directors / employees) has financial interest in a Borrower.
        
29. A crowdfunding company shall not allow any of its shareholders, directors or employees to borrow on the platform.
     
30. A crowdfunding company shall not provide advice to Clients relating to any crowdfunding available through its CFP.
     
31. A crowdfunding company may not directly market any offer, Borrower or project available on the CFP to any current or prospective Client.
     

Dispute management

32. A crowdfunding company shall:
     
    1. Establish dispute handling and grievance redress mechanisms to deal with complaints from clients or other parties and include in client agreements the details of these mechanisms.
        
    2. Develop an adequate collections policy and procedures, setting out actions to be taken against borrowers who fail to make timely payments.
        
    3. Maintain records demonstrating to the Central Bank that it has control mechanisms in place to address complaints and grievances.

Contingency Portfolio Administration Arrangements

33. In the event that a crowdfunding company fails or is wound up (either voluntarily or involuntarily), the crowdfunding company must have in place documented arrangements to ensure that the loan portfolio continues to be administered.
     
34. The board of the crowdfunding company bears ultimate responsibility for ensuring that contingency portfolio administration arrangements are in place.
     
35. The Central Bank will periodically review the contingency portfolio administration arrangements and may take supervisory or enforcement actions if such plans are found to be inadequate.
     

Reporting to the Central Bank

1. A crowdfunding company shall submit reports to the Central Bank in the prescribed form within thirty (30) days of the period specified below:
    
   1. Category 1: Quarterly (as of the end of 31 March, 30 June, 30 September and 31 December);
       
   2. Category 2: Semi-annually (as of the end of 30 June and 31 December); and
       
   3. A crowdfunding company shall file its annual audited financial statements with the Central Bank.
       
2. The crowdfunding company shall report the following (at a minimum) to the Central Bank:
    
   1. Financial position;
   2. Client money held;
   3. Description of complaints received and resolution status of these complaints;
   4. Details of loans arranged each quarter; and
   5. Defaults and near-defaults.

Record keeping

3. A crowdfunding company shall maintain adequate books and records at all times.
    
4. All records and materials must be made available for inspection by the Central Bank from time to time.
    
5. Records of Client Money and completed transactions shall be kept for a minimum period of ten (10) years.
    
6. The records maintained shall include:
    
   1. Historical records of information displayed online (websites / social media / any other media) and any print copies, if applicable, displaying the crowdfunding company’s promotional communication, advertisements or online banners and tag lines;
       
   2. Internal policies, procedures and operating documents;
       
   3. Corporate and financial records and general ledger and sub-ledgers;
       
   4. Reports and statements issued to Clients and regulators;
       
   5. Any communications related to Clients, including confirmations related to risk understanding, classification documents and confirmation related to classification, amongst others;
       
   6. All suitability assessments of Clients, including any clients (both Lenders and Borrowers) that were deemed not suitable by the crowdfunding company.
       
   7. Management information, accounts and communications.
       
   8. HR records; and
       
   9. IT architecture and security related documents.
       
7. The board of the crowdfunding company is directly responsible to the Central Bank in relation to reporting breaches.
    

1. The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of this Regulation.
    

1. This Regulation shall be published in the Official Gazette in both Arabic and English and shall come into effect one (1) month from the date of its publication.