Fintech Licensing Requirements

1. Innovation License

This license is issued by the DIFC and is designed for fintechs, startups, and technology firms to establish a presence in DIFC without engaging in regulated financial activities (such as payments, asset management, investment advisory, crowdfunding). The license can be used to set up a company, hire staff, and build its product, but does not allow the company to handle client money or carry out any financial activity that needs DFSA approval.

      2. Innovation Testing License (ITL)

This license is issued by the DFSA and is designed to allow fintechs to test regulated financial services in a sandbox environment before obtaining a full license. Testing typically lasts six to twelve months and allows the company to temporarily engage in regulated activities. The testing is subject to regulatory controls and if it is successful by the end of the testing phase, the company will be required to transition to a full DFSA license. 

      3. Full regulated licenses

If the company is offering payments, investment advice, asset management, crowdfunding or any service that involves handling client funds, it will need a Category 3 or 4 license depending on the type of its activities. The type of business that the applicant wishes to engage in defines the category of licence that is required. Below are the required types of licences for the specific activities of crowdfunding, asset management, and providing payments solutions.

A. Crowdfunding 

Crowdfunding is one of the activities that require licensing from the DFSA and falls under Category 4 license. 

A Category 4 license includes advisory and arranging services without discretionary authority over client assets, such as arranging deals in investments, arranging credit and advising on credit, advising on financial products, arranging custody, insurance intermediation, insurance management, operating an ats, providing fund administration, providing trust services, operating a crowdfunding platform, arranging or advising on money services.

However, not all crowdfunding businesses require such a license, as the DIFC only licenses 3 types of crowdfunding platforms being:

• • • Investment-based (equity-based): Platforms facilitating equity investments must ensure compliance with DFSA regulations, including capital requirements and investor protections.
    • Loan-based: Platforms offering peer-to-peer lending services must adhere to DFSA's Conduct of Business Rules, ensuring transparency and fair treatment of investors and borrowers
    • Property-based: Platforms focusing on real estate investments are subject to additional regulations, such as restrictions on property types and investment limits for retail investors

B. Asset Management

Asset management falls under license Category 3C which is required for managing client portfolios on a discretionary basis—making investment decisions on behalf of clients. This license covers activities such as managing assets, managing a collective investment fund, providing custody, managing a psiar, providing trust services as a trustee of an express trust, providing custody (other than for a fund).

C. Payments

A Category 3D license is required for providing money services where the firm is providing or operating a payment account, executing payment transactions or issuing payment instruments. This includes creating and maintaining accounts for executing payment transactions, issuance of personalized sets of procedures agreed upon by the users and the provider, for initiation or execution of payment instructions.

This license authorizes firms to engage in providing or operating a payment account, executing payment transactions, and issuing payment instruments. These services are particularly relevant for fintech companies offering digital payment solutions, remittance services, and money transfer operations.

III. Which license to apply for?

DFSA licenses are activity-based, which means that the applicant must, upon applying for the license, select and specify all the Financial Services it wishes to perform (such as operating a crowdfunding platform, managing assets, providing money services, advising on financial products, arranging deals in investments etc., as defined in the DFSA Rulebook) and provide full details on each intended activity.

The DFSA will then assign the appropriate prudential category (used to determine capital requirements and risk controls) based on the combination of services the applicant applied for. The DFSA is likely to assign the higher of the risk-based categories and subject to the highest applicable capital requirement (typically 3C if the company manages assets).

The DFSA will issue one license, with a list of authorized financial services, based on the services the applicant explicitly mentioned in the application. The firm will not be authorized to perform any activities that are not listed in the license, even if they fall under a lower risk-based category than the one assigned to the applicant.

IV. When is a license not needed?

A license is not required in DIFC only if

• The activity does not fall under “financial services” as defined by the DFSA.
• The firm is purely a technology provider with no direct investor interaction, investment advice, or capital flow facilitation.
• The firm is operating outside the DIFC, and not marketing to DIFC residents or firms (but other UAE regulators like the SCA or UAE Central Bank may have jurisdiction)

V. Compliance with Sharia Laws

The DIFC provides a robust framework for Islamic finance, governed by the DFSA's Islamic Finance Rules (IFR). These rules apply to firms offering Sharia-compliant financial services, including crowdfunding platforms and asset management firms.

However, Sharia compliance is not a mandatory requirement for all fintech firms in the DIFC. Firms not offering Islamic financial products are not obligated to adhere to these standards. The decision to pursue Sharia compliance should align with the firm's business model and target market.

For more information about this article of if you have any questions, please do not hesitate to get in touch with us on [email protected] 

This article is prepared by: Danielle Karam - Legal Counsel - [email protected]