KUWAIT: REGULATORY REQUIREMENTS FOR DIGITAL BANKS OUTLINED BY CBK
The Central Bank of Kuwait (CBK) has outlined regulatory requirements for digital banks, aiming to keep pace with global trends in financial services. According to the bank’s officials and experts, the move is driven by growing demands from a tech-savvy young generation seeking easy-to-access financial services.
New License for Digital Banks
Under the new license announced by the CBK, digital banks will have no branches and offer all banking services through digital channels. This model saves cost and time, eliminating paperwork complications associated with traditional banks, said Executive Director of the Supervision Sector at the CBK Waleed Al-Awadhi.
Digital Transformation in Kuwait
The CBK has been working intensively on digital transformation, boosting cybersecurity and encouraging innovation, particularly during the coronavirus pandemic. Most local banks have great capabilities in digital banking services, but what’s new is that they can now apply for a license to open digital units or establish a standalone digital bank in partnership with a shareholding company.
Capital Requirements
The capital required to establish a digital bank in Kuwait would be KD 75 million (approximately USD 247.5 million), the same amount needed for a traditional bank. The CBK will receive applications until June 30, 2022, and study all submissions before the end of the year.
Regulatory Requirements
CBK officials also emphasized that the regulatory requirements, guidelines, instructions, and controls applicable to traditional and digital banks are the same. Manager of the Off-Site Supervision Department at Central Bank of Kuwait Dr. Mohammed Al-Khamis said the CBK’s decision was taken after developing the digital banking framework and studying relevant best practices from more than 25 central banks and experiences of 40 digital banks worldwide.
Digital Banking Models in Kuwait
The framework in Kuwait allows for three models:
- A unit within a traditional bank
- Partnership between such a bank and a digital institution
- Establishment of a standalone digital bank
Experts believe that granting licenses for digital banks has become necessary due to the great development in this field globally and growing international competition.
Eligibility Criteria
Managing Partner for the Newbury Economic Consultancy Issam Al-Tawari said that while opening many digital banks worldwide could attract Kuwaiti young investors to unregulated banking markets, the CBK’s requirements and conditions make it unlikely for them to apply for digital bank licenses without innovative services and a shareholding company. Other companies eligible to apply are those with a large customer base, which can collaborate with other institutions to establish a digital bank.
Guidelines and Deadlines
The CBK issued guidelines specifying requirements for establishing digital banks as tech-based business models on February 2, and the deadline for receiving applications and required documents is June 30, 2022.