As the global economy is rapidly becoming dependent on digital technologies, especially after the COVID-19 outbreak, and in light of the Government’s initiative to promote financial inclusion through banking and non-banking financial services, the much-anticipated fintech law (the “Draft Bill”) has been approved by Parliament on 5 January 2022 and is a few steps away from being promulgated.
The Draft Bill sets the legal framework of the sector and designates the Financial Regulatory Authority (the “FRA”) as the authority mandated with implementing the provisions of the law.
Based on the released Draft Bill, below are the key highlights of the Draft Bill:
Definition of fintech
Fintech is defined as a mechanism implementing modern and innovative technology in the non-banking financial sector via applications, programs, artificial intelligence and other digital platforms to support and facilitate financial, financing and insurance services.
Role of the FRA
The FRA has broad powers to regulate and supervise the sector in addition to promoting financial inclusion through non-banking financial services. The FRA shall, amongst others:
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- Issue licenses for companies wishing to undertake the activities subject of the Draft Bill.
- Issue decrees regulating the sector, including decrees relating to corporate governance issues, data protections, etc.
- Establish a testing environment for fintech applications.
- Receive complaints from fintech users.
Scope of fintech activities
The Draft Bill gives examples of some of the applications that companies may operate, including, financial advisory, microfinance, insurance and consumer finance. The FRA may authorize other e-applications provided that they meet the requirements set out in the Draft Bill as well as the FRA decrees.
Incorporation requirements for fintech companies
Companies wishing to undertake fintech activities must submit all required documents to the FRA. Afterwards, the FRA will have to issue its decision regarding the incorporation of the company within 30 days. In case the FRA rejects an application for the incorporation of a company, the rejection must be justified. Further, said companies will have to obtain the necessary license, depending on the service they provide, from FRA and get registered in a special registry therewith.
Companies applying for a license (i) cannot undertake any activity other than the one approved and licensed; (ii) must provide evidence that they have the necessary technological means and capabilities to undertake the activity and provide the necessary protection; and (iii) submit the direct and indirect shareholding structure and specify related parties.
The FRA can also issue fintech licenses for start-ups for a period of up to two years.
Sanctions for Non-Compliance
The FRA has the right to apply sanctions to companies in breach of the provisions of the law, including warnings and suspension of licenses. Further, in case a person is found operating in the fintech market without obtaining the proper license from FRA, it will be subject to imprisonment for at least 6 months and/or a fine of not less than EGP 200,000 and not more than EGP 1,000,000.
Market Reaction
Mr. Sharif Sami, Secretary General of the Egyptian Fintech Society and Chairman of the Commercial International Bank (CIB) welcomed the parliamentary approval of the Draft Bill and noted that: “Many startups in Egypt are active in the sector of fintech, e-commerce and participatory services. The new Fintech Bill is expected to positively impact such startups.” Further, he added that: “The market will be waiting for the executive regulations, following the enactment of the said legislation to launch the e-applications.”
