Law no. 5 of 2022 Regulating and Developing the use of Financial Technology in Non-banking Financial Activities
On the 8th of February 2022, law no. 5 of 2022 was published in the Official Gazette as Egypt’s first law to govern the regulation and development of financial technology used in non-banking fintech activities (the “Fintech Law”). This is an important step along the path to achieve Egypt’s goal of being the regional hub for fintech in Africa and the Middle East. Existing companies carrying out non-banking fintech activities and using financial technology will have a six-month grace period to comply with the provisions of the Fintech law starting from the date of issuance of the law’s implementing decrees subject to extension by the board of the Financial Regulatory Authority (“FRA") for a maximum of two years and additional two years by the Prime Minister pursuant to the suggestion of FRA.
The Fintech Law names (the FRA as the responsible regulatory authority. Non-banking activities already subject to the supervision and control by the FRA include insurance, real estate finance, finance leasing, factoring, SME financing and consumer finance. The Fintech Law regulates the use by companies operating in such fields of financial applications such as mobile applications, software, digital platforms, AI or electronic records. Such companies may use digital platforms to offer their products to potential customers, and to manage and collect data, or to verify such data through the use of digital identities, records and contracts to complete the acquisition of their products. The Fintech Law provides that data used by the companies subject of the law through electronic applications will have the same evidentiary value as official hard copy documents, and the implementing decrees will set out regulations concerning digital verification and digital contracts for entities using financial technology to engage in non-banking financial services without prejudice to the existing Law no. 15 of 2004 that established ITIDA and currently regulates electronic signatures.
The Fintech Law names the following four types of electronic applications that can be used for non-banking financial activities: (i) electronic applications for financial consultants licensed by FRA to analyse customers’ data and provide technical advice; (ii) electronic applications for microfinance whereby data or information is exchanged, or financing is operated and managed; (iii) electronic applications for insurance whereby AI is used and data analysed; and (iv) electronic applications for consumer finance whereby digital platforms are used to exchange data or information, or to operate and manage the consumer finance portfolio (together referred to below as the “Initial Licensable Electronic Applications”). However, the Fintech law allows for other forms of electronic applications to be approved by FRA on a case-by-case basis.
Also, the Fintech Law covers the use by FRA of technological applications to ensure compliance with the law, and to protect those dealing with entities providing non-banking financial services and establishes a complaints procedure. In particular, the law references the use of such technology to ensure compliance with anti-money laundering laws and regulations (“AML”), and to promote financial stability through early warning of financial risks, e.g. liquidity issues. The implementing decrees will set out regulations regarding digital identity verification and digital contracts within the context of non-banking financial activities and the AML.
In addition, the Fintech Law authorizes the FRA to establish a regulatory sandbox for financial technology applications either directly or in partnership with third parties to allow for small-scale, live testing of innovations by private sector entities in a controlled environment under the FRA’s supervision. Start-up companies in the field of the use of financial technology for non-banking financial activities can be issued a temporary license by the FRA for up to two years and will be exempt from licensing fees but will be subject to a minimum capital requirement of EGP 250,000.
Pursuant to the Fintech Law any new company that wishes to operate financial technology for non-banking financial activities, whether inside or outside Egypt, must now be registered on the register to be established for such purpose by the FRA. Such companies must limit their activities to the use of financial technology for non-banking financial activities and the implementing decrees will set out rules concerning the capital, shareholdings, board
membership and nature of such companies. Authorised companies can either carry out their activities directly through the use of financial technology, or use third party outsourcing companies who have been registered with FRA on a new register to be established for such outsourcing companies.
Any entity that wishes to carry out non-banking financial activities using one of the Initial Licensable Electronic Applications, or any other types of electronic application approved by FRA (subject to satisfaction of certain conditions) must apply for a license from FRA.
Breach of the Fintech Law is a criminal offence punishable by imprisonment of the responsible manager and/ or the imposition of fines payable by the manager and guaranteed by the corporate entity.
The Fintech law is an importance step by the FRA to develop the non-banking financial sector in Egypt in order to promote financial inclusion through widening access to financial services and to power economic growth through innovation and entrepreneurship.
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