Newly issued law regulating and developing the use of Fintech in non-banking activities in Egypt

Written by Rana Moustafa

In early February 2022, Egyptian President Abdel Fattah El Sisi signed Law No.5/2022 regulating control of markets and developing the use of financial technology in non-banking financial activities (the “FinTech Law” or “Law”) which is regulated by the Financial Regulatory Authority (“FRA”). The country’s legislative body is witnessing extensive upgrading and effective change to cope with the bewildering effects of technology and its consistent emancipation in all fields of life.

The Law introduces provisions of non-banking financial services which are inherently prescribed within the government’s intentions of financial inclusion of cashless day to day transactions. We will tackle in this article main questions that may come to the attention of the interested by the issuance of this Law.

What is the core content of this Law?

The FinTech Law provisions essentially targets entities operating in the non-banking financial services’ sector and dismisses all references to companies regulated by banking law No. 194 of 2020.  In fact, the Law defines financial technology as “any mechanism that utilizes modern and innovative technology in the non-banking financial sector to support and facilitate financial services, financing and insurance activities using applications, software, digital platforms, artificial intelligence, or electronic records.”

To whom is it addressed?

Under the FinTech Law, we note that good news is beheld within the provisions of the said law, letting medium and small start-ups empowered and encouraged to grow. All start-ups operating in the non-banking financial sector’s activities shall enjoy a license valid for a maximum period of two years and a decreased capital requirement without need to pay any license fees capped at 50,000 EGP.

We noticed that the Law addressed several sub-sectors as follows:

1. Financial advisory apps including all apps emerged in conducting consultations using virtual platforms and artificial intelligence.
2. Nano finance apps
3. Insurance apps
4. Consumer finance apps

We may see in the future additions carried out by the FRA to this list as it reserved its discretion to include further sub-sectors under the Law in the same vein.

On another hand, we note that the Law’s provisions dedicated expressly a part to extra territorial reach, whereas any FinTech operator operating in Egypt while incorporated in a foreign territory shall be equally bound to abide by the provisions of the Law, same as local FinTech operators operating and incorporated in Egypt. Thus, any foreign operator that wishes to address any clients or customers residing in Egypt must obtain first the required FRA license and approval to operate in Egypt.

What are the procedures and legal aspects?

Any incorporation request submitted shall be reviewed by a competent committee enabled to provide technical and legal advises within a maximum period of 30 days. The committee’s decision should be based upon an evaluation of the company’s eligibility to be incorporated. Any failure to issue a decision within the said period of 30 days, shall be considered as an implicit refusal.

The FinTech Law provisions aimed to highlight three main licensing requirements that must be particularly considered before carrying out any non-banking financial services or submitting a request for licensing. Such requirements come as follows:

1. The determination of direct and indirect shareholding structure
2. The determination and specification of the required technological scheme, infrastructure, security backups
3. The company’s activity that must be related to the scope of activities enunciated by the FRA

Nonetheless, additional requirements are prescribed in the executive regulations covering other important aspects related to the board of directors, the conflict of interests and management composition.

Main cross reference to other relevant laws

The FinTech Law did not stand any chance without cross-referencing to other important law recently issued two years ago in Egypt that is related to the encountering and frame working of virtual access, virtual and digital presence of operators which is the Data Protection Law No. 151/2020. The Law has secured provisions serving to protect the customers and end clients’ confidential information, personal data and sensitive data and preventing such data from being disclosed intentionally or unintentionally to any third party except with the prior written consent obtained physically or digitally, of such customers.

 What are the penalties stipulated in the Law?

The first direct penalty would be any omission or negligence coming from the operator seeking to operate in Egypt who carries out activities without obtaining the required license explained above in our article. The FRA shall apply a penalty that would be a minimum of 6 months imprisonment and/or a fine with a minimum of 200,000 EGP and a maximum of 1,000,000 EGP.

Nonetheless, we note that the FinTech Law is a recent law that although it is issued to easy out the activities in non-banking financial activities and the use of technology, but it has kept its grounds for the application of solid penalties to prevent any unnecessary manipulations, violations, or distortions of its essence. Thus, we have seen provisions prescribing that the FRA would impose penalties on all operators who would provide misleading information, data, participate in the concealment of any important, required, demanded information from FRA, or even prevents the FRA’s representatives from executing their responsibilities. The violation of any of such provisions would equally encumber a maximum imprisonment period of one month and/ or a fine between 20,000 EGP minimum to a maximum of 100,000 EGP.

Finally, any breach of the personal data of the customers ‘confidential data is penalized with a minimum period of 3 months imprisonment and/or a fine ranging from a minimum of EGP 200,000 to a maximum of EGP 1,000,000.

We hope this Law would bring more and more transparency and rational governance of the sector in the future years to come and settle promising grounds for innovation leaving Egypt as sanctuary to international exposure in the sector, allowing attraction with a sense of security and presence of solid legal framework.