Financial regulation

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

Several bodies are responsible for enforcing fintech-related laws and regulations, including:

  • the Central Bank of Egypt (CBE), which is empowered by Law No. 88 of 2003 on the Central Bank of Egypt and the Banking Sector (the Banking Law) to, among other things, regulate bank accounts and banking transactions;
  • the Information Technology Industry Development Agency, which is empowered by the E-signature Law No. 15 of 2004 to, among other things, promote and develop the information technology and communications industry, support small and medium-sized enterprises in using e-transactions and regulate e-signature services activities;
  • the Financial Regulatory Authority (FRA), which is empowered by the Non-Financial Markets and Instruments Law No. 10 of 2009 to, among other things, license the carrying out of non-banking financial activities and the protection of stakeholders within the non-banking financial market;
  • the National Payments Council, which is empowered by Presidential Decree No. 89 of 2017 to, among other things, reduce the use of cash outside the banking sector, support and encourage the use of electronic methods and channels instead of cash, and protect the consumers of any payment systems and services; and
  • the National Telecommunications Regulatory Authority, which is generally empowered by the Telecoms Law No. 10 of 2003 to regulate and enhance telecommunication services.
Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

In general, according to the Banking Law and several judgments issued by the economic courts, neither natural nor juristic persons may practise any banking activity in Egypt without being licensed by and registered with the CBE.

 ‘Banking activities’ are defined under the Banking Law as any activities regarding the receipt of deposits, the provision of refinancing, loans, facilities, contributions to share capital in local companies and any other activities that are considered as banking activities according to banking customs that are carried out on a regular basis and as the main business activities of any person carrying out those activities. This definition is also found in the Trade Code No. 17 of 1999.

Any person that violates those provisions is subject to imprisonment of between 24 hours and three years or a fine of between 5,000 Egyptian pounds and 50,000 Egyptian pounds, or both, in accordance with the Banking Law. There are two main prerequisites that must be satisfied to apply those penalties in respect of any banking activity, namely carrying out the banking activity on a regular basis and having the banking activity as the main activities of any person, including individuals and juristic persons.

Other than the general rule above, each of the following activities is also regulated and subject to licensing requirements in Egypt:

  • microfinancing;
  • investment banking;
  • brokerage;
  • factoring;
  • foreign exchange trading;
  • payment services;
  • e-commerce;
  • financial leasing;
  • mortgage finance; and
  • consumer lending.
Consumer lending

Is consumer lending regulated in your jurisdiction?

The Consumer Finance Law No. 18 of 2020 was issued on 16 March 2020, governing any activity aiming at financing the purchase of products or services for consumption purposes as long as the activity will be carried out on a regular basis. Among the activities covered is financing through payment cards or any other means decided by the CBE.

The consumer finance-related activities above may not be carried out in Egypt unless a licence is obtained from the FRA. The licence requires, among other things, the carrying out of the activities by a joint-stock company with an issued capital of at least 10 million Egyptian pounds.

The Consumer Finance Law (including the licensing requirement) does not apply to all banks registered with the CBE nor any entity licensed to carry out mortgage financing, financial leasing, factoring, microfinancing or the purchasing of properties from real estate developers.

The Consumer Finance Law applies only to vehicles, durable products, educational services, medical services, travel and leisure services as well as any other products and services that are determined by the FRA.

Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

In general, there are no restrictions on trading loans in Egypt. However, if the trading is being carried out on a regular basis, then it may be deemed as the carrying out of banking activities, in which case licensing by and registration with the CBE is required.

The assignment of debts in Egypt is subject to a specific legal framework to be effective in respect of debtor and surety (if any).

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

As a general rule, no activity relating to investment funds can be carried out unless a licence is obtained from the FRA. Banks registered with the CBE may carry out the activity, provided that an approval is obtained from the CBE.

Investment funds may, in general, be established in the form of a joint-stock company with a minimum issued capital of 5 million Egyptian pounds or any equivalent currency.

Licensed investment funds must deposit any securities that they are investing in with one of the banks that is registered with the CBE, providing that the bank (and its related parties) does not control or hold more than 10 per cent of the total shares in the investment fund company.

One of the licensing requirements to be qualified for the investment fund underwriting is to have the minimum required infrastructure and technology to do so.

Investment funds may take the form of an open-end fund, closed-end fund, private equity fund, exchange-traded fund, money market fund, debt fund, real estate fund, donor-advised fund or related fund.

Promoting investment funds is generally not allowed before establishing them except for in the case of private equity funds and providing, among other things, that a notification is sent to the FRA and that no underwriting is made as a part of the promotion.

Most of the alternative financial products and services that are provided by fintech companies generally fall within the scope of either collective investment schemes or banking activities.

Alternative investment funds

Are managers of alternative investment funds regulated?

Yes, managers of alternative investment funds are regulated, including board members.

Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

Peer-to-peer and marketplace lending can be deemed as banking activities, in which case licensing by and registration with the CBE is required.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

Crowdfunding falls within the meaning of banking activities; however, it may also be a form of donor-advised fund.

In practice, a number of donor-advised funds have been established by a special presidential decree rather than a licence from the FRA. For example, Presidential Decree No. 139 of 2014 established a fund of a private nature called the Tahya Misr Fund for the purpose of assisting the government in, among other things, establishing development and service projects as well as developing slums and micro and small projects.

The government has used the crowdfunding approach to fund a number of public utility projects, such as the crowdfunding that was used in 2014 to fund the development of the New Suez Canal, which cost Egypt around 30 billion Egyptian pounds.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

Invoice trading may be characterised under Egyptian law as banking activities (if providing credit), and it may also be characterised as a factoring. This can be assessed on a case-by-case basis.

Licensed factors are allowed to provide, among other things, guarantee, collection and account management services.

The following main three conditions are required in the subject of any factoring transaction:

  1. it must be created from a commercial transaction related to the relevant buyer and debtor but not through a cash financing;
  2. it must not be associated with any third party’s existing or future right; and
  3. it must not be limited or restricted unless otherwise agreed by the relevant factor and buyer.

 

The subject may also be fully depreciated, provided that points (2) and (3) are satisfied.

The provisions of Law No. 88 of 2003 on the Central Bank of Egypt and the Banking Sector and several judgments issued by the economic courts also apply to factoring.

Payment services

Are payment services regulated in your jurisdiction?

There is a specific regulation governing payment services that are provided by technical payment aggregators or payment facilitators. Services agreements are subject to specific know-your-customer and anti-money laundering checks and must include specific terms and conditions for those services, including a restriction on sub-contracting unless certain conditions are being met.

Under the Draft Banking Law, no activity concerning the operation of a payment system or the provision of a payment system may be carried out unless a licence is obtained by the CBE. This new restriction applies to all persons, whether natural or juristic, carrying out the activity in Egypt or providing the services from abroad to any residents in Egypt, with the exceptions of stock exchanges, futures exchanges, securities settlement systems, licensed central clearing, depository and registry systems, custodian banks and internal systems of the Egyptian Ministry of Finance that do not include payment, collection, setting-off or clearance of payment.

Open banking

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

No.

Insurance products

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

According to the Insurance Law No. 10 of 1981, no one is allowed in person or through an intermediary to carry out any activity related to insurance or reinsurance in Egypt without obtaining a licence from the FRA. Fintech companies that sell or market insurance products fall within this restriction and are regulated in Egypt.

Credit references

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

All services relating to the provision of credit rating and indebtedness references are regulated. Those services require a licence from the CBE.

At present, there is only one licensed company, the Egyptian Credit Bureau, that is subject to a specific legal framework governing the provisions of those references.

In general, disclosing credit ratings and indebtedness references related to any person is not allowed unless an approval from the person is obtained.

Law stated date

Correct on:

Give the date on which the above content is accurate.

22 June 2020.