The Central Bank of Iran (CBI) has recently released a set of new regulations on October 2017, setting out its policy regarding FinTech operations in the country which is likely to result in material changes in connection with payment services.

Generally, FinTech -or financial technology- refers to innovations which enable the provision of more attractive and high-speed banking and financial services through various kinds of programs or applications; startups which provide such services are usually referred to as FinTech institutions. Some of FinTechs’ main functions in today’s world include online cashless payment services, funding and lending services, as well as handling saving accounts, assisting in currency exchange transactions, managing personal accounts or providing account information services.

The growing capabilities of Fintechs, as providers of a diverse range of services such as “crowd funding” and “peer to peer lending”, constitutes a paradigm shift in financial markets which may soon impact the entire financial environment of all countries and among them, Iran. However, the recent policy issued by CBI, restricts the scope of FinTech’s operations in Iran merely to providing payment services and therefore, lending and savings account services remain exclusively with banks and financial institutions. The reason for defining this limited scope for the operation of FinTechs, is to enable CBI, as the supervisory authority and money market regulator in Iran, to be in a position to supervise FinTech’s activities so as to prevent money laundering, fraud and the financing of terrorism. It also restricts the possible access of unauthorized service providers to such an important market.

Further to this limitation of FinTechs’ operations to payment services because of their potential disruptive effects, CBI also requires these entities to hold sufficient securities and guarantees, and to provide their payment services only through authorized banks. In other words, FinTechs are not required to obtain a direct authorization from CBI, but they need to operate in close association with CBI-authorized institutions. Interestingly, Banks are also authorized to outsource some of their operations to FinTechs. In addition, CBI prohibits FinTechs from performing activities requiring creation of money and compels them to comply with Iran’s exchange control regulations when performing exchange related services. Indeed, in order to prevent money laundering, all FinTechs are required to record the origin, destination, time and route of all fund transfers and to make them available to CBI upon request.

CBI has defined three phases of policymaking with regard to FinTechs. During the current first phase, until March, 2018, the CBI intends to define the general rules and policies applicable to FinTechs and RegTech (entities dealing with Regulatory Technology); the second phase (March to August, 2018) will aim at defining general rules and policies regarding Blockchain technology and Cryptocurrencies, while the last phase (August, 2018 to March, 2019), will aim at defining rules and policies with respect to FinTechs’ role as providers of funding and financial services.