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FRA approves a draft law on “Regulating Fin Tech in non-banking financial activities”

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• Dr. Omran: The draft law paves the way for the development of traditional operating systems in non-banking financial companies and provides unlimited horizons to facilitate access to new clients
• Dr. Omran: The Authority may issue a temporary license for Fin Tech startups for a specified period to support non-banking financial activities and products and facilitate access to clients
• Dr. Omran: The draft law prohibits companies wishing to engage in crowdfunding activity inside or outside Egypt from practicing their activities except after obtaining a license from the Authority
• Dr. Omran: The draft law introduces crowdfunding platforms as one of the alternatives that provide financing, strengthen adherence to standards of transparency and governance and adopt using innovative technology

FRA’s Board approved a draft law on “Regulating FinTech in non-banking financial activities”. This approval  was taken after FRA’s Board was satisfied with the views resulted from the discussions held in the regulatory laboratory which included the Central Bank of Egypt, FRA , Anti-Money Laundering and Terrorism Financing Unit and the National Communications Authority.

Dr. Omran – FRA’s Chairman noted that the Board was informed of the procedures and activities of the community dialogue and the meeting that was held by the accompanying committee with the Central Bank of Egypt to discuss the legal  and technical details of the draft law.

Dr. Omran says that the Board’s approval comes within the framework of adopting a policy that provides a remote work environment that is mainly based on the safe exchange of information and the supervision of a regulator who is equally oriented towards digital monitoring.

Dr. Omran adds that the draft law aims at enhancing the regulator’s use of new and innovative technology in order to facilitate its supervisory role, ensure the adherence to standards of transparency and governance, protect those dealing in non-banking financial markets and adopt using new and innovative technology within non-banking financial sector. The draft law comes within light of the current interest in spending more money on using information technology in the Middle East and North Africa region, estimated at about $ 160 billion with an increase of 2.5% compared to 2019.

FRA’s Chairman explains that the draft law includes thirty-four articles divided into five chapters. He notes that the first chapter includes the definitions and general provisions of FinTech, and defines it as a mechanism that uses new and innovative technology in the non-banking financial sector to support and facilitate activities and financial services through digital applications, programs, platforms, artificial intelligence. This allows companies and enterprises to enter the market through providing innovative products and services and facilitate access of finance thus, contributing to the development and revitalization of non-banking financial markets and institutions. The draft law allows FRA to license companies wishing to operate in non-banking financial activities using Fin Tech , including crowdfunding companies.

The second chapter entitled “crowdfunding companies”. In this chapter, the law stipulates that companies wishing to engage in crowdfunding activity, whether from within the Arab Republic of Egypt or abroad, shall not  practice the activity unless it obtains a license from the Authority in accordance with the conditions and  controls stipulated in this law and the decisions issued in implementation thereof. Also, these companies shall be registered at FRA’s registry in accordance with the controls and procedures issued by FRA’s BOD decision. In addition, these companies shall adhere to the rules and controls set by FRA’s board to regulate crowdfunding activity.

Dr. Omran states that the third chapter divided “practitioners of non-banking financial activities using Fin Tech” into three branches.  First branch: companies depend on Fin Tech in practicing non-banking financial activities. These companies are obligated to obtain a license from the Authority to practice these activities  in accordance with the terms and controls stipulated in this law and related decisions and it must be registered at FRA’s registry.
Second branch: Licensed companies and entities, and they are allowed to practice non-banking financial activities by itself using Fin Tech after obtaining FRA’s approval. The Law allows these companies to seek assistance from technological service providers registered at FRA’s registry in accordance with an agreement includes all the rights and obligations of both parties.
As for the third branch, it includes common provisions between companies depend on Fin Tech in practicing non-banking financial activities and licensed companies and entities that engage in these activities using some areas of Fin Tech.

According to Dr.  Omran, the fourth chapter of the draft law comes in response to many proposals received by the Authority following the community dialogue session held by FRA and attended by a number of officials of Fin Tech companies and companies operating in non-banking financial services. These proposals focus on  using Fin Tech in non-banking financial activities such as crowdfunding platforms.  These platforms are considered as  one of the innovations to provide financing for various projects by a large number of qualified investors through an electronic platform that acts as a mediator between financiers, investors, companies and projects wishing to obtain financing through subscribing to securities issued by projects or directly through lending them.

The draft law required the Authority to establish itself or in partnership with others a regulatory laboratory for applications or by entrusting this to one of the competent authorities. This laboratory allows crowdfunding companies and non-banking financial activities practitioners to use Fin Tech . Also, it allows technology service providers who wish to be registered at FRA’s registry or those who already registered to test innovative Fin Tech applications. The companies can test business models and related mechanisms on real clients in preparation for presenting them to clients subjected to FRA’s supervision. On the other hand, the Authority may exempt the aforementioned entities for a specified period from fulfilling some of the requirements necessary to obtain a license to practice the activity, all in accordance with the rules and procedures specified by the Authority’s Board.

FRA’s Chairman adds that the draft law on “Regulating in non-banking financial activities” allows the Authority to issue a temporary license for Fin Tech startups (FinTech Startup License) for a specified period to support innovative startups. In addition, FRA’s BOD shall define the conditions, controls and procedures for the temporary license granted for the aforementioned company, noting that it’s issued capital shall not be less than two hundred fifty thousand pounds.
Chapter Five of the draft law under the title “Penalties” states that anyone who practices any of the activities mentioned in this law without obtaining a license or approval shall be prisoned and pay a fine not less than two hundred thousand pounds and not more than one million pounds.

It is worth noting that the Authority announces in the community dialogue its intention to use Fin Tech. FRA aims at collecting data digitally, verifying it and analyzing its indicators through programs prepared for this purpose.  In addition to, ensuring the use of artificial intelligence mechanisms and other digital models to detect incidents that violate the laws governing non-banking financial activities, suspicion of money laundering and adopting early warning systems of risks related to liquidity or credit or other matters related to financial stability. In the community dialogue, FRA discussed the first draft law on “Regulating Fin Tech in non-banking financial activities”, introducing crowdfunding platforms as one of the alternatives to provide financing for various projects by a large number of qualified financiers through an electronic platform that acts as a mediator between financiers – investors – companies and projects wishing to obtain financing.  That is besides the smart financial tool called (Robo-advisor) that provides automated investment advice based on the analysis of customer data, their current financial position and future financial goals using artificial intelligence applications, in addition to “nano finance”, insurance technology and consumer finance technology as main areas of fintech.

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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