The role of the legal framework in supporting financial technology innovations in Egypt

What is FinTech?

FinTech (financial technology) is a term that refers to software, mobile applications, and other technologies shaped to improve and automate traditional forms of finance for businesses and consumers alike. FinTech can be best described as a computer program and other cutting-edge technologies designed to underpin, facilitate, and enhance banking and financial services.

The significance of FinTech cannot be emphasized enough, not only it enhances financial accessibility and improves efficiency, but also opens up new avenues for financial advice and services. FinTech has a pivotal role in our day-to-day life, as it can provide convenient and user-friendly financial solutions. Its impact on our daily lives is significant as it offers accessible and efficient financial services, empowers individuals with personalized advice, and facilitates secure and practical transactions.

Embracing fintech is not just a strategic move; it’s a dynamic leap that empowers individuals and businesses to proactively navigate the constantly evolving financial landscape. By wholeheartedly adopting fintech solutions, they not only stay ahead of the curve but also strategically leverage the plethora of opportunities it unfolds. Fintech isn’t merely a tool; it’s a catalyst reshaping the very fabric of how we interact, engage, and experience financial services, ushering in a transformative era in the realm of finance.

The Financial Regulatory Authority (FRA) aims, through the implementation of the provisions of this Law, to enhance financial inclusion, expand the base of beneficiaries of non-banking financial activities, improve their efficiency, and reduce the costs required to benefit from such activities and services.

The FRA shall be the sole competent administrative authority responsible for applying the provisions of this Law, and it may take all necessary measures to promote and develop the use of modern and innovative financial technology systems in any fields of non-banking financial activities, and in providing related financial advisory services. In order to achieve the purposes of this Law, the FRA shall in particular have the following powers:

1. Taking the procedures necessary for establishing companies subject to the provisions of this Law.
2. Granting licenses and issuing the approvals required to practice the activities stipulated in Law No. (5) of 2022.
3. Using technological applications to ensure compliance with applicable laws and regulations in a manner that facilitates the FRA’s supervisory role over entities under its jurisdiction with respect to transparency and governance standards.
4. Using technological applications for the purpose of digitally collecting, verifying, and analyzing data through programs prepared for this purpose, and using artificial intelligence tools and other digital models to detect acts that constitute violations of the laws governing non-banking financial activities.
5. Establishing a regulatory sandbox for financial technology.
6. Setting security and device data-protection standards.

Licensed companies and entities authorized by the FRA to engage in any non-banking financial activities may—after obtaining the FRA’s approval—carry out such activities using certain financial technology applications, or through one of the entities registered in the FRA’s register in accordance with Law No. 5 of 2022, pursuant to an outsourcing agreement between them that clearly sets out the rights and obligations of both parties.

The FRA’s Board of Directors shall issue a decision specifying the additional conditions and procedures required to obtain the FRA’s approval for practicing licensed non-banking financial activities using certain financial technology tools, including requirements relating to ownership structures, board composition, and conflict-of-interest rules.

Governance and Operational Management Requirements for Companies Engaged in Non-Banking Financial Activities Using Financial Technology and Subject to the FRA’s Supervision

Any company that falls under FRA supervision is required to adhere to the corporate governance regulations and administrative protocols. Said regulations were issued by virtue of FRA Decree No. 100 of 2020 (Corporate Governance Decree) and its amendments.

Regarding the required constitution and structure of the board of directors of the Company, this would be required to adhere to the abovementioned Corporate Governance Decree as outlined below.

Board of Directors Constitution:

The Articles of Association of the company must indicate the number of the board of directors’ members, with consideration given to each individual members’ capacity to successfully handle their position & duties, in addition to creating the required committees. Most of the Company’s board of directors must also be classified as Non-Executive Directors, with a minimum of half of such members required to be independent.

1. The board of directors of a holding company may not occupy a position in the same capacity at any subsidiary company. The status of a member of the board of directors as an independent member lasts a total of 6 years before expiring. To be reappointed to the board in the same capacity, (3) three years must first elapse upon the date of expiry of their original membership to the board of directors.
2. Consideration is also given towards the independent member candidate’s previous experiences in the industry, as well as their ability to perform the mandate expected of their potential post as a member of the board of directors. In essence, this entails giving adequate & reasonable time to the company & for no conflicts of interest to occur.
3. Appointment of a Managing Director (with the Managing Director possessing a minimum of (10) ten years’ experience in banking or non-banking finance) and Chairman, with distinct roles and requisite experience. It is prohibited to combine the position of the Chairman of the board of directors and the position of the Managing Director of the same company. Moreover, it is considered a prerequisite that the board of directors of a company includes a minimum of (25%) twenty-five percent female representation (with banking finance expertise).