The Central Bank of Egypt (CBE) has taken the first steps towards launching digital banks in Egypt. It has outlined a comprehensive set of requirements and documents. These requirements are aimed at ensuring transparency, legality, and the ability of digital banks to provide secure and reliable services. It is an important step towards keeping pace with global developments in the financial technology industry and meeting the needs of customers in the Egyptian market.
The Central Bank said that this comes as a continuation of the state’s efforts to support innovation and digital transformation of the economy.
It added that the new rules came in the framework of the Central Bank and Banking System Law promulgated by Law No. 194 of 2020, and introduced the concept of digital banks and the services they provide through digital channels or platforms using modern technologies.
Here’s what you need to know
According to the CBE, the issued and paid-up capital of digital banks must not be less than EGP 2bn, except when financing large companies is involved. In such cases, the capital must be increased to EGP 4bn. The largest shareholder should be a financial institution with a minimum ownership of 30% of the total capital. It must be a financial institution with a history in the same activities. This requirement ensures that digital banks have a strong financial foundation and a significant stake in their operations.
Other requirements included conducting a feasibility study that identifies the target segments and the products of the digital bank, as well as its information technology and cyber security plans and strategies.
Digital banks are also subject to the same rules and controls of physical banks operating in Egypt, including anti-money laundering and terrorist financing rules.
According to the Central Bank, this step would help the country realize its vision to transform into a society less dependent on cash, and enhance financial inclusion, and create a supportive climate for the financial technology industry.
The CBE explained that digital banks facilitate access to banking products and meet the needs of all segments of the society, including micro, small and medium enterprises and youth.
A digital bank shall take the form of an Egyptian joint stock company, with issued and paid-up capital not be less than EGP 2bn or its equivalent in free currencies.
In the event that a branch of a foreign bank wants to obtain a digital bank licence, its head office shall be subject to the supervision of a regulatory authority in its country of origin. The capital of a foreign bank’s digital branch in Egypt must be at least $60m or its equivalent in free currencies.
As for the ownership structure: among the shareholders, there must be a financial institution whose ownership represents the largest percentage among the shareholders and their related parties. The financial institution should hold a minimum ownership of 30% of the capital and have previous experience in similar activities. The Central Bank may consider exceptions to this condition upon approval from the Board of Directors. A clear ownership structure, including related parties, should be established to identify the final beneficiaries and ensure the legality of the source of funds. Applicants must provide a detailed ownership structure, including information about related parties. This helps identify the ultimate beneficiaries and ensures the legal origin of funds. Furthermore, applicants should specify the percentage of shares they intend to offer for general subscription.
The Central Bank requires the submission of essential information about the shareholders, including their names, nationalities, addresses, and capital shares. Additionally, founders who are legal entities must provide copies of their articles of association.
Applicants must disclose the shareholding percentage of each founder and any associations they may have with other financial institutions, both within and outside Egypt. Additionally, they must provide evidence that none of the founders, main shareholders, final beneficiaries, or board members are included in any domestic or international sanctions lists.
A digital bank should not be inconsistent with the general economic interest of the state, that the license should not lead to a breach of competition rules and prevent monopolistic practices, and that the commercial name adopted by the digital bank must not be similar to the name of another bank or other facility.
The Central Bank stressed the need for an efficient financial and economic feasibility study that includes a statement of the purpose of establishment, its work plan, the nature of the activities and services that it will perform, and a market study that shows its ability to mobilize and employ savings, in addition to general plans for information technology, payment systems, and cybersecurity.
The Central Bank stressed the need for the concerned parties (such as the founders, the final beneficiaries of the legal persons among the founders, the members of the board of directors and the main officials) to have integrity, good reputation, and financial solvency.
It is also required for the branch of the digital foreign bank or the Egyptian joint stock company affiliated to a foreign bank or a foreign financial institution, that the main office has a specific nationality, and that the main office is subject to the supervision of the corresponding supervisory authority in the country in which it is located, and obtaining the approval of that authority to operate in Egypt and that the corresponding supervisory authority applies the principle of combined supervision, and expresses no objection to applying the principle of joint supervision with the Central Bank of Egypt, and that the main office of the foreign bank have policies to combat corruption, bribery, fraud crimes, combat money laundering and terrorist financing.
If applicable, evidence of a credit rating from international credit rating agencies such as S&P, Fitch Ratings, or Moody’s should be submitted by the foreign bank or financial institution.
The Central Bank affirmed that all rules and regulatory instructions issued by the Central Bank for banks apply to the digital bank or the branch of the digital foreign bank.
The rules also stipulate that the maximum amount of deposits from a single client and its related parties should not exceed 1% of the total deposit portfolio, with a maximum amount of EGP 200m.
It stressed the necessity of committing not to grant credit facilities to large companies, with the exception of existing clients of medium companies, in the event that the annual business volume exceeds the specified value according to the definition issued by the Central Bank until the expiry of the existing facilities, provided that the total value of those excluded facilities does not exceed 20% of the total portfolio of credit facilities. to the bank.
The CBE confirmed that the two aforementioned percentages do not apply during the first year of practicing the activity.
It is allowed to grant credit facilities to large companies with exemption from regulatory requirements, provided that the approval of the Central Bank is obtained and the issued and fully paid capital is increased to EGP 4bn or its equivalent in free currencies for the digital bank that takes the form of an Egyptian joint stock company, as well as the capital allocated for the activity of the bank’s digital foreign exchange activity to $120m or its equivalent in free currencies.
The Central Bank obligated the branches of foreign digital banks wishing to obtain the license to submit a statement from the main office of the foreign bank that includes the services it provides on behalf of the digital branch in Egypt, if any, and the applications and regulations related to examining names in the negative lists and combating money laundering and terrorist financing locally and globally (transfer applications, Know your customer, and those related to monitoring high-risk transactions related to customers), with an unconditional guarantee from the main centre of the foreign bank to cover all deposits at the digital foreign bank branch, creditors’ rights and all its other obligations, with the main center’s commitment to compensate for any losses for any financial percentage that may Lead to non-compliance of the digital foreign bank branch with the minimum regulatory requirements, especially those related to the capital adequacy criterion, within a maximum of one month from the date the auditors of the digital foreign bank branch approved these lists.
The Central Bank also stressed the need for the main office of the foreign bank to undertake the commitment of the digital foreign bank branch to Egyptian laws, regulations, decisions in force, and instructions issued by the Central Bank.
The rules included the existence of an authorization issued by the main office of the foreign bank in the name of the manager responsible for the digital foreign bank branch and his deputy, approved by the Egyptian Ministry of Foreign Affairs, and obtaining the approval of the governor of the Central Bank before appointment.
The Central Bank disclosed the necessary procedures to obtain the initial approval.
The Central Bank said that when submitting an application for obtaining the initial approval to take the procedures for establishing a digital bank or a digital foreign branch, it is necessary to provide proof of payment of the application examination fee of EGP 1m for the digital bank that takes the form of an Egyptian joint stock company, or $50,000 for the digital foreign bank branch.
The application is presented to the Board of Directors of the Central Bank to issue a decision in this regard, and the application is decided upon within 90 days from the date of its submission, along with the documents required for the digital bank that takes the form of an Egyptian joint stock company.
The Board of Directors may extend this period for another similar period in the case of a digital bank that takes the form of a branch of a foreign bank. In that case, the cooperation policy that is agreed upon between the Central Bank and the competent foreign counterpart in the country in which the foreign bank’s head office is located is taken into consideration, in order to coordinate between them in the field of supervision.
In the event that the application is rejected, the concerned parties shall be notified within 30 days from the date of issuance of the rejection decision.
