Answer ... The fintech industry in Lebanon has been evolving relatively rapidly, particularly in recent years and following the enactment of the Electronic Transactions and Personal Data Law, which covers a range of sub-sectors. The most embedded sub-sectors include:

• digital banking services;
• payment-related platforms; and
• investment services.

Answer ... A variety of innovative products and services are offered by traditional financial institutions and new market players in Lebanon, such as:

• mobile and electronic payments;
• money transfer platforms;
• account information services;
• wealth management;
• insurtech services; and
• crowdfunding platforms.

With respect to cryptocurrencies, the Banque du Liban (BDL) has long adopted a rather unfavourable stance towards cryptocurrencies and has warned Lebanese banks and financial institutions against their use, pending the enactment of relevant laws and regulations. However, it was recently reported in the press that the governor of the BDL may be launching a Lebanese cryptocurrency.

Answer ... Generally, fintech products and services are offered by traditional banks incorporated and licensed in Lebanon as a joint stock company (SAL), and licensed financial and insurance institutions.

Other unregulated fintech products and services are offered by new market players and start-ups, which are usually established as SALs or limited liability companies, which limit the liability of shareholders/partners l to their investment in the fintech company, given the need to attract equity investors.

Answer ... A number of financial tools and solutions are available to fintech companies operating in Lebanon.

Many fintechs rely on non-equity funding, including loans (eg, bank loans, Kafalat loans and loans from micro-credit institutions) and personal funding (eg, personal savings and funding from friends and family).

In terms of equity funding, investments in start-ups – and particularly fintech start-ups – has increased over the past few years. Equity investment is typically secured from:

• angel investors and capital ventures; and
• banks and financial institutions. In fact, BDL Basic Circular 23/1996, as amended by Intermediate Circular 331, encourages investment in local start-ups; and the BDL provides facilities to banks and financial institutions participating in direct start-up equity investment or indirect start-up support facilities (eg, incubators, accelerators and venture capital), subject to certain conditions.

Other financial trends available to fintech start-ups include crowdfunding, donations, seed funds and grants from incubators and accelerators. Some incubators and accelerators in Lebanon provide financial assistance, such as the following:

• Berytech offers an incubation and support programme for the launch of start-ups. This programme includes funding opportunities offered via Berytech’s funding entities, partners and network.
• Flat6labs offers each selected start-up between $30,000 and $50,000 in seed funding in exchange for minor equity in the company, depending on which accelerator the start-up chooses to apply to and join from across the Middle East and North Africa.

Answer ... Fintechs in Lebanon do not constitute a competitive threat to institutions offering traditional banking and financial services. On the contrary, it seems that the BDL, with the issuance of Intermediate Circular 331, is encouraging the collaboration between fintech start-ups and banks. Lebanese banks have already adopted fintech innovations and invested in fintech companies.

Answer ... It is common for start-ups in Lebanon to outsource processes and back-office functions (eg, HR, accounting and finance) and IT functions (eg, cloud computing) to third-party service providers.

Capital Markets Authority Decision 3/2013 regulating crowdfunding provides an option for crowdfunding licensed institutions to outsource IT functions, provided that the agreements with such service providers include provisions that allow the supervisory authorities to review information maintained by them.

The the BDL has explicitly prohibited licensed banks and financial institutions from outsourcing compliance monitoring to any external specialised firm, pursuant to BDL Basic Circular 128/2013 regulating the Establishment of Compliance Departments.

In general, institutions engaged in any outsourced functions must take into account the associated risks and factors such as confidentiality, integrity, cybersecurity, regulatory compliance and data transfer. The measures to be implemented by banks, financial institutions and other licensed institutions to ensure the safety of operations include:

• user identity management systems;
• identification and protection of personal data; and
• security and protection systems that prevent hacks and attacks.

The legal issues associated with outsourcing to cloud computing service providers include cybersecurity risks and the protection of personal data by cloud computing service providers. Institutions must comply with the relevant provisions, including the Electronic Transactions and Personal Data Law – in particular with regard to the protection and processing of personal data. For instance, in order to mitigate risk, fintechs must inform data subjects when collecting their personal data of the identity of the parties to which such data will be sent. In turn, the data processor must protect the safety and integrity of the data, and ensure the safe and legitimate processing of such data.