1 Legal and enforcement framework
1.1 In broad terms, which legislative and regulatory provisions govern the fintech space in your jurisdiction?
The fintech space is governed by numerous laws and regulations, including the following:
- the Non-cash Payment Methods Law (18/2019);
- the Central Bank of Egypt (CBE) and Banking Sector Law (88/2003) and its Executive Regulation;
- the E-signature Law (15/2004) and its Executive Regulation;
- the Non-Financial Markets and Instruments Law (10/2009);
- the Microfinance Law (141/2014;
- the Trade Code (17/1999);
- the Consumer Finance Law (18/2020);
- the Cybercrime Law (175/2018);
- the Investment Law (72/2017) and its Executive Regulation;
- the Consumer Protection Law (181/2018) and its Executive Regulation;
- the Small and Micro-Sized Enterprises Law (141/2004) and its Executive Regulation;
- the Telecoms Law (10/2003);
- the Media Law (180/2018);
- the Capital Market Law (95/1992) and its Executive Regulation;
- the Movable Collaterals (Securities) Law (115/2015) and its Executive Regulation;
- the Anti-money Laundering Law (80/2002) and its Executive Regulation;
- the Public Entities Contracts Law (182/2018) and its Executive Regulation; and
- Presidential Decree 89/2017 founding the National Payments Council (NPC).
Globally, the banking and finance sector is evolving rapidly, not least due to the incursions of fintech players. Egypt, which has seen two recent revolutions in 2011 and 2013, has likewise been affected by these dynamics, as well as local political challenges. In response to a request from the CBE, the government has proposed a new draft Banking Law, based on guidance issued by international consultancy firms; a comparative study of other countries' laws; international standards, the Basel Framework; recommendations of the Organisation for Economic Co-operation and Development (OECD), the World Bank Group and the International Monetary Fund; and recommendations made by the banks that are registered with CBE.
As per the Egyptian Constitution, the new draft Banking Law was submitted to the Egyptian House of Representatives for review and approval. After a review of almost five months, the Egyptian House of Representatives introduced a number of amendments to the new draft Banking Law, which was approved in principle by the Egyptian House of Representatives on 5 May 2020.
1.2 Do any special regimes apply to specific areas of the fintech space?
Yes, special regimes apply to several areas of the fintech space, including the following:
- Capital markets:
- sales and trading, including short selling; and
- infrastructure tools.
- marketplace lending.
- payment processing, including technical payment aggregators and payment facilitators, contactless payments, prepaid cards and mobile payments.
- Personal finance:
- tools to manage bills and track personal and/or credit accounts.
- regulatory compliance software.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
Several bodies are responsible for enforcing the fintech-related laws and regulations, including the following:
- The CBE is empowered by the Banking Law to regulate bank accounts and banking transactions, among other things.
- The Information Technology Development Agency is empowered by the E-signature Law to promote and develop the IT and communication industry, support small and medium-sized enterprises in using e-transactions and regulate e-signature services activities, among other things.
- The Financial Regulatory Authority (FRA) is empowered by the FRA Law to license non-banking financial activities and ensure the protection of stakeholders within the non-banking financial market, among other things.
- The NPC is empowered by Presidential Decree 89/2017 to reduce the use of cash outside the banking sector, support and encourage the use of electronic payment methods and channels, and protect users of all payment system and services.
- The National Telecommunication Regulatory Authority is generally empowered by the Telecoms Law to regulate and improve telecommunications services.
1.4 What is the regulators' general approach to fintech?
All regulators recognise the rapid evolution of the fintech space worldwide. This is why, for example, the CBE has recently proposed a new draft of the Banking Law that includes a chapter regulating fintech, including the possibility to issue cryptocurrencies for the first time in Egypt.
This approach is also reflected in a number of projects and regulations adopted by the CBE and the FRA.
The Egyptian government has taken steps to keep pace with the evolution of the fintech space and avoid unnecessary bureaucracy in order to attract more foreign direct investment to Egypt.
1.5 Are there any trade associations for the fintech sector?
There is no trade association dedicated to fintech specifically. However, fintech falls within the activities of some trade associations, such as the Federation of Egyptian Banks.
2 Fintech market
2.1 Which sub-sectors of the fintech industry have become most embedded in your jurisdiction?
The payment/billing sector appears to be the most embedded fintech sector in Egypt.
2.2 What products and services are offered?
The following fintech products and services are mainly offered in Egypt:
- international money transfers and tracking software;
- capital market sales and trading;
- infrastructure tools for financial institutions;
- payment processing;
- subscription billing software tools;
- tools to manage bills and track personal and/or credit accounts; and
- online registers for movable collaterals.
2.3 How are fintech players generally structured?
Fintech players are generally structured in the form of a joint stock company incorporated under the Investment Law. However, in general, the Companies Law (159/1981) and the Trade Code provide for several legal business structures similar to those available in North Africa and Europe, which may be used by fintech players, including the following:
- a branch of a foreign company, which is commonly used to perform works of contractual nature;
- a joint stock company, which resembles a US corporation or a French société anonyme;
- a limited liability company, which corresponds to the French société à responsibilité limitée. This resembles an incorporated partnership, a US closed corporation or a UK private limited company; and
- a one-person company, which is a very simple limited liability company that can be owned by one partner (ie, shareholder) only.
Each structure has its own pros and cons, which should be carefully considered before determining which form to use.
2.4 How are they generally financed?
Fintech players, and especially international fintech players, are usually financed by their founders and/or private equity houses. In this regard, a number of funding initiatives are available to fintech start-ups in Egypt. For example, in March 2019 the Central Bank of Egypt (CBE) introduced a Fintech Innovation Fund with a value of EGP 1 billion (approximately $63,291,619).
In April 2019 the International Finance Corporation, in collaboration with two local partners, launched a two-year programme to support the fintech space in Egypt. That same month, the World Bank Group set aside $200 million for small and medium-sized enterprises in Egypt, which can also be accessed by fintech players.
2.5 How are they positioned within the broader financial services landscape?
The Egyptian fintech sector is booming and exhibits significant potential for growth.
2.6 Do start-ups generally outsource back office functions and is there a developed market for them to access? What are the legal implications of outsourcing?
No, it is not common for fintech players to outsource back office functions. Most depend on their own resources, especially with a view to protecting their know-how. This might change when the fintech market becomes more developed.
3.1 How are the following key technologies in the fintech space regulated and what specific legal issues are associated with each? (a) Internet (e-commerce); (b) Mobile (m-commerce); (c) Big data (mining); (d) Cloud computing; (e) Artificial intelligence; and (f) Distributed ledger technology (Blockchain, cryptocurrencies)
(a) Internet (e-commerce)
There is no specific law governing e-commerce in Egypt. However, Egypt has several e-commerce-friendly laws and regulations, such as the E-Signature Law, the Investment Law, the Consumer Protection Law and the Governmental Contracts Law.
For example, e-commerce business activities are covered by the Investment Law, which provides a number of guarantees and incentives for companies that carry out these activities, subject to the satisfaction of specific criteria. These include the following:
- the grant of residence permits to foreign investors for the duration of their investment projects in Egypt;
- an exemption from stamp duty and notarisation fees for articles of incorporation, facilities and loan agreements, security documents and/or agreements for the purchase of plots of land for five years, starting from the date of registration with the Commercial Registry;
- the application of a unified customs duty at a flat rate of 2% of the value of all equipment, machinery and devices needed to establish the investment project; and
- a reduced tax rate, calculated on the basis of a specific formula, for seven years, starting from the date of commencement of the investment project in Egypt.
In general, according to the Electronic Signature Law and its Executive Regulation, e-correspondence, e-signatures and e-documents have the same degree of authenticity as non-electronic correspondence, signatures and documents under the Evidence Law (25/1968), provided that it is technically possible to determine the time, date and source of their creation.
In this regard, the Information Technology Development Agency licensed a number of e-signature providers to confirm the satisfaction of these technical requirements. If one of these e-signature providers confirms that a company satisfies the technical requirements, all e-correspondence, e-signatures and e-documents issued by that company will have the same degree of authenticity as non-electronic correspondence, signatures and documents.
The Economic Court has rendered a number of judgments based on e-correspondence, e-signatures and e-documents that do not satisfy the technical requirements.
The latest Consumer Protection Law, which was issued in 2018, for the first time in Egypt recognises e-commerce transactions by including a definition of the term ‘distance contract', which refers to any transaction involving the offer for sale, sale or purchase of products using the Internet or any other visual, audible, printed or telephonic medium. Distance contracts must comply with all provisions of the Consumer Protection Law, unless otherwise stated therein.
The Consumer Protection Law also grants consumers the right to amend or correct any order made through a distance contract, starting from the date of accepting such order unless otherwise agreed between the parties. It is worth noting the new draft Banking Law explicitly exclude CBE as well as any entity that is subject to its supervision from the application of the Egyptian Consumer Protection (181/2018) and the Egyptian Antitrust Law (3/2005)
(b) Mobile (m-commerce)
M-commerce is generally subject to the same laws and regulations governing e-commerce. However, a specific regulation governing mobile payments was issued by the Central Bank of Egypt (CBE) in November 2016, setting out the minimum requirements that banks must meet to authorise mobile payments. These relate, among other things, to:
- risk management;
- customers' security;
- mobile cash;
- partnerships with service providers;
- confidentiality; and
The Mobile Payment Regulation does not apply to mobile banking, which is governed separately.
Each bank can issue mobile cash in an amount of up to 5% of its paid-in capital or EGP 50 million (approximately $3,164,580.95), whichever is lower.
Mobile cash may only be issued in Egyptian pounds, and not in any other currency.
Local mobile cash transactions within Egypt are allowed within specific daily and monthly thresholds established by the CBE. However, these thresholds may be exceeded where a positive know-your-customer and authentication process is followed.
The Mobile Payment Regulation also allows the receipt of mobile cash transfers from abroad, subject to the satisfaction of several conditions. Among other things, such transfers must be converted into Egyptian pounds and are limited to natural persons.
(c) Big data (mining)
Unfortunately, there is as yet no special regulation of big data. However, this is part of the CBE's ongoing strategy, so the situation may change in the future.
(d) Cloud computing
Cloud computing is subject to the Cybercrime Law, which applies to any party that directly or indirectly provides users with IT or telecommunications service, including data processing or storage. Such providers must retain and store users' data for at least 180 days, including the following:
- identification data;
- the content of the service provider's system;
- communication traffic;
- terminal data; and
- any other data required by the National Telecommunication Regulatory Authority.
According to the Media Law, a licence from the Supreme Council for Media Regulation is required before launching a website in Egypt in any of the following cases:
- The website will be founded in Egypt;
- The website will be managed by a party in Egypt; or
- Any of the website's subdomains will be managed by a party in Egypt.
(e) Artificial intelligence
Unfortunately, as yet there is no special regulation of artificial intelligence (AI).
However, in 2019 the minister of higher education began to add special AI departments to several engineering universities in Egypt.
(f) Distributed ledger technology (Blockchain, cryptocurrencies)
Unfortunately, as yet there is no regulation of blockchain or cryptocurrencies.
The new draft Banking Law includes a chapter regulating fintech, which for the first time would allow for the possibility to issue cryptocurrencies in Egypt.
4.1 How are the following key activities in the fintech space regulated and what specific legal issues are associated with each? (a) Crowdfunding, peer-to-peer lending; (b) Online lending and other forms of alternative finance; (c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb); (d) Forex; (e) Trading; (f) Investment and asset management; (g) Risk management; (h) Roboadvice; and (i) Insurtech.
(a) Crowdfunding, peer-to-peer lending
In general, under the Banking Law and several judgments of the Egyptian Economic Court, no natural or legal person can conduct banking activities in Egypt without being licensed by and registered with the Central Bank of Egypt (CBE).
The Banking Law defines ‘banking activities' as:
- receiving deposits;
- providing refinancing, loans or similar facilities;
- contributing to the share capital of local companies; and
- any other activities that are considered to constitute banking activities by custom, conducted on a regular basis and as the main business activities of the party conducting them.
This definition is also confirmed in the Trade Code. Under the Banking Law, any party that violates this provisions shall be subject to a penalty of imprisonment for between 24 hours and three years, and/or a fine of between EGP 5,000 and EGP 50,000 noting that this fine was increased under the new draft Banking Law to be between EGP 100,000 to EGP 1,000,000. The licensing requirement applies where:
- the banking activities are carried out on a regular basis; and
- the banking activities are the main activities of the party conducting them, whether that be a natural or legal person.
In light of the above, crowdfunding and peer-to-peer lending are permissible only as long as these two main conditions are not met.
The Egyptian government itself has used crowdfunding to fund public utility projects. For example, crowdfunding was used in 2014 to fund the development of the New Suez Canal, which cost around EGP 30 billion (approximately $1.9 billion). As another example, Presidential Decree 139/2014 established a private fund called the Tahya Misr Fund to assist the Egyptian government in establishing development and service projects, the development of slums and micro-small projects, among other things.
(b) Online lending and other forms of alternative finance
According to a circular issued by the CBE in 2014, no bank registered with the CBE can provide internet banking solutions, including online lending, without prior authorisation from the CBE. All banks registered with the CBE must meet specific legal requirements, including providing the CBE with a penetration test report.
(c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb)
A specific regulation governs any solution provided by technical payment aggregators or payment facilitators, which provides that services agreement must be subject to specific know-your-customer and anti-money-laundering checks, and must include specific terms and conditions for these services, including a restriction on subcontracting, unless certain conditions are being met.
The Consumer Finance Law, issued on 16 March 2020, governs any activity aimed at the financing or purchase of products or services by consumers, as long as this activity is carried out on a regular basis. Such activities include financing through payment cards or any other means decided by the CBE.
Consumer finance activities may not be carried out in Egypt without a licence from the Financial Regulatory Authority (FRA), and may be carried out only by joint stock companies with an issued capital of at least EGP 10 million (approximately $633,649).
It is worth noting that oo one is now allowed under the new draft Banking Law to carry out any activity of operating payment system or providing payment system unless a prior license is obtained by CBE. This new restriction is applied to all persons, whether natural or juristic persons, carrying out such activity inside Egypt or providing such services abroad to any residents in Egypt except for Stock Exchanges, Futures Exchanges, Securities Settlement Systems, licensed Central Clearing, Depository and Registry Systems, Custodian Banks, internal systems of the Egyptian Ministry of Finance that does not include payment, collection, set off or clearance of payment.
Forex is regulated by the Banking Law and its Executive Regulation. All banks registered with the CBE and licensed forex companies are allowed to exchange foreign currencies.
For a company to qualify for a forex licence, it must be incorporated in the form of a joint stock company with a minimum paid-up capital of EGP 5 million (approximately $318,400) and its business activities must be limited to forex. Furthermore, the entire capital of a forex company must be owned by Egyptian nationals.
The minimum paid-up capital will be increased under the new draft Banking Law to EGP 50 million (approximately $3.17 million).
Online trading is subject to a specific regulation which requires brokerage companies to satisfy certain conditions and requirements in order to provide trading solutions online. These conditions and requirements include specific technical requirements and conditions relating to the IT infrastructure of the company.
(f) Investment and asset management
There is a specific regulation governing investment and asset management services that use technology or technology solutions from third-party providers.
(g) Risk management
Certain regulations must be satisfied to use risk management technology.
There is no specific regulation on roboadvice in Egypt. However, the FRA has been following international trends with a view to regulating roboadvice.
A specific regulation governs insurtech in Egypt, which provides that certain conditions must be met by the relevant insurance company, including taking all measurements to prevent any fraudulent acts.
5 Data security and cybersecurity
5.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for fintech companies?
There is no personal data protection law in Egypt as yet. However, on 24 February 2020 the House of Representatives finally approved the first draft personal data protection law, which should be approved by the Egyptian president unless he has any comments, which is very unlikely.
The Data Protection Law will prohibit the transfer, storage and/or sharing of personal data that was collected or prepared for processing to any foreign state, unless the following two main conditions are satisfied:
- The third state applies a protection level that is at least equivalent to that applied in the draft Data Protection Law; and
- A licence from the Personal Data Protection Centre is obtained.
The Executive Regulation to be issued for the approved Data Protection Law will set out the policies, criteria, requirements and rules to be met for the transfer, storage, sharing, processing and protection of personal data across borders.
What the licensing process will be is as yet unclear; however, it is expected that this will vary depending on a number of factors, including:
- the country to which the personal data will be transferred;
- national security concerns; and
- whether the relevant country allows the transfer of personal data to Egypt.
The approved Data Protection Law will not apply to the Central Bank of Egypt (CBE) or to entities regulated by the CBE, except for forex entities, which will be subject to the new draft Banking Law.
5.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for fintech companies?
According to the Cybercrime Law, all providers of IT and telecommunications services, including services involving the processing or storage of data, must retain and store users' data for at least 180 days, including the following:
- identification data;
- the content of the service provider's system;
- communication traffic;
- terminal data; and
- any other data required by the National Telecommunication Regulatory Authority.
These providers must also keep all stored and archived data (including personal data) confidential and not disclose such data unless there is a court order to do so.
6 Financial crime
6.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for fintech companies?
Money laundering is mainly governed by the Anti-money Laundering (AML) Law and its Executive Regulation.
The AML Law lists 15 entities that must comply with the AML Law and its Executive Regulation. These entities include all banks, branches of foreign banks in Egypt and money transfer entities.
These entities are also subject to several obligations under other laws governing their activities. Breach of these obligations may incur different penalties, including fines and/or imprisonment.
7.1 Does the fintech sector present any specific challenges or concerns from a competition perspective? Are there any pro-competition measures that are targeted specifically at fintech companies?
Money laundering is mainly governed by the Anti-money Laundering Law and its Executive Regulation.
In order to assess whether there is an antitrust-related risk, it must first be determined whether the relevant fintech player is considered to have a dominant position as defined under the Egyptian Antitrust Law (3/2005) and its Executive Regulation.
In order for a fintech player and its controlled affiliates in Egypt to be deemed to enjoy a dominant position under the Antitrust Law, they must meet the following criteria:
- They have a market share of more than 25% in the market for each service they provide, calculated based on the relevant products and the geographical area over a certain period.
- They are able to make an impact on the pricing and/or the supply of market products.
- Their competitors are not in a position to limit their dominant position.
The first and second points above are reviewed and assessed by the Egyptian Competition Authority (ECA) based on specific criteria.
If a fintech player does in fact enjoy a dominant position in the relevant market, it will be prohibited from conducting certain practices or entering into agreements with its suppliers and/or customers that limit competition.
Any violation of the Antitrust Law will be determined by the ECA on a case-by-case basis according to specific criteria, including the benefits for customers and commercial practices. This assessment is subject to judicial review by the Egyptian economic courts.
8.1 How is innovation in the fintech space protected in your jurisdiction?
Innovation in the fintech space be protected as either know-how or patents. However, given that the source code may need to be disclosed to certain entities, copyright protection should also be considered.
8.2 How is innovation in the fintech space incentivised in your jurisdiction?
Please see question. 3.1 regarding investment incentives.
9 Talent acquisition
9.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have for fintech companies?
Employment in Egypt is governed by the Egyptian Labour Law, which recognises three broad types of employment contract:
- Employment contract for specific work: This is concluded for specific work and ends once the relevant work is completed.
- Employment contract for a definite period: This ends on the expiry of the definite period, but may be renewed for one or more periods. If the work period ends and the employee continues to work for the employer without renewal of the employment contract, it will be considered an employment contract for an indefinite period.
- Employment contract for an indefinite period: This can be terminated by the employee by virtue of resignation, after providing the employer with a notice period. The employer can also terminate the employment contract in specific cases where the employee has committed a serious or gross error specified in the Labour Law. If the error is not considered a serious or gross error by the Labour Court, the employee shall be entitled to compensation amounting to at least two months of salary for each year of service.
9.2 How can fintech companies attract specialist talent from overseas where necessary?
Foreign employees must obtain a work permit in order to work in Egypt. A request must be submitted to the Ministry of Manpower and Immigration; the permit has a duration of one year, but can be renewed annually up to a maximum of three years.
The ratio of foreign employees must not exceed 10% of the total number of employees and must not exceed 20% of the company's payroll.
According to the Companies Law, the employees of a company with a capital of at least EGP 250,000 (approximately $15,941.54) are entitled to at least 10% of the profits distributed by such company (upon distribution), which must not exceed the annual payroll of such companies.
10 Trends and predictions
10.1 How would you describe the current fintech landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Egypt is one of the three largest economies in Africa and is strategically positioned at a crossroads between the East and West, making it a significant player in international trade in the Middle East and Africa region. Egypt is home to the Suez Canal, which connects the Mediterranean Sea with the Red Sea and is a key artery in global trade.
The Egyptian government has been working hard to attract more foreign direct investment (FDI) to the country. As a result, Egypt has been named one of the top five destinations globally for greenfield FDI, according to the Financial Times. Cairo was also named one of the top 10 cities in the world to found a tech start-up last year, according to Forbes.
The Banking Law will soon be replaced with an entire new law directly addressing the fintech space.
11 Tips and traps
11.1 What are your top tips for fintech players seeking to enter your jurisdiction and what potential sticking points would you highlight?
Fintech players that are seeking to enter Egypt should carefully consider all available legal structures, as well as the best way to maximise the protection of their investment.
They should also consider the upcoming legal developments that might affect their business in the very near future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.