February 26th, 2024 Legal Updates

NBF FinTech Startups Incorporation and Licensing – A More Specific Take By The FRA

Introduction and Effect:

The Egyptian Financial Regulatory Authority (“FRA“) issued decree no. 268 of 2023 on the rules and procedures for the establishment and licensing of startup companies in financial technology to engage in non-banking financing activities (“Decree“). Effective from January 3, 2024, this Decree specifically targets Financial Technology Startups (“FinTech Startup(s)“) seeking licenses to participate in one or more of the following non-banking financing activities (“Activity(ies)”):

  1. Real-estate Financing.
  2. Small and Medium Size Enterprises Financing.
  3. Micro Enterprises Financing.
  4. Financial Leasing.
  5. Factoring.
  6. Consumer Financing.
Incorporation requirements for FinTech Startups:
  1. A FinTech Startup shall be incorporated as an Egyptian Joint Stock Company.
  2. The activities shall be limited to one or more of the Activities.
  3. The issued and paid capital must not be less than Fifteen million Egyptian pounds (EGP 15,000,000) (or equivalent in any foreign currency) for each Activity (in the event of seeking to engage in more than one Activity, the capital must be increased according to the activities required to be pursued).
  4. Prepare a technical and economic study for the FinTech Startup outlining its digital business model and competitive advantage, detailing the stages of increasing capital as required by regulatory decisions for each Activity. Additionally, it should include plans for technology infrastructure, information security, and digital processes such as registration, assessment, contracting, payments, and compliance with anti-money laundering and terrorism financing regulations.
  5. A minimum of 25% of the share capital of a FinTech Startup must be held by an experts in technology or FinTech (whether natural or a legal persons). Such shareholding percentage may only be reduced in the case of fulfilling the issued and paid capital requirements.
  6. The director of the FinTech Startup must hold a high qualification relevant to the field, and they should meet the required experience criteria for each Activity and/or pass the examinations specified by the FRA.
Licensing requirements and business commencement:

The licensing under the Decree is divided into two levels; (i) initial licensing, characterised by observing the various requirements related to undertakings and representations by the founders, size of the FinTech Startup’s financial leverage, requirements of digital integration technology, and requirements of funding the licensed FinTech Startups through specific means, among other requirements; and (ii) final licensing, whereas FinTech Startups must obtain the final license within a period not exceeding two (2) years from the date of establishment of the FinTech Startup, by increasing the issued and paid-up capital while observing the provisions of the relevant FRA decrees regulating the Activities.

In should be noted that, a licensed FinTech Startup must undertake during the initial licensing to commence its actual business within two (2) months from the date of issuance of its license by the FRA.

Special licensing provisions related to insurance and distribution of dividends:

The Decree requires a FinTech Startup to obtain an electronic-risk insurance policy upon being licensed by the FRA. Additionally, The FinTech Startup shall undertake to not distribute dividends prior to issuance of the final license under the Decree by the FRA.

Consequences of not rectifying the final licensing requirements:

A license granted to a FinTech Startup shall be revoked if they fail to rectify their situation in accordance with the provisions of the Decree. The said revocation decision shall detail the relevant procedures that the FinTech Startup must take for transfer or liquidation of its business.

What does the Decree contribute to the FinTech non-banking financing sector?

The non-banking financing sector, coupled with FinTech, has always been a steadily growing market in Egypt that fulfills the needs of large segments of consumers and customers while contributing to the greater trend of technological accessibility. The Decree raises the threshold of operational capability for entities carrying out the Activities, assumed for ensuring a sustainable meeting of high demand on such sectors.

How can we help?

Our GLA Cairo office team would be delighted to assist in advising on fulfilment of the relevant incorporation and licensing requirements and represent the clients before the governmental authorities to ensure a timely incorporation and licensing of your FinTech startup.

Authors: Hegui Taha, Partner, Khaled Al-Khashab, Associate

For further information, please contact Managing Partner Alex Saleh (alex.saleh@glaco.com) or Hegui Taha (hegui.taha@glaco.com)