We, Shehata & Partners Law Firm (“SP”), have prepared this brief comprising the key highlights of the new law on Non-Banking FinTech No. 5/2022 (the “Law”) which will be regulated under the umbrella of the Financial Regulatory Authority (“FRA”). In this regard, there are the (3) key issues every startup
1) Non-Banking FinTech: What does it mean?
The Law defines the only currently available sub-sectors for licensing and approvals
a) Financial Advisory App: Includes all financial advisory and consultations conducted in an innovative way by virtue of technological means that includes Artificial Intelligence (AI).
b) Nano Finance App: it is defined as finance provided to individuals for economic activities. No specific reference is made to the SMEs Financing laws or the Nano Finance decree issued previously by FRA.
c) Insurance App: it is not clear whether it includes insurance brokerage activities or not.
d) Consumer Finance App: This should be inclusive of consumer finance activities as defined under the Consumer Finance Law of 2018. It is not clear to us whether FRA will include “Buy Now Pay Later” (BNPL) activities just yet.
StartRight Note: We believe that a blockchain-based smart contract is included within the definition as well by extension; subject to further confirmation by FRA officials. It should be noted that FRA has reserved its discretion to include further sub-activities under the Law when meeting certain criteria. It must be noted that earlier drafts of the Law included crowdfunding and other promising sub-sectors as well. But the Law only specified these four (4) sub-sectors mentioned above as a starting point.
2) FRA’ Sandbox & Startups Temporary License”
The Law has explicitly mentioned that FRA will have its own sandbox for Non-Banking FinTech activities enabling startups to test their FinTech products with real consumers under the supervision of FRA.
Furthermore, FRA is entitled to issue a temporary license not exceeding a period of (2) years for innovative startups in the Non-Banking FinTech sector. Moreover, FRA will still issue the decrees extrapolating on the required conditions for such a temporary license. FRA only mentioned the minimum issued capital for such startups to be not less than EGP 250,000. In addition, FRA has mentioned explicitly that it will waive the licensing fees (capped at EGP 50,000) for such startups.
StartRight Note: The Law did not clarify explicitly whether the sandbox regime is a separate mechanism from the temporary license scheme. In other words, do startups need to apply first for the sandbox and then apply for the temporary license after their sandbox period is successful. This is to be further confirmed by the FRA officials.
3) Digital & Smart Contracts
The Law has defined the term “digital contract” which includes any contract documenting the liabilities and obligations of the concerned parties in a technological format. More importantly, a smart contract is included within the digital contract definition. The Law also mentioned that FRA will issue the executive regulations and decrees for enabling the conclusion and performance of such digital contracts.
StartRight Note: We believe that a blockchain-based smart contract is included within the definition as well by extension; subject to further confirmation by FRA officials.