Fintech Startups: New Standards for Establishment and Licensing
Egypt’s Financial Regulatory Authority (FRA) issued Decision No. 268 of 2023 concerning the rules and procedures for establishing and licensing fintech Startups that want to practice non-banking financing activities. This decision stipulates a minimum capital requirement of EGP15 million.
This decision aligns with the provisions of Law No. 5 of 2022, which regulates and promotes the use of financial technology in non-banking financial activities. It is also in accordance with the FRA’s Decision No. 58 of 2022, which specifies the conditions and procedures for establishing and licensing companies engaging in non-banking financial activities through financial technology.
To Whom this Decision Applies?
The new decision applies to fintech startups seeking to obtain a license to practice one or more non-banking financial activities, such as mortgage finance, SMEs finance, microfinance, leasing, factoring, and consumer finance.
The Aim of this Decision
This decision comes within the framework of FRA’s efforts to improve the business environment by facilitating, simplifying, accelerating, and reducing the cost of procedures for non-banking financial firms, especially the fintech startups that begin practicing non-banking financing activities using technological applications, to help them grow, expand, and develop their businesses. This will benefit not only the non-banking financial sector but also the productive and operational capabilities of the national economy.
According to this Decision, What are the Conditions that Fintech Startups must be Met?
This decision specified the conditions that must be met by fintech startups wishing to practice any non-banking financing activities, namely:
- The fintech startups must adopt the structure of an Egyptian joint stock company.
- The fintech startups must limit their activities to one or more of the specified areas.
- The fintech startup’s issued and paid-up capital must not be less than EGP 15 million for each activity.
- The fintech startup must prepare a technical and economic study.
- The percentage owned by specialists in the field of technology, whether individuals or legal persons, should not be less than 25% of the company’s capital, with the founders pledging not to make amendments to the ownership structure that would result in this percentage falling below the minimum required.
- The managing director must have an appropriate high qualification, meet the experience requirements required for each activity, and pass the tests specified by the Authority.
As for fintech startups seeking to obtain a license to practice the activity, here are the conditions set by this decision:
- The fintech startup must commence its non-banking financing activity within two months from the issuance date.
- The fintech startup must obtain FRA’s approval if it wishes to open new branches.
- The Financial leverage should not exceed four times the net equity.
- The startup must complete the procedures for increasing the company’s capital following FRA’s decisions regarding each activity.
- The startup must not distribute profits to shareholders before completing the capital increase and obtaining the final license.
- The startup should provide technological tools for digital connectivity following FRA’s requirements.
- The startup should conclude an insurance policy against electronic risks from one of the insurance companies licensed by FRA.
Note:
The license for fintech startups will be valid for only two years until the company completes the final licensing requirements and increases its issued and paid-up capital following the decision regulating each activity, provided that the ownership rights are not less than the minimum capital.
The license will be canceled if the company does not reconcile its situation, and the decision to cancel will determine the procedures the company must take.
How Can You Submit the Application for Establishing and Licensing Fintech Startups?
This decision introduces a digital application form for establishing fintech startups, accessible through authorized agents or the FRA’s dedicated portal designated for that purpose or any means specified by the Authority.
It also stipulated regarding obtaining the license for fintech startups wishing to practice any non-banking financing activities that they must submit a guide to the business policies necessary to practice the financial activity and that the company’s financing be primarily dependent on risk capital companies and funds, with a pledge to fully electronically connect with the Authority before starting.
FRA Chairman’s Statement Regarding this Decision
FRA Chairman, Dr. Mohamed Farid, stated that this decision comes as a continuation of FRA’s efforts to provide support to fintech startups, recognizing their vital role in economic development not only in Egypt but worldwide through the value they add to Egypt’s productive and industrial capabilities and provides multiple jobs.
He added that FRA gives great importance to all companies operating in various non-banking financial activities by providing a favorable work environment that helps them expand, grow, develop their business, and achieve their goals, as the past period witnessed, in addition to the mentioned decision, a development in the Egyptian standards for the financial evaluation of establishments which are related to the evaluation of start-up companies, by adding new approaches and methods that take into account the nature of this type of company, which has great growth opportunities.
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