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Egypt Introduces Compliance Program for Financial Institutions
The Central Bank of Egypt has introduced regulations governing payment service providers, marking a significant step towards increased oversight of the fintech industry in the country.
Payment Service Providers (PSPs)
Payment service providers offer online services that enable clients to accept electronic payments through various methods, including credit cards, debit cards, and real-time bank transfers. Typically, PSPs provide an IT platform that facilitates multiple payment methods for merchants.
New Regulations
The new regulations, which came into effect in May 2019, mark the first time PSPs have been subject to regulation by the CBE. However, this development is part of a broader trend towards increased oversight of the fintech industry in Egypt.
Scope of Regulation
The regulations apply only to banks that intend to use PSPs and require them to comply with certain conditions before contracting with a PSP. This means that PSPs who target the Egyptian market from abroad without contracting with an Egyptian bank are outside the CBE’s regulatory scope.
Distinguishing Payment Service Providers
The regulations also distinguish between technical payment aggregator services providers and payment facilitators, both of which offer technical platforms for collecting payments on behalf of merchants. Payment facilitators, however, receive payments into their own accounts before forwarding them to merchants as part of the settlement procedure.
Requirements for Banks
Under the regulations, banks are required to:
- Enter into formal contracts with PSPs that address certain key points, including:
- Determining the scope and service level of the contractual relationship
- Implementing risk management systems
- Providing for regular audits by the CBE
- Actively control and supervise the activities of PSPs, including:
- Verifying compliance with regulatory rules, such as anti-money laundering regulations
Requirements for Payment Facilitators
Payment facilitators are also required to:
- Maintain a physical office in Egypt
- Register their presence in the commercial register
- Operate separate accounts for customer funds
Welcome Development
The introduction of these regulations is welcome, as it brings much-needed clarity to the fintech industry in Egypt. However, the implementation of these regulations in practice remains to be seen.
Future Developments
The CBE is also expected to introduce a new banking act that will extend to PSPs and establish a comprehensive regulatory framework for the fintech industry.