To facilitate the process of obtaining initial approval for a digital bank license in Egypt, the Central Bank of Egypt has outlined a comprehensive set of requirements and documents. These requirements are aimed at ensuring transparency, legality, and the ability of digital banks to provide secure and reliable services. By following these guidelines, aspiring digital banks can increase their chances of obtaining the necessary licenses. Here are the key aspects to consider:
- Capital Requirements: The issued and paid-up capital of digital banks should not be less than EGP 2 billion ($64M), except when financing large companies is involved. In such cases, the capital must be increased to EGP 4 billion ($129.6M). Additionally, the largest shareholder should be a financial institution with a minimum ownership of 30% of the total capital. This requirement ensures that digital banks have a strong financial foundation and a significant stake in their operations.
- Shareholder Composition and Ownership Structure: Among the shareholders, there must be a financial institution whose ownership represents the largest percentage among the shareholders and their related parties. The financial institution should hold a minimum ownership of 30% of the capital and have previous experience in similar activities. The Central Bank may consider exceptions to this condition upon approval from the Board of Directors. A clear ownership structure, including related parties, should be established to identify the final beneficiaries and ensure the legality of the source of funds. Applicants must provide a detailed ownership structure, including information about related parties. This helps identify the ultimate beneficiaries and ensures the legal origin of funds. Furthermore, applicants should specify the percentage of shares they intend to offer for general subscription.
- Shareholders’ Information: The Central Bank requires the submission of essential information about the shareholders, including their names, nationalities, addresses, and capital shares. Additionally, founders who are legal entities must provide copies of their articles of association.
- Founder Shareholding and Sanctions: Applicants must disclose the shareholding percentage of each founder and any associations they may have with other financial institutions, both within and outside Egypt. Additionally, they must provide evidence that none of the founders, main shareholders, final beneficiaries, or board members are included in any domestic or international sanctions lists.
- Bank Information: To assess the viability of the digital bank, applicants must submit detailed information regarding its establishment, services, and target market. This includes a business plan covering at least a five-year period, market studies demonstrating the ability to mobilize and utilize savings, estimated budgets, and plans for business expansion. The application must also include policies on credit, investment, anti-fraud, anti-money laundering, and combating terrorist financing.
- IT Infrastructure and Cybersecurity: An information technology and cybersecurity strategic plan is essential to ensure the bank’s technological infrastructure is secure and reliable. This plan should encompass an organizational structure for information technology, qualified personnel, governance mechanisms, risk management strategies, and policies, including controls against cyber threats and fraud. It should also address data confidentiality, integrity, availability, and compliance with cybersecurity frameworks.
- Outsourcing and Security Controls: Applicants must provide a comprehensive outsourcing plan, including a list of service providers and their roles. It should detail the use of cloud computing technology, types of cloud services utilized (e.g., SaaS, PaaS, IaaS), applications hosted in the cloud, data associated with those applications, and the locations where data will be stored and processed. Moreover, the plan should include governance mechanisms, risk management protocols, and measures to ensure data confidentiality, integrity, and non-interruption of services.
- Cybersecurity Measures: A robust cybersecurity framework is vital to protect the bank’s systems and data. Applicants should outline the roles and responsibilities of employees responsible for cybersecurity and describe the security controls in place to control authorized access to the bank’s systems. Additionally, a comprehensive cybersecurity management plan is required, which should address risk levels, vulnerability testing, incident monitoring, response procedures, and mechanisms for continuous improvement. Training programs for employees and customer awareness initiatives should also be included.
- Digital Channels and Payment Tools: Applicants must provide a clear overview of the digital channels and banking services they plan to offer to customers. This includes traditional and interactive ATMs, internet and mobile banking services, interactive voice call centers, and other digital platforms. The application should also detail electronic payment tools such as prepaid cards, credit cards, direct debit cards, electronic wallets, and acceptance of transactions through electronic points of sale or digital payment portals. Furthermore, customer identification and verification procedures should be outlined.
- Internal Control and Governance: Digital banks need to demonstrate effective internal control mechanisms, risk management strategies, and appropriate work systems. They should also have a clear governance structure in place. The application should include plans for sustainable financing, as well as strategies and policies for managing the bank’s operations. This includes a business continuity plan to ensure uninterrupted service provision.
- Foreign Bank Branch (if applicable):
- Obtain approval from the foreign bank’s main center to establish a branch in Egypt.
- Demonstrate compliance with Egyptian laws, regulations, and instructions issued by the Central Bank.
- Provide financial statements, auditors’ reports, and a certified copy of the main center’s articles of association.
- Detail services, applications, and systems related to compliance with local and international regulations, such as combating money laundering and terrorist financing.
- The main center of the foreign bank should have a specified nationality and be subject to supervision by the corresponding supervisory authority in its home country.
- The foreign bank’s allocated capital for the digital bank branch in Egypt should be at least $60 million or its equivalent in free currencies.
- The corresponding supervisory authority should apply combined supervision and express no objection to joint supervision with the Central Bank of Egypt.
- The main center of the foreign bank should have policies to combat corruption, bribery, fraud, money laundering, and terrorist financing.
- If applicable, evidence of a credit rating from international credit rating agencies such as S&P, Fitch Ratings, or Moody’s should be submitted by the foreign bank or financial institution.
It is important to note that all existing regulatory rules and instructions from the Central Bank of Egypt are applicable to digital banks and foreign bank branches. By adhering to these requirements and providing comprehensive documentation, applicants can enhance their chances of securing the necessary licenses to operate as digital banks in Egypt.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard