General Counsel & Corporate Secretary at Credit Agricole
Due to the rapid changes that took place in the local and international banking environment for banking services, methods of payment, financial technology, digitalization, and financial inclusion, and in light of the Government policy for economic reform, it was necessary to update Egypt’s legislative environment in order to align with these developments.
The Central Bank of Egypt (CBE) presented a draft law in line with international practices aiming to achieve the above targets in cooperation with domestic and international regulatory bodies. The draft has been reviewed by the banking community, ministries, and the Cabinet. It is currently under discussion in Parliament. The following are some of the key elements.
Governance of the Central Bank
The CBE Board has new rules to guarantee its independence and avoid conflicts of interest. Moreover, the CBE’s relation with the Government is clearly defined in the draft law, with specific guidelines for coverage of the budget deficit; establishing the Financial Stability Committee whose target is to preserve the financial system. The Coordination Council would also be reorganized to establish the mechanism for coordination between the Monetary and financial policy, while the Monetary Committee would study proposals submitted from the Monetary and Market divisions of the CBE. In the meantime, the National Payment Council would work on financial inclusion, reduction of cash and encouraging electronic payments.
In addition, the CBE is establishing several funds for insurance of deposits, developing the banking sector, and settlement procedures for defaulting banks.
The draft law provides CBE with the right to early interference in banks that have specific issues that might impact their stability or their financial position and illustrates the mechanism for CBE management process for defaulting banks. In this regard, it is worth mentioning that banks shall not be subject to bankruptcy laws.
Governance of banks
The second point of interest is the governance of banks. The draft law would increase the minimum issued and paid capital to EGP 5 billion and USD 150 million for foreign banks branches, which will strengthen their capital base and competitiveness. Moreover, banks would be required to implement policies that ensure adequate corporate governance, internal control, risk management, transparency, fair competition and customer protection. However, banks shall not be subject to the competition law. Furthermore, audio and video conferencing during board meetings would be permitted. Board members/auditors of banks and related parties can be granted credit facilities if it is fully cash covered or similar to cash cover. Finally, a new system will be put in place for whistle-blowing and the protection of whistle-blowers.
Provisions related to payments systems, financial technology, outsourcing, investigation & scoring companies, currency exchanges and money transfer companies are revisited as well.
Under the draft law, the CBE would issue licenses and regulations for minimum capital, technical and financial conditions, quality assurance, rules of service, financial guarantees, and clients’ protection for all the above companies. It would also issue regulations regarding the electronic settlement of cheques and discount orders that would be treated like cheques.
CBE will issue instructions regarding electronic signatures authentication and treating digital copies, registers, contracts as original documents.
All service providers of digital financing would be required to obtain CBE approval.
Additionally, any platform that issues, trades or deals with cryptocurrencies or electronic money would require CBE approval.
The CBE would form a special committee and arbitration center.
Secrecy of accounts
Military prosecutors and criminal courts would have the same power as the Prosecutor general to divulge secrecy of accounts.
Additional exceptions include:
Outsourcing companies will be authorized to obtain clients’ information as needed to perform their duties
Investigation and I-scoring companies will be excluded as well from the secrecy restrictions when presenting the information.
Enforceing money laundering and terrorism financing laws and regulations will not be subject to the secrecy restriction.
Whistle blowers will be exempted from the secrecy restrictions within the guidelines of CBE.
In addition to the mission ahead of the CBE, banks and other related service providers will have to implement all the new requirements referred to in the draft law within one year which can be exceptionally extended by CBE. Challenges shall be in human and financial resources to shift the Banking Services towards digitalization. Most importantly, the Egyptian Court System and related laws must align with these developments in order to achieve the desired results.