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FRA receives proposals for controls on electronic crowdfunding platforms - Sunday 30/8/2020

Dr. Omran: New draft law to regulate and develop fintech in non-banking financial activities
Dr. Omran: We are moving towards digital oversight and activating early warning systems as much as we are concerned with digital finance
Dr. Omran: Information and communication technology in the financial fields is no longer a luxury but an effective tool to facilitate financing for the largest number of clients
Dr. Omran says that a Committee has been formed to prepare a law that will regulate and develop financial technology (fintech) in non-banking financial activities. He adds that FRA has received a number of proposals on the


rules and controls for establishing, operating and managing electronic crowdfunding platforms which grant financing directly to a project or a company in the form of lending.

 The proposals also cover methods of financing that occur indirectly, where the project will take the form of a company with financing made available through the issuance of securities, such as shares and bonds. That is besides other proposals related to the rules and controls set for using fintech in non-banking financial activities. These proposals will be presented to the Authority’s Board of Directors.

Dr. Omran added that in response to the support offered by the Authority to emerging companies that are innovative in the field of financial technology, FRA allowed these companies to provide their services in non-banking financial activities according to a temporary license issued by the Authority.  These companies will operate under FRA's supervision so that it can develop the product and attract investments. 

On the other hand, these companies will be licensed as integrated companies with issued and paid capital of no less than two hundred and fifty thousand Egyptian pounds.  Most of the proposals received focused on the need for the Authority to embrace innovative startups in the field of fintech and allocate a separate Article for them in the draft law.

This followed the community dialogue session organized by the Authority with the participation of a number of officials of financial technology companies and companies operating in the field of non-banking financial services. 

The session tackled areas of using fintech in non-banking financial activities such as crowdfunding platforms as one of the innovations to provide financing for various projects through a large number of qualified investors through an electronic platform that acts as a mediator between financiers, investors, companies and projects wishing to obtain financing. In addition to the smart financial advisor ROBOADVISOR which provides advice and investment of client assets based on the analysis of customer data, their current financial position and their future financial goals using artificial intelligence applications. That is besides "nano finance", insurance technology and consumer finance technology.

At the outset of his inauguration of the community dialogue activities, FRA's Chairman affirmed that  Fintech  is no longer a luxury, but rather has become an effective way to spread and facilitate access to financial services, with the largest possible base of clients wishing to obtain financing, whether individuals or legal persons. Also, he stressed on increasing the efficiency of the implemented operations as well as reducing costs.

Moreover, FRA's Chairman  noted that  the Authority allowed - for the first time - at the end of November 2019, the introduction of nano-finance product  to cover  financing needs of the most needy groups who suffer from difficult access to finance,   pointing out that the mechanism of its work is based on the use of financial services technology in an integrated manner.  He added that more than 300,000 citizens used the innovative product through two companies that engage in microfinance activities with a financing volume of 500 million pounds out of a microfinance portfolio of up to 17 billion pounds.  Dr. Omran revealed that there were 7 other companies wishing to obtain license in order to use the nano-finance product.

On the other hand, FRA's Chairman explained that the recent revolution occurred in legislations of non-banking financial activities must culminate in a legislation that ensures a "safe" virtual environment provided by the Regulator. Besides, enabling developers of innovative financial technology services, companies and projects to experiment and test Innovative financial technology products or services, business models or operational mechanisms related to them in reality and for real clients. All these shall be held under FRA’s supervision during evaluation and qualification phase before they obtain the necessary licenses from the Authority.

During the community dialogue, Dr. Omran noted that FRA’s vision included the rules of control and supervision on these activities, in particular the conditions, controls and procedures for granting a license. Also, FRA's vision included the legal form, requirements for technological infrastructure, technical competence and information systems, the minimum requirements set for practicing the activity, the organizational structure, the requirements of practical experience and the professionalism of those in charge of managing the activity. That is besides disclosure rules, the data to be published, how and when to publish them and other controls related to applying the provisions of the Anti-Money Laundering and Terrorism Financing Law and client identification rules.

 In addition, Dr. Omran stressed that with the attention being given to digital financing, the Authority is equally oriented towards digital oversight and targeting financial technology in performing a supervisory role (SUPTEC).
This is being undertaken with the aim of collecting and verifying data digitally and analyzing its indicators through programs prepared for this purpose. On the other hand, FRA is keen on using artificial intelligence (AI) and other digital methods.  These new methods will reveal violations to laws governing non-banking financial activities and suspicions of money laundering. Also, it will create an early warning system for the risks related to liquidity, credit, or other financial stability matters.

 In a community dialogue session, FRA presented a draft law "to regulate and develop fintech in non-banking financial activities" at its headquarters in the Smart Village. It included its vision on the rules and regulations for establishing, operating and managing electronic platforms for financing projects, directly or indirectly and rules and controls for employing fintech in non-banking financial activities. The  Electronic Movable Collateral Registry  was considered  as one of the successful applications of fintech  which was applied as of March 2018, with more than 45 thousand  movables publicized within the  registry at a value of about 700 billion pounds. Also, the discussions focused on crowd funding platforms and its role in granting finance directly to the project in the form of lending or indirectly in the form of issuing "shares - bonds" securities.