CBE Issues Comprehensive Instructio

On 19 February 2019, the Central Bank of Egypt (“CBE”) issued new regulatory instructions to banks titled “Instructions for the Protection of the Rights of Bank Customers”.[1] The instructions were issued by virtue of a decision by the CBE’s board of directors dated 13 February 2019, and it constitutes one of the most important and ambitious decisions to be issued by the CBE of late. This is because it materially alters the nature of the relationship between banks and their clients, in favour of the latter. The instructions obligate banks to undertake a number of new measures which they must prepare for in terms of modifying internal bank policies to respond to the new requirements, or risk being in violation of CBE instructions. In the letter by the CBE Governor that enclosed the new instructions – which could therefore be considered in lieu of the instructions’ issuing articles – banks have been given a full year to comply with the new rules from the date of this decision, i.e., until 12 February 2020. This gives banks ample time to implement the required institutional changes in order to apply the new rules.

Concept and Framework of Application

At the outset, the instructions define the rights of bank clients as being “the regulatory framework determining the relationship between the providers of banking services and the users thereof, in order to guarantee the rights of clients in terms of fairness, transparency, and confidentiality, maintaining complaint resolution mechanisms, and enhancing the financial awareness of clients in order to enable sound decision-making.” The most important aspect of the above definition is that it places all providers of banking services – including companies contracted by banks to assist in the provision of services – under the same obligation of consumer protection, and thus mandates that banks ensure that the service providers they contract have systems and mechanisms that guarantee this standard in place. The following are the most important aspects of the new consumer protection instructions:

1. Considering Client Needs

Banks and service providers must ensure that the services offered are appropriate with the financial and social status of customers. Contracting terms and conditions must be clear, and bank officers as well as service provider employees must duly explain the service in question, its conditions, and consequences in a clear and accurate manner.

2. Fairness and Equity in Dealing with Bank Clients

This does not only mean the prohibition of discrimination against consumers, but it includes dealing with them in a manner that matches their needs, clarifying the reasons for refusing to provide a banking service, clarifying the manner for the cancellation of a service, and using clear and simple forms and contracts that contain the data detailed in the instructions. Of these, the most important is the prohibition of the automatic renewal of the contract (unless its nature so requires), the prohibition of any ban on the client’s ability to cancel the service, and the prohibition of restricting the client’s execution of a settlement between their dues and their liabilities. Other important rules include the requirement that the guarantees/collateral that are requested from a client is proportionate to the financing that they are obtaining and the prohibition of claiming fees and expenses other than those that have been agreed to.

3. Transparency and Disclosure

The new rules set defined and detailed standards to ensure transparency and full disclosure of information provided by banks and providers of banking services to their customers. This includes interest rates, contracting features and conditions, and notifications of account balance. Furthermore, the instructions determine the data that must be disclosed with respect to credit cards, and notification at default, which must include advice to the consumer on how to act in such a case.

4. Client Complaints

Equally important is a requirement that those addressed by the instructions put in place mechanisms for receiving client complaints and dealing with them. Banks are required to create a special unit for that purpose, systemize the feedback loop and its documentation, inform clients of the existence of a complaints’ mechanism, and respond to complaints within a period of 15 days at maximum. In any case, submitting a complaint must be free of charge.

5. Miscellaneous Rules

In addition to the aforementioned, the instructions include other rules for banks and banking service providers that relate to confidentiality of bank account data, the necessity to inform clients of how to use electronic accounts, and laying in place systems for the administration of resulting risks.

Conclusion

The new rules constitute a positive shift as they obligate banks to comply with comprehensive, clear, and firm benchmarks for the protection of consumer rights. The instructions are equally applicable to those who provide services on behalf of banks, which is also a positive step. However, although important, the instructions could be feared to be too ambitious to a degree that makes their enforcement by the CBE difficult. On the other hand, the decision to grant banks one year to comply should be sufficient for banks to put in place the required systems and mechanisms to render these new standards successful.   [1] CBE Circular dated 19 February 2019 on the Instructions for the Protection of the Rights of Bank Customers, available through this link (in Arabic).