FRA Issues Circular on Cashless Pay

Following the issuance of the new Cashless Payments Law No. 18 of 2019 (the “Law”) two months ago,[1] and amidst increasing regulatory efforts to move towards a more digitized economy, the Financial Regulatory Authority (“FRA”) published circular No. 2 of 2019 (the “Circular”)[2] on its website to reiterate the requirements and obligations stipulated in the Law as they pertain to non-banking financial institutions (“NBFIs”) specifically, but also, and more importantly, to put forth a suggested workflow to guide NBFIs still relying on cash-based transactions in their compliance with the new Law.

Background

There have been recent ongoing legislative efforts towards establishing a functional economy in Egypt that is less reliant on cash payments. These culminated last April with the issuance of Law No. 18 of 2019 to regulate cashless payments. In particular, the Law encourages cashless payments while prohibiting cash-based payments over certain thresholds that are to be determined by the yet-to-be-issued executive regulations. Entities falling within the purview of the Law include all agencies and legal persons, whether public or private, and every other entity with an established legal form, while the scope of the Law in terms of transactions includes salaries and compensation; payments to suppliers, contractors, and service providers; real estate payments; financing; dividends; and donations made by NGOs. The compliance period was specified at six months from the date of the Law’s executive regulations going into effect.

The Circular

The two primary goals stated by FRA for issuing the Circular include clarifying the Law’s provisions as they relate to institutions falling under FRA’s supervision and facilitating these institutions’ compliance with the Law and hence their transition to cashless transactions. As pertains to the first goal, FRA elaborates on the entities that fall within the purview of the Law, specifying them to be all FRA-supervised institutions as well as their consumers (whether individuals or legal persons/corporations). FRA also restates the Law’s definitions of “cashless methods of payments” and “bank accounts” verbatim as well as its provisions on the cases wherein cashless methods must be used in both payments and settlements. The only differences between the Circular and the Law in this regard are FRA’s clarification that direct cash deposits into the institution’s bank account are not to be considered cashless payments and that there are other NBFI receivables (that are not directly listed in the Law) that must not be collected in cash when their values exceed the limits to be stipulated in the Law’s executive regulations. Apart from this clarification, FRA also provides its supervised institutions that still rely on cash transactions a guiding workflow for their compliance with the Law. It comprises six sequential stages: The first includes choosing the cashless payment service providers that the institution will contract for transactions with its consumers who lack existing bank accounts or other cashless payment methods. This is followed by the contracting process, and in cases of licensed microfinance institutions the obtaining of FRA’s approval for activating the cashless payment system for its consumers. Then, a pilot testing phase is to be set up, which also coincides with awareness-raising efforts targeting consumers and related parties. Actual implementation then occurs, first with collection and then with payments/disbursement. Finally, any obstacles are to be resolved before complete compliance is to be achieved. While the Circular might facilitate the compliance of NBFIs via clarifying how the Law relates to them and particularly in which cases they must adopt cashless payments, it is worth pointing that its six-staged compliance workflow is skeletal at best, and in this sense, it does not constitute a detailed plan with a set timeline for each stage. Instead, it suggests a template for the compliance of NBFIs to be achieved by the date on which the Law’s executive regulations go into effect, which in itself could be problematic given that the Law specifies a compliance period of 6 months from the said date.   [1] Law No. 18/2019 regulating the usage of cashless methods of payments, Official Gazette, Issue No. 15 (bis) (b), 16 April 2019. [2] FRA Circular No. 2/2019 regulating the usage of cashless methods of payments in the financial transactions of non-banking financial institutions, available through this link (in Arabic).