The Egyptian Financial Regulatory Authority (FRA) , led by Dr. Mohamed Farid, has issued Resolution №57 of 2024. This landmark decision creates a framework for the use of “Robo-advisors” in the capital market in Egypt for the first time. Robo-advisors are automated investment platforms that use algorithms to provide financial advice and manage investment portfolios.
What are Robo-advisors?
Robo-advisors are digital platforms that utilize artificial intelligence (AI) to analyze an investor’s financial goals, risk tolerance, and investment time horizon. Based on this information, the platform recommends an investment portfolio and may even automate the buying and selling of securities.
The New Regulatory Landscape
The new regulations establish guidelines for companies seeking to offer Robo-advisor services in Egypt. Key requirements include:
- Minimum Capital: Companies must have a minimum issued and paid-up capital of EGP 15 million (around USD 760,000).
- Cybersecurity Insurance: The company must be insured against cybersecurity risks by a licensed insurer.
- Algorithmic Transparency: The AI technology used must be transparent and auditable, with clear documentation and oversight procedures.
- Human Oversight: Human oversight remains crucial. Companies must have a qualified team with expertise in both algorithmic methodology and the technological aspects of the service.
Client Protections
The regulations prioritize client protection. Key features include:
- Client Suitability Assessments: Robo-advisors must assess a client’s suitability for specific investments based on their risk tolerance and financial situation.
- Client Education: Clients must be informed of the potential risks associated with investing through Robo-advisors and have the right to discontinue automated transactions at any time.
- Contractual Clarity: The contract between the company and the client must be clear and written in Arabic. It should outline the scope of services, fees, and dispute resolution mechanisms.
Benefits
The introduction of Robo-advisors is expected to benefit both investors and the capital market in Egypt.
- Increased Financial Inclusion: Robo-advisors can potentially make investing more accessible to a wider range of Egyptians by offering lower minimum investment amounts and simplified investment processes.
- Enhanced Market Competitiveness: The introduction of Robo-advisors injects new competition and innovation into the Egyptian capital market, potentially leading to a wider variety of investment products and services.
- Growth of Fintech Startups: These regulations pave the way for the growth of Egyptian Fintech startups specializing in Robo-advisor technology. Cairo-based Bokra, providing similar investment offerings, recently secured a $4.6 million pre-Seed round led by DisrupTech Ventures and SS Capital, among other investors.
Dr. Mohamed Farid, Chairman of the FRA, stated, “The issuance of these controls opens the door for providing automated investment advisor services for the first time in Egypt. This paves the way for companies to apply after meeting the necessary requirements.”
The regulations represent a significant step towards digitizing Egypt’s non-banking financial sector and expanding access to investment opportunities for all Egyptians.