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    HomeGovernance, Policy & Regulations ForumPolicy & Regulations ForumAlgeria Rolls Out New Digital Banking Rules: Opportunity or Over-Regulation?

    Algeria Rolls Out New Digital Banking Rules: Opportunity or Over-Regulation?

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    In an era where financial technology is reshaping economies and empowering consumers, Algeria has stepped onto the stage with its own script. The newly issued Regulation №24–64, dated October 13, 2024, marks Algeria’s official debut in the digital banking space. It sets the framework for authorizing, structuring, and operating digital banks, offering a blend of modern ambition and vintage bureaucracy.

    At first glance, the regulation seems like a bold stride into the future. But, as always, the devil — or perhaps the charm — is in the details.

    What is a ‘Digital Bank’ in Algeria?

    The regulation defines a digital bank as an institution offering all its services exclusively through digital platforms. No counters, no pens chained to desks, and no physical branches. But before you imagine a fintech utopia of seamless, app-based banking, consider this: these banks must still maintain a physical headquarters in Algeria for administrative purposes. Complaints, it seems, need a home.

    Furthermore, operational platforms and redundancies must be hosted locally. While this reflects Algeria’s commitment to data sovereignty and cybersecurity, it may also act as a deterrent for agile startups accustomed to flexible cloud-based solutions.

    Who Can Play?

    Not everyone can join the digital banking revolution. Regulation №24–64 lays down strict ownership rules:

    1. Digital banks cannot be established as branches of foreign banks — a clear signal that Algeria wants to nurture local players or, at least, keep the oversight within arm’s reach.
    2. Shareholding requirements are equally stringent. At least 30% of the bank’s equity must be held by an established Algerian bank with expertise in online banking. This ensures that digital banks are backed by institutions with “experience,” though critics might call it a safety net for entrenched players.

    The message to foreign investors and disruptive fintechs is therefore strong: the playground isn’t entirely open.

    While digital banks are prohibited from opening traditional branches, they are permitted to operate fully automated “digital branches.” These will be complemented by ATMs, either owned by the bank or shared with other financial institutions.

    This hybrid approach reflects a cautious optimism. Algeria acknowledges the potential of digital banking but seems reluctant to sever ties with familiar physical structures entirely. Some might call it a half-step forward; others, a safety-first compromise.

    Prudence or Overreach?

    The regulation subjects digital banks to the same prudential rules as traditional institutions, with a few additional stipulations:

    • Deposits from any single customer cannot exceed 1% of the bank’s total deposits during the first year of operations.
    • Lending to large companies is off-limits, except for SMEs that have outgrown their original status.

    While these rules aim to prevent systemic risks and ensure stability, they might also hinder innovation. Critics could argue that such measures cage the very flexibility and dynamism that digital banking is supposed to embody, especially for a country like Algeria.

    Launching a digital bank under Regulation №24–64 is no easy feat. Entrepreneurs must navigate a two-stage process:

    1. Authorization to Establish:
      Applicants must submit a comprehensive dossier to the Monetary and Banking Council, including proof of technical readiness, an independent assessment of IT systems, and an “exit plan” addressing worst-case scenarios. Yes, you read that right — before the bank even opens, it must have a detailed plan for shutting down.
    2. Approval to Operate:
      After securing establishment authorization, applicants must obtain operational approval from the Governor of the Bank of Algeria. This involves demonstrating compliance with prudential rules, risk management protocols, and cybersecurity standards.

    It’s a regulatory tightrope that could leave applicants wondering whether they’re building a bank or writing a thesis on compliance.

    The Bottom Line (for Investors)

    Algeria’s new digital banking regulations offer a mixed bag for investors. On the positive side, they signal the government’s readiness to modernize its financial sector and embrace digital innovation. This could open up opportunities in a largely untapped market, especially for local tech-savvy youth and underserved rural populations.

    However, the regulatory framework’s stringent requirements — such as mandatory local ownership, infrastructure hosting, and exhaustive compliance processes — present significant barriers to entry. Foreign investors and disruptive fintech players might find these rules restrictive, potentially deterring the rapid innovation seen in more open markets.

    The strict prudential rules, capped deposit limits, and a slow pathway to operational flexibility suggest that returns might take time to materialize. For those with patience and a willingness to navigate Algeria’s regulatory maze, the market offers long-term potential in a growing economy. But for those seeking quick wins, the cautious and tightly controlled environment could be a deterrent.

    Ultimately, the proposed digital banking landscape in Algeria a market for committed, well-capitalized players willing to align with the country’s vision of digital transformation while playing by its rules.

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