The Financial Regulatory Authority (FRA) has issued its first comprehensive guide to the rules and regulations governing consumer finance companies, providing a unified reference for the regulatory requirements governing the activity. The guide aims to enhance companies’ and sector employees’ awareness of all legislative and regulatory obligations imposed on them and facilitate compliance with regulatory requirements.
The guide comes amid the continued development of consumer finance activity, the growing number of institutions providing such services, the diversification of products and methods of providing finance, as well as the numerous decisions, instructions, circulars and regulatory rules issued to govern the activity in recent years.
Unified framework for consumer finance companies
The guide brings together all details of the regulatory framework in an integrated and easily accessible format and sets out the requirements for establishment, licensing and conducting business for both existing and new companies.
It is based on the provisions of Consumer Finance Law No. 18 of 2020 and the decisions issued to implement it by the FRA’s Board of Directors and chairperson, as well as circulars issued to date. It incorporates the rules governing the various stages of operations of consumer finance companies and consumer finance providers.
The guide covers the various stages of consumer finance companies’ operations, beginning with establishment and licensing procedures, capital requirements and shareholder structures, through to governance rules, the composition of boards of directors, key functions, board committees and internal control systems. It also covers the fundamental rules for conducting consumer finance activities, financial solvency standards, preparation of financial statements, financing contract templates and procedures for registering branches.
Marketing, disclosure and customer protection
It also includes rules governing marketing, advertising and disclosure to customers, including the provision of clear and accurate information, repayment schedules and details of costs, expenses, benefits and risks associated with financing. It regulates guarantees provided by customers and prohibits obtaining blank signed documents or trust receipts as collateral for financing.
The guide also reviews requirements related to combating money laundering and terrorist financing, customer due diligence procedures, reporting suspicious transactions and maintaining records and documents, alongside rules for reporting customer information to credit bureaux. These requirements support the integration of credit information and improve the efficiency of financing decisions and credit risk management.
Creditworthiness and financial soundness requirements
With regard to granting finance, the guide includes rules for assessing customers’ creditworthiness, reviewing existing financing, monitoring customers who fall behind on payments and ensuring that financing is used for its designated purpose. It also requires the adoption of digital creditworthiness assessment systems based on factors relating to customers’ repayment capacity and financial position.
The guide also incorporates Basel III financial solvency standards, including capital adequacy requirements, the leverage ratio and liquidity ratios, alongside rules governing provisions, concentration risk, financial stress testing and periodic reporting.
These requirements are intended to support consumer finance companies’ ability to meet their obligations, address credit, operational and liquidity risks, and maintain sound financial positions.
Cybersecurity and digital transformation
The rules also cover digital transformation and cybersecurity requirements. Licensed entities are required to provide the technological infrastructure and information systems necessary to conduct their activities and establish frameworks for IT governance, technology risk management and cybersecurity, as well as conduct periodic penetration testing. Compliance with these requirements is a condition for maintaining their licences.
Debt collection and customer rights
The regulatory rules also provide for the establishment of a register of debt collection companies across all non-bank financing activities, subject to clear requirements aimed at strengthening market oversight and protecting customers’ rights.
Companies and entities operating in non-bank financing activities are required to inform customers of the details of the debt collection companies they contract with, the means of verifying collectors’ identities and official communication channels. They must also monitor complaints filed against collection companies and take the necessary corrective measures.
Recent rules also require consumer finance companies to provide insurance coverage for customers up to the age of 65 who obtain financing from them, covering the risks of death and permanent total disability. The insured amount must be equal to the outstanding financing balance owed by the customer.
Financing practices and violations
The guide also sets out rules governing advance cash financing and mechanisms for detecting and addressing cases in which financing is converted into cash. It further includes lists of violations, administrative measures and procedures taken by the FRA as part of its supervision of entities subject to the law.
Effective supervision
FRA Chairperson Islam Azzam said protecting customers’ rights and maintaining market stability are two fundamental pillars for the growth of consumer finance activity and maximising its contribution to the national economy. He said the FRA’s responsibilities include ensuring that regulated entities comply with rules governing their relationships with customers, alongside monitoring the soundness of financing and financing-management practices.
Azzam stressed that clear and integrated rules are essential to ensuring effective supervision. Making regulatory requirements available in an organised format helps companies identify their regulatory obligations, supports monitoring and assessment, and increases consistency in the application of rules across the market, he said.
He explained that regulatory oversight extends across all stages of the relationship between a company and its customers, beginning with advertising, marketing and disclosure of financing terms and costs, through creditworthiness assessments and the conclusion of contracts, and extending to financing management, monitoring obligations and protecting customer data.
This is intended to ensure that customers have the information necessary to make informed financial decisions and limit practices that could harm their interests or impose unclear obligations on them.
Azzam stressed that the FRA would continue to address any imbalances or practices that could harm customers’ rights or undermine the soundness of the non-bank financial sector. Regulatory oversight includes continuous monitoring of compliance with rules and standards and taking the necessary supervisory and corrective measures in response to violations in accordance with the law and the decisions governing the activity.
Practical compliance tool
For her part, Rehab Taha, FRA Assistant Chairperson for Financing Affairs, said the guide was prepared in response to the need to organise the rules and regulations governing consumer finance within an integrated framework that makes it easier for companies to identify and implement their regulatory requirements and supports effective monitoring and supervision.
She said the guide represents a practical tool that companies can use to review their operating frameworks and internal procedures and ensure their compliance with rules and regulations issued by the FRA. It also facilitates the identification of regulatory requirements relating to each aspect of consumer finance activity.
Taha added that the FRA continues to develop the regulatory framework for non-bank finance in line with the evolution of business models and their associated risks, while maintaining the safeguards necessary to ensure sound practices and protect customers’ rights.
The FRA stressed that developing regulatory and supervisory frameworks for non-bank finance is an ongoing process linked to keeping pace with changes and developments in markets and their associated risks, alongside a continued commitment to protecting customers’ rights and intensifying efforts to raise public awareness of the rights guaranteed to them under the relevant laws.
