Key Points:
• Foreign Participation Restricted: No foreign bank branches or 100% foreign-owned digital subsidiaries allowed in Algeria.
• Local Shareholding Mandatory: Digital banks must include an Algerian bank as a shareholder, holding at least 30% of the capital.
• Headquarters in Algeria: Digital banks must maintain a local headquarters for administrative tasks and complaint handling.
• Platform Hosting in Algeria: Operational platforms and redundancies must be hosted locally.
• Activity Limitations: Loans restricted to small and medium-sized enterprises (SMEs) with caps on individual customer deposits.
• Regulatory Flexibility After Five Years: Established digital banks may gain flexibility in shareholding and capital requirements.
The Banque d’Algérie has introduced new regulations detailing the conditions for the establishment, licensing, and operation of digital banks in the country. These measures, which came into effect on Thursday, November 21, following their publication in the Journal Officiel, set out strict rules for both local and foreign participation in the sector.
Definition of Digital Banks
According to the regulation, a digital bank is defined as one that “offers banking services and products exclusively via digital channels, platforms, and media, relying on modern technologies to carry out its activities.” The rules aim to modernize the banking system while ensuring regulatory compliance.
1. Shareholding and Foreign Bank Participation
• No Foreign Branches Allowed: Article 4 of the regulation explicitly prohibits foreign banking groups from establishing 100% digital subsidiaries in Algeria.
• Mandatory Local Shareholders: A digital bank must include a locally incorporated bank with experience in online banking services among its shareholders. This Algerian bank is required to hold at least 30% of the capital.
• Shareholder Limits: The individual shareholding of other shareholders and related parties cannot exceed the 30% threshold.
2. Headquarters and Platform Hosting
• Local Headquarters: Digital banks must establish a head office in Algeria, which will handle administrative tasks and customer complaints.
• Hosting Requirements: All operational platforms and redundancy systems must be hosted within Algeria to ensure data sovereignty and security.
• Branch Restrictions: Digital banks are not permitted to open traditional branches, though fully automated “digital branches” are allowed. Customer services can be provided via ATMs, either their own or those of other banks.
3. Authorized Activities
Digital banks in Algeria are permitted to carry out a range of operations, including:
• Receiving Public Deposits: They may accept funds from customers.
• Credit Operations: Loans may only be extended to small and medium-sized enterprises (SMEs), with large enterprises excluded from borrowing.
• Islamic Banking: Sharia-compliant banking services are allowed.
• Payment Services: The management and provision of payment services for customers.
However, these activities are subject to key limitations:
• Deposit Cap: Deposits from a single customer and related parties cannot exceed 1% of the total deposits of the bank. This rule applies after one year of operations.
• Loan Limitations: Loans are restricted to SMEs, excluding large companies unless they qualify under the SME-to-large-enterprise transition criteria in Algerian law.
Flexibility for Established Digital Banks
After five years of operation, digital banks may gain regulatory flexibility:
• Capital Increase: The bank must increase its share capital to at least 150% of the minimum required capital for digital banks.
• Regulatory Exemptions: Upon approval from the Banque d’Algérie, they may be exempt from the shareholding and deposit limitations.
These measures are designed to foster innovation in the banking sector while maintaining financial stability and ensuring compliance with local regulations.
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