BDL issues circular for
non-bank finance companies

Three categories, updated minimum capital, and risk management

The Central Bank (BDL) has issued a landmark circular that establishes new regulations for the founding and operation of financial institutions. The regulation (Basic Decision 13819) represents a significant change for the non-banking financial sector. It replaces older regulations and aims to enhance oversight and redefine the scope of activities allowed for these entities.

Defining the financial landscape
The circular renamed financial institutions as finance companies. It defines them as companies whose primary purpose is to conduct lending and fiduciary operations. Under the new rules, these companies are categorized into three distinct classes. Category A covers general lending operations. Category B is dedicated to fiduciary operations. Category C focuses on microfinance activities.

The document also provides detailed definitions for various financial products. Consumer lending is now capped at $100,000 for individual borrowers. Digital lending, which involves electronic financial operations, is limited to $10,000 per person. The regulation also defines specific parameters for housing loans, SME lending, leasing, factoring, and margin lending.

Capital requirements and licensing
The new circular has substantially increased the minimum capital requirements. Finance companies must now maintain specific capital levels in lira based on their license category. Category A companies require a minimum of LL300 billion ($3,352,000). Category B companies must hold LL75 billion ($838,000). Category C companies are required to have LL50 billion ($560,000).

Any entity wishing to practice lending must obtain prior approval from the Central Bank’s Central Council. The BDL will conduct ‘Fit and Proper’ assessments to ensure the competence and integrity of founders, shareholders, and senior management. This includes a thorough review of criminal records and ensuring that no individuals involved are on local or international sanction lists.


Operational oversight and governance
The circular introduces new governance and risk management protocols. Finance companies in A and B categories are required to establish a dedicated Risk Management Unit or appoint a Risk Officer. All finance companies must also submit a detailed five-year business plan and an exit plan that outlines how they will protect customers if they decide to leave the market.

BDL has set a financial leverage limit. Total assets cannot exceed nine times the company’s regulatory own funds. Furthermore, these companies must maintain liquid assets representing at least ten percent of their short-term liabilities.

Prohibitions and penalties
BDL has listed several prohibited activities. Finance companies are strictly forbidden from receiving deposits from the public. They are also prohibited from dealing in virtual assets unless explicitly permitted by the BDL. These companies cannot engage in money exchange operations unless they are directly related to their core lending services.

Violations of these new rules carry heavy penalties. The Central Council can impose fines of at least one billion lira ($11,000) for each violation. In serious cases, these companies may be referred to the Higher Banking Commission for administrative sanctions or face criminal prosecution.

Existing finance companies have been given a six-month grace period to submit their updated business plans and comply with the new requirements.
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