The Central Bank of Lebanon has issued a new circular aimed at tightening regulation over electronic money transfer companies, particularly those operating digital wallets, in an effort to curb years of unchecked activity and potential legal violations. The move, which aligns with the recommendations of the International Monetary Fund (IMF), seeks to reinforce financial oversight and prevent money laundering in the country’s growing cash-based economy.

The regulatory step comes more than a year after U.S. Deputy Assistant Secretary of the Treasury for Asia and the Middle East, Jesse Baker, visited Beirut in March 2024. During his visit, Baker raised concerns about the lack of oversight on money transfer companies that had proliferated after the collapse of the formal banking sector and stepped in to replace it. He reportedly urged Lebanese authorities, particularly the central bank, to impose tighter controls on these firms until much-needed banking sector reforms are implemented.

U.S. officials questioned the level of scrutiny placed on registered money transfer firms, particularly given Lebanon’s expanding informal cash economy. Specific concerns were raised about the volume of funds being shipped, the transparency of financial transfers, and the government’s growing reliance on these companies to collect fees and execute payments—practices that expose sensitive state information and expand the financial footprint of largely unregulated firms.

Officials also stressed the need to apply Know Your Customer (KYC) protocols and source-of-funds tracking requirements to these entities, in line with standards applied to traditional banks.

Lebanon’s central bank responded this month with Circular No. 735, which regulates digital wallets and the operations of electronic money transfer companies. The move comes amid growing scrutiny from both the IMF and the U.S. Treasury Department, both of which have flagged these firms as potential conduits for illicit financial flows, including terror financing and money laundering.

According to a financial source speaking to Nidaa al-Watan, one of the primary vulnerabilities lies in the proliferation of new firms “springing up like mushrooms,” with little to no transparency regarding their ownership structures. While long-established and reputable firms, often backed by known banking or business groups, generally comply with regulatory norms, including KYC and source-of-funds rules, others have operated in what officials describe as a legal grey zone.

The central bank’s new circular amends a previous directive (Circular No. 69) and introduces monthly transaction limits for digital wallets. Individual users are now restricted to a total monthly transaction volume of $10,000, with wallet balances not exceeding $3,000 at any time—rules that did not previously exist. In the past, wallets could hold up to $3,000, but transaction volumes often soared into six figures, with single wallets reportedly processing transfers of $100,000 or more.

For commercial entities, the circular caps monthly transactions at $50,000 and sets a maximum wallet balance of $30,000. The regulation also clarifies that e-wallet balances are non-revolving, meaning they cannot be replenished repeatedly within the same month.

Sources familiar with the central bank’s policy say the directive is part of a broader campaign to clamp down on Lebanon’s cash economy, in line with international anti-money laundering efforts. The circular also serves as a reminder to non-compliant firms of their obligations under previous regulations, particularly concerning transaction ceilings and transparency.

In a notable departure from past practice, the central bank now requires that financial institutions, including e-wallet operators, open dedicated and independent bank accounts solely for storing the funds linked to electronic wallets. These accounts must be fully segregated from the firms’ own capital and other revenues and must maintain a 100% reserve ratio at all times.

The measure is designed to counter previous abuses, where companies retained government-related payments—such as taxes and utility bills—for extended periods and reinvested the funds in interbank markets for profit before transferring them to the appropriate public entities.

Under the new rules, companies must provide the central bank and the Banking Control Commission with monthly, CEO-signed statements disclosing the exact amount of funds in the segregated accounts and the level of cash on hand, along with evidence of compliance with the mandatory reserve ratio.

Additionally, firms must remit collected funds, including bills, taxes, and other payments from users, to the relevant government or private entities within three business days. Failure to do so may result in penalties under Article 24 of the circular.

The circular also mandates that all e-wallet operators sign contracts with leading Lebanese insurance firms licensed to operate in the country, and which reinsure their operations with top-rated global insurers. This requirement, previously absent, introduces a new layer of financial liability for the companies.

According to regulatory sources, the core objective of the circular is to reassert control over a sector that had descended into “chaos” in recent years. Many companies had failed to adhere to the terms of their licenses or track the flows of funds passing through their platforms, undermining transparency and enabling potentially unsafe transactions.