5th of June, 2017
New Egyptian Financial Supervisory Authority ‘EFSA’ Decisions
Keywords:Financial Institutions, Banking & Finance
On 19 April 2017, the board of directors of the Egyptian Financial Supervisory Authority (“EFSA”) issued two decisions:
• EFSA Decision 60/2017 (“First Decision”) authorizing companies to undertake more than one financing activity (financial leasing, mortgage financing and factoring); and
• EFSA Decision 46/2017 (“Second Decision”) introducing some restrictions on the conditions of the independent board members (“Independent BOD”) in factoring companies.
• EFSA Decision 65/2017 (“Third Decision”) governing the ownership of shares in securities companies. We provide below an update on the First Decision and the Second Decision. A separate update on the Third Decision will be sent individually.
A) The First Decision:
The First Decision allows companies to exercise more than one financing activity after obtaining EFSA’s approval (the “Multi-Purpose Financing Company”). In addition to complying with the specific requirements for each financing activity, the Multi-Purpose Financing Company must fulfill the following requirements to obtain the multi-purpose financing license. The purpose of these requirements is to ensure the financial capability of the Multi-Purpose Financing Company to undertake all the licensed activities and to prevent any manipulation.
1. The purpose, the capital and the shareholding structure of the company:
1.1. The purpose of the Multi-Purpose Financing Company must be limited to undertaking one or more of the following activities:
(i) Financial leasing;
(ii) mortgage finance; and/or
(iii) factoring, in addition to incorporating other companies.
1.2. Juristic persons must own more than 50% of the company’s capital and financial institutions must own at least 25% of the company’s capital. The First Decision defined financial institutions as (i) banks; (ii) companies under the supervision of EFSA; or (ii) companies under the supervision of other offshore authorities exercising the same jurisdiction of EFSA or the Central Bank of Egypt.
1.3. The Multi-Purpose Financing Company’s capital must not be less than the sum of the minimum capital required for undertaking each activity included in the purpose of the company. However, EFSA might issue a temporary license conditioned on completing the capital of the company.
2. The board of directors and the management:
2.1. The number of board members should be at least 5 members, including at least 2 independent BoD (Please refer to point (B) for more details about the independent BoD).
2.2. The chairman and the majority of the board members must have professional experience in any of the banking, financing, security, monetary, or legal sectors of at least 5 years after obtaining the bachelor’s degree in the same sector.
2.3. The managing director or the executive manager must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 10 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.4. The general managers of the monetary, legal, credit, risk and internal audit management administrations and branches’ managers must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.5. The Multi-Purpose Financing Company must have (i) security; (ii) risk and internal audit management; (iii) monetary; and (iv) legal departments.
2.6. The Multi-Purpose Financing Company must have an independent department for each licensed activity and client affairs management. Each department must have a dedicated executive manager who have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector. This executive manager can be the managing director of the company.
3. Other Requirements:
3.1. The Multi-Purpose Financing Company must have an independent auditor for each activity, registered at EFSA’s register. The auditors of each activity cannot belong to the same audit office.
3.2. There should be no criminal claims raised or measures taken against the Multi-Purpose Financing Company by EFSA, except if (i) the company managed to reconciliation and removed the cause of the claim or measure; (ii) the claim or measure expired; or (iii) the company settled with EFSA. At the time of requesting the license, the Multi-Purpose Financing Company should be in compliance with the submission timing of the financial and audit reports.
3.3. The Multi-Purpose Financing Company must submit a feasibility study including (i) the determination of the targeted market; (ii) the proposed services; and (iii) the company’s forms and future strategy for the 3 years subsequent to adding the activity to its purpose. The future strategy should at least include:
(i) The activities of the company, the proposed services and products and the marketing plan.
(ii) The estimated financial statements in accordance with the company’s capital.
(iii) Market analysis covering at least (i) the market size and structure; (ii) the main competitors; and (iii) the expected competition benefit of the company.
4.In addition to the above, the First Decision includes accounting and financial requirements (for more information please check the decree).
5.The timeline and the criteria for obtaining the license:
5.1. EFSA should issue the license within 30 days after the fulfillment of all the licensing requirements.
5.2. It is worth noting that EFSA takes into consideration:
(i) the financial position of the applicant company;
(ii) the ability of the company to fulfill the market needs through introducing new financing products or expanding in new geographical areas; and
(iii) the professional experience of the majority shareholders in the insurance and banking and non-banking financing sectors.
B) The Second Decision:
The Second Decision restricts the definition of “Independent BoD” and imposes more restrictions other than the restrictions included under EFSA’s newly updated governance rules as shown here. The Second Decision acknowledges the concept of group companies and includes several regulations to insure that the independent BoD is not indirectly connected to the factoring company through its sister companies or subsidiaries. Accordingly, an Independent BoD of factoring companies would need to fulfill the requirements included under EFSA’s governance rules,in addition to the below:
1.The Independent BoD does/did not work in any capacity for the factoring company, its sister companies or any of its subsidiaries during the three years preceding his/her nomination in the board membership.
2.The Independent BoD does/did not receive any rewards, allowances or any cash or in kind considerations, other than his/her entitlements as a non-executive board member, from the factoring company, its sister companies or any of its subsidiaries.
3. The Independent BoD does not hold more than 1% of the factoring company’s shares, as well as his/her spouse, minor children or relatives up to the 3rd degree.
4. The Independent BoD is not a relative up to the 4th degree to any of the board members or the shareholders owning 10% or more of the factoring company’s shares.
5. The Independent BoD does not have any direct or indirect commercial transactions with the factoring company, its sister companies, any of its subsidiaries or any of the shareholders owning more than 5% of the factoring company’s shares.
6. The Independent BoD does not have any interest that might affect his/her performance of the work or which contradicts with the factoring company’s interest.
Finally, it is worth noting that these restrictions apply on any company that undertakes factoring activity whether independently or in addition to other capital markets’ activities.
Please note that the deadline to comply with the Second Decision is 18 April 2018.
A) The First Decision:
The First Decision allows companies to exercise more than one financing activity after obtaining EFSA’s approval (the “Multi-Purpose Financing Company”). In addition to complying with the specific requirements for each financing activity, the Multi-Purpose Financing Company must fulfill the following requirements to obtain the multi-purpose financing license. The purpose of these requirements is to ensure the financial capability of the Multi-Purpose Financing Company to undertake all the licensed activities and to prevent any manipulation.
1. The purpose, the capital and the shareholding structure of the company:
1.1. The purpose of the Multi-Purpose Financing Company must be limited to undertaking one or more of the following activities:
(i) Financial leasing;
(ii) mortgage finance; and/or
(iii) factoring, in addition to incorporating other companies.
1.2. Juristic persons must own more than 50% of the company’s capital and financial institutions must own at least 25% of the company’s capital. The First Decision defined financial institutions as (i) banks; (ii) companies under the supervision of EFSA; or (ii) companies under the supervision of other offshore authorities exercising the same jurisdiction of EFSA or the Central Bank of Egypt.
1.3. The Multi-Purpose Financing Company’s capital must not be less than the sum of the minimum capital required for undertaking each activity included in the purpose of the company. However, EFSA might issue a temporary license conditioned on completing the capital of the company.
2. The board of directors and the management:
2.1. The number of board members should be at least 5 members, including at least 2 independent BoD (Please refer to point (B) for more details about the independent BoD).
2.2. The chairman and the majority of the board members must have professional experience in any of the banking, financing, security, monetary, or legal sectors of at least 5 years after obtaining the bachelor’s degree in the same sector.
2.3. The managing director or the executive manager must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 10 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.4. The general managers of the monetary, legal, credit, risk and internal audit management administrations and branches’ managers must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.5. The Multi-Purpose Financing Company must have (i) security; (ii) risk and internal audit management; (iii) monetary; and (iv) legal departments.
2.6. The Multi-Purpose Financing Company must have an independent department for each licensed activity and client affairs management. Each department must have a dedicated executive manager who have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector. This executive manager can be the managing director of the company.
3. Other Requirements:
3.1. The Multi-Purpose Financing Company must have an independent auditor for each activity, registered at EFSA’s register. The auditors of each activity cannot belong to the same audit office.
3.2. There should be no criminal claims raised or measures taken against the Multi-Purpose Financing Company by EFSA, except if (i) the company managed to reconciliation and removed the cause of the claim or measure; (ii) the claim or measure expired; or (iii) the company settled with EFSA. At the time of requesting the license, the Multi-Purpose Financing Company should be in compliance with the submission timing of the financial and audit reports.
3.3. The Multi-Purpose Financing Company must submit a feasibility study including (i) the determination of the targeted market; (ii) the proposed services; and (iii) the company’s forms and future strategy for the 3 years subsequent to adding the activity to its purpose. The future strategy should at least include:
(i) The activities of the company, the proposed services and products and the marketing plan.
(ii) The estimated financial statements in accordance with the company’s capital.
(iii) Market analysis covering at least (i) the market size and structure; (ii) the main competitors; and (iii) the expected competition benefit of the company.
4.In addition to the above, the First Decision includes accounting and financial requirements (for more information please check the decree).
5.The timeline and the criteria for obtaining the license:
5.1. EFSA should issue the license within 30 days after the fulfillment of all the licensing requirements.
5.2. It is worth noting that EFSA takes into consideration:
(i) the financial position of the applicant company;
(ii) the ability of the company to fulfill the market needs through introducing new financing products or expanding in new geographical areas; and
(iii) the professional experience of the majority shareholders in the insurance and banking and non-banking financing sectors.
B) The Second Decision:
The Second Decision restricts the definition of “Independent BoD” and imposes more restrictions other than the restrictions included under EFSA’s newly updated governance rules as shown here. The Second Decision acknowledges the concept of group companies and includes several regulations to insure that the independent BoD is not indirectly connected to the factoring company through its sister companies or subsidiaries. Accordingly, an Independent BoD of factoring companies would need to fulfill the requirements included under EFSA’s governance rules,in addition to the below:
1.The Independent BoD does/did not work in any capacity for the factoring company, its sister companies or any of its subsidiaries during the three years preceding his/her nomination in the board membership.
2.The Independent BoD does/did not receive any rewards, allowances or any cash or in kind considerations, other than his/her entitlements as a non-executive board member, from the factoring company, its sister companies or any of its subsidiaries.
3. The Independent BoD does not hold more than 1% of the factoring company’s shares, as well as his/her spouse, minor children or relatives up to the 3rd degree.
4. The Independent BoD is not a relative up to the 4th degree to any of the board members or the shareholders owning 10% or more of the factoring company’s shares.
5. The Independent BoD does not have any direct or indirect commercial transactions with the factoring company, its sister companies, any of its subsidiaries or any of the shareholders owning more than 5% of the factoring company’s shares.
6. The Independent BoD does not have any interest that might affect his/her performance of the work or which contradicts with the factoring company’s interest.
Finally, it is worth noting that these restrictions apply on any company that undertakes factoring activity whether independently or in addition to other capital markets’ activities.
Please note that the deadline to comply with the Second Decision is 18 April 2018.
New Egyptian Financial Supervisory Authority ‘EFSA’ Decisions
5 June, 2017
Keywords: Financial Institutions, Banking & Finance
On 19 April 2017, the board of directors of the Egyptian Financial Supervisory Authority (“EFSA”) issued two decisions:
• EFSA Decision 60/2017 (“First Decision”) authorizing companies to undertake more than one financing activity (financial leasing, mortgage financing and factoring); and
• EFSA Decision 46/2017 (“Second Decision”) introducing some restrictions on the conditions of the independent board members (“Independent BOD”) in factoring companies.
• EFSA Decision 65/2017 (“Third Decision”) governing the ownership of shares in securities companies. We provide below an update on the First Decision and the Second Decision. A separate update on the Third Decision will be sent individually.
A) The First Decision:
The First Decision allows companies to exercise more than one financing activity after obtaining EFSA’s approval (the “Multi-Purpose Financing Company”). In addition to complying with the specific requirements for each financing activity, the Multi-Purpose Financing Company must fulfill the following requirements to obtain the multi-purpose financing license. The purpose of these requirements is to ensure the financial capability of the Multi-Purpose Financing Company to undertake all the licensed activities and to prevent any manipulation.
1. The purpose, the capital and the shareholding structure of the company:
1.1. The purpose of the Multi-Purpose Financing Company must be limited to undertaking one or more of the following activities:
(i) Financial leasing;
(ii) mortgage finance; and/or
(iii) factoring, in addition to incorporating other companies.
1.2. Juristic persons must own more than 50% of the company’s capital and financial institutions must own at least 25% of the company’s capital. The First Decision defined financial institutions as (i) banks; (ii) companies under the supervision of EFSA; or (ii) companies under the supervision of other offshore authorities exercising the same jurisdiction of EFSA or the Central Bank of Egypt.
1.3. The Multi-Purpose Financing Company’s capital must not be less than the sum of the minimum capital required for undertaking each activity included in the purpose of the company. However, EFSA might issue a temporary license conditioned on completing the capital of the company.
2. The board of directors and the management:
2.1. The number of board members should be at least 5 members, including at least 2 independent BoD (Please refer to point (B) for more details about the independent BoD).
2.2. The chairman and the majority of the board members must have professional experience in any of the banking, financing, security, monetary, or legal sectors of at least 5 years after obtaining the bachelor’s degree in the same sector.
2.3. The managing director or the executive manager must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 10 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.4. The general managers of the monetary, legal, credit, risk and internal audit management administrations and branches’ managers must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.5. The Multi-Purpose Financing Company must have (i) security; (ii) risk and internal audit management; (iii) monetary; and (iv) legal departments.
2.6. The Multi-Purpose Financing Company must have an independent department for each licensed activity and client affairs management. Each department must have a dedicated executive manager who have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector. This executive manager can be the managing director of the company.
3. Other Requirements:
3.1. The Multi-Purpose Financing Company must have an independent auditor for each activity, registered at EFSA’s register. The auditors of each activity cannot belong to the same audit office.
3.2. There should be no criminal claims raised or measures taken against the Multi-Purpose Financing Company by EFSA, except if (i) the company managed to reconciliation and removed the cause of the claim or measure; (ii) the claim or measure expired; or (iii) the company settled with EFSA. At the time of requesting the license, the Multi-Purpose Financing Company should be in compliance with the submission timing of the financial and audit reports.
3.3. The Multi-Purpose Financing Company must submit a feasibility study including (i) the determination of the targeted market; (ii) the proposed services; and (iii) the company’s forms and future strategy for the 3 years subsequent to adding the activity to its purpose. The future strategy should at least include:
(i) The activities of the company, the proposed services and products and the marketing plan.
(ii) The estimated financial statements in accordance with the company’s capital.
(iii) Market analysis covering at least (i) the market size and structure; (ii) the main competitors; and (iii) the expected competition benefit of the company.
4.In addition to the above, the First Decision includes accounting and financial requirements (for more information please check the decree).
5.The timeline and the criteria for obtaining the license:
5.1. EFSA should issue the license within 30 days after the fulfillment of all the licensing requirements.
5.2. It is worth noting that EFSA takes into consideration:
(i) the financial position of the applicant company;
(ii) the ability of the company to fulfill the market needs through introducing new financing products or expanding in new geographical areas; and
(iii) the professional experience of the majority shareholders in the insurance and banking and non-banking financing sectors.
B) The Second Decision:
The Second Decision restricts the definition of “Independent BoD” and imposes more restrictions other than the restrictions included under EFSA’s newly updated governance rules as shown here. The Second Decision acknowledges the concept of group companies and includes several regulations to insure that the independent BoD is not indirectly connected to the factoring company through its sister companies or subsidiaries. Accordingly, an Independent BoD of factoring companies would need to fulfill the requirements included under EFSA’s governance rules,in addition to the below:
1.The Independent BoD does/did not work in any capacity for the factoring company, its sister companies or any of its subsidiaries during the three years preceding his/her nomination in the board membership.
2.The Independent BoD does/did not receive any rewards, allowances or any cash or in kind considerations, other than his/her entitlements as a non-executive board member, from the factoring company, its sister companies or any of its subsidiaries.
3. The Independent BoD does not hold more than 1% of the factoring company’s shares, as well as his/her spouse, minor children or relatives up to the 3rd degree.
4. The Independent BoD is not a relative up to the 4th degree to any of the board members or the shareholders owning 10% or more of the factoring company’s shares.
5. The Independent BoD does not have any direct or indirect commercial transactions with the factoring company, its sister companies, any of its subsidiaries or any of the shareholders owning more than 5% of the factoring company’s shares.
6. The Independent BoD does not have any interest that might affect his/her performance of the work or which contradicts with the factoring company’s interest.
Finally, it is worth noting that these restrictions apply on any company that undertakes factoring activity whether independently or in addition to other capital markets’ activities.
Please note that the deadline to comply with the Second Decision is 18 April 2018.
A) The First Decision:
The First Decision allows companies to exercise more than one financing activity after obtaining EFSA’s approval (the “Multi-Purpose Financing Company”). In addition to complying with the specific requirements for each financing activity, the Multi-Purpose Financing Company must fulfill the following requirements to obtain the multi-purpose financing license. The purpose of these requirements is to ensure the financial capability of the Multi-Purpose Financing Company to undertake all the licensed activities and to prevent any manipulation.
1. The purpose, the capital and the shareholding structure of the company:
1.1. The purpose of the Multi-Purpose Financing Company must be limited to undertaking one or more of the following activities:
(i) Financial leasing;
(ii) mortgage finance; and/or
(iii) factoring, in addition to incorporating other companies.
1.2. Juristic persons must own more than 50% of the company’s capital and financial institutions must own at least 25% of the company’s capital. The First Decision defined financial institutions as (i) banks; (ii) companies under the supervision of EFSA; or (ii) companies under the supervision of other offshore authorities exercising the same jurisdiction of EFSA or the Central Bank of Egypt.
1.3. The Multi-Purpose Financing Company’s capital must not be less than the sum of the minimum capital required for undertaking each activity included in the purpose of the company. However, EFSA might issue a temporary license conditioned on completing the capital of the company.
2. The board of directors and the management:
2.1. The number of board members should be at least 5 members, including at least 2 independent BoD (Please refer to point (B) for more details about the independent BoD).
2.2. The chairman and the majority of the board members must have professional experience in any of the banking, financing, security, monetary, or legal sectors of at least 5 years after obtaining the bachelor’s degree in the same sector.
2.3. The managing director or the executive manager must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 10 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.4. The general managers of the monetary, legal, credit, risk and internal audit management administrations and branches’ managers must have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector and should be dedicated to the management of the company.
2.5. The Multi-Purpose Financing Company must have (i) security; (ii) risk and internal audit management; (iii) monetary; and (iv) legal departments.
2.6. The Multi-Purpose Financing Company must have an independent department for each licensed activity and client affairs management. Each department must have a dedicated executive manager who have professional experience in any of the banking, financing, monetary, or legal sectors of at least 7 years after obtaining the bachelor’s degree in the same sector. This executive manager can be the managing director of the company.
3. Other Requirements:
3.1. The Multi-Purpose Financing Company must have an independent auditor for each activity, registered at EFSA’s register. The auditors of each activity cannot belong to the same audit office.
3.2. There should be no criminal claims raised or measures taken against the Multi-Purpose Financing Company by EFSA, except if (i) the company managed to reconciliation and removed the cause of the claim or measure; (ii) the claim or measure expired; or (iii) the company settled with EFSA. At the time of requesting the license, the Multi-Purpose Financing Company should be in compliance with the submission timing of the financial and audit reports.
3.3. The Multi-Purpose Financing Company must submit a feasibility study including (i) the determination of the targeted market; (ii) the proposed services; and (iii) the company’s forms and future strategy for the 3 years subsequent to adding the activity to its purpose. The future strategy should at least include:
(i) The activities of the company, the proposed services and products and the marketing plan.
(ii) The estimated financial statements in accordance with the company’s capital.
(iii) Market analysis covering at least (i) the market size and structure; (ii) the main competitors; and (iii) the expected competition benefit of the company.
4.In addition to the above, the First Decision includes accounting and financial requirements (for more information please check the decree).
5.The timeline and the criteria for obtaining the license:
5.1. EFSA should issue the license within 30 days after the fulfillment of all the licensing requirements.
5.2. It is worth noting that EFSA takes into consideration:
(i) the financial position of the applicant company;
(ii) the ability of the company to fulfill the market needs through introducing new financing products or expanding in new geographical areas; and
(iii) the professional experience of the majority shareholders in the insurance and banking and non-banking financing sectors.
B) The Second Decision:
The Second Decision restricts the definition of “Independent BoD” and imposes more restrictions other than the restrictions included under EFSA’s newly updated governance rules as shown here. The Second Decision acknowledges the concept of group companies and includes several regulations to insure that the independent BoD is not indirectly connected to the factoring company through its sister companies or subsidiaries. Accordingly, an Independent BoD of factoring companies would need to fulfill the requirements included under EFSA’s governance rules,in addition to the below:
1.The Independent BoD does/did not work in any capacity for the factoring company, its sister companies or any of its subsidiaries during the three years preceding his/her nomination in the board membership.
2.The Independent BoD does/did not receive any rewards, allowances or any cash or in kind considerations, other than his/her entitlements as a non-executive board member, from the factoring company, its sister companies or any of its subsidiaries.
3. The Independent BoD does not hold more than 1% of the factoring company’s shares, as well as his/her spouse, minor children or relatives up to the 3rd degree.
4. The Independent BoD is not a relative up to the 4th degree to any of the board members or the shareholders owning 10% or more of the factoring company’s shares.
5. The Independent BoD does not have any direct or indirect commercial transactions with the factoring company, its sister companies, any of its subsidiaries or any of the shareholders owning more than 5% of the factoring company’s shares.
6. The Independent BoD does not have any interest that might affect his/her performance of the work or which contradicts with the factoring company’s interest.
Finally, it is worth noting that these restrictions apply on any company that undertakes factoring activity whether independently or in addition to other capital markets’ activities.
Please note that the deadline to comply with the Second Decision is 18 April 2018.
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