EGYPT: New Regulations on Share Ownership of Companies Operating in Non-Banking Financial Activities and Licensing Rules

Wednesday May 16 2018

The Financial Regulatory Authority (FRA) has announced the issuance of a decision by FRA’s Board of Directors. The decision sets the rules for granting licenses to companies operating in non-banking financial activities. The decision stipulates that approving the establishment or granting license for operating companies will be in light of the market need and based on a market study adopted by FRA’s Board of Directors or introducing new products or developing existing products, as the case may be, and taking into account the availability of other requirements to be complied with in accordance with the legislation governing each activity.

FRA’s Chairman noted that the decision placed a commitment on every natural or legal person who owns 5% of the capital or voting rights of one of the operating companies to notify the Authority within two weeks from the date of his ownership of this percentage. The Authority also prohibited the natural person – without inheritance or will – to acquire 10% of the issued capital of the company operating in non-banking financial activities or voting rights by increasing its ownership by 5% and its multiples thereof only after obtaining the prior approval of the Authority. Also, the said decision stressed that it is not permissible to transfer the ownership of the shares of the operating companies in a period starting from the date of establishment until granting the license without the prior approval of the Authority and the new shareholder shall meet the same requirements.

Requests for transfer the ownership of shares of operating companies shall be submitted to the Authority together with a number of amendments, such as the disclosure of the final beneficiary of ownership, any agreement or coordination between natural or legal persons concerning exercising  their rights in the General Assembly or the Board of Directors of the company in question of ownership besides  a statement of qualifications and experience of the natural persons. In case of ownership requests with a percentage of 25% or more of the capital or voting rights.  A future investment plan and company’s directions shall be submitted in relation to the company’s management and the policy it intends to pursue in managing its affairs as well as the objectives of the ownership. The Authority is keen to verify the CV of the applicant’s behavior in the foreign market if it  is a bank or a foreign financial institution , then it  must submit a proof that it is subjected to the supervision   of the regulatory  authority  ( like the Central Bank of Egypt or FRA ) in the country where the main headquarter is  located .  Also, sanctions and measures certificate shall be submitted and it shall be signed by the regulatory body in which the legal person requesting ownership is subjected to in event of being a foreign bank or a foreign financial institution.

Article seven of the decision reveals the determinants that are taken into consideration upon  deciding on ownership requests , including the availability of elements of eligibility, competence and practical experience in the field of the company’s work in light of the percentage of ownership required for natural persons, besides the percentage of the applicant and  associated parties in the company to be acquired and other companies operating in the same activity and the impact of this  on the  control in light of the percentage of required ownership, in addition to the issuance of final judicial rulings against the applicant to declare bankruptcy or conviction of a crime or by one of the offenses restricting freedom stated  in the laws under FRA’s supervision , the law of the Central Bank, the banking system and the AML / CFT law.

In all cases, the approval of  FRA’s Board of Directors shall be obtained in case of  ownership requests for a person and his related group of a company representing 10% or more of the market size for any activity, this is in case the acquisition percentage is  for one third of the capital or half of the capital or two thirds of the capital or three quarters of the capital or voting rights, where the market size of each activity is calculated according to the latest annual data prior to the ownership  request.

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