Egypt’s Financial Regulatory Authority’s (FRA) Board of Directors has, at its closing meeting for the year, revealed its agenda which includes decisions on four important files related to the non-banking financial activities sector.
The FRA said that the most important of these decisions is the Board of Directors’ approval for granting incentives to companies and entities. This will be subject to their operating in non-banking financial activities, with the approval aimed at empowering women and enhancing finance access for them.
The authority said the move comes in accordance with its comprehensive four-year strategy for 2018-2022, and in line with Egypt’s Vision 2030 and its sustainable development strategy. The latter seeks to build a fair society which guarantees equal rights and opportunities for both genders in financing.
In the same context, FRA Chairperson Mohamed Omran issued Decision No 205 of 2020, granting companies and non-banking entities a 50% reduction in the development fee or service charge. This will be according to the percentage of women they employ, which should stand at no less than 25% of the workforce.
Omran said that the provisions of Article 14 of law No 10 of 2009, regulating the supervision of non-banking financial markets and instruments impose a development fee on companies subject to FRA control.
This is aimed at developing the areas of work these companies carry out, and the mechanisms to direct their activities and assist them in carrying out their work.
He said that those provisions were assigned to the FRA’s Board of Directors to determine values not exceeding two per thousand of the company’s annual revenues. Accordingly, the value of the development fee will be affected to provide more financial services to women’s financing, which will be evident in the company’s increased annual revenues.
Omran added that Decision No. (204) of 2020 has been issued to define a number of controls that must be observed and adhered to, as the requirements for issuing and maintaining a licence to practice the activity.
This decision was put into effect to promote gender equality when financing is available, and allow equal benefits from non-banking financial activities.
He pointed out that the most important of these standards is the prohibition of discrimination among clients on the basis of gender. This will also ensure that a policy of promoting gender equality is applied, as well as encouraging fair, equal, and honest transactions, independent of gender, by companies and non-banking financial entities.
Omran said that these controls also include targeting the development and introduction of non-banking financial products and services that suit the needs of different groups of female clients.
These controls include the companies and entities that are licensed to practice non-banking financial activities being bound to allocate a specialised unit, department or an official, to study and examine customer complaints.
They also define multiple means through which customers can submit a complaint, which are easy to access, according to Omran.
The FRA Board’s closing meeting has also seen approval for a deadline extension to companies whose securities are listed on the Egyptian Exchange (EGX). The extension will be granted to those who have not completed the procedures for implementing the offering for another six months, ending on 30 June 2021.
The decision comes in implementation of what was stated in Article No. 1 bis, from the rules for listing and delisting securities on the EGX.
Omran said that decision No. (210) of 2020 was issued to facilitate procedures for companies with EGX listed securities and who have not completed the procedures for implementing the offering.
This is to take into account the current global circumstances and events due to the novel coronavirus (COVID-19) pandemic, whose impacts were evident in Egypt’s capital market.
He said that the decision was in line with the FRA’s vision of strengthening the policy for non-banking financial activities, and supporting entities in the field with measures taken to reduce the pandemic’s effects.
Omran outlined the need for companies with listed securities, and who did not complete the procedures for implementing the offering by providing them to the EGX by no later than 31 March 2021. This will allow for the companies to provide a time plan that includes the measures to implement the offering and gain EGX approval.
The FRA’s Board of Directors was presented with the recommendations of the working group formed to study the controls and criteria for the ownership structure of the futures exchange company. This also related to the clearing company related to its transactions.
This group includes representatives from the Central Bank of Egypt (CBE), Misr for Central Clearing, Depository and Registry (MCDR), the Federation of Egyptian Banks (FEB), the Egyptian Insurance Federation (EIF), investment banks and the European Bank for Reconstruction and Development (EBRD), as well as the EGX.
According to the statement, the Capital Market Advisory Committee lent its support to the futures exchange company, and its clearing company, to include financial institutions with solvency. This also covers financial institutions with stock exchange experience, with the addition of some controls to the ownership structure.
Omran also said that the FRA’s Board of Directors agreed that the ownership structure of the futures exchange company and its clearing company would include financial institutions with financial solvency. This will also include others with experience in working on stock exchanges, with no less than 75% of their capital shares.
The decision came on the back of outcomes of the community dialogue to propose controls and criteria for the ownership structure of the futures exchange company and the clearing company related to its transactions.
He added that these controls stipulate that the share of the person and others associated with him do not exceed 10% of the total shares of the company’s capital. The futures exchange company may offer no more than 25% of its shares for public subscription at any time.
Omran indicated that the availability of these controls and standards should be taken into account in the ownership structure of the futures exchange company and its affiliated clearing company. This is in case a holding company is established that owns both companies.
The FRA Board of Directors also looked at the impact of applying the Egyptian Accounting Standard No. 47 for financial instruments, which is consistent with the International Financial Reporting Standard No. 9 (IFRS 9).
According to the authority’s statement, this standard will be implemented as of 1 January 2021, in accordance with the decision of Prime Minister Mostafa Madbouly. It will appear in the finance company’s first financial statement at the end of first quarter of 2021.
Omran issued the regulatory decision No. 200 for 2020 to establish real estate finance, financial leasing, factoring, consumer finance, and Micro and SMEs financing companies, following the approval of the FRA’s Board of Directors.
This will mean that the relative importance of the expected credit risks increases as a result of practicing their financing activity by forming a reserve. This would aim to help them face “the risks of the effects of applying the Egyptian Accounting Standard (47) – Financial Instruments”.
Omran said that this reserve should be equivalent to 1% of total assets and the net profit for the year after withholding taxes for the fiscal year ending on 31 December 2020. It must be included in the shareholders’ equity, and not be used without the FRA’s approval.
He also said that the application of the Egyptian Accounting Standard No 47 relating to financial instruments will result in an increase in the reserves of finance companies. This comes in the form of a procedure that enables the finance company to hedge and prepare for any potential risks. This would also enhance the durability and safety of its financial positions in accordance with international best practices.