Board of Directors Decision No. (58) of 2018

Dated 2018/4/26

Regarding the rules, conditions, and procedures for licensing banks and certain companies conducting non-banking financial activities to conduct mutual fund activities themselves or with others.

Chairman of the Board of Directors of the Financial Regulatory Authority

After reviewing the Capital Market Law issued by Law No. (95) of 1997 and its amendments and executive regulations, and the decisions issued to implement them;

And Law No. (10) of 2009 regulating supervision over non-banking financial markets and instruments;

And Presidential Decision No. (92) of 2009 issuing the Basic Statute of the Financial Regulatory Authority;

And Board Decision No. (88) of 2009;

And Board Decision No. (51) of 2014;

And Board Decision No. (125) of 2015 and its amendments;

And upon the approval of the Board of Directors in its meeting held on 2018/4/26 ;

Decided:

(Article One)

Banks may, with a license from the Authority and after Central Bank approval, conduct mutual fund activities themselves. The Authority may grant licenses to insurance and reinsurance companies, public companies in the business of issuing securities or increasing their capital (investment banks), and microfinance companies licensed directly by the Authority to conduct these activities themselves, in accordance with the conditions stipulated in Article Two of this Decision, or jointly with any of the following entities:

1. Arab, regional, and foreign financial institutions and companies.
2. Public legal entities whose objectives include investment.
3. Pension funds or private insurance funds.
4. The Postal Authority.
5. Financial leasing companies.
6. Real estate financing companies.
7. Factoring companies.

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(Article Two)

Conditions to be met by companies licensed by the Authority to conduct mutual fund activities themselves:

(1) Not be in a state of financial insolvency or bankruptcy.

(2) The activity duration must not be less than three years prior to the license application.

(3) Approval from the company's Extraordinary General Assembly to conduct mutual fund activities themselves or with others.

(4) Net equity must not be less than 50 million EGP or its equivalent in foreign currencies, according to the latest approved financial statements attached with the auditor's report.

(5) Commitment to set aside an amount not less than the minimum required to conduct mutual fund activities as stipulated in the executive regulations of the Capital Market Law, amounting to 5 million EGP, in addition to the minimum required for any of these entities to conduct their original activity. The set-aside amount must be used to subscribe to the fund's documents, and proof of its deposit with the subscription representative entity must be submitted. The fund shall issue registered investment documents with a single face value against full cash payment by subscribing investors, provided that the number of documents does not exceed fifty times the set-aside amount, with the condition that the company's share in the set-aside amount must not be less than 51% when conducting the activity with other entities.

(6) The Authority must not have taken criminal prosecution measures against the company or any of its main shareholders or board members regarding crimes stipulated in the laws and regulations governing the Authority's activities, nor have final judicial rulings been issued against any of the aforementioned for such crimes or crimes stipulated in the Central Bank and Banking Law or the Anti-Money Laundering Law within the three years preceding the establishment request, unless a settlement was reached or final criminal or misdemeanor judgments were issued against any of the aforementioned for crimes involving breach of honor or trust, unless their reputation was restored.

(7) The Authority must not have taken any precautionary measures or administrative sanctions against the company (excluding warnings and notifications) during the three years preceding the license application, unless the reasons for them were removed and six months have passed since such removal.

Regarding insurance companies: Insurance companies must comply with the conditions specified in Board Decision No. (46) of 2014 regarding the conditions for insurance companies to conduct mutual fund activities themselves, before obtaining a license from the Authority to conduct such activity.

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(Article Three)

Conditions to be met by Arab, regional, and foreign financial institutions and companies participating in conducting mutual fund activities with other companies specified in Article One of this Decision:

(1) Regarding Arab, regional, and foreign companies:

• The company must be subject to supervision by a governmental regulatory authority similar to the Authority or the Central Bank.
• Submit company data to the Authority, including its nationality, purpose, capital, and main headquarters, accompanied by the following documents:
  • The company's commercial register (or equivalent), authenticated by the Ministry of Foreign Affairs.
  • The company's articles of association.
  • All submitted documents must be certified by the competent regulatory authorities in its home country and authenticated by the Ministry of Foreign Affairs.

(2) Regarding other entities:

• Approval from the competent authority of the entity, subject to the provisions of the laws, regulations, and decisions governing each.
• Compliance with beneficial ownership identification rules according to the provisions of Chapter Thirteen of the executive regulations of the Capital Market Law.

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(Article Four)

Licensing procedures for the activity for companies

• The license application must be submitted to the Authority, signed by the company's legal representative, and accompanied by documents supporting the fulfillment of the licensing conditions mentioned in Article Two of this Decision, along with proof of payment of the prescribed fees.
• The Authority shall review the application and decide on it within five days of receiving complete documents. In case of approval, a license certificate for conducting mutual fund activities will be issued with the company's primary license number.
• Entities licensed by the Authority to conduct mutual fund activities in accordance with this Decision must obtain the Authority's prior approval before launching each fund according to the specified procedures.

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(Article Five)

Public Offering Prospectus / Information Memorandum

The public offering prospectus for the fund's investment documents or the information memorandum, as applicable, must be submitted, certified by the members of the fund's joint committee, and according to the form prepared by the Authority, and must include at least the following data:

1. The fund's name, type, duration, lifespan, website, and the date and number of the license issued to the establishing entity, if any.

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(Article Six)

Subscription in Investment Documents

Subscription in the offered investment documents shall be conducted publicly or privately through one of the entities licensed to receive subscriptions. After subscribing to the investment documents, acceptance shall be granted by the fund's statutory office, the information memorandum, and approval for the formation of a document holders' group and joining it.

Subscription shall be conducted based on an electronic extract of a subscription certificate from the entity licensed to receive subscriptions, containing the following:

1. Fund name and document issuer.
2. License number and date for conducting the activity.
3. Name of the entity receiving subscriptions.
4. Name of the office, its lifespan, nationality, and subscription date.
5. Total value of documents offered for subscription.
6. Value and number of subscribed documents in figures and words.

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(Article Seven)

Conditions for conducting mutual fund activities

1. Companies or entities licensed to conduct mutual fund activities themselves or with others may conduct all types of real estate investment funds. Depending on the fund type, it may be open or closed, with its activity defined either by the prospectus/information memorandum (as applicable) specifying the fund type.
2. The fund must entrust the management of its activity to an investment manager from among the companies licensed for this activity according to the conditions stipulated in Section Nine of Chapter Two of the executive regulations of the Capital Market Law. The fund's securities must be kept with one of the entities licensed by the Authority for custodian services.
3. Dealing with one of the fund management service companies, provided it meets the independence conditions specified in Board Decision No. (88) of 2009.
4. Documents issued by the fund may be listed on the Egyptian Exchange, in accordance with the rules for listing and delisting securities on the Egyptian Exchange.
5. The transfer of ownership of fund documents issued against the set-aside amount from the fund's establishing entity requires the continued fulfillment of the conditions stipulated in items one and two of this memorandum, and obtaining the Authority's prior approval for such transfer.
6. The fund's activities, profits, investments, and obligations must be segregated from the funds of the entity licensed to conduct the activity themselves, and separate accounts, books, and records must be established for them.
7. The fund shall maintain independent financial statements according to Egyptian accounting standards and the nature of its activity. The fund's accounts shall be audited by an auditor selected from among those registered in the Authority's approved register for this purpose, provided they are independent of each other and of the investment manager and any related parties to the fund,

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(Article Eight)

Scope of the Authority's supervision and oversight

1. The Authority has the right to review and request data and documents related to this activity and verify its practice in accordance with the provisions of the law, its executive regulations, and decisions issued to implement them.
2. Periodic data that must be approved by the Authority:

Related parties to the fund must disclose immediately all matters related to the fund and its investments, specifically the following:

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(Article Nine)

Fund management service companies must submit to the Authority a weekly report containing the following data – subject to the fund's activity:

1. The fund's net asset value.
2. Number of documents, net document value, and indicative market value (if any).
3. A statement of the fund's distributed profits.

Second: The investment manager is committed to immediately disclosing material events that occur during the fund's activity to the Authority, the fund's supervisory committee, the auditors, and the legal advisor, regarding the data contained in the prospectus.

Third: The fund's supervisory committee must submit to the Authority the following:

1. A quarterly report on its performance and work results, which must include data disclosing the fund's financial position completely and accurately based on financial statements prepared by the investment manager, and disclose the risk management measures taken by the investment manager related to the fund.
2. One month before the scheduled date for presentation to the board of directors of the entity/entities establishing the fund, and the Authority shall notify the fund's supervisory committee of its observations for reconsideration, the documents and reports mentioned, in accordance with inspection results. Annual financial statements must be presented to the competent authority within a period not exceeding 90 days from the end of the financial year. The company is committed to submitting the Authority's limited inspection report of the auditors and quarterly financial statements within 45 days at most from the end of the period.

Fourth: Internal Auditor:

A weekly statement must include a report on the following:

1. The extent of the investment manager's compliance with the law, executive regulations, decisions issued to implement them, and the company's control systems, specifically all provisions mentioned in Section Nine of Chapter Two of the executive regulations of Capital Market Law No. 1997/95.
2. Confirmation of the investment manager's compliance with the investment policy issued for each fund it manages, with a statement of any investment restriction violations for any of those funds if the investment manager fails to remove the violations within one week of their occurrence.
3. A statement of them and the measures taken regarding them, if not resolved within one week of their submission to the company, and in case of their existence, it is done.

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