Decision No. 47 of 2019 of the Authority's Board of Directors Regarding the Rules for Forming and Membership Requirements of Sharia Supervisory Boards for Sukuk Issuances Compliant with Islamic Law

Egyptian Financial Regulatory Authority Decision No. 47 of 2019 of the Authority's Board of Directors Date: 19/3/2019 Regarding the Rules for Forming and Membership Requirements of Sharia Supervisory Boards for Sukuk Issuances Compliant with Islamic Law

The Board of Directors of the Egyptian Financial Regulatory Authority, Having reviewed the Capital Market Law issued by Law No. 95 of 1997 and its Executive Regulations; and Law No. 10 of 2009 regarding the regulation of supervision on non-Egyptian markets and financial instruments; and Presidential Decision No. 192 of 2009 issuing the Statute of the Egyptian Financial Regulatory Authority; and the Authority's Board Decision No. 8 of 2014 regarding the regulation of the work of Sharia Supervisory Boards for financial products issued in accordance with Islamic law; and the letter from Al-Azhar Al-Sharif regarding approval of the rules for forming and membership requirements of Sharia Supervisory Boards for Sukuk issuances compliant with Islamic law; and the approval of the Authority's Board of Directors in its session held on 19/3/2019:

Decided:

(Article One) Establishment of a Central Sharia Supervisory Board to approve Sukuk issuances compliant with Islamic law submitted by issuing entities, supervise the Sharia compliance of these Sukuk issuances and the use of their proceeds, and review the quarterly reports submitted to the Authority by the subsidiary Sharia Supervisory Boards in non-banking financial institutions that prepare Sukuk issuances compliant with Islamic law during the period from issuance to redemption, in accordance with the disclosure rules and standards issued by the Authority.

(Article Two) The Board referred to in Article One of this Decision shall be composed of nine members, comprising prominent scholars of Islamic law and some specialists with extensive experience in legal, financial, and monetary fields, as follows:

1. Five members from specialists in Islamic commercial jurisprudence (Fiqh al-Mu'amalat).
2. Four members from specialists in economics, accounting, finance, or law, provided they have knowledge of Islamic law aspects. The formation of the Board shall be issued by a decision of the Authority's Board of Directors for a term of three years, renewable upon its approval. The Board shall have a technical secretariat composed of Authority employees assigned by the Authority's President, responsible for recording meeting minutes, following up on the implementation of its decisions, and maintaining its records and registers. The Authority's Board of Directors may reconstitute the Board and dismiss some of its members via a reasoned decision, after issuing a justified warning with a corrective period, and after hearing the views of the Sharia Supervisory Board or its members regarding the decision to dismiss them.

(Article Three) The following conditions must be met by members of the Central Sharia Supervisory Board:

1. Be registered with the Authority as members of Sharia Supervisory Boards in accordance with the Authority's Board Decision No. 8 of 2014 regarding the regulation of the work of Sharia Supervisory Boards for financial products issued in accordance with Islamic law.
2. Not have been a major shareholder or a member of the management of any company subject to the Capital Market Law during the two years preceding the date of membership. The boards of directors of the aforementioned companies and the President of the Central Sharia Supervisory Board shall notify the Authority of any actual or potential conflicts of interest.

(Article Four) The Central Sharia Supervisory Board shall be responsible for the following:

1. Propose, together with Authority specialists, standard templates and agreements for issuing Sukuk compliant with Islamic law to ensure they are free from Sharia risks.
2. Establish standards, frameworks, and general Sharia provisions for Sukuk issuances compliant with Islamic law.
3. Issue Sharia opinions and classify Sukuk issuance requests according to their compliance with Islamic law, reflecting risk levels and safeguarding Sukuk holders' rights, and submit them to the Authority's Board of Directors, along with practical proposals to the issuing entity for correction or reclassification if possible.
4. Issue opinions and advice on reports periodically submitted to it by the subsidiary Sharia Supervisory Boards in non-banking financial institutions to verify the continued compliance of issued Sukuk with Islamic law principles and provisions from issuance to redemption, in accordance with the Authority's disclosure rules on this matter.
5. Study Sharia issues facing Sukuk issuances during the Sukuk's lifespan (if any) and issue opinions thereon.
6. Review inquiries from subsidiary Sharia Supervisory Boards in non-banking financial institutions and issue Sharia fatwas on the listing, trading, or redemption of any Sukuk issuances or other matters requiring a Sharia fatwa.
7. Assist the Authority in developing training programs for members of subsidiary Sharia Supervisory Boards in non-banking financial institutions or relevant staff to ensure understanding of Islamic formulas and jurisprudential and Sharia aspects in Sukuk issuances compliant with Islamic law.
8. Submit an annual report to the Authority's Board of Directors on the Sharia compliance of outstanding Sukuk in the market, based on a comprehensive study for this purpose and in accordance with periodic reports submitted by the approved subsidiary Sharia Supervisory Boards for those issuances.
9. Issue a bylaw to regulate its work and specify its meetings.
10. Review and adjudicate disputes referred to it arising between non-banking financial institutions and subsidiary Sharia Supervisory Boards regarding any jurisprudential or ijtihadi issues, to interpret Sharia rulings. To achieve the competencies outlined in this Decision, the Board shall have the following powers: (a) Access any documents, records, contracts, or correspondence deemed necessary and essential to enable it to perform its duties and determine the extent of the issuance's compliance with Sharia rulings. (b) Conduct inspections on the work of subsidiary Sharia Supervisory Boards entrusted with issuing opinions on Sukuk issuances to ensure the proper application of Sharia aspects in their work. The Board may enlist the assistance of any Authority employees it deems necessary, subject to the approval of the Authority's President or his delegate.

(Article Five) The Central Sharia Supervisory Board shall hold its first meeting upon invitation by the Authority's President or his delegate, and the Board shall elect a President and a Vice President from among its members at this meeting. The Board shall convene upon invitation by its President or Vice President (in his absence) at least once a month. A meeting shall be valid with the attendance of a majority of its members, including the President or Vice President, and its decisions shall be made by a majority of its members.

(Article Six) Subsidiary Sharia Supervisory Boards shall be formed from a number of members not less than three and not exceeding five, with the majority being specialists in jurisprudence and commercial transactions, preferably with knowledge of economics, accounting, and law. Committee members must be registered with the Authority as members of Sharia Supervisory Boards in accordance with the Authority's Board Decision No. 8 of 2014 regarding the regulation of the work of Sharia Supervisory Boards for financial products issued in accordance with Islamic law.

(Article Seven) Members of the subsidiary Sharia Supervisory Board shall be appointed by the General Assembly of Shareholders of the company or the competent authority in other entities for a term of three years, renewable. The General Assembly or competent authority, as applicable, shall be responsible for determining the financial remuneration of committee members, following up on reports issued by them, whether internal or external, in accordance with the Authority's Board Decision on periodic disclosure, and taking any administrative measures in case of proven legal or disciplinary violations resulting from non-compliance with Sharia fatwas and decisions, as well as related laws, regulations, rules, and systems. Meetings of the subsidiary Sharia Supervisory Board shall be periodic, at least once a month.

(Article Eight) Subscription circulars and contracts concluded by the Sukuk issuing entity or investment financial instruments designated as compliant with Islamic law shall be submitted to the subsidiary Sharia Supervisory Board for full review and study from all Sharia aspects, based on reports and decisions of the Central Sharia Supervisory Board. The Board may approve the submitted documents as is after verifying compliance with Sharia standards, approve them after making necessary amendments, or reject them in cases where approval or amendment is not feasible, with decisions issued by a majority of its members. Furthermore, it is required that the instruments intended for listing and trading in Sukuk compliant with Islamic law be authorized by the subsidiary Sharia Supervisory Board and approved by the Central Sharia Supervisory Board. The fatwas and decisions issued by the Board regarding Sharia aspects related to its work shall be binding on the subsidiary Sharia Supervisory Boards, the beneficiary entity, or any parties associated with the Sukuk issuance process. The issuing entity or Sukuk issuance company must comply with the formulas issued by the Board to conduct the related Sukuk issuance activity. Working with formulas that have not been accompanied by a clear and explicit fatwa from the Board is prohibited. The Board's fatwas and decisions shall be recorded in special registers and retained for a period of no less than five years.

(Article Nine) This Decision shall be published in the Egyptian Gazette and on the Authority's website, and shall take effect from the day following its publication in the Egyptian Gazette.

President of the Authority's Board of Directors Dr. Mohamed Omran