FRA Board Decision No. 33 of 2018 on Regulations Governing Investment Funds' Trading in Negotiable Securities

Egyptian Gazette - Issue No. 108 on March 12, 2018

General Authority for Financial Supervision
Board of Directors Decision No. 33 of 2018
dated 3/4/2018

Regarding the Regulations Governing the Trading of Investment Funds in Negotiable Securities

The Board of Directors of the General Authority for Financial Supervision
Having reviewed Law No. 159 of 1981 on Joint Stock Companies, Companies Limited by Shares, Limited Liability Companies, and Single-Shareholder Companies;
And the Capital Market Law No. 95 of 1992 and its implementing decisions;
And the Central Depository and Registration of Securities Law No. 93 of 2000;
And its implementing regulations;
And Law No. 109 of 2009 on Regulating Supervision over Non-Egyptian Markets and Financial Instruments;
And Law No. 141 of 2014 on Regulating Microfinance Activities;
And FRA Board Decision No. 173 of 2014 on Rules and Regulations for Companies Conducting Microfinance Activities;
And FRA Board Decision No. 31 of 2015 on Rules and Standards for Microfinance Activities by Associations and Civil Society Institutions;
And with the approval of the Board of Directors in its session held on 3/4/2018;

Decided:

(Article One)
The Authority may license investment funds designated for financing microfinance activities to trade in negotiable securities, in accordance with Article (35) of Law No. 95 of 1992, by purchasing microfinance portfolios from entities licensed by the Authority.
And managing microfinance activities by the Authority, in accordance with the regulations set forth in this Decision.
The license to trade in negotiable securities for the funds established and offering their documents privately in accordance with Article (179) of the Executive Regulations of the Capital Market Law shall be granted, provided that the fund's main prospectus includes investing in negotiable securities primarily by financing entities licensed by the Authority to conduct microfinance activities.

(Article Two)
The license application shall be submitted by the fund's legal representative, accompanied by documents supporting the availability of the licensing conditions referred to in this Decision.
The Authority shall review the application and decide on it within a period not exceeding five working days from the date of submission of a complete application, and in case of approval, a license certificate shall be issued.

(Article Three)
The investment policy of the fund included in the fund's information memorandum shall specify the conditions required for the investment manager to purchase microfinance portfolios from entities licensed by the Authority to conduct microfinance activities, specifically as follows:
1- The minimum guarantees provided by the surrounding entity of the fund, as required.
2- The determination of whether to finance the acquisition contracts or not.
3- Determining the credit policy followed by the investment manager, as required for accepting the portfolio/portfolios' credit status into the fund, specifically the limits and ratios permitted for investment.
4- Risks associated with the fund's investments, specifically:

• Credit risk.
• Position risk for ratios determined by the investment policy.
• Liquidity risk.
• Interest rate change risk and profitability risk.
• Commitments and associated risks, and the mechanism for implementing each of the methods for fulfilling its commitments.
  The fund may allocate a portion of its funds not exceeding (10%) of its net assets to invest in other financial instruments for liquidity purposes, provided that the information memorandum specifies details on those instruments and their maximum limit.

(Article Four)
The investment manager, when purchasing microfinance portfolios from entities licensed by the Authority to conduct microfinance activities, shall comply with the following:
1- Verifying the surrounding entity's compliance with the financing grant considerations specified in FRA Board Decision No. 173 of 2014 and No. 31 of 2015, while meeting the financial solvency standards specified in this Decision.
2- Reviewing the periodic supervisory reports prepared by the surrounding entities for the Authority.
3- The microfinance portfolio to be acquired shall be valid, finalized, and transferable, conveying ownership of all rights, dues, descriptions, and guarantees stipulated for the portfolio in question.
4- The contracts constituting the financing portfolio shall not be in a state of total default at the time of acquisition.
5- The executed contracts and documents related to the acquired financing portfolios shall be transferred to the fund, with the investment manager obligated to keep those documents with one of the licensed custodians for that activity by the Authority.
6- Providing electronic linkage between the investment manager and the surrounding entity/entities for the microfinance portfolio, enabling the investment manager to interact with the electronic loan monitoring system of the surrounding entity/entities for those credit portfolios.
The investment manager shall also comply with the following during the acquisition period:
1- Monitoring the credit portfolios in question for the fund through the electronic loan monitoring system established by the surrounding entity/entities.
2- Establishing a risk management system related to the credit portfolios in question for the fund and obtaining its approval from the fund's Board of Directors, with a risk management department for the investment manager equipped with appropriate software, adhering to the regulations specified in Article (18) of FRA Board Decision No. 173 of 2014.
3- The investment manager's periodic reports to the fund's Board of Directors shall include this matter.
4- Preparing a quarterly report for the fund's Board of Directors covering its operational results, accompanied by the fund's periodic financial statements.

(Article Five)
The collection of amounts corresponding to financing preservation shall be subject to the conditions specified in the Authority's Management Decision No. 173 of 2014 and FRA Board Decision No. 31 of 2015, with the entity/entities responsible for collection obligated to deposit collected amounts into the fund's account.
A copy of the collection contract shall be submitted to the Authority.
Management service companies, when evaluating the fund's documents, shall consider the nature of the microfinance fund's activity, specifically considering the basis for calculating provisions for doubtful-to-collect financing balances.

(Article Six)
In matters not specifically addressed in this Decision, the provisions related to the Capital Market Law and its executive regulations shall apply.

(Article Seven)
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.

Chairman of the Board of Directors
Dr. Mohamed Omran