Board Decision No. 130 of 2019 on Supervisory Controls for Combating Money Laundering and Terrorist Financing for Entities in Non-Banking Financial Activities

Egyptian Financial Regulatory Authority
Board Decision No. 130 of 2019
Dated 28/8/2019

Regarding Supervisory Controls for Combating Money Laundering and Terrorist Financing for Entities in Non-Banking Financial Activities

The Board of Directors of the Egyptian Financial Regulatory Authority, Having reviewed Law No. 10 of 1981 regarding supervision and oversight of insurance in Egypt and its executive regulations; And Law No. 159 of 1981 regarding joint stock companies, partnerships limited by shares, limited liability companies, and single-shareholder companies and its executive regulations; And Law No. 146 of 1988 regarding public companies in the field of receiving funds for investment and its executive regulations; And Capital Market Law No. 95 of 1992 and its executive regulations; And Central Depository and Registry of Securities Law No. 93 of 2000 and its executive regulations; And Real Estate Financing Law No. 148 of 2001 and its executive regulations; And Combating Money Laundering Law No. 80 of 2002 and its executive regulations; And Law No. 10 of 2009 regulating oversight on non-banking markets and financial instruments; And Law No. 141 of 2014 regulating microfinance activities and the decisions issued in implementation thereof; And Law No. 8 of 2015 regarding the regulation of terrorist entities and terrorists lists; And Combating Terrorism Law No. 94 of 2015; And Leasing and Factoring Activities Regulation Law No. 176 of 2018; And Presidential Decree No. 191 of 2009 regarding the rules governing the management and financial affairs of the Egyptian Exchange; And the FRA's Statute issued by Presidential Decree No. 192 of 2009; And FRA Board Decision No. 11 of 2014 regarding rules for listing and delisting securities on the Egyptian Exchange and its amendments; And FRA Board Decision No. 107 of 2016 regarding corporate governance rules for companies operating in the securities field; And FRA Board Decision No. 53 of 2018 regarding controls for granting and maintaining licenses and rules for share ownership of companies operating in non-banking financial activities; And FRA Board Decision No. 94 of 2018 regarding rules and procedures for trading non-complex securities on the Egyptian Exchange tables and transfer procedures; And Capital Market Authority Board Decision No. 87 of 2008 regarding supervisory controls for combating money laundering and terrorist financing for companies operating in the securities field, companies receiving funds for investment, and securitization companies; And the approval of the Minister of Investment on the FRA Board Decision No. 189 dated 28/8/2019 regarding approval of supervisory controls for combating money laundering and terrorist financing; And the Chairman of the General Authority for Investment and Free Zones Decision No. 277 of 2003 regarding supervisory controls for combating money laundering and terrorist financing for leasing companies and companies operating in factoring activities; And Capital Market Authority Decision No. 24 of 2007 regarding licensing controls for workers in securities brokerage companies; After consultation with the Financial Intelligence Unit for Combating Money Laundering and Terrorist
Financing; And upon approval by the Board of Directors in its session held on 28/8/2019

It has been decided:

(Preamble One)
The anti-money laundering and counter-terrorist financing controls stipulated in this Decision shall apply to the Egyptian Exchange, financial institutions, and natural persons licensed by the Authority to conduct any of the non-banking financial activities. The provisions of the Combating Money Laundering Law, its executive regulations, and decisions issued in implementation thereof shall also apply to matters not specifically addressed in these controls.

(Preamble Two)
Definitions
In the application of the provisions of this Decision, the following terms shall have the meanings indicated alongside each:

• Authority: The Egyptian Financial Regulatory Authority.
• Unit: The Financial Intelligence Unit for Combating Money Laundering and Terrorist Financing established pursuant to Law No. 80 of 2007.
• Law and its Executive Regulations: The Combating Money Laundering Law issued by Law No. 80 of 2007, its executive regulations, and amendments thereto.
• Financial Institutions: Legal persons licensed by the Authority to conduct non-banking financial activities.

Money Laundering: Any act stipulated in Article (2) of the Combating Money Laundering Law issued by Law No. 80 of 2007.
Terrorist Financing: Any act stipulated in Article (3) of the Combating Terrorism Law No. 94 of 2015.
Terrorist Entities: Associations, organizations, groups, gangs, cells, or other gatherings, regardless of their legal or factual form, that commit any of the acts stipulated in Article (1) of the Law Regulating Lists of Terrorist Entities and Terrorists No. 8 of 2015. Negative Lists: The lists of terrorist entities and terrorists regulated under Law No. 8 of 2015, lists issued by the United Nations Security Council related to terrorist financing and financing of proliferation of weapons of mass destruction, and any other lists that financial institutions are subject to or deem necessary to consult. Unusual Transactions: Transactions that appear exceptional compared to the usual pattern of customer transactions, identified through reports and internal systems of financial institutions. Suspicious Transactions: Transactions that, upon examination, reveal objective grounds for suspicion that they constitute proceeds of any crime or involve money laundering or terrorist financing. Proceeds: Funds resulting or traceable, directly or indirectly, from the commission of any predicate crime. Predicate Crime: Any act constituting a felony or misdemeanor under Egyptian law, whether committed inside or outside the country, provided it is punishable in both jurisdictions. Customer: A natural person, legal person, or legal arrangement for whom a financial institution opens an account, conducts a transaction on their behalf, or provides a service.

Beneficial Owner: The natural person who ultimately owns or controls the customer, or the natural person on whose behalf a transaction is being executed, including persons who effectively exercise actual control over the customer, whether the customer is a legal person or a legal arrangement.

(Preamble Three)
Basic Principles
Legal persons subject to the provisions of this Decision shall adhere to the following principles:

Article One

• Responsibility: Establishing a clear policy on combating money laundering and terrorist financing, and formulating rules, procedures, and internal systems that assist in achieving this, taking into account the nature, size, customer base, and complex products or services of the activity conducted, and continuously ensuring full compliance with legal requirements and regulatory procedures, in accordance with the Law, its Executive Regulations, these controls, and other relevant rules.

Article Two

• Risk-Based Approach: Adopting a risk-based approach in accordance with legal requirements, its Executive Regulations, and these controls, which includes identifying, assessing, and understanding potential money laundering and terrorist financing risks, documenting them in written and electronic formats, and periodically updating this assessment and related information, taking into account any risks identified at the local level and any variables that may alter money laundering and terrorist financing risk levels. Legal persons subject to this Decision must also identify and assess money laundering and terrorist financing risks that may arise from using modern technological systems while providing services and products, or offering any new services or products relying on these systems, and take appropriate measures to manage these risks. When identifying and assessing the money laundering and terrorist financing risks they face, they shall consider the following elements:
• Types of current and prospective customers.
• Products and services provided or intended to be provided.
• Technologies used or intended to be used.
• Risks of relying on third parties, and geographical risks.
  They must also take necessary measures and procedures to address identified risks.

Article Three

• Due Diligence and Continuous Training: Adopting realistic policies and procedures for selecting and appointing competent and professionally skilled personnel and ensuring their integrity, and subjecting current and new employees to continuous training in combating money laundering and terrorist financing as stipulated in this Decision.

(Preamble Four)
Customer Due Diligence Procedures
Entities subject to this Decision must comply with customer due diligence procedures and other rules, controls, and procedures related to combating money laundering and terrorist financing issued by the Unit – generally in accordance with Article 3, Paragraph (13) of the Executive Regulations of the Law issued under Prime Ministerial Decree No. 951 of 2003. Therefore, upon signing a contract with a customer, the customer, including natural persons, legal persons, and beneficial owners, must be identified.

(Preamble Five)
Internal Control Systems
Legal persons subject to this Decision must prepare an internal operations manual to be approved by the Authority's Board of Directors upon the Authority's approval immediately upon its adoption. The manual must include the systems and procedures followed to ensure proper implementation of rules, controls, and procedures related to combating money laundering and terrorist financing, while observing the provisions of the Law and its Executive Regulations. This manual must be reviewed periodically to assess its updates and development, and necessary measures must be taken accordingly. The manual must include at least the following:

• 1. Establishing clear detailed procedures to combat money laundering and terrorist financing, and written detailed procedures that ensure precise definition of duties and responsibilities.
• 2. Mechanisms to verify compliance with internal systems established to combat money laundering and terrorist financing.
• 3. Requirements necessary for effectively managing money laundering and terrorist financing risks, including human expertise capable of handling these risks and the necessary technological infrastructure.
• 4. Internal control systems followed in identifying unusual or suspicious transactions and bringing them to the attention of the money laundering and terrorist financing compliance officer.
• 5. Procedures to detect whether customers are listed on negative lists and the procedures to be taken to verify customer identity, whether upon account opening or contract initiation.
• 6. Reconciliation procedures and follow-up actions when such lists are updated.
• 7. A system for classifying customers according to money laundering and terrorist financing risk levels and managing these risks, to be updated periodically.
• 8. Procedures to ensure no collusion between employees of the legal person subject to this Decision and their customers.
• 9. Systems ensuring that internal audit or audit committees – as applicable – in coordination with the director responsible for combating money laundering and terrorist financing, examine the established systems to verify their efficiency and effectiveness in combating money laundering and terrorist financing, and propose necessary preventive measures or updates and development.
• 10. Rules for retaining documents and records that legal persons subject to this Decision must maintain, and specifying retention methods.
• 11. Developing training plans and programs for employees aimed at raising awareness and improving their competence regarding known rules and systems on combating money laundering and terrorist financing.
      Financial institutions with subsidiaries or branches outside the Arab Republic of Egypt must implement anti-money laundering and counter-terrorist financing programs according to the risks and business volume there, which include the policies, procedures, and internal controls stipulated in the above article, in addition to the following:
• Establish an independent audit unit to test the anti-money laundering and counter-terrorist financing system.
• Establish policies and procedures for exchanging necessary information for customer due diligence and managing money laundering and terrorist financing risks between financial institutions and their subsidiaries or branches, as applicable.
• Establish a mechanism to obtain information related to customers, accounts, and transactions from branches or subsidiaries through the internal auditor and/or the money laundering and terrorist financing compliance officer when necessary for compliance purposes. These mechanisms must include analyzing all information, reports, or transactions that appear unusual. Compliance with the approval of the director responsible for combating money laundering and terrorist financing and informing the mentioned branches and subsidiaries of this information is mandatory.
  In all cases, those institutions must ensure that their subsidiaries or branches comply with anti-money laundering and counter-terrorist financing rules in accordance with the Law, its Executive Regulations, and this Decision.