Board of Directors Decision No. 100 of 2020 on Corporate Governance Rules for Companies in Non-Banking Financial Activities

General Authority for Financial Supervision
Board of Directors Decision No. 100 of 2020
Dated 23/6/2020
Regarding Corporate Governance Rules for Companies Operating in Non-Banking Financial Activities

The Board of Directors of the General Authority for Financial Supervision, Having reviewed:
The Law on Joint Stock Companies, Companies Limited by Shares, and Limited Liability Companies; And the Law on Single-Person Companies issued by Law No. 159 of 1981 and its Executive Regulations; And Law No. 10 of 2009 regarding the regulation of supervision over non-banking financial markets and instruments; And Board of Directors Decision No. 11 of 2014 regarding the rules for restricting and delisting securities on the Egyptian Exchange; And Board of Directors Decision No. 173 of 2014 regarding the rules and controls for companies practicing microfinance; And Board of Directors Decision No. 87 of 2015 regarding the requirements for the internal regulations of real estate financing companies; And Board of Directors Decision No. 84 of 2016 issuing the Egyptian Corporate Governance Guide; And Board of Directors Decision No. 107 of 2016 regarding corporate governance rules for companies operating in the securities field; And Board of Directors Decision No. 53 of 2018 regarding controls for preventing licensing and continuation and rules for owning shares of companies operating in non-banking financial activities; And Board of Directors Decision No. 164 of 2018 regarding the executive rules for corporate governance of companies licensed to practice financing leasing and factoring activities; And Board of Directors Decision No. 68 of 2019 regarding the definition of an independent board member in companies licensed to practice non-banking financial activities; And Board of Directors Decision No. 120 of 2019 regarding supervisory controls in the field of combating money laundering and financing terrorism for entities working in non-banking financial activities; And Board of Directors Decision No. 121 of 2019 regarding controls for restricting investors in combating money laundering and financing terrorism for entities working in non-banking financial activities with the Authority; And Board of Directors Decision No. 61 of 2020 regarding the executive rules for corporate governance of consumer financing companies; And after the approval of the Board of Directors in its session held on 23/6/2020;

Decided:

(Article One)
Without prejudice to the Board of Directors' decisions issued regarding controls for preventing licensing and continuation for companies operating in non-banking financial activities, as well as the rules for restricting and delisting securities on the Egyptian Exchange, the governance rules accompanying this decision shall apply to the following companies, as one of the requirements for the continuation of licensing to practice the activity:
1 - Companies operating in the securities field.
2 - Real estate financing companies.
3 - Real estate refinance companies.
4 - Microfinance companies.
5 - Financing leasing companies.
6 - Factoring companies.
7 - Consumer financing companies.

(Article Two)
The following decisions are repealed:
1 - Board of Directors Decision No. 107 of 2016 regarding corporate governance rules for companies operating in the securities field.
2 - Board of Directors Decision No. 164 of 2018 regarding the executive rules for corporate governance of companies licensed to practice financing leasing and factoring activities.
3 - Board of Directors Decision No. 61 of 2020 regarding the executive rules for corporate governance of consumer financing companies.
Any provision contrary to the provisions of the rules accompanying this decision is also repealed.

(Article Three)
The companies addressed by the provisions of this decision are subject to a grace period of one year from the date of its implementation to document their status in accordance with the provisions of the accompanying rules. Furthermore, these companies must regularize their status regarding the prohibition of combining the position of Chairman of the Board with the position of Managing Director or CEO in the first board election or within one year at the latest from the date of this decision.

(Article Four)
This decision shall be published in the Egyptian Gazette and on the electronic websites of both the Authority and the Egyptian Exchange, and shall be implemented from the day following its publication in the Egyptian Gazette.
Chairman of the Board of Directors of the General Authority for Financial Supervision Dr. Mohamed Omran

Corporate Governance Rules for Companies Operating in Non-Banking Financial Activities

1 - The Board of Directors
1.1 Formation of the Board of Directors:
1.1.1 The company's articles of association must specify the number of board members, and the board shall consist of a suitable number of members capable of performing its functions and duties, including forming its committees. Without prejudice to the provisions governing the formation of investment fund boards under the Capital Market Law and its executive regulations, the majority of the board members shall be non-executive, and at least half of the non-executive members shall be independent.
For the purpose of applying the provisions of this decision, an independent board member is defined as:
A member appointed to the board with expertise, who is non-executive and not a shareholder in the company, whose relationship with the company is limited to his membership on its board. This member does not represent the company's owner, nor does he receive remuneration, commissions, or fees from it except for what he receives for his board membership. He has no special interest in the company, nor is he related by blood or marriage to any of its shareholders, board members, executive management, or employees up to the second degree. He is also not among the senior employees, advisors, or auditors of the company during the three years preceding his appointment to the board. An independent board member in a holding company may not serve on the board of a subsidiary with the same status unless the holding company owns at least 85% of that subsidiary, subject to the approval of the majority shareholders of the subsidiary. In all cases, when selecting independent members, it must be ensured that the member has appropriate expertise, is able to dedicate sufficient time and attention to the company, and has no conflict with other interests. The status of independence of a board member expires after six consecutive years of membership. He may not be reappointed in this capacity until three years have passed since the end of his board membership.
1.1.2 The company must use the cumulative voting method when electing board members. This method allows the majority shareholders to have representation on the board, granting each shareholder a number of votes equal to the number of shares they own, either for one candidate or more, in a manner that allows for proportional representation on the board as much as possible.
1.1.3 Combining the position of Chairman of the Board with the position of Managing Director or CEO is prohibited for companies operating in the securities field. The two positions may not be combined unless there are justified reasons, in which case the company must disclose these reasons to the Authority.
1.1.4 The board's composition must include at least a certain percentage of women, except for professional companies specified by the Chairman of the Authority.
1.1.5 A board member may not serve on the board of another company practicing the same activity unless it is a subsidiary or sister company, adhering to the principle of no conflict of interest when serving on the board of a direct subsidiary.
1.1.6 Any conditions or controls issued by the Board of Directors of the Authority regarding board members shall apply to the board members of the companies covered by these rules.
1.1.7 The company must immediately notify the Authority upon the termination of a board member's term or the existence of a reason preventing him from performing his duties for a long period, stating the reason for the termination of membership or the reason for the member's inability to perform his duties.

2 - Role and Duties of the Board of Directors:
2.1 The company's articles of association must clearly and detailedly define the board's competencies and the decisions of its members. Board members must dedicate sufficient time to fulfilling their responsibilities, including preparing for board meetings and permanent and temporary committees, and attending these meetings. They must also consider the interests of the company and its shareholders.
2.2 The board of directors must determine the company's strategic objectives, approve its policies, plans, budgets, organizational structure, and appendices. It is responsible for monitoring the performance of executive management, ensuring the effectiveness of the internal control system and risk management, complying with all laws, executive regulations, and regulatory decisions, and determining the optimal method for applying its governance rules.

3 - Board of Directors' Working System:
3.1 The board of directors must meet at least once every three months or whenever necessary, upon invitation from the Chairman of the Board or according to the areas specified in the Law on Joint Stock Companies No. 159 of 1981. The board may hold its meetings via modern communication means and technological applications, subject to establishing controls for using these means in meetings and remote participation.
3.1 The Chairman of the Board must send the agenda along with documents and memoranda to members well in advance of the meeting. The board approves the agenda upon convening, and any member's objection to any agenda item must be recorded in the minutes with reasons stated.
3.1 The board must document its meetings and prepare detailed minutes of discussions and deliberations, including the voting process and decisions made. Minutes of these meetings and issued decisions must be preserved and documented in a manner that facilitates reference.
3.1 The board appoints a secretary from one or more competent employees of the company. The secretary performs at least the following tasks:
Assisting the Chairman in preparing the meeting agenda, preparing information, data, and details on these topics, and sending them to members well in advance.
Taking minutes of meetings and preserving them.
Monitoring the issuance and implementation of board decisions, notifying relevant departments, and preparing follow-up reports.
Preparing for committees derived from the board.
Preparing for ordinary and extraordinary general assembly meetings and preserving their minutes.
Monitoring the documentation of minutes and addressing comments from relevant authorities.

4 - Board Members' Obligation to Avoid Conflicts of Interest:
4.1 The company is prohibited from granting loans or financing to its board members, executive management, or any of their relatives up to the second degree.
4.1 A board member may not have a direct or indirect interest in the business and contracts conducted on behalf of the company except with prior approval from the General Assembly, renewed annually. Board members must notify the board of all information and data regarding the existence of a conflict of interest with the company, including any direct or indirect interest in business and contracts conducted on behalf of the company, as well as disclosing any material interests, transactions, or matters affecting the company's activity or interests. The disclosure must include the type, value, nature, and expected material benefit of these transactions, without disclosing interests related to positions held by the member. This notification must be recorded in the board meeting minutes. The member may be asked not to attend discussions concerning him. The Chairman of the Board must notify the General Assembly upon its convening of business and contracts in which a board member has a personal interest, and the auditor has the right to issue a special report.
4.1 A board member may not, without prior approval from the General Assembly renewed annually, participate in any activity that competes with the company or involves taking any branch of the activity it practices. Conflicts of interest must be disclosed even if no transactions are conducted.

2 - Committees Derived from the Board of Directors 1 - General Provisions
1.1 Without prejudice to the provisions governing the formation of the committees mentioned in these rules, the board of directors must form a number of committees from among its members or others to assist the board in performing its duties effectively, commensurate with the company's activity and needs.
1.2 These committees are formed by a decision of the board of directors based on selection criteria, membership method, term, quorum, reporting, task definition, and notification to the General Assembly for approval.
1.3 The board of directors drafts the necessary regulations for forming its committees, their competencies, working method and term, supervision methods, and procedures for periodic monitoring. These regulations must be submitted to the General Assembly for approval.
1.4 The committee must meet at least once every three months and periodically notify the board of directors of the results of its work and any recommendations or decisions made if authorized to issue them.

2 - Audit Committee
2.1 The board of directors is committed to forming an Audit Committee consisting of at least three non-executive board members, who may include independent members, with one of them serving as Chairman. In all cases, committee members must be known for competence and expertise in the company's field of work, and at least one member must have experience in financial and accounting affairs. The committee may invite the auditor or other suitable non-members to attend its meetings.
2.2 The Audit Committee is responsible for at least the following:
1 - Studying the internal control system, providing comments and recommendations on it, and proposing amendments to ensure its effectiveness.
2 - Studying internal audit reports, putting corrective procedures in place, proposing recommendations, and monitoring implementation.
3 - Making proposals to the board to appoint and dismiss the auditor, determine their fees, and establish controls ensuring their independence and continuity.
4 - Studying the scope of the audit with the auditor, providing comments, and expressing an opinion on assigning other non-audit work, proposing fees for such work in a manner consistent with Egyptian audit standards and without compromising independence.
5 - Studying the draft preliminary financial statements before presenting them to the board for sending to the auditor.
6 - Studying the auditor's report on the financial statements, discussing comments and reservations, monitoring follow-up actions, and working to resolve differences of opinion between management and the auditor.
7 - Studying adopted accounting policies and expressing opinions and recommendations to the board.
8 - Preparing a periodic report at least every three months or whenever necessary on the committee's work results and presenting it to the board of directors.

3 - Risk Committee
3.1 The board of directors is committed to forming a Risk Committee consisting of at least three members, the majority of whom are non-executive board members and independent members. The committee may include members from outside the company, and the Chairman must be a non-executive or independent member.
3.2 The board of directors of the following companies is committed to forming a Risk Committee:
1 - Companies operating in the securities field when executing operations or managing assets/funds on behalf of others valued at 500 million EGP or more annually.
2 - Companies licensed to practice custodian activities when the market value of securities held exceeds 500 million EGP.
3 - Companies licensed to practice central depository and registration activities.
4 - Real estate financing companies.
5 - Real estate refinance companies.
6 - Microfinance companies.
7 - Financing leasing companies.
8 - Factoring companies.
9 - Consumer financing companies.
3.3 The board of directors may merge the Audit and Risk Committees into one committee if their business volume does not exceed three times the business volume associated with the activities specified in sub-clauses (1, 2) of clause (2-3-2). In case of merger, the rules for forming the Audit Committee must be followed.
3.4 The Risk Committee is responsible for at least the following:
1 - Establishing regulatory frameworks, procedures, and rules necessary to deal with all types of risks other than strategic risks handled by the board, such as operational, market, credit, reputation, information systems, and sustainability risks.
2 - Assisting the board in identifying and assessing the level of risk acceptable to the company and ensuring the company does not exceed this risk limit.
3 - Verifying the existence of an effective record-keeping and information system operated efficiently.
4 - Preparing a periodic report at least every three months or whenever necessary on the committee's work results for presentation to the board.

4 - Audit and Risk Committees for Holding and Subsidiary Companies Companies subject to these rules and their subsidiaries in one of the non-banking financial activities, provided the ownership percentage is not less than 85%, may rely on a single central committee (or an audit and risk committee as appropriate) instead of the provisions of clause (3-3-2), subject to the approval of the majority shareholders of the subsidiary and adhering to the following controls:
1 - The Audit Committee must prepare a separate report for the holding company and subsidiaries and present the report or recommendations to the board of the concerned company at the first subsequent meeting, with discussion mentioned in the board minutes.
2 - Internal Audit Management must prepare a separate report for the holding company and subsidiaries and submit the report, recommendations, or comments to the Chairman of the Board of the concerned company and the Audit Committee, with discussion mentioned in the Audit Committee meeting minutes and its special report for the concerned company.

5 - Governance Committee
5.1 A Governance Committee must be formed consisting of at least three non-executive and independent board members.
5.2 The Governance Committee is responsible for:
1 - Periodic evaluation of the company's governance system and drafting internal guides, charters, and policies for applying governance rules.
2 - Preparing an annual report on the company's compliance with corporate governance rules, with appropriate procedures to complete their application.
3 - Reviewing the company's annual report and the board's report, especially regarding disclosure items and other items related to corporate governance.
4 - Preserving, documenting, and monitoring reports on board performance evaluation.
5 - Studying comments from regulatory authorities on the application of governance in the company, taking them into account, and monitoring follow-up actions.
5.3 The board of directors may delegate all competencies of the Governance Committee to the Audit Committee.

6 - Other Committees Derived from the Board of Directors The board of directors may form other committees derived from it tasked with subjects deemed necessary for the proper performance of its duties (such as Nomination and Remuneration Committee, Compliance Committee, Information Technology Committee, etc.). These committees may include executive board members or experts from outside the company in addition to board members.

3 - General Assembly Meetings
3.1 Subject to the provisions of Law on Joint Stock Companies No. 159 of 1981 and its executive regulations, the Chairman of the General Assembly must approve the auditor's report, annual financial statements, and the board's annual report immediately after their approval by the board of directors and after any amendments deemed necessary by the Authority, within three months from the end of the financial year.
3.2 The company must facilitate participation for shareholders in the General Assembly, including choosing suitable timing and location. The company may use appropriate electronic systems to call for meetings, present agenda items, and allow shareholders to vote remotely. The electronic voting system must allow shareholders to express their opinion on topics presented at the assembly within the five working days preceding the meeting. At the end of the specified period for remote voting, the final voting file is prepared after verifying shareholder status on the day of the meeting and submitted to the assembly for approval and counting towards the quorum. The member who voted remotely has the right to attend the assembly and re-vote if desired, canceling their previous vote.
3.3 The company must provide all information enabling shareholders to fully exercise their rights. This information must be available sufficiently, accurately, and regularly, without discrimination among shareholders.
3.4 The company must inform shareholders at the General Assembly of its dividend distribution policy and the reasons for retaining profits as reserves or carried forward profits, supported by the auditor's opinion.
3.5 Entities entitled to represent more than one shareholder at General Assembly meetings must do so in cases of conflict of interest among the shareholders they represent.

4 - Disclosure and Transparency
4.1 The company must disclose to the Authority any material events affecting its activity or counterparties immediately upon occurrence, specifically:
1 - Inability or cessation of the company to meet its debts or financial obligations to third parties.
2 - Changes leading to non-compliance with any financial standards the company must adhere to.
3 - Filing for bankruptcy or administrative seizure against the company.
4 - Any circumstances that may weaken the company's ability to protect its clients' rights.
4.2 The company must monitor the Authority regarding its shareholder structure (those owning 5% or more of its shares), its board of directors, and its organizational structure of key position holders, attaching a recent official extract from the Commercial Register in January of each year. It must also monitor and notify the Authority of any modifications to this data within five working days of occurrence, without prejudice to the necessity of obtaining prior approval from the Authority for holding certain positions.
4.3 The board of directors must disclose to the Authority any modification in the board's composition or its derived committees immediately upon occurrence.
4.4 The company must monitor the Authority with the minutes of ordinary and extraordinary General Assembly meetings, as well as board of directors meetings, within ten days of their convening.
4.5 The company must monitor the Authority with the annual financial statements and the auditor's audit report, accompanied by the management report, before the assembly convenes, and present this to the General Assembly within three months of the end of the financial year. The company is also committed to providing the Authority with quarterly financial statements accompanied by a limited assurance report from the auditor within forty-five days at least from the end of the period for which the financial statements are submitted.
4.6 Without prejudice to the obligations and disclosures required by the company to be included in the board's annual report as stipulated by the Law on Joint Stock Companies, Companies Limited by Shares, and Limited Liability Companies, and Single-Person Companies issued by Law No. 159 of 1981 and its executive regulations, the board of directors must prepare an annual report on the company's performance, which must be independent regarding the accuracy and integrity of its contents. The annual report must be attached to the annual financial statements and the auditor's report and a copy submitted to the Authority as specified in clause (5-4). This report must be made available to shareholders well in advance of the assembly. The annual report must include the following items:
1 - A review of the company's operations and financial position.
2 - The future outlook for the company's activity during the financial year and its directions.
3 - A review of the activities and results of subsidiary companies, if any.
4 - A summary of changes in the company's main capital structure.
5 - Formation of the board of directors and member qualifications.
6 - Statement on the number of board meetings and attendance rates for each member.
7 - Statement on committees derived from the board, their formation, number of meetings, and a review of their work results.
8 - Disclosure of transactions with related parties and barter contracts with all details and data.
9 - Statement on the company's compliance with applying governance rules and reasons for non-compliance with any of them.
10 - The policy adopted by the company regarding its social and environmental responsibility.
11 - In case the company applies a system for rewarding and incentivizing employees and managers through share ownership: the total shares available under this system, the total granted during the year, the number of beneficiaries, the total shares granted since the system started, and the total number of beneficiaries (or 1% of the company's capital) according to the system applied. 12 - Measures or penalties imposed on the company by the company, the Authority, the Egyptian Exchange, or the Central Depository and Registration Company.

5 - Supervisory Environment
5.1 The company must have an integrated internal control system aimed at limiting risks, protecting counterparties, preventing the leakage of insider information, and verifying the company's and its employees' compliance with relevant laws, regulations, and regulatory decisions. This system also aims to verify the establishment of accountability and responsibility rules within the company and protect its resources from loss and misuse. Internal control systems must specifically include:
1 - Verification of the separation of functional tasks that cannot be combined within the same company.
2 - Procedures to protect the company's tangible and intangible assets from potential risks, with such assets documented in the company's records.
3 - Measures ensuring the confidentiality of information and preventing the use of any insider information.
4 - Verification that company employees do not engage in activities requiring specific licenses or approvals unless obtained, and that they are not subject to any penalties preventing them from performing these activities.
5 - Verification of obtaining necessary approvals for dealing in the stock exchange for company employees in cases requiring this.
The company must establish a guide for internal control procedures, approved by the board of directors based on the Audit Committee's recommendation.
5.2 The board of directors must appoint an internal auditor (Internal Audit Manager) responsible for monitoring the application of governance rules, the company's and its employees' compliance with governing laws, internal policies, and regulations, as well as monitoring the implementation of policies related to social and environmental responsibility. The internal auditor submits periodic reports to the Audit Committee.
5.3 The company must have a dedicated internal audit department responsible for establishing control procedures and verifying their effectiveness. The internal control system and procedures must be based on a study of risks facing the company, with periodic monitoring and reporting of these risks, utilizing recommendations from the board of directors, Audit Committee, auditors, and company managers. The board of directors issues a decision determining the objectives, duties, and authorities of the internal audit department, which must commit to submitting periodic reports at least by doing the following:
1 - Evaluating the efficiency of the company's internal control system and submitting a report to the Chairman of the Board and the Audit Committee with findings.
2 - Evaluating the company's compliance with all implementation procedures related to work.
3 - Evaluating the efficiency of established procedures and policies and their consistency with developments in work and the market.
4 - Monitoring the correction of comments in internal and external audit reports, as well as reports from any other authority.
5.4 The internal audit department has a manager, appointed and dismissed, and whose duties are determined by a decision of the board of directors based on the Audit Committee's recommendation. The Internal Audit Manager has the necessary authorities to perform their duties effectively, adhering to all basic principles of professional conduct. The Internal Audit Manager must present the scope of their work, plans, programs, and reports to the Audit Committee, and the Audit Committee may invite them to attend its meetings.
5.5 The Internal Audit Manager submits a report at least every three months to both the Chairman of the Board and the Audit Committee on the results of their work and the company's follow-up of legal provisions.