The Financial Regulatory Authority

Chairman of the Authority

Board of Directors Resolution No. (120) of 2019 dated 28/8/2019

Regarding the Regulatory Controls in the Field of Combating Money Laundering and Terrorist Financing for Entities Operating in Non-Banking Financial Activities

Board of Directors of the Financial Regulatory Authority

Having reviewed Law No. (10) of 1981 concerning supervision and regulation of insurance in Egypt and its executive regulations;

On Law No. (159) of 1981 concerning joint stock companies, limited partnerships by shares, limited liability companies, and single-owner companies, and its executive regulations;

On Law No. (146) of 1988 concerning companies operating in the field of receiving funds for investment, and its executive regulations;

On the Capital Market Law issued by Law No. (95) of 1992 and its executive regulations;

On the Central Depository and Registry of Securities Law issued by Law No. (93) of 2000 and its executive regulations;

On the Real Estate Financing Law issued by Law No. (148) of 2001 and its executive regulations;

On the Combating Money Laundering Law issued by Law No. (80) of 2002 and its executive regulations;

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

On Law No. (141) of 2014 regulating microfinance activities and the resolutions issued in implementation thereof;

On Law No. (8) of 2015 concerning the regulation of terrorist entities and persons lists;

On the Anti-Terrorism Law issued by Law No. (94) of 2015;

On the Leasing and Factoring Law issued by Law No. (176) of 2018;

On Presidential Decree No. (191) of 2009 concerning the rules regulating the management of the Egyptian Exchange and its financial affairs;

On the Statute of the Financial Regulatory Authority issued by Presidential Decree No. (192) of 2009;

On the Authority's Board of Directors Resolution No. (11) of 2014 concerning the rules for listing and delisting securities on the Egyptian Exchange, and its amendments;

On the Authority's Board of Directors Resolution No. (107) of 2016 concerning corporate governance rules for companies operating in the securities field;

On the Authority's Board of Directors Resolution No. (53) of 2018 concerning licensing issuance and renewal controls and rules for holding shares of companies operating in non-banking financial activities;

On the Resolution of the Authority's Board of Directors meeting held on 28/8/2019;

Has Decided

(Article One)

The anti-money laundering and counter-terrorist financing controls stipulated in this Resolution shall apply to Egyptian exchanges, financial institutions, and natural persons licensed by the Authority to conduct any non-banking financial activities.

The provisions of the Combating Money Laundering Law and its executive regulations, as well as the resolutions issued in implementation thereof, shall also apply to matters not specifically addressed in these controls.

(Article Two)

Definitions

In applying the provisions of this Resolution, the following terms shall carry the meanings indicated alongside each:

The Authority: The Financial Regulatory Authority.
The Unit: The Anti-Money Laundering and Counter-Terrorist Financing Unit established pursuant to Law No. (80) of 2002.

(Article Three)

Definitions

Combating Money Laundering and Terrorist Financing Law: The Combating Money Laundering Law issued by Law No. (80) of 2002, its amendments, and its executive regulations and amendments.
Financial Institutions: Legal entities licensed by the Authority to conduct non-banking financial activities.
Money Laundering: Any act constituting the offenses stipulated in Article (2) of the Combating Money Laundering Law issued by Law No. (80) of 2002.
Terrorist Financing: Any act constituting the offenses stipulated in Article (3) of the Anti-Terrorism Law No. (94) of 2015.
Terrorist Entities: Associations, organizations, groups, networks, cells, or any other gatherings, regardless of their legal or factual form, that commit any of the acts stipulated in Article (1) of the Law regulating terrorist entities and persons lists No. (8) of 2015.
Negative Lists: The lists of terrorist entities and persons organized pursuant to Law No. (8) of 2015, and the relevant lists issued by the United Nations Security Council concerning terrorist financing and financing of weapons of mass destruction, as well as any other lists that financial institutions maintain or deem necessary to consult.
Unusual Transactions: Transactions that appear exceptional compared to the usual pattern of customer operations, as identified through reports and internal systems within financial institutions.
Suspicious Transactions: Transactions that, upon examination, reveal objective grounds to suspect 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 offense.

(Article Four)

Predicate Offenses

Any act constituting a felony or misdemeanor under Egyptian law, whether committed inside or outside the country, provided it is punishable in both jurisdictions.

Client

A natural person, legal entity, or legal arrangement for which a financial institution opens an account, executes a transaction on its behalf, or provides a service.

Beneficial Owner

The natural person who ultimately owns or controls the client, or the natural person on whose behalf a transaction is being executed, including those who exercise effective control over the client, whether the client is a legal entity or a legal arrangement.

(Article Five)

Basic Principles

Entities subject to the provisions of this Resolution shall adhere to the following principles:

Principle One: Responsibility

Establishing a clear policy on combating money laundering and terrorist financing, and formulating internal rules, procedures, and systems to achieve this, taking into account the nature, size, type of clients, and products or services offered, while continuously ensuring full compliance with legal requirements and regulatory procedures in accordance with the law, its executive regulations, these controls, and other related rules.

Principle Two: Risk-Based Approach

Adopting a risk-based approach in accordance with the law, its executive regulations, and these controls, including identifying, assessing, and understanding potential money laundering and terrorist financing risks, documenting and electronically storing this assessment, and updating it periodically with related information, while considering any risks identified at the local level and any variables that may alter money laundering and terrorist financing risk levels.

(Article Six)

Customer Due Diligence Procedures

Entities subject to this Resolution must adhere to customer due diligence procedures and other related rules, controls, and procedures combating money laundering and terrorist financing issued by the Unit, in accordance with Clause (13) of Article (3) of the Executive Regulations of the Law issued by Prime Ministerial Decree No. (951) of 2003, immediately upon establishing internal rules for identifying clients (natural or legal persons) and beneficial owners.

(Article Seven)

Internal Control Systems

Entities subject to this Resolution must prepare an internal operations manual approved by their board of directors and endorsed by the Authority, which shall 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 law and its executive regulations. This manual must be reviewed periodically to assess its updates and development, and appropriate measures must be taken accordingly. The manual must include at least the following:

Clear detailed procedures for combating money laundering and terrorist financing, and written detailed procedures that precisely define duties and responsibilities.
Mechanisms for verifying compliance with internal systems established to combat money laundering and terrorist financing.
Requirements for effectively managing money laundering and terrorist financing risks, including qualified human resources capable of handling these risks and the necessary technological infrastructure.
Internal control systems for identifying unusual or suspicious transactions and presenting them to the money laundering and terrorist financing compliance officer.
Procedures for detecting whether clients appear on negative lists and the procedures required to verify client identities.
Procedures for account opening or initiating business relationships, and re-verification procedures when updating these lists.
Procedures to ensure no collusion exists between employees of the entity subject to this Resolution and its clients.
Systems ensuring that internal auditors or audit committees, as applicable, coordinate with the money laundering and terrorist financing compliance officer to examine the established systems, verify their efficiency and effectiveness in combating money laundering and terrorist financing, and propose preventive measures or necessary updates and developments.
Rules for maintaining records and documents that entities subject to this Resolution must keep, and specifying the methods of retention.

(Article Eight)

Suspicious Transaction Reporting Procedures

Entities subject to this Resolution must immediately notify the Unit of all transactions suspected of constituting money laundering or terrorist financing crimes, including attempts to execute such transactions, regardless of the transaction amount, within a period not exceeding two working days from the date suspicious grounds arise, as determined by the money laundering and terrorist financing compliance officer.

(Article Nine)

Reporting Procedures

Reporting shall be made using the form approved by the Unit for this purpose. The reporting form must specifically include the following regarding transactions suspected of constituting money laundering or terrorist financing crimes:

Details of the suspicious transaction, its parties, circumstances of discovery, and current status.
Identification of the amounts involved in the suspicious transaction.
Reasons and grounds for suspicion relied upon.
Signature of the money laundering and terrorist financing compliance officer.

Copies of all supporting documents for the suspicious transactions must be attached to the reporting form, while adhering to the required methods for preserving the data and information contained therein.

Reporting may also be submitted via electronic means in accordance with the system approved by the Unit and the controls established by the Authority in this regard.

Entities subject to this Resolution must also submit to the Authority a quarterly statistical report detailing the number of suspicion cases referred to the Unit as stipulated in this Article, within one week from the end of the reporting period.

This is without prejudice to the laws governing non-banking financial activities.

In all cases, direct or indirect disclosure to the beneficial owner, client, or unauthorized authorities and entities regarding any transactions suspected of constituting money laundering or terrorist financing crimes, or regarding related data, information, documents, or measures taken, is strictly prohibited within the scope of legal authority.

(Article Ten)

Money Laundering and Terrorist Financing Compliance Officer

Entities subject to this Resolution must appoint a money laundering and terrorist financing compliance officer, ensuring that the appointee belongs to senior management, possesses appropriate academic qualifications, and has sufficient practical experience, in accordance with controls issued by the Authority's Board of Directors.

(Article Eleven)

Obligations of the Money Laundering and Terrorist Financing Compliance Officer

The compliance officer shall be responsible for the following:

Examining and studying unusual transactions, and reviewing suspicious transactions referred to them or suspected with supporting grounds.
Notifying the Unit of any attempts to complete transactions suspected of constituting proceeds or involving money laundering or terrorist financing crimes.
Making decisions regarding examined transactions found to have no suspicion, ensuring the decision includes the grounds for dismissal.
Proposing necessary developments and updates to the entity's policy regarding combating money laundering and terrorist financing, as well as related internal systems and procedures, in light of local and global developments.
Providing general administrative and field supervision, directly or through internal departments, to verify compliance by the headquarters and branches with the law, its executive regulations, related regulatory controls, and internal systems regarding combating money laundering and terrorist financing.
Coordinating with relevant departments regarding internal and external training plans in combating money laundering and terrorist financing, approving training programs to implement these plans, and monitoring execution.
Preparing a periodic report at least once a year detailing their activities, the entity's anti-money laundering and terrorist financing procedures, and the measures taken regarding ordinary and suspicious transactions.

(Article Twelve)

Reporting and Operational Independence

The money laundering and terrorist financing compliance officer must be granted the authority to perform their duties and provided with all necessary means to achieve their purpose, which requires the following:

Ensuring no conflicting duties are assigned that contradict their role as compliance officer.
Granting the right to access all information, data, records, or documents related to unusual transactions and suspicion cases referred to them, and to contact relevant employees as needed.
Granting the right to submit reports to senior management, the board of directors, or any affiliated committee to enhance the efficiency and effectiveness of anti-money laundering and terrorist financing procedures and ensure employee compliance.
Ensuring confidentiality and protection for all procedures related to evaluating unusual transaction reports, suspicion reports, examinations, notifications to the Unit, and application of all controls and procedures related to money laundering and terrorist financing.

(Article Thirteen)

Training in Combating Money Laundering and Terrorist Financing

Entities subject to this Resolution must develop training programs for their employees at least once a year to raise awareness and enhance their competence regarding established rules and systems for combating money laundering and terrorist financing. This must ensure they are updated on modern developments related to methods and general trends in combating these crimes, and local, regional, and global updates. Program development and implementation must be coordinated with the Unit and the Authority to ensure proper execution of assigned duties, alignment with global developments, and reinforcement of sound professional practices.

Utilizing training programs offered by the Authority's Financial Services Institute and other specialized domestic or international institutions regarding combating money laundering and terrorist financing, within the general training and qualification policy established by the Unit and the Authority.
Coordinating with the money laundering and terrorist financing compliance officer regarding the selection of employees nominated for training programs in this field.

(Article Fourteen)

Retention of Records and Documents

Entities subject to this Resolution must retain records and documents as follows:

Records and documents related to clients and beneficial owners, including all data and information concerning them, such as account opening contracts, non-banking financial service contracts, related memoranda, and specifically documents related to letters concerning terrorist entities and persons lists, upon account opening or initiating business relationships, and when updating these lists, as well as copies of documents and correspondence exchanged with the client and communications regarding business initiation.

(Article Fifteen)

Conditions for Retaining Records and Documents

Records and documents shall be retained in a manner that facilitates and accelerates data retrieval, ensuring requested data and information are provided fully and without delay. Backup copies of these records and documents must be stored in a separate secure location.

Records and documents shall be retained for the following periods:

(a) Records and documents related to clients and beneficial owners

At least five years from the date the relationship with the client ends.

(b) Records and documents related to unusual transactions conducted with clients

At least five years from the date the relationship with the client ends or in the absence of a continuous business relationship.

(c) Unusual transaction reports

At least five years from the date the report is issued.

(d) Training records

At least five years from the date the training ends.

(e) Records and documents related to suspicious transactions retained by the money laundering and terrorist financing compliance officer

At least five years from the date of retention.

(f) Records and documents related to suspicious transactions

At least five years from the date the suspicious transaction is sent to the Unit, or until a final decision or judgment is issued regarding the transaction, whichever is longer.

(g) Annual periodic reports prepared by the money laundering and terrorist financing compliance officer

At least five years from the date the report is prepared.

(Article Sixteen)

Guideline Indicators for Identifying Suspicious Transactions

Entities subject to this Resolution must consider at least the following guideline indicators when identifying suspicious transactions:

General indicators for all activities

Clients who refuse to provide sufficient information, or provide incorrect information, whether personal or related to the activity or beneficial owners.

Indicators specific to financial activities

Account funding with large amounts followed by withdrawal without completing any transactions and without a clear justification from the client.
Transactions conducted in amounts disproportionate to the client's activity.
Client's tendency toward transactions or deals indicating a lack of investment expertise, for example, indifference to obtaining the best price for securities related to risk avoidance, commissions, or other transaction costs.
Repeated requests to transfer amounts from the client's account to other accounts within the company without clear justification.
Repeated transactions disproportionate to the client's activity within a specific timeframe.
Client's general indifference to investment advice provided by the company.
Transactions funded through banking companies or any tradable financial instruments repeatedly without clear justification.
Client conducting multiple transactions below the threshold set by the Authority for cash tolerance, with the intent of avoiding banking channels.

Indicators specific to insurance

Clients showing indifference to insurance premiums, commissions, or other coverage costs.
Lack of interest in coverage exclusions while showing significant interest in early cancellation dates.
Purchasing insurance policies or requesting large value increases disproportionate to the client's activity.
Repeatedly purchasing insurance policies with amounts disproportionate to the total within a specific period.
Client requesting coverage outside their approved activity scope.
Information indicating the applicant has obtained insurance policies from multiple companies for the same coverage.
Contracting for a large-value policy with a large deductible, contradicting the client's previous transaction patterns.
Client requesting a large single-payment increase in policy value.
Using large cash amounts to pay insurance premiums or purchase single-premium policies.
Contracting for large-value policies and requesting cancellation or beneficiary changes shortly after contracting.
Client requesting early settlement of a single-premium policy shortly after contracting and payment.
Client paying insurance premiums in cash, contradicting their established payment pattern via checks or other banking instruments.
Paying policy values or premiums via foreign transfers, or requesting refunds and transfers to foreign parties.
Changing specified beneficiaries in the policy to include individuals with clear ties to the client.
Requesting policy value refunds or maturity date changes, especially when resulting in financial losses.

Indicators specific to real estate financing

Large financing operations lacking clear economic purpose.
Client's indifference to high financing costs or interest rates.
Real estate financing requests secured by assets owned by others, or providing additional collateral owned by others without clear ties to them.
Requesting real estate financing against guarantees from a foreign bank without clear justification.

Indicators specific to leasing

Transactions with clients paying leasing installments from accounts held in countries lacking anti-money laundering or counter-terrorist financing legislative systems.
Client's indifference to high installment amounts or financing costs.
Large transactions lacking clear economic purpose.
Large or frequent cash deposits by various parties into a client's account without any relationship between these parties and the client.
Full repayment within the same year of financing.
Clients purchasing properties at amounts significantly exceeding appraised values and covering the price difference from their own resources.

Indicators specific to factoring

Client's indifference to financing costs.
Mismatch between documents provided and debtor data.
Unjustified changes in the volume of assigned receivables.
Discrepancy between sales volume and assigned receivables.
Client acting as an agent for an unknown principal.
Client submitting assigned receivables unrelated to their main activity.
Significant difference between the purchase price of goods in the assigned receivable document and their market price.
Assigned receivables with values significantly exceeding the client's approved credit limit.
Mismatch between assigned receivables volume and the client's actual sales volume.
Obtaining financing from a foreign bank without clear justification.

Indicators specific to microfinance

Unexpected early repayment of debts by the client or third parties, particularly for distressed clients.
Unusually large cash deposits disproportionate to the client's activity.
Repeated cash deposits whose total is disproportionate within a specific timeframe.
Early repayment of large or repeated amounts within short periods.
Large or repeated cash deposits by various parties into a client's account without any relationship between these parties and the client.
Full repayment within the same year of financing.
Clients purchasing properties at amounts significantly exceeding appraised values and covering the price difference from their own resources.

Indicators specific to financing

Client obtaining multiple financings from different sources within a short period ranging from two to six months.
Reluctance to sign the client form or hesitation in providing detailed personal data.
Inability to present the client's national ID card.
Confirmation of another beneficial owner of the financing besides the client who disbursed the funds.
Attention to families known to have more than one member involved in criminal activities, particularly in border governorates and local centers.
Projects financed in border governorates, especially those requiring special attention to verify the seriousness of the financed project and the integrity of its owner.

(Article Seventeen)

Compliance Period

Entities subject to this Resolution must regularize their operations in accordance with its provisions within three months from the date of its implementation, which may be extended for additional periods.

(Article Eighteen)

Repeal and Supersession

The controls stipulated in this Resolution supersede the prevailing regulatory controls in the field of combating money laundering and terrorist financing issued for financial institutions operating in non-banking financial activities, and any provision contradicting this Resolution is hereby repealed.

(Article Nineteen)

Publication and Entry into Force

This Resolution 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

Smart Village, Building 137, Giza, Egypt
Postal Code: 110
Telephone: +202 3534535
Fax: +202 3537006
WWW.FRA.GOV.EG

Building Bridges not Walls

Board of Directors Resolution No. (120) of 2019