Regulatory Alerts2011-01-01
Circular No. 1 of 2011 on Custodianship Activity Regulations
The Egyptian Capital Market Authority issued Circular No. 1 of 2011 to enforce compliance with Articles 50 and 52 of the Central Deposit and Registration Law's Executive Regulations following supervisory findings of custodians' failures to retain essential client data, contracts, and correspondence. The directive mandates licensed custodianship entities to maintain comprehensive client records, implement identity verification systems for beneficial owners, issue monthly detailed account statements, and continuously update client files with signed contracts, KYC forms, and corporate governance documents. These measures are established as a continuous compliance requirement to safeguard the Egyptian capital market and protect its participants from operational and regulatory risks.
Circular Letter No. (1)
Issued on 31/5/2011
Regarding the Regulations for Custodianship Activities
Within the framework of the Authority's supervisory role and what was observed during periodic inspections of licensed custodianship entities, specifically the failure of custodians to retain basic client data (Name - Profession - Place of Residence - Legal Form - Nationality) and whether these clients are trading on their own behalf or as registered owners trading for the benefit of other beneficial owners, as well as the failure to retain contracts signed with these clients, corresponding correspondence, and securities traded, which violates the provisions of Articles (50) and (52) of the Executive Regulations of the Central Deposit and Registration Law. Given that non-compliance with the stipulated provisions may harm the market and its participants, the Authority emphasizes the necessity for licensed custodianship entities to adhere to the following:
First: Maintaining a record for each client that includes the client's name, profession, place of residence, and nationality based on their identity proof in the case of a natural person, or their name, legal form, commercial registry number, main center address, and the title of their representative authorized to sign the agreement and the document supporting this title in the case of a legal entity.
Second: Committing to establishing systems to obtain identity verification and legal status data for beneficial clients when dealing with custodians, in the event that the client is a legal entity.
Third: Committing to notifying the client of a detailed account statement at least once a month, which must include transactions conducted on their account, along with signing agreements with clients to stipulate that the client will be notified of a detailed account statement at least once a month.
Fourth: Committing to updating client data, files, and forms immediately upon any modifications and reviewing them periodically to verify the availability of the following data and documents in the client file:
- The contract concluded with the client, clarifying whether the client is trading in their own name and for their own benefit or as a registered owner trading for the benefit of a group of beneficial owners.
- The "Know Your Customer" form for both the client and the person or persons authorized to sign.
- The commercial registry, articles of association, account holder names, and names and data of board members or management officials in the case of a legal entity, specifying the name and data of the person or persons authorized to sign and the power of attorney or authorization document.
The Authority emphasizes the necessity for custodians to comply with the aforementioned regulations as an ongoing process to protect the Egyptian capital market and its participants.
Hisham Ibrahim Supervisor of the Central Administration for Technical Office Affairs