Financial Regulatory Authority

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

Decision of the Board of Directors of the Authority No. (7) for the Year 2019 dated 20/1/2019 Regarding the Rules and Regulations Governing the Work of Companies Licensed to Conduct Leasing and Factoring Activities

The Board of Directors of the Financial Regulatory Authority Having reviewed Law No. (10) of 2009 concerning the regulation of supervision over non-banking financial markets and instruments; and Law No. (176) of 2018 regulating the activities of financial leasing and factoring; and Presidential Decree No. (192) of 2009 issuing the Basic Statute of the Financial Regulatory Authority; and Board Decision No. (137) of 2018 regarding licensing and renewal conditions for leasing and factoring companies; and Board Decision No. (138) of 2018 regarding the preparation and presentation of financial statements and submission deadlines for licensed leasing and factoring companies; and Board Decision No. (164) of 2018 regarding executive rules for corporate governance of licensed leasing and factoring companies; and Board Decision No. (191) of 2018 regarding financial solvency standards for licensed financial leasing companies; and Board Decision No. (192) of 2018 regarding financial solvency standards for licensed factoring companies; and with the approval of the Board of Directors in its session held on 20/1/2019;

Decided

(Article One)

Without prejudice to the Board of Directors' decisions regarding licensing conditions, renewal, financial statement preparation and submission deadlines, and financial solvency standards for licensed leasing and factoring companies mentioned above, the rules and regulations contained in this Decision shall apply to regulate the work of companies licensed to conduct leasing and factoring activities.

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(Article Two)

Requirements for Proper Company Operation and Guaranteeing Customer and Creditor Rights

Licensed companies conducting leasing or factoring activities shall adhere to the minimum requirements for proper operation and guaranteeing customer and creditor rights, as follows:

1. Maintaining and preserving the books, records, and documents necessary for the company's operations efficiently to facilitate reference, including preserving board of directors and general assembly meeting minutes and all decisions related to conducting the activity, especially financing decisions. The preservation tasks shall include the bookkeeping set enabling the company to prepare financial statements in accordance with Egyptian Accounting Standards. The company shall also commit to maintaining and preserving all records, documents, mechanisms, and electronic media in compliance with prevailing laws and regulations.

2. Disclosing to customers the financing returns and commissions charged by the company for the services provided.

3. Maintaining strict confidentiality of customer data and not disclosing any of it except with their prior written consent and within the scope of such consent, except in cases where the law requires submitting such data to the Authority, judicial authorities, financing authorities, credit rating or inquiry companies, or licensed factoring companies. The company shall take necessary measures to ensure its directors and employees comply with maintaining this data's confidentiality.

4. Specifying the channels through which customers can submit complaints, ensuring they are multiple, easily accessible, and include the following:
   (a) Sending complaints via regular mail or email.
   (b) Sending complaints through the company's website.
   (c) Designating a dedicated phone number for receiving complaints.
   (d) Designating a complaint box at the company branch.

5. The company shall resolve complaints within two weeks of receiving the necessary documents for resolution, notifying the complainant of the complaint's examination result according to the method specified in their contract.

6. Adhering to the principles of the Non-Banking Financial Sector Customer Protection Guide according to the Authority's regulations on this matter.

7. Including on all documents issued by the company a statement indicating that it is subject to the supervision and oversight of the Authority.

8. Disclosing any risks threatening customer and creditor rights and provisions for non-payment of their dues.

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(Article Three)

Internal Control System Operation

Without prejudice to the obligation of licensed leasing and factoring companies to have an internal control system, internal audit department, and audit committee as stipulated in Board Decision No. (164) of 2018, the aforementioned companies shall prepare a comprehensive internal control system for the company, comprising a set of policies, procedures, manuals, and regulations, to be approved by the company's board of directors, to achieve the following:

1. Achieving complete separation of responsibilities and authorities of company employees.
2. Verifying the implementation of procedures prepared by the company's board of directors.
3. Ensuring the accuracy and quality of information, providing the company and others with correct and accurate information about the company.
4. Ensuring the accurate implementation of decisions issued by the company's board of directors and its executive management.
5. Ensuring the effective application of corporate governance rules.

The internal control system shall be maintained through two control levels, as follows:

Level One - Company's Technical Performance:

This level includes applying policies, work systems, and internal procedures approved by the board of directors through the company's departments and employees, addressing observations raised by the internal auditor, and taking into account observations related to applying executive governance rules and separating authorities and responsibilities.

Level Two - Company's Accounting Performance:

This level includes having a comprehensive accounting system that specifically records, classifies, and files activity operations correctly according to the company's information system and approved accounting policies, while adhering to Egyptian accounting standards.

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(Article Four)

Credit Granting Regulations

Licensed companies conducting leasing or factoring activities shall adhere to the following minimum regulations:

1. Preparing a granting policy that includes the nature of target markets, financing products granted per market, target customer segments, customer selection rules, credit granting rules, acceptable collateral, maximum financing limit per single transaction and its related parties, determination of credit granting authorities, and distribution of responsibilities among relevant departments studying credit granting.

2. Dividing the company's portfolio into three segments as follows: corporate customers portfolio, small and medium enterprises (SMEs) customers portfolio, and micro-enterprises customers portfolio, in accordance with the company's general strategy.

3. Specifying the documents customers must submit to obtain credit, and the methods for preserving these customers' files.

4. Designing credit study rules and methodologies required to be fulfilled to decide on credit granting, including the basic data necessary to rule on credit study requests, and determining the customer's financing needs through financial and credit analysis.

5. Conducting credit inquiries about customers through one of the entities licensed by the Central Bank of Egypt, with the company permitted to conduct field inquiries about its customers if desired.

6. Verifying that the customer has completed a declaration disclosing all their current Egyptian and non-Egyptian financial transactions.

7. Determining credit granting authorities and decision-making within the company, with these authorities graded according to the financing value granted and employee expertise levels, whether at branches, regional areas, or the main center, or relying on a single central committee at the main center, according to decisions issued by the company's board of directors.

8. Preparing a work procedures manual for credit granting and organizing the relationship with company customers.

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(Article Five)

Risk Management Regulations

Licensed companies conducting leasing or factoring activities shall ensure their internal operation system includes the minimum necessary regulations for risk management, particularly risks related to financial solvency rules, as follows:

1. Preparing a specific risk management policy approved by the company's board of directors, covering the management and treatment of credit granting risks, concentration risks, collection risks (considering Authority regulations on this matter), operational risks, market risks, liquidity risks, business continuity and company sustainability risks, information system risks, and compliance risks, with this policy clarifying the acceptable risk level.

2. Having an independent risk management department responsible for managing all risk types included in the prepared risk policy, specializing in designing and applying the risk management system, and providing detailed reports on risk types.

3. The director responsible for risk management must meet the requirements stipulated in Board Decision No. (137) of 2018 regarding licensing and renewal conditions for leasing and factoring companies.

4. Establishing a policy for collecting all company dues resulting from conducting the activity, specifically specifying collection methods and means.

5. Organizing clear rules for handling non-performing debts regarding rescheduling and settlements, and debt write-off requirements and procedures, in compliance with Authority regulations on this matter.

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(Article Six)

Information System, International Communication Network, and Protection and Security Means Requirements

Licensed companies conducting leasing or factoring activities must have the appropriate technological infrastructure, information systems, databases, and office equipment necessary to conduct the activity, which must align with the company's activity volume and customer base, enabling them to obtain required reports periodically.

The companies mentioned in the first paragraph shall commit to the following:

1. Using applications that allow data preservation and provide operational and follow-up requirements and necessary reports for conducting the activity and meeting regulatory requirements, ensuring that used systems and software are acquired or developed legally and meticulously in compliance with laws protecting intellectual property rights.

2. Using information systems covering all operational and financial aspects.

3. Ensuring server devices can run applications and all used programs, operate continuously without interruption, and achieve the highest level of data security, whether servers operate separately or using a virtual environment or any other means.

4. Having a website on the international information network, through which the company discloses its credit and financing services in a user-friendly manner. This website must be updated periodically with published information, and the company must commit to processing messages and inquiries received through it.

5. Having a policy for data security and taking periodic backups and storing them in a safe location away from the company's headquarters, as follows:

   (a) Taking daily and weekly backups of databases, shared files, and all company systems on data storage units at the company's IT department.

   (b) Sending daily backups to the Human Resources Department for deposit in their safe.

   (c) Sending weekly data backups to the company's Finance Department for deposit in their safe.

   (d) Taking monthly backups on external storage units for deposit in a safe outside the main company headquarters.

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(Article Seven)

Company Branch Registration Record

Licensed companies conducting leasing or factoring activities shall not conduct their activity through headquarters or other locations besides their main center, except after obtaining prior approval from the Authority to register the branch in the designated register at the Authority, based on a company request confirming compliance with the data and documents stipulated in this Decision.

A special register for branch registration shall be established at the Authority, with each branch assigned a sequential number linked to the company's license number.

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(Article Eight)

Branch Opening Procedures

Licensed companies conducting leasing or factoring activities shall submit a request to the Authority on the designated form, accompanied by the following data and documents:

1. A copy of the company's board of directors meeting minutes including approval to open the branch and specify its location.
2. The name of the new branch manager.
3. A declaration committing to the minimum requirements for the branch's necessary positions.
4. Specifying the target date for opening the branch.
5. A declaration confirming the completion of the new branch's IT and technical infrastructure for efficient and effective operation targeting the expected workload.

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(Article Nine)

Procedures for Transferring the Main Center or Branches

Licensed companies conducting leasing or factoring activities shall submit a request to the Authority on the designated form, accompanied by the following data and documents:

1. A copy of the company's board of directors meeting minutes including approval to transfer the main center or its branches.
2. Specifying its location.
3. Stating the reasons for the transfer.
4. Specifying the target date for the transfer.
5. Making arrangements related to transferring customer accounts.
6. A declaration confirming the completion of the new branch's IT and technical infrastructure for efficient and effective operation targeting the expected workload.

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(Article Ten)

Branch Closure Procedures

Licensed companies conducting leasing or factoring activities shall submit a request to the Authority on the designated form, accompanied by the following data and documents:

1. A copy of the company's board of directors meeting minutes including approval to close the branch.
2. Specifying the target date for closure.
3. Making arrangements related to customer accounts.

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(Article Eleven)

Ruling on the Company's Request

The Authority shall issue its approval or rejection of the request to open, close, or transfer the main center or branches via a decision by the Authority's Chairman, according to market needs and geographical distribution, within ten working days from the date of submitting a complete request with required data and documents, after verifying the following:

1. No measures stipulated in Law No. (176) of 2018 regulating leasing and factoring activities have been taken against the company, or if taken, the reasons for such measures have been removed and three months have passed since then.

2. Compliance with submitting regulatory reports to the Authority and annual and quarterly financial statements on time, and addressing inspection observations (if any).

In all cases, the company must notify the Authority of commencing the new branch's activity, transferring to the transferred branch, or closing the branch as applicable. If the company fails to commence the new branch's activity or complete the transfer to the transferred branch within six months from the date of the Authority's approval, the approval shall be considered null and void.

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(Article Twelve)

Administrative Organization of the Branch Network

Licensed companies conducting leasing or factoring activities shall establish an organizational structure for their branches that considers the geographical distribution of these branches, which are approved for registration with the Authority. The company's credit policy shall specify a table of credit decision-making authorities according to one of the following determinants:

1. Centralized authority for credit granting by the credit committee at the main center and regional credit committees (if any) of the company.

2. Decentralized authority for credit granting by credit committees within the branches.

3. Discretionary authority for credit granting among committees at the main center, regions, and branches according to different financing segments, financing products offered, and acceptable risk levels within the company.

Considering Article Three of this Decision, the company shall establish an internal control system for its branches' activities to ensure the integrity of the activity establishment in these branches, and must verify that this system is applied by all branch employees by following the rules and procedures governing the activity.

Risk management reports on branches must also indicate the extent to which these branches are exposed to all types of risks facing the company's activity as outlined in the approved risk management policy.

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(Article Thirteen)

Periodic Reports, Statistics, and Evaluations

Without prejudice to the obligation of licensed leasing and factoring companies to submit reports to the Authority pursuant to Board Decisions No. (191) and (192) of 2018 regarding financial solvency standards, the aforementioned companies shall submit monthly reports to the Authority establishing a database on leasing and factoring activities, as follows:

Smart Village, Building no. B-136, Giza
Postal Code: 12577
Tel.: (00202) 35345350 - Fax.: (00202) 35370036 www.FRA.gov.eg

Smart Village, Building No. B-136, Giza, Egypt Postal Code: 12577 Telephone: +202 35345350 - Fax: +202 35370036 info@fra.gov.eg

Chairman's Office
Financial Regulatory Authority
FINANCIAL REGULATORY AUTHORITY