The General Authority for Financial Supervision

Chairman of the Authority

Decision of the Board of Directors of the Authority No. (98) of 2020 dated 23/6/2020

Regarding the Regulations Governing the Trading of Investment Funds in Movable Financial Assets

The Board of Directors of the General Authority for Financial Supervision

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

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

and the Movable Collateral Organization Law issued by Law No. (115) of 2015 and its executive regulations;

and Decision of the Board of Directors of the Authority No. (32) of 2018 regarding the regulations governing the trading of investment funds in movable financial assets;

and Decision of the Board of Directors of the Authority No. (58) of 2018 regarding the rules, regulations, and licensing procedures for banks and certain companies conducting non-banking financial activities to conduct investment fund activities themselves or with others;

and having approved the decision of the Board of Directors at its meeting held on 23/6/2020;

Decided

(Article One)

The Authority is authorized to license investment funds structured as joint-stock companies and companies permitted to conduct investment fund activities themselves or with other entities, to trade in movable financial assets, provided that investing in movable financial assets through the assignment of all or part of the future financial rights portfolios owned by entities licensed by the Authority to conduct non-banking financial activities is among the fund's objectives.

(Article Two)

Investment funds wishing to trade in movable financial assets through the assignment of future financial rights portfolios owned by entities or companies conducting non-banking financial activities shall adhere to the following regulations:

• The assignment must be valid, final, and transfer ownership of all rights, dues, descriptions, and guarantees stipulated for the local portfolio.

(Article Three)

The investment policy included in the prospectus or information memorandum, as applicable, must include the elements that the investment manager must consider when accepting the assignment of the fund's credit portfolio, specifically as follows:

• Guarantees that may be provided by the local entity to the fund.
• Allowed concentration ratios for accepting single-party contracts.
• The extent to which local contracts from non-banking financial entities to the fund include recourse against the debtor or lack thereof, in alignment with the nature of the future financial rights subject to the fund's local portfolio.
• Determination of the credit policy followed regarding the acceptance of the assignment of the fund's credit portfolio, specifically the limits and investment ratios in assignment contracts that include recourse against the debtor and those that do not.
• Risks associated with the fund's investments, specifically:
  • Credit risks.
  • Concentration risks for ratios determined by the investment policy.
  • Liquidity risks.
  • Interest rate change risks and profitability risks.

Furthermore, the prospectus or information memorandum, as applicable, must include the obligations of the debtor and the assignee, and the mechanism for each party to fulfill its obligations.

The fund to which the future financial rights portfolio is assigned may register the rights established in its favor on the movable assets subject to the local financing contracts in the Movable Collateral Register established in accordance with the Movable Collateral Organization Law No. (115) of 2015, with disclosure of this fact in the fund's prospectus or information memorandum, as applicable.

(Article Four)

The investment manager, when assigning all or part of the future financial rights portfolios owned by entities licensed by the Authority to conduct non-banking financial activities, shall adhere to the following obligations:

• Determining methods for measuring the risks of the fund's local future financial rights portfolio.
• Establishing regulations for determining discount rate coefficients for the local portfolio according to influencing factors, most importantly the repayment capacity degree and guarantees that may be provided by the local entity to the fund.
• Exercising the care of a prudent person in selecting the local credit portfolio, and specifically taking inspection and study procedures for reports prepared by the local entity as stipulated by the law governing its activity.
• Obtaining an acknowledgment from the local entity regarding compliance with anti-money laundering and counter-terrorist financing regulations concerning all contracts subject to the future financial rights assigned to the fund, in accordance with the rules established in this regard.
• Verifying that no measures stipulated by the laws governing the local entity's activity have been issued against it at the time of concluding the assignment and throughout the collection period.
• Monitoring the collection of the fund's local future financial rights portfolio through automated linkage with the electronic loan tracking system established at the local entity.
• Establishing a risk management system related to the fund's local credit portfolio, with its approval by the fund's board of directors or its supervisory committee, as applicable, while providing a specialized risk management department within the company equipped with appropriate personnel.
• Storing contracts and documents related to the fund's local financing portfolios with a custodian bank licensed by the Authority for this activity in accordance with Article (38) of the Capital Market Law and regulations issued by the Board of Directors of the Authority in this regard.
• Preparing a quarterly report to be presented to the fund's board of directors or its supervisory committee, as applicable, which specifically includes the financial solvency status of the local entities based on reports submitted by them to the Authority, in accordance with the laws governing the activity of these entities and the decisions issued in their favor, with disclosure of this report in the fund's periodic financial statements.

(Article Five)

The local entity shall collect local rights and dues and exercise the fund's rights against debtors in its capacity as the fund's agent, depositing collected amounts into the fund's account immediately upon collection. The investment manager shall be responsible for monitoring them through the automated linkage referred to in item (3) of Article Two of this Decision. If otherwise agreed, the debtor shall be notified of the assignment of local rights, dues, and guarantees, with the prospectus or information memorandum, as applicable, specifying the method by which the debtor is notified of the assignment.

(Article Six)

One of the management service companies licensed by the Authority shall evaluate the investment document, considering the nature of the activity, with the prospectus or information memorandum, as applicable, specifying the evaluation method in accordance with accounting standards.

(Article Seven)

The title of Decision of the Board of Directors of the Authority No. (32) of 2018 referenced herein is amended to read: "Decision of the Board of Directors of the Authority Regarding the Regulations Governing the Trading of Specialized Investment Funds on Credit Portfolios for the Microfinance Activity."

(Article Eight)

The provisions stipulated in the Capital Market Law, its executive regulations, and decisions issued in implementation thereof shall apply to matters not specifically addressed in this Decision.

(Article Nine)

This Decision 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 of the Authority Dr. Mohamed Omran

Smart Village, Building 136, Giza, Egypt
Postal Code: 110
Telephone: +202 3534535
Fax: +202 3537006
WWW.FRA.GOV.EG

Building Bridges Not Walls
Between Bridges Not Barriers