Financial Regulatory Authority Board Decision No. 60 of 2017 Regarding Licensing Companies to Combine More Than One Financial Activity (Financial Leasing, Real Estate Financing, Factoring) and Controls for Practicing Multiple Activities

Financial Regulatory Authority
Financial Regulatory Authority Board Decision No. 60 of 2017 Dated 19/4/2017 Regarding Licensing Companies to Combine More Than One Financial Activity (Financial Leasing, Real Estate Financing, Factoring) and Controls for Practicing Multiple Activities

The Board of Directors of the Financial Regulatory Authority Having reviewed the Law on Joint Stock Companies, Companies Limited by Shares, and Limited Liability Companies issued by Law No. 159 of 1981 and its executive regulations; and the Financial Leasing Law No. 95 of 1995 and its executive regulations; and the Real Estate Financing Law No. 148 of 2001 and its executive regulations; and Law No. 10 of 2009 regarding the regulation of supervision over non-Egyptian securities and financial instruments; and Presidential Decree No. 197 of 2009 issuing the Basic Statute of the Financial Regulatory Authority; and Financial Regulatory Authority Board Decision No. 77 of 2013 regarding the regulatory and supervisory controls for the factoring activity; and the memorandum from the Central Administration for Supervision and Oversight of Financing Companies dated 4/4/2017; and upon the approval of the Board of Directors of the Authority in its meeting held on 19/4/2017:

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(Article One)
Companies licensed by the Authority to practice financial leasing, real estate financing, or factoring activities, or those that obtain the Authority's approval to practice all or some of these activities, are permitted to do so in light of the conditions and controls specified in this Decision.

(Article Two)
Conditions for Licensing Financial Companies to Practice Multiple Financial Activities Simultaneously Companies wishing to obtain a license to practice more than one financial activity simultaneously must meet all requirements and licensing conditions applicable to each requested activity, in addition to the following conditions:
First - Company's Purpose, Capital, and Structure:
(a) The company's purpose must include one or more of the following activities: financial leasing, real estate financing, factoring, or any other activities related to participation in establishing companies. (b) The shareholding percentage of legal persons must exceed (50%) of the company's capital, and financial institutions must hold a share of not less than (25%). Financial institutions are defined as banks or companies licensed by the Financial Regulatory Authority or those supervised by external bodies or authorities exercising powers similar to those of the Central Bank of Egypt or the Authority. (c) The company's capital must not be less than the minimum required for the combined activities to be practiced (conditional approval may be issued pending capital completion).

Second - Board of Directors and Organizational Structure:
(a) The number of board members must be at least five, and the board's composition must include at least two independent members, according to the definition in Financial Regulatory Authority Board Decision No. 77 of 2013. (b) The Chairman and the majority of board members must have practical experience in banking, financing, financial, or legal work of not less than five years after obtaining a qualification in the same field. (c) The Managing Board Member or the responsible Executive Director must have practical experience in banking, financing, financial, or legal work of not less than ten years after obtaining a higher degree, and must be dedicated full-time to the company's affairs. (d) The Manager responsible for Finance, Legal, Communications, Risk Management, Internal Audit departments, and Branch Managers must have practical experience in banking, financing, financial, or legal work of not less than seven years after obtaining a higher degree in the same field, and must be dedicated full-time to the company's affairs. (e) The company's organizational structure must include a Communications Department, a Risk Management Department, and an Internal Audit Department, in addition to a Finance Department and a Legal Department. (f) Each activity must have an independent department for managing its operations and affairs, and each activity must have a dedicated Executive Director with practical experience in banking, financing, financial, or legal work of not less than seven years after obtaining a higher degree in the same field. The Managing Board Member may also serve as the Executive Director overseeing one of the financial activities.

Third - Other Conditions and Requirements:
(a) The company must have two auditors registered with the Authority's register for this purpose, provided that each is independent of the other and they are not affiliated with the same audit firm. (b) No measures or requests for compensation for criminal lawsuits must have been issued against the company, unless the circumstances have occurred, the measure's cause has been removed or its term has expired, or the company has reconciled with the Authority regarding criminal lawsuit compensation requests, and the company must be compliant at the time of submitting the request regarding the Authority's approval on financial and supervisory assessments for its upgrades. (c) Submission of a feasibility study specifying the target market, proposed services, the company's business type, its strategy, and its future work plan for the three years following the addition of the activity, including at least the following:
1 - The activities for which licensing is requested, and the proposed services and products.
2 - The marketing plan.
3 - Pro forma financial statements, considering capital adequacy requirements.
4 - An analysis of the activity's market covering at least the market size and structure, and the key competitors in the market, including the company's expected competitive advantage.

(Article Three)
Documents and Data Required for Licensing Multiple Activities Simultaneously The licensing application must be submitted on the designated form, accompanied by the following documents:
1 - The company's founding contract and its articles of association.
2 - A recent commercial register for the company.
3 - The activities for which licensing is requested, and evidence of meeting the licensing requirements for them.
4 - A statement of contributions by natural and legal persons, indicating the contribution percentage of each equal to or exceeding (1%).
5 - Copies of academic qualification certificates and practical experience certificates for the Chairman, board members, Managing Board Member, Executive Directors, and managers of Finance, Legal, Communications, and Internal Audit departments. 6 - The company's organizational structure. 7 - A statement listing the names of the company's auditors. 8 - The feasibility study referred to in the preceding article.

(Article Four)
Controls for Practicing Multiple Financial Activities Companies licensed to practice more than one financial activity must comply with the controls established for the activities licensed simultaneously, in addition to the following controls:
First - Accounting Controls and Requirements:
(a) The company must maintain independent accounts for each activity.
(b) Data for each activity must be segregated in the company's financial statements in accordance with Egyptian Accounting Standards.
(c) The notes to the financial statements must ensure the classification of transactions on which the company earns revenue, divided according to the activity for which the financing was designated. (d) The company must submit its annual financial statements and the limited examination report from its auditors to the Authority within 45 days from the end of the periodic financial statement period, and must submit the annual financial statements and the audit report thereon within 90 days from the end of the fiscal year.

Second - Financing and Risk Controls and Requirements:
(a) The maximum value of financing by term (primarily short-term, due within one year) obtained by the company must not exceed (8) times shareholders' equity.
(b) Transactions with a single client (natural person, spouse, and minor children) must not exceed (10%) of shareholders' equity, and must not exceed (20%) if the client is a legal person, or in the case of related parties. (c) The company must comply with impairment accounting to address financing operation defaults, and must show financing operation balances net of allowances in the company's financial statements. The company must also submit a report from the auditors clarifying the adequacy of the allowances.

(Article Five)
The Authority shall rule on the licensing within a period not exceeding thirty days from the date the company fulfills all requirements and conditions necessary for licensing, and the Authority shall issue its decision in light of the following considerations:
(a) The company's financial position and management efficiency.
(b) The extent to which the company contributes to meeting market needs through launching new financial products or expanding into new geographic areas.
(c) The prior experience of major shareholders in financing, banking, and non-banking fields.

(Article Six)
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
Sherif Samy