General Authority for Financial Supervision

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

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Decision of the Board of Directors of the General Authority for Financial Supervision

No. (14) of 2018 dated 16/7/2018

Regarding the conditions and controls for registering financial consulting companies and entities licensed by the Authority to perform financial valuation and prepare fair value studies for the Authority

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Board of Directors of the General Authority for Financial Supervision

Having reviewed the Law on Joint Stock Companies, Companies Limited by Shares, Limited Liability Companies, and Single-Person Companies issued by Law No. (159) of 1981 and its Executive Regulations;

And 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 Statutes of the General Authority for Financial Supervision issued by Presidential Decision No. (197) of 2009;

And Chairman of the General Authority for the Capital Market Decision No. (41) of 2007 regarding the controls for registration in the Authority's Financial Advisors Register and its amendments;

And Board of Directors Decision No. (125) of 2015 regarding the experience and competence rules for those managing companies operating in the securities field;

And Board of Directors Decision No. (1) of 2017 regarding the issuance of the Egyptian Financial Valuation Standards for Enterprises;

And Board of Directors Decision No. (53) of 2018 regarding the controls for granting and maintaining licenses and rules for share ownership of companies operating in non-banking financial activities;

And the memorandum issued by the competent administration at the Authority dated 19/6/2018;

And with the approval of the Board of Directors in its session held on 16/7/2018.

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Decided

(Article One)

A register is established at the Authority for the registration of financial consulting companies and entities licensed by the Authority to perform financial valuation and prepare fair value studies in cases requested by the Capital Market Law, its Executive Regulations, and decisions issued to implement them.

The register shall include the main information and data determined by the Authority for each company or entity registered, specifically:

• (a) The name of the company or entity, its legal form, and its purpose.
• (b) The address of its headquarters.
• (c) The name of its legal representative.
• (d) The name of the Managing Director for financial consulting companies, or the name of the equivalent management official responsible for performing financial valuation and preparing fair value studies in other entities, and the names of the members of this management in other entities, as applicable.

In all cases, no one other than financial consulting companies and entities registered in the register may perform any of the work of financial valuation and preparing fair value studies.

(Article Two)

Conditions for Registration in the Register

It is required of companies and entities wishing to register in the register to meet the following conditions:

• 1- That they are licensed to perform financial valuation and prepare fair value determination studies in accordance with the provisions of the Capital Market Law.

It is required for foreign entities wishing to register in the register that they be subject to the supervision and oversight of a regulatory body similar to the Authority or the Central Bank of Egypt.

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(Article Three)

• 2- Issuing an insurance policy against professional risks according to the conditions set by the Authority, commensurate with the size and scope of liabilities arising from the valuation work performed by the company or entity, as applicable. Foreign entities registering are exempt from issuing the aforementioned insurance policy if they hold an insurance policy covering the same professional damages.

• 3- Submitting a commitment to separate the activity from any other activities conducted by the company or entity and to maintain independent accounts for this activity.

• 4- Meeting the professional experience and competence conditions stipulated in this Decision.

In addition to the previous conditions, the provisions of Board of Directors Decision No. (87) of 2018 shall apply if the companies or entities wishing to register have securities listed on the Egyptian Exchange, as well as Board of Directors Decision No. (85) of 2018 in cases where the companies or entities registered do not have securities listed on the Egyptian Exchange, regarding the conditions for membership on the Board of Directors.

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(Article Four)

Professional Experience and Competence Conditions

Without prejudice to Board of Directors Decision No. (125) of 2015 regarding the experience and competence rules for those managing companies operating in the securities field, it is required that the Managing Director of financial consulting companies or the person responsible for managing financial consulting in other entities licensed by the Authority to directly perform valuation and prepare fair value studies meet the following conditions:

• 1- That they have a good reputation and conduct.
• 2- That they hold a higher education degree.
• 3- That no judgments have been issued against them in the three years preceding registration for a crime involving moral turpitude or breach of trust, unless their reputation has been restored.
• 4- That no administrative measures have been issued against them by the Authority or other regulatory bodies under their supervision.
• 5- That they have no criminal record, as applicable, in the three years preceding registration.
• 6- That they hold one of the professional certifications in fields related to finance and/or investment and/or business management, whether Egyptian or foreign.

They must pass the examinations approved by the Authority in the following subjects:

• Valuation of intangible assets.
• Practical valuation studies and cases in the field of mergers and acquisitions and securities offerings.

Exemption from the aforementioned examinations may be granted based on the professional certifications held.

• 7- Full-time dedication to performing management duties.

• 8- That they have experience in financial valuation and fair value determination studies for no less than five years, having participated during this period in preparing three studies related to financial valuation or fair value determination of enterprises in the three years preceding the application for registration.

• 9- That they pass the personal interview at the Authority.

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(Article Five)

Conditions for Continuing Registration in the Register

Continuing the registration of financial consulting companies and other entities in the register requires compliance with the following:

• 1- Compliance with the Egyptian Financial Valuation Standards for Enterprises issued by Board of Directors Decision No. (1) of 2017.

• 2- Compliance with the provisions of Board of Directors Decision No. (87) of 2018 if the companies or entities registered have securities listed on the Egyptian Exchange, as well as Board of Directors Decision No. (85) of 2018 in cases where the companies or entities registered do not have securities listed on the Egyptian Exchange, regarding the conditions for continuing membership on the Board of Directors of the company or entity, as applicable.

• 3- Maintaining independence in work in all cases and avoiding evaluating enterprises that would violate independence requirements, and complying with the conflict of interest provisions stipulated in the professional conduct standards for providing financial valuation of enterprises, specifically as follows:

  (a) Compliance with not combining valuation tasks with other tasks available to other entities in the register, specifically promoting and underwriting subscriptions for the same client.

  (b) Not having a shared interest relationship or conflicting interests with the party requesting the valuation, the enterprise being evaluated, or any of their related parties.

  (c) Not performing valuation work for two or more entities simultaneously whose interests conflict.

  (d) Not accepting valuation tasks for enterprises that financial consulting companies or other entities helped establish, or in which they are members of the Board of Directors, or to which they provide consulting, management, or technical services, whether directly or indirectly. This also applies to employees of financial consulting companies and members of the specialized management in other entities.

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(Article Six)

Duration of Registration in the Register

The duration of registration in the register is three years, and it is renewed for similar periods provided that the conditions for registration and continuation are met.

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(Article Seven)

Delegation and Scope of Employee Tasks

• (e) Not issuing a financial valuation report or fair value study for the purpose of using it to determine the value of assets or financial instruments owned by them or any of their related parties.

• (f) Not trading securities or assets of the enterprises being evaluated using undisclosed market information or information not available to other market participants, even if such data or information is incomplete during the evaluation period, whether related to an imminent trade in these securities or any other matter having a material effect on the trading prices of these securities or on the financial positions of the issuing entities.

• (g) Not trading securities that the company or entity evaluated during the three years following the date of evaluation.

• (h) The company or entity shall not base its financial valuation work or preparation of fair value studies on the salaries of employees at the company or specialized management in consulting, as applicable, on completing a specific transaction or reaching a specific valuation result.

• (i) Not accepting any gifts or grants from any person connected to financial consulting companies or other entities or to employees of financial consulting companies and members of the specialized management in financial consulting in other entities, regardless of any manner, on their professional performance or the evaluation process and results, or for the purpose of influencing the neutrality and conduct of those performing valuation work in the company or entity.

• 4- Obtaining prior approval from the Authority before financial consulting companies make any modification in ownership structure, management, or executive management, or in case other entities make any modification in the management structure responsible for financial consulting activities within them.

• 5- Continuing to provide the Authority with any data requested to respond to inquiries or any observations raised by the Authority within the timeframe determined by it.

• 6- Submitting an activity report on valuation work according to the form issued by the Authority for each evaluation or valuation report conducted, whether the task was completed or not.

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(Article Eight)

Renewal of the Company and Professional Risk Insurance Policy according to the conditions set by the Authority, commensurate with the size and scope of liabilities arising from the valuation work performed.

Foreign entities are exempt from this if they hold a valid insurance policy covering the same professional damages.

• 8- Submitting an annual declaration regarding whether any judicial judgments have been issued against the Certified Valuer (Managing Director of the financial consulting company or the person responsible for management of valuation and fair value studies in other entities licensed by the Authority) for one of the crimes stipulated in the Capital Market Law that could harm the market or market participants, or being the subject of an investigation or complaint, or having any administrative measures issued against them by the Authority.

• 9- That the Certified Valuer signs the valuation reports issued by financial consulting companies or other entities, with no other person allowed to sign.

Companies and entities registered in the register are also committed, to continue registration in the register, to comply with the following:

• (a) Not providing false, incomplete, or non-compliant data with the financial valuation standards for enterprises, in any of the data and reports submitted to the Authority, the Exchange, or disclosed to the public.

• (b) Compliance with work manuals and continuing professional development requirements in a manner that does not conflict with the Egyptian Financial Valuation Standards for Enterprises.

• (c) Providing all information required to respond to inquiries or any observations raised by the Authority within the timeframe determined by it.

• (d) Not committing material errors and ensuring the adequacy of disclosures regarding data and reports submitted to the Authority, the Exchange, or disclosed to the public.

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(Article Nine)

Duration of Registration in the Register

The duration of registration in the register is three years, and it is renewed for similar periods provided that the conditions for registration and continuation are met.

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General Authority for Financial Supervision Financial Regulatory Authority

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

Smart Village, Building 136, Giza, Egypt
Postal Code: 12577
Tel.: +2.02 35345350 - Fax: +2.02 35370036 info@fra.gov.eg