Introduction of Major Amendments to the Rules and Regulations of licensing of Non-Banking Financial Institutions

On Wednesday 10 January 2024, the Financial Regulatory Authority (“FRA”) published decision no. 249 of 2023 (the “New Decision”), which was issued on 29 November 2023 to amend decision no. 53 of 2018 (the “Decision 53”) setting out the rules and regulations of licensing and continuity of licensing of non-banking financial institutions (“NBFI”).

Highlights of the New Decision:

The New Decision stipulates that the representation percentage of women on the board of directors of any NBFI shall not to be less than 25% of the company’s capital and removed “or at least two female members” previously set out in Decision 53.

Decision 53 has previously stipulated that the founders of any NBFI shall include legal persons with a percentage of not less than (50%) of the company’s capital, and the financial institutions contribution shall not be less than (25%) of the company’s capital. The New Decision amended such provision by setting out new requirement whereby 25% of the company’s capital is to be held by financial institutions or that at least two-thirds of the company’s capital is held by qualified investor/s. The “Qualified Investor” is defined as follows:

1. Natural persons with at least 10 years of experience in the field of wealth management and investment and/or direct investment and/or fields related to banking or non-banking financial activities, provided that the value of the liquid assets, securities, or financial instruments owned thereby is not less than ten million Egyptian pounds.
2. Government agencies, public legal persons and state agencies that are permitted by virtue of relevant laws and regulations to engage in financial and investment activities, including establishment of companies and contributing in them.
3. Corporations with ownership rights not less than ten million Egyptian pounds.
4. Financial institutions referred to in this decision.

Nevertheless, the New Decision excluded certain types of companies regulated by the FRA from the ownership structure requirement. These entities are consumer finance companies, mortgage finance companies, insurance and re-insurance brokerage companies, insurance companies, financial consultancy companies, securities valuation companies.

Furthermore, the definition of “Financial Institutions” has been amended to include the following:

1. Egyptian banks and branches of foreign banks subject to the supervision of the Central Bank of Egypt.
2. Insurance and reinsurance companies.
3. Companies whose purpose is to participate in the establishment of companies that issue securities or capital increase.
4. Companies and entities that undertake stock exchange activity.
5. Bond brokerage companies and primary dealers.
6. Venture capital companies.
7. Central Clearing, depository and registration companies.
8. Mortgage financing or refinancing companies.
9. Financial leasing or factoring companies.
10. Consumer finance companies.
11. Small and/or micro financing companies.
12. Investment funds.
13. Direct investment companies.
14. National Postal Authority.
15. Private insurance funds with a large volume of invested funds from 100 million Egyptian pounds.
16. Micro, Small and Medium Enterprises Development Agency.
17. The Sovereign Fund of Egypt (“TSFE”).
18. TSFE Financial Services and Fintech Sub-fund.
19. Companies or entities of public and private legal persons specified by virtue of a decision of the FRA’s board of directors.
20. Foreign legal persons participating in one of the banking or non-banking financial activities, provided that such legal person is subject to the supervision and control of an entity that exercises powers equivalent to the Central Bank of Egypt or the FRA, as case may be.
21. Arab, regional and international financial institutions approved by the FRA.

The New Decision sets out rather mild requirements for Qualified Investors and the foreign legal persons that may contribute to NBFI’s capital. These requirements are mainly limited to the fact that such entities have not been subject to bankruptcy, insolvency, administrative measures, administrative sanctions, or criminal judgements.

The above-mentioned amendments shall not apply to the already existing NBFIs. It rather applies to licensed NBFIs which have not started their actual operation whom will be obliged to reconcile within a maximum period of 6 months as of the date of issuance of the New Decision or otherwise such companies may be subject to license withdrawal.

How can we help?

Al Tamimi & Company can assist in navigating the recent regulatory amendments introduced by the Financial Regulatory Authority. For more information, please contact one of our key contacts.