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EFSA Amends Securities Companies’

EFSA Amends Securities Companies’ Corporate Governance Rules
Egyptian Financial Supervisory Authority’s ("EFSA") Board Decision No. 126 of 2015[1] (the “Decision”) amended the scope and obligations provided in its preceding Decision No. 11 of 2007[2] concerning the executive corporate governance rules for companies operating in securities trading and not listed in the Egyptian Stock Exchange. Regarding the scope of application, the Decision has set thresholds above which the company has to establish a "risk management unit". Concerning its provisions, the Decision allowed companies to have one audit committee and one audit department in the holding company. This, however, is conditional upon fulfilling a set of requirements as detailed below. Finally, the Decision abolished the Nominations and Rewards Committee provided in the Board of Directors Committees’ Section.
Scope
The Decision amended the scope of application as follows:  Companies with equity exceeding EGP 50 mn according to their last financial statements,  Brokerage companies operating transactions annually worth EGP 500 mn or more, and  Mutual funds managing assets annually worth EGP 500 mn or more.   Thus, EFSA has exempted emerging companies operating in the same field and not complying with the above thresholds concerning equity, operated transactions or managed assets from the initiation of a risk management unit. This sounds logical by reviewing the amounts in operation and the essence of having a specialized unit for risk management.
Amendments
The Decision allowed holding companies working in the field of securities and their subsidiaries to have only one audit committee composed of the board of directors of the former, as well as one audit department at the holding company. This applies only if the holding company meets a set of conditions. First, the holding company’s share capital in its subsidiary shall not be less than 85% of the share capital of the latter. Additionally, the following has to be met:  Approval of the above by all minority shareholders in each subsidiary company,  The audit committee shall prepare separate statements for each holding and subsidiary company covering any notes or recommendations. These reports should be later presented to the respective companies’ board of directors in their first convened meeting.  The audit committee shall prepare separate statements for each holding and subsidiary company covering any notes or recommendations. However, this should be presented later only to the respective companies’ board of directors’ chairmen as well as the audit committee. The Decision explicitly extended the enforcement of treasury shares rules to all capital acquisitions carried out by subsidiaries in their holding companies. Article 4 abolished the Nominations and Rewards Committee stipulated in Section 2 concerning the Board of Directors. This committee was responsible for nominating members to the board, reviewing the board’s composition and checking its independence as well as proposing remunerations and rewards paid to Board Members and top executives.
Commentary
To sum up, EFSA’s amendment was simple and imposed on companies with high levels of trading activities to establish risk management units. In addition, it reduced the burden on holding companies with a high shareholding percentage interest in their subsidiaries and allowed them to have only one internal audit committee as well as an audit department in case fulfilled certain requirements. Finally, the amendment extended the treasury shares rules to cover shares acquired by subsidiaries in their holding companies and abolished the Nominations and Rewards Committee. [1] Egyptian Financial Supervisory Authority Decision No. 126 for the Year 2015, Amendment of the EFSA Decision No. 11 of 2007 Provisions, Official Gazette, Issue 12, 16 January 2016. [2] Egyptian Financial Supervisory Authority Decision No. 11 for the Year 2007, the executive corporate governance rules for companies operating in securities trading and not listed in the Egyptian Stock Exchange, Official Gazette, Issue 98 (continued), 3 May 2007.
Egyptian Financial Supervisory Authority’s ("EFSA") Board Decision No. 126 of 2015[1] (the “Decision”) amended the scope and obligations provided in its preceding Decision No. 11 of 2007[2] concerning the executive corporate governance rules for companies operating in securities trading and not listed in the Egyptian Stock Exchange. Regarding the scope of application, the Decision has set thresholds above which the company has to establish a "risk management unit". Concerning its provisions, the Decision allowed companies to have one audit committee and one audit department in the holding company. This, however, is conditional upon fulfilling a set of requirements as detailed below. Finally, the Decision abolished the Nominations and Rewards Committee provided in the Board of Directors Committees’ Section.
Scope
The Decision amended the scope of application as follows:  Companies with equity exceeding EGP 50 mn according to their last financial statements,  Brokerage companies operating transactions annually worth EGP 500 mn or more, and  Mutual funds managing assets annually worth EGP 500 mn or more.   Thus, EFSA has exempted emerging companies operating in the same field and not complying with the above thresholds concerning equity, operated transactions or managed assets from the initiation of a risk management unit. This sounds logical by reviewing the amounts in operation and the essence of having a specialized unit for risk management.
Amendments
The Decision allowed holding companies working in the field of securities and their subsidiaries to have only one audit committee composed of the board of directors of the former, as well as one audit department at the holding company. This applies only if the holding company meets a set of conditions. First, the holding company’s share capital in its subsidiary shall not be less than 85% of the share capital of the latter. Additionally, the following has to be met:  Approval of the above by all minority shareholders in each subsidiary company,  The audit committee shall prepare separate statements for each holding and subsidiary company covering any notes or recommendations. These reports should be later presented to the respective companies’ board of directors in their first convened meeting.  The audit committee shall prepare separate statements for each holding and subsidiary company covering any notes or recommendations. However, this should be presented later only to the respective companies’ board of directors’ chairmen as well as the audit committee. The Decision explicitly extended the enforcement of treasury shares rules to all capital acquisitions carried out by subsidiaries in their holding companies. Article 4 abolished the Nominations and Rewards Committee stipulated in Section 2 concerning the Board of Directors. This committee was responsible for nominating members to the board, reviewing the board’s composition and checking its independence as well as proposing remunerations and rewards paid to Board Members and top executives.
Commentary
To sum up, EFSA’s amendment was simple and imposed on companies with high levels of trading activities to establish risk management units. In addition, it reduced the burden on holding companies with a high shareholding percentage interest in their subsidiaries and allowed them to have only one internal audit committee as well as an audit department in case fulfilled certain requirements. Finally, the amendment extended the treasury shares rules to cover shares acquired by subsidiaries in their holding companies and abolished the Nominations and Rewards Committee. [1] Egyptian Financial Supervisory Authority Decision No. 126 for the Year 2015, Amendment of the EFSA Decision No. 11 of 2007 Provisions, Official Gazette, Issue 12, 16 January 2016. [2] Egyptian Financial Supervisory Authority Decision No. 11 for the Year 2007, the executive corporate governance rules for companies operating in securities trading and not listed in the Egyptian Stock Exchange, Official Gazette, Issue 98 (continued), 3 May 2007.