Financial Regulation in Egypt: Understanding the Overall Map and What is to Come
Introduction
As the world financial crisis was unfolding over the last two months, significant changes occurred worldwide in the global financial regulatory system. Entities were merged or «nationalized», financial instruments and stock exchanges were suspended, massive injections of capital were made, and an overall rethinking of financial regulation took place. Egypt Legal Update normally comments only on laws and regulations issued and introduced in Egypt. But although no new regulations were introduced as a result of the world financial crisis, it was thought useful by Egypt Legal Update to use the opportunity to describe the overall map for financial regulation in Egypt.
Four Key Regulators
Financial regulation in Egypt is divided among four key regulators; the Central Bank of Egypt (“CBE”), the Capital Market Authority (“CMA”), the Egyptian Insurance Supervision Authority (“EISA”) and the Mortgage Finance Authority (“MFA”). The CBE, however, stands apart in its legal nature and method of regulation, while the other three regulators have a lot in common.
The Central Bank of Egypt
The CBE is unique among Egypt’s financial regulators is that it is not established as a “public authority”, and accordingly is subject only to its own law of establishment (Law No. 88 of 2003, hereinafter “Banking Law”). Moreover, the CBE is explicitly stated in the Banking Law to be independent, and it reports to the President of the Republic and its Governor is appointed by Presidential Decree. The CBE is mandated with both undertaking Egypt’s monetary policy and banking supervision. In addition, it is the Government’s bank, it issues the currency, manages the international reserves, the payments system and the foreign currency market. The CBE regulates banks, which are defined as deposit taking institutions, in addition to branches and representative offices of foreign banks. It also regulates money changers and money transfer companies. The CBE accordingly has no authority over investment banks or other financial institutions.
It is worth noting that the Banking Law provides the CBE with the powers to “merge” a bank that fails to meet prudential requirements into another one. This is a power that has been used in the last two years, in effect resembling the “nationalizations” that recently took place in the USA and the UK. Finally, the Banking Law stated since 2003 that there would be a Deposit Insurance Fund. The Fund, however, was never established and was deemed to be replaced by an “implicit” guarantee by the Central Bank. It may be argued that as a result of the recent announcements made by the Government and the Central Bank Governor in response to the international financial crisis, there is now effectively an «explicit» deposit insurance.
The Three Other Regulators Capital Market, Insurance and Mortgage
The three other big regulators share more in common. They are all “public authorities” even though each one is established in accordance with its own enabling legislation. This means that they are more bound by rules governing public entities than the CBE. Moreover, they are all part of the Ministry of Investment, thus although operationally independent, the Minister has political responsibility to answer for their actions in Parliament and to the Government. There are also close similarities in their internal organizations and regulatory powers. The CMA (Law Number 95 of 1992) is the regulator of the stock exchange, the central securities depository company in addition to a large number of activities including: securities brokers, securities dealers, fund managers, portfolio managers, venture capital companies, securitization, underwriting of securities, credit rating, holding companies (defined as companies owning a controlling stake in five companies or more, in addition to listed companies. EISA (Law Number 10 of 1981) regulates insurance companies, re-insurance companies, insurance brokers, insurance cooperatives, actuaries, damage assessment consultants, and private and government insurance funds. And finally the MFA (Law Number 148 of 2001) regulates mortgage companies, re-mortgage companies, the Mortgage Subsidy Fund, and mortgage brokers (but not real estate brokerage, an activity which remains totally unsupervised).
Various Other Players
Other financial activities are not as strictly regulated. Financial leasing – regulated under the Financial Leasing Law Number 95 of 1995 – is “managed” (as opposed to regulated) by the General Authority of Investment and Free Zones “GAFI”. GAFI is also in charge of factoring, again less as regulator than a record keeper.
What is to Come
Recently, the Minister of Investment has announced that new legislation will be submitted this year to introduce a new Non-Bank Single Regulator. According to the Minister’s announcement, this will mean the creation of a new regulator to replace entirely the Capital Market Authority, the Mortgage Finance Authority, and the Egyptian Insurance Supervisory Authority. It will also take on the functions of supervising factoring and financial leasing from GAFI which will otherwise continue to perform its other main roles. Under the proposed new structure, the Central Bank of Egypt will continue to be in charge of banks supervision and monetary policy.
Introduction
As the world financial crisis was unfolding over the last two months, significant changes occurred worldwide in the global financial regulatory system. Entities were merged or «nationalized», financial instruments and stock exchanges were suspended, massive injections of capital were made, and an overall rethinking of financial regulation took place. Egypt Legal Update normally comments only on laws and regulations issued and introduced in Egypt. But although no new regulations were introduced as a result of the world financial crisis, it was thought useful by Egypt Legal Update to use the opportunity to describe the overall map for financial regulation in Egypt.
Four Key Regulators
Financial regulation in Egypt is divided among four key regulators; the Central Bank of Egypt (“CBE”), the Capital Market Authority (“CMA”), the Egyptian Insurance Supervision Authority (“EISA”) and the Mortgage Finance Authority (“MFA”). The CBE, however, stands apart in its legal nature and method of regulation, while the other three regulators have a lot in common.
The Central Bank of Egypt
The CBE is unique among Egypt’s financial regulators is that it is not established as a “public authority”, and accordingly is subject only to its own law of establishment (Law No. 88 of 2003, hereinafter “Banking Law”). Moreover, the CBE is explicitly stated in the Banking Law to be independent, and it reports to the President of the Republic and its Governor is appointed by Presidential Decree. The CBE is mandated with both undertaking Egypt’s monetary policy and banking supervision. In addition, it is the Government’s bank, it issues the currency, manages the international reserves, the payments system and the foreign currency market. The CBE regulates banks, which are defined as deposit taking institutions, in addition to branches and representative offices of foreign banks. It also regulates money changers and money transfer companies. The CBE accordingly has no authority over investment banks or other financial institutions.
It is worth noting that the Banking Law provides the CBE with the powers to “merge” a bank that fails to meet prudential requirements into another one. This is a power that has been used in the last two years, in effect resembling the “nationalizations” that recently took place in the USA and the UK. Finally, the Banking Law stated since 2003 that there would be a Deposit Insurance Fund. The Fund, however, was never established and was deemed to be replaced by an “implicit” guarantee by the Central Bank. It may be argued that as a result of the recent announcements made by the Government and the Central Bank Governor in response to the international financial crisis, there is now effectively an «explicit» deposit insurance.
The Three Other Regulators Capital Market, Insurance and Mortgage
The three other big regulators share more in common. They are all “public authorities” even though each one is established in accordance with its own enabling legislation. This means that they are more bound by rules governing public entities than the CBE. Moreover, they are all part of the Ministry of Investment, thus although operationally independent, the Minister has political responsibility to answer for their actions in Parliament and to the Government. There are also close similarities in their internal organizations and regulatory powers. The CMA (Law Number 95 of 1992) is the regulator of the stock exchange, the central securities depository company in addition to a large number of activities including: securities brokers, securities dealers, fund managers, portfolio managers, venture capital companies, securitization, underwriting of securities, credit rating, holding companies (defined as companies owning a controlling stake in five companies or more, in addition to listed companies. EISA (Law Number 10 of 1981) regulates insurance companies, re-insurance companies, insurance brokers, insurance cooperatives, actuaries, damage assessment consultants, and private and government insurance funds. And finally the MFA (Law Number 148 of 2001) regulates mortgage companies, re-mortgage companies, the Mortgage Subsidy Fund, and mortgage brokers (but not real estate brokerage, an activity which remains totally unsupervised).
Various Other Players
Other financial activities are not as strictly regulated. Financial leasing – regulated under the Financial Leasing Law Number 95 of 1995 – is “managed” (as opposed to regulated) by the General Authority of Investment and Free Zones “GAFI”. GAFI is also in charge of factoring, again less as regulator than a record keeper.
What is to Come
Recently, the Minister of Investment has announced that new legislation will be submitted this year to introduce a new Non-Bank Single Regulator. According to the Minister’s announcement, this will mean the creation of a new regulator to replace entirely the Capital Market Authority, the Mortgage Finance Authority, and the Egyptian Insurance Supervisory Authority. It will also take on the functions of supervising factoring and financial leasing from GAFI which will otherwise continue to perform its other main roles. Under the proposed new structure, the Central Bank of Egypt will continue to be in charge of banks supervision and monetary policy.