EFSA Amends Securitization Rules

On the 6th of November 2016, the Board of Directors of the Egyptian Financial Supervisory Authority (“EFSA”) approved an amendment[1] to its prior Decision No. 55 of 2014 on the rules and procedures for the assignment of more than one securitization portfolio to the same securitization company (“Decision 55/2014”).[2]

Background

Securitization became one of the licensable capital market activities in Egypt in September 2001 when it was added to the umbrella of the Capital Market Law promulgated by Law No 95 of 1992 (the “Capital Market Law”) by virtue of Minister of Economy and Foreign Trade Decision No 697 of 2001. In June 2004, a new chapter – titled “Securitization Companies” – was added to the Capital Market Law (as articles 41 bis to 41 bis 8 thereof) by virtue of Law No 143 of 2004. The executive regulations for this newly added chapter followed in November 2004 and were issued by virtue of Minister of Investment Decision No. 46 of 2004 adding them as Chapter 10 to the executive regulations of the Capital Market Law. Article 41 bis of the Capital Market Law defines a securitization company as a company that takes on the activity of issuing negotiable bonds within the limits of financial rights, deferred payments and their guarantees assigned to the securitization company. The activity is, however, limited to one securitization portfolio unless the securitization company obtains a special license from EFSA authorizing it to accept the assignment of another securitization portfolio to it and thereafter issue new securitization bonds secured by the new portfolio.

Decision 55/2014

On 13 April 2014, the Board of Directors of EFSA issued Decision 55/2014 on the rules and procedures governing the assignment of more than one securitization portfolio to a securitization company and multiple issuance of securitization bonds by joint stock companies other than securitization companies. Article 1 of Decision 55/2014 sets out seven requirements for providing such approval, which include ensuring that the custodian has complied with all its obligations towards the securitization bonds holders in previous issuances, that the securitization company has fulfilled all its disclosure requirements and that it has a legally documented promise from the owner of a portfolio of financial rights to transfer such portfolio to the securitization company and that such promise be legally binding for at least 6 months. The last of these seven requirements is the payment of the insurance deposit required to be paid at EFSA to license the securitization company to have a new securitization portfolio assigned thereto in accordance with the Board of Directors Decision No. 102 of 2008 ("Decision 102/2008").[3] Decision 102/2008 was issued in November 2008 determining the rate of insurance to be paid to EFSA for every activity conducted by the company. According to this Decision an insurance amount equivalent to 0.1% of the issued capital of the securitization company should be paid as insurance to EFSA as a prerequisite for the licensing a securitization company to carry out securitization activities. No insurance is stated to be paid for every issuance made by an already licensed securitization company. Accordingly, the Board of Directors of EFSA amended Decision 55/2014 to be in line with Decision 102/2008 restricting the seventh requirement for the issuance of an approval to transfer another securitization portfolio to the securitization company to the submission of a document that confirms payment of the insurance at the preliminary licensing of the securitization company.   [1] EFSA Board of Directors’ Decision No. 129/2016 amending its Decision No. 55/2014 on the rules and procedures for the assignment of more than one securitization portfolio to the same securitization company, Egyptian Gazette, Issue No. 270, 30 November 2016. [2] EFSA Board of Directors’ Decision No. 55/2014 on the rules and procedures for the assignment of more than one securitization portfolio to the same securitization company, Egyptian Gazette, Issue No. 102, 6 May 2014. [3] EFSA Board of Directors’ Decision No. 102/2008 determining the rate of insurance to be paid to EFSA for every activity conducted by Securities Brokerage Companies as being one of the requirements set for granting a license, EFSA’s website, Available through this link.