FRA Issues Rules to License Compani

Following the amendment of the Capital Market Law in March 2018 by virtue of Law No. 17 of 2018, which allowed – for the first time – companies licensed by the Financial Regulatory Authority (“FRA”) to accept subscriptions to investment funds in accordance with the rules to be issued by the FRA. The latter published said rules this May 2018. Now, according to the new FRA rules, certain companies, which are already licensed capital market companies in specific fields, can obtain an additional license to accept subscriptions to investment funds. In undertaking the new licensable activity, the licensee is required to abide by a few new rules, such as separating the licensee’s monies from the subscription monies and transferring the subscription amounts to the fund within a limited timeframe. Background Since the issuance of the Capital Market Law No 95 of 1992 (the “CML”), subscription to investment fund certificates has always been required to be undertaken through banks specifically licensed to do so. In March 2018, Law No. 17 was issued amending several provisions of the CML. One of those provisions, Article 36 of the CML, was amended to allow the licensing of certain capital market companies to accept subscriptions to investment fund certificates in addition to banks who were previously authorized to do so. Law No. 17 of 2018 required the FRA to issue the necessary rules for the provision of this new license.

The New Decision

On 3 April 2018, the board of directors of the FRA issued the required rules by virtue of its decision No. 33 of 2018 on the rules for licensing capital market companies to accept subscriptions to investment fund certificates (the “Decision”).[1] This Decision was only published in the Egyptian Gazette on 6 May 2018 and is stated to come into force on the day following the day on which it was published. According to the Decision, only companies which have been licensed to undertake one or more of the following activities for at least five years may be licensed to accept subscriptions to investment fund certificates: (i) promotion and underwriting of securities, (ii) participating in the establishment of companies or their capital increases; (iii) set-off and settlement of securities transactions; (iv) bond brokerage; and (v) securities brokerage. In addition, the company must be in compliance with the rules regarding capital adequacy and membership of the investor protection fund and it must not have been subject to legal action by the FRA in particular with respect to its licensing or actions in the market. The shareholders and board members of these companies must also have a good reputation with no criminal track record, particularly in relation to the commercial, company and capital market laws. Upon submitting a request to obtain the said license, the FRA is required to respond within five days provided the request includes all supporting documents showing the availability of the abovementioned conditions for licensing. After obtaining the license to accept subscriptions to investment fund certificates, the company must still obtain an approval for every fund it proposes to accept subscriptions to, noting that it will be authorized to accept subscriptions to only one fund at a time, unless the Head of the FRA approves otherwise. The company must have a separate bank account for the subscriptions in addition to separate internal accounts and books, and it must transfer the subscription monies to the fund’s bank account within two days maximum from the date the subscription window closes.

Conclusion

FRA Decision No. 33 of 2018 is part of a series of FRA decisions that are expected to be issued following the recent amendment of the CML. It sets out rules for a specific area that was never subject to much regulation earlier. The rules stated in the Decision are mostly reasonable, save for the limitation to accept subscriptions to only one fund. This limitation may, however, be overridden by a decision from the Chairman of the FRA.   [1] FRA Board of Directors Decision No. 33/2018 on the rules for licensing capital market companies to accept subscriptions to investment fund certificates, Egyptian Gazette, Issue No. 103, 6 May 2018.