New FRA Registry Created for Financ

The Financial Regulatory Authority (the “FRA”) has created a new registry for financial advisory companies and entities licensed to perform financial valuations and fair value assessments in its decision No. 114 of 2018.[1] No domestic or foreign company will be permitted to undertake those aforementioned activities without registration, and registration must be renewed every three years. In order to register, companies must be licensed to perform the aforementioned activities, obtain and maintain professional liability insurance, and an undertaking to separate the activities’ accounts from those of the company’s other activities, and comply with certain professional qualifications and minimum capacity. This includes having a managing director or manager who is a certified financial advisor and evaluator, with a duty to sign each report or study, and a department specializing in conducting valuations and assessments comprising at least three people. Foreign companies wishing to register must be subject to monitoring and supervision in their country of origin by a supervisory authority or regulator. Each responsible manager must meet a long list of conditions: to be of good character, have a recognized university degree in finance, have a clean criminal and disciplinary record for three years, have passed examinations on the subjects of evaluating intangible assets and evaluations for mergers, acquisitions or public offerings, have five years’ direct experience, be solely dedicated to the role, and pass an FRA interview. Other evaluators must meet similar conditions, with the exception of requiring only one training course and three years of experience. An experienced independent internal auditor must be appointed at each entity to ensure compliance with all of the above requirements. FRA may exempt a foreign company from interview and examination requirements. In addition to these formal requirements, and in order to maintain their registration, companies must comply with all other decrees regarding minority representation and listing requirements, as well as specific fiduciary considerations of professional responsibility, including avoiding conflicts of interest, maintaining independence, and banning the misuse of confidential information for personal profit and contingency fees. In particular, the company must refrain from performing valuation services for two or more entities at the same time if there is a conflict of interest; it may not issue a valuation or fair value assessment for its own assets, or those of any of its related parties; and it may not trade in securities that it has valuated for a period of three years from valuation. All management changes in registered companies must be approved by the FRA, and every potential evaluation must be assessed and reported to the FRA. In the event of any violation, the FRA may suspend or cancel registration, and may also replace individual managers with more competent ones. The decision does not however clarify the mechanism for making claims on the professional liability insurance. This decision repeals and cancels the previous registry of financial advisors[2] and related regulations. It stipulates that registered financial advisors must comply with the new rules within six months from the date of its coming into effect, which is one day following its publication in the Egyptian Gazette (yet to be published). FRA may extend the compliance period by another six months.   [1] FRA Board of Directors Decision No. 114/2018 regulating the registration of financial advisory companies and entities conducting evaluations and fair value assessments, dated 16 July 2018, available through this link (in Arabic). [2] Capital Market Authority Decision No. 41/2007 on the on the rules of registration in the registry of financial advisors, dated 30 March 2007, available through this link (in Arabic).