FRA Issues Regulations for Sharehol

The Financial Supervisory Authority (“FRA”) issued decision No. 106 of 2018 with rules for the registration of agents who undertake establishing and licensing of companies subject to FRA supervision, on behalf of the company’s founding shareholders (the “Decision”).[1] The Decision creates a registry at the FRA to register lawyers and accountants (or those with ‘other qualifications’ according to the text of the Decision) who are allowed to undertake the establishment and licensing of non-banking financial companies, as well as all other procedures before the FRA on behalf of said companies. The Decision determines the documents that must be submitted by an applicant for registration as shareholder agent/representative. These include education qualification, proof of Egyptian nationality, proof of good reputation, and proof that no bankruptcy judgment has been entered against them. The Decision also lists conditions for the completion of registration which includes that the applicant is not a government or public authority employee, or if an ex FRA employee that at least three years have lapsed since employment. The founding shareholders’ representative must also have expertise in company establishment, and have an assisting team. Registration fees are EGP 10,000 and it is valid for three years, after which it must be renewed. In terms of professional conduct, the Decision prohibits that the agent/representative has direct or indirect interest in the companies that they establish, or that they undertake acts that exceed their mandate with the aim of increasing their fees. The Decision further prohibits the representative from disclosing inaccurate information, or undertaking any acts that lead to control over certain types of companies in the non-banking financial sphere. The representative is furthermore obliged to submit semi-annual reports of their activity to the FRA. The Head of the FRA may, upon recommendation from the registration committee, remove a representative from the registry. Finally, the Decision states that founding shareholder agents/representatives must comply with the new rules within six months from the Decision’s coming into effect, i.e. prior to 28 February 2019.

Conclusion

The Decision aims to regulate the activity of lawyers and accountants who undertake the establishment of companies operating in the non-banking financial field and are subject to FRA supervision, in order to limit wrongful and unprofessional conduct, or any exploitation of company shareholders who are not adequately aware of the law or their rights. Although the goal of the Decision is not in question because the evolving of professional conduct in any practice is beneficial to the market and its users, nevertheless, the legal framework through which the FRA has chosen to accomplish that goal is inappropriate. It places an illegal constraint on the right of a lawyer that is registered on the records of the Lawyers’ Syndicate to represent his/her clients without being subject to additional registration and monitoring by the FRA. It also limits the freedom of founding shareholders in choosing their agent/representative, as well as creates additional regulatory constraints that have no legal basis, such as the obligation to submit semi-annual activity reports and that the representative has no interest in the company that they represent.   [1] FRA Board of Directors Decision No. 106/2018 on the rules for the registration of shareholder agents who undertake establishing and licensing of Non-Banking Financial Companies in FRA’s registry, Egyptian Gazette, Issue No. 193, 29 August 2018.