FRA Issues the Bylaws of the Egypti

On 6 March 2019, the Egyptian Gazette published Decision No. 20 of 2019 (the “Decision”)[1] by the Board of Directors of the Financial Regulatory Authority (“FRA”) containing the bylaws of the Egyptian Federation of Securities (the “Federation”), a non-profit legal entity comprising all securities companies in Egypt. FRA will form the Federation’s constituent committee which will call for a general assembly to be held no later than 6 months from the committee’s formation, with the aim of electing the Federation’s board of directors and beginning operations. All companies licensed to undertake activities in the field of securities must join the Federation and abide by its bylaws to avoid potential sanctions.

Background

Recent amendments to the Capital Market Law No. 95 of 1992 (“CML”) in 2018[2] introduced a federation for securities companies in Egypt, akin to federations organized under the Banking, Insurance, Mortgage Finance, and Microfinance laws.[3] Named the “Egyptian Federation of Securities,” the Federation comprises all securities companies which fall under the CML or the Central Securities Depository Law No. 93 of 2000 (“CDL”), as per the amendment. The Federation has an independent legal personality and represents the interests of these companies while contributing to market regulation and development.

The New Decision: The Federation’s Bylaws

The new FRA Decision contains the bylaws of the Federation, which specify its objectives and functions, financial and organizational structure, membership rules, and sanctions against members in cases of violations.

1. Objectives and Functions

The Decision elaborates on the Federation’s purposes and scope of work, adding to what was already stipulated in the CML. The main purposes of the Federation could be grouped under the three broad categories of policy recommendation and internal regulation of its members, business development and facilitation, and networking. To begin with, the Federation has an advisory role, whereby it recommends regulations connected to the capital market, including commenting on draft laws and proposing amendments to existing laws. It is also responsible for issuing operations guidelines for its members and an FRA-approved code of ethics for those working in the securities field, in addition to internal regulations containing its members’ rights and obligations, the mechanisms for amicably resolving the complaints of its members’ clients, and the establishment of a registry of its members’ employees. On another level, the Federation also contributes to the development of the capital market. This includes awareness-raising efforts, the adoption of market-supporting initiatives, the equipping of those operating in the field of securities with the necessary skill set through trainings and workshops, and the facilitation of its members’ operations by protecting their rights and removing any hindrances to their work. Finally, the Federation undertakes both internal and external coordination, among its members and between its members and other entities (such as professional associations in the field of capital markets and international and regional federations).

2. Financial and Organizational Structure

The Federation’s resources are constituted of membership contributions (including membership fees); donations, and service fees (as approved by the Federation’s board of directors); the return on investment of the Federation’s money; and other sources as approved by the Federation’s general assembly. Annual membership fees amount to EGP 10,000 while membership application fees amount to EGP 25,000. The Federation’s board of directors is to include representatives of the following activities: securities brokerage; asset management (the management of funds, portfolios, direct investment, and venture capital); the establishment of companies (financial holding) and the promotion and underwriting of securities; and central depositing and registration. The Federation also includes specialized committees on the previous activities in addition to the activity of financial advisory and committees for internal operations (such as committees for membership affairs, complaints, and training).

3. Membership

According to the recent Decision, all securities companies operating under the CML or CDL are automatically considered members of the Federation by virtue of their licensing and registration at FRA. This applies to already operating companies and newly licensed ones. The Decision states that companies have 15 days to provide the Federation with copies of their license and a list of their board members.[4] Membership in the Federation is frozen if the FRA board of directors suspends the member in question or denies them from undertaking the activity in accordance with the CML; it is cancelled once FRA cancels the activity license of the member in question.

4. Sanctions

Among other things, the Federation monitors the compliance of its members with the operations guidelines, the code of ethics, the Federation’s decisions, and the timely payment of fees. It could take administrative measures against its violating members, in accordance with its FRA-approved sanctions list and which is to be decided upon by its general assembly. The bylaws, however, list a few of these measures, which include suspending the member from receiving membership benefits, temporarily freezing the membership, and charging them with fees up to EGP 50,000. Overdue fees could be subject to 2% monthly increases in case of failure of payment after one of these measures are taken, with the possibility of recourse to legal action afterwards. Members could petition against the Federation’s measures at FRA.

Conclusion

After almost a year of stipulating its establishment, the Federation now has bylaws by virtue of the recently published FRA Decision. However, it is important not to confuse the Federation with other securities-related entities in Egypt, such as the Securities Division at the Federation of Egyptian Chambers of Commerce and the Egyptian Capital Market Association (“ECMA”). In particular, although the Federation and ECMA have a somewhat similar scope of work,[5] the latter was established in 1996 under the umbrella of the old NGO Law No. 84 of 2002 and is an association with voluntary membership of individuals and companies. This is distinctive from the obligatory membership in the Federation, wherein all licensed securities companies must become Federation members and cannot resign or withdraw from it as long as their licenses are valid and wherein a cancellation of membership is decided upon by FRA.   [1] FRA Board of Directors Decision No. 20/2019 issuing the bylaws of the Egyptian Federation of Securities, Egyptian Gazette, Issue No. 54 (cont.) (a), 6 March 2019. [2] Law No. 17/2018 amending certain provisions of the Capital Market Law No. 95/1992, Official Gazette, Issue No. 10 (bis) (h), 14 March 2018. [3] Financial Regulatory Authority, “The House of Representatives approved some amendments to the Capital Market Law in its session held on 13 February 2018”, dated 13 February 2018, available through this link. [4] It is not clear if the 15 days run from the date of obtaining the license, and if so how it runs with respect to already operating companies. [5] According to its bylaws, which is available through this link (in Arabic), the ECMA works towards solving the issues related to investments and capital markets that face its members. It also issues periodicals that increase awareness about investments in securities (after taking the relevant authority’s approval) and facilitates networking among its members through conferences, meetings, and workshops. Finally, the ECMA also works towards resolving disputes among its members or between its members and non-members, in accordance with the NGO Law and after taking the relevant authorities’ approvals.