Amendment to the Formation of Board

The Financial Regulation Authority (“FRA”) recently issued its Board of Directors Decision No. 58 of 2019 amending Article 1(1) of its previous decision No. 56 of 2018 concerning the rules governing the structure of the board of directors of investment funds established in the form of a joint stock company (the “Decision”).[1] The Decision amends the formation of the board of directors in fund companies so that the company’s articles of association must now specify the number of board members within a range of at least three and not more than nine members. This is while taking into account the rules of experience and efficiency of the managers of companies operating in the field of securities. According to the new Decision, companies may now increase the number of members on their boards as the old decision used to provide that the number of board members cannot exceed seven. The Decision also provides that the majority of board members must be independent, in contrast to the old decision which provided that three members of the board at most could be shareholders in the fund company while the remaining board members had to be independent. Other than that, the Decision retained the criteria that must be satisfied in a board member so that they are considered independent, and these are as follows:

1. The board member must be a natural person who is not an executive or a shareholder in the fund, nor can they be a related party to the fund or any of its service providers in any direct or indirect manner;

2. They must not have been a senior employee in the company, or an accountant or adviser thereto within the three years preceding their appointment on the board; and,

3. The person’s relationship to the fund must be limited to his/her membership in the board of directors, and he/she cannot receive any remuneration except in relation to their membership.

A member shall cease to be considered independent if they lose any of the above conditions, and in any event, after the lapse of six consecutive years of their being a member on the company’s board. In addition, the fund company must notify FRA within five working days from the expiry of the membership of any of the board members. It is worth noting that the Decision did not change the second paragraph of Article (1) of decision No. 56 of 2018, which states that the chairman of the board is not required to be practicing that role on a full-time basis, and that there is no requirement that the structure of the board contains the positions of executive chairman and managing director. Finally, the Decision mandates companies to comply with its stipulations on the first meeting of the fund company’s ordinary general assembly, and within a maximum of one year from the date of its coming in effect which is the day following the publication of the Decision in the Egyptian Gazette on 2 June 2019.   [1] FRA Board of Directors Decision No. 58/2019 amending its Decision No. 56/2018 on the rules governing the structure of the board of directors of investment funds established in the form of a joint stock company, Egyptian Gazette No. 126, 2 June 2019.