Amendment Concerning the Serving of

On 20 June 2019, the Egyptian Gazette published a decision by the board of directors of the Financial Regulatory Authority (“FRA”) that was taken on the FRA Board meeting dated 22 May 2019, introducing an amendment to the definition of independent directors in non-listed companies that undertake a non-banking financial activity.[1] The amendment specifically concerns the case where an independent director on the board of a holding non-banking financial company could serve in the same capacity on the board of a subsidiary of the holding company.

Background

In October 2016, FRA issued its decision No. 107 of 2016 with the corporate governance rules for companies operating in the field of securities (“Corporate Governance Rules”).[2] Clause 2-1 thereof provided rules for the formation of the board of directors in these companies. The majority of board members must be non-executive directors and half of those must be independent. Clause 2-1-2 provides a definition for independent directors mandating that said director be a non-executive expert who is not a shareholder in the company, and whose only relationship to the company is their serving on its board. The independent director must have no conflicts of interest with the company, cannot represent any of its owners, and may not receive any remuneration except in consideration for their membership on the board. They must have no special interest in the company, nor can they be a close relative of any of the shareholders, board members, executive management, or company employees. Furthermore, an independent director must not be a senior employee in the company, a consultant, or auditor thereof within the three-year period preceding their appointment on the board. In addition, an independent member must have sufficient relevant experience, and be able to dedicate time and attention to their role. In any event, a board member ceases to be considered independent after serving for six consecutive years on the board.

The Amendment

To the above stipulation, FRA Decision No. 68 of 2019 adds that an independent board member in a holding company may not serve in the same capacity on the board of a subsidiary unless the holding company holds at least 85% of the subsidiary’s capital, and the approval of the minority shareholders is obtained. In that sense, the new decision clarifies that an independent board of directors’ member may also serve as independent director in that company’s subsidiaries given that those two conditions are met.   [1] FRA Board of Directors Decision No. 68/2019 on the definition of independent directors in companies that undertake non-banking financial activities, Egyptian Gazette, Issue No. 139, 20 June 2019. [2] FRA Board of Directors Decision No. 107/2016 on the corporate governance rules for companies operating in the field of securities, Egyptian Gazette, Issue No. 228 (cont.), 12 October 2016.