Amendments to the Registration Requ

On 11 July 2019, Decision No. 79 of 2019 (“Decision 79/2019”)[1] by the board of the Financial Regulatory Authority (“FRA”) was published in the Egyptian Gazette, amending the conditions and regulations for registering financial advisory companies and entities licensed to undertake financial valuations and fair value assessments. Decision 79/2019 refines the qualifications required of the managing directors and employees of these companies and entities, making them more flexible, in addition to reducing the period in which these companies and entities are not allowed to undertake transactions on securities they have valued – a provision set in place for avoiding conflict of interest – to six months from the date of valuation.

Background

Last year, FRA created a new registry for financial advisory, valuation, and fair value assessment companies, by virtue of FRA Board Decision No. 114 of 2018 (“Decision 114/2018”).[2] Repealing the previous registry of financial advisors (which was created in 2007) and related regulations, Decision 114/2018 set out the requirements for the registration of said companies, which include obtaining the necessary licenses and professional liability insurance; fulfilling certain professional qualifications and reputational and no-conviction requirements; and separating these activities’ accounts from those of the company’s other activities. Compliance with all other FRA decisions 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, are all prerequisites for maintaining the company’s registration. Finally, as per the decision, no domestic or foreign company is to be permitted to undertake financial advisory, valuation, or fair value assessment activities without registration, and registration must be renewed every three years.

The New Decision 79/2019

Among other things, the old Decision 114/2018 delved into an elaborate list of qualification and minimum capacity requirements that must be met by the managing directors of financial advisory companies (or financial advising managers in valuation and fair value assessment companies) as well as the requirements that must be met by employees of financial advisory companies (or employees of valuation and fair value assessment departments in other companies). The new Decision 79/2019 amends some of these qualifications and minimum capacity requirements in addition to the condition prohibiting transactions on valued securities within a given time period, as follows:

1. Allowing Academic Qualifications

In contrast to the older Decision 114/2018, the new Decision 79/2019 widens the circle of required qualifications for managing directors or managers by allowing academic degrees to be considered rather than only professional degrees. In other words, managing directors or managers must have an FRA-accredited academic or professional degree in fields related to financing, investment, and/or business management, whether from a local or foreign entity, and said degrees could qualify the managing directors or managers for an FRA exemption from the testing requirements (refer to point 3 below). Relatedly, it should also be noted that Decision 79/2019 adds a specification that the university degree required of managing directors or managers must be in a field of study related to financing (rather than any university degree).

2. Amending Manager’s Minimum Expertise in the Field

Comparably, an amendment contained in Decision 79/2019 allows the five-year minimum expertise in financial valuation and fair value assessment required of managing directors or managers to either be theoretical and/or practical in nature. In addition, Decision 79/2019 removes the stipulation that said manager or managing director must have participated in the preparation of three valuation or fair value assessment studies during the three years prior to applying for the company’s registration at FRA, making this requirement only for already existing financial advisory, valuation, and fair value assessment companies in their compliance with the registration regulations; this might be for practicality purposes and for the encouragement of new companies undertaking these activities. In contrast, already existing companies wishing to comply must have managing directors or managers who, in addition to the five-year minimum expertise, have participated in preparing three valuation or fair value assessment studies during the three years preceding the company’s application for compliance.

3. Amendments to Required Testing of Managers

Decision 114/2018 provided that the managing directors or managers must pass FRA-approved tests in the subjects of valuation of intangible assets and practical valuations for mergers, acquisitions, and public offerings. The new Decision 79/2019, however, generalizes the topics of the required tests, making them related to financial valuation as a whole. Furthermore, Decision 79/2019 specifies that said tests are to be administered through FRA or FRA-approved agencies, which might be for the purpose of furthering FRA’s oversight of the testing requirement not only in terms of the tests but in terms of the entire process.

4. Amendments to Employee Training

Similar to the administration of the required tests, Decision 79/2019 provides that the introductory course on financial advising legislation and valuations standards that employees are required to pass must be administered through FRA or FRA-approved agencies. In addition, Decision 79/2019 adds a new provision whereby employee training in financial analysis is preferred.

5. Relieving Employee Minimum Qualifications

While Decision 114/2018 required all employees to have at least three years of expertise in valuations and fair value assessment, Decision 79/2019 stipulates that this could be met by at least one employee.

6. Reducing the No-Transaction Window on Valued Securities

Finally, Decision 79/2019 amends one of the conditions for maintaining registration and which is connected to the avoidance of conflict of interest. Previously, a company was not allowed to undertake any transactions on securities that it has valued for a period of three years from the date of valuation. Decision 79/2019 reduces the period to six months.   [1] FRA Board of Directors Decision No. 79/2019 amending Decision No. 114/2018 on the conditions and regulations for registering financial advisory companies and entities licensed to undertake financial valuations and fair value assessments, Egyptian Gazette, Issue No. 156, 11 July 2019. [2] FRA Board of Directors Decision No. 114/2018 on the conditions and regulations for registering financial advisory companies and entities licensed to undertake financial valuations and fair value assessments, Egyptian Gazette, Issue No. 191, 27 August 2018.