FRA Instructs Financial Leasing Com

This week, the Financial Regulatory Authority (“FRA”) published a decision on its website amending  previous FRA Decision No. 7 of 2019[1] that was issued last February containing regulations for companies working in factoring and financial leasing (the “Decision”).[2] These regulations follow several decrees that the FRA has issued in relation to the two activities since the passing of the financial leasing and factoring law in August 2018.[3] Previously issued decisions pertained to licensing – including the conditions and continuation of licensing – the preparation and disclosure of financial statements, financial adequacy rules, and governance of companies undertaking financial leasing and/or factoring. You can refer to the Egypt Legal Update for a compilation of FRA decisions that have been issued for the regulation of the two activities thus far. FRA Decision No. 82 of 2019 On its board meeting dated 16 July 2019, FRA issued decision No. 82 of 2019 introducing a new Article (4 bis) requiring financial lessors to ensure that the granted financing is used only for its approved purpose. In this respect, the Decision differentiates between four types of financing: For the financing of (i) operational costs, the financial leasing company is required to conduct regular compliance checks to ensure that the funds loaned are being used for these purposes. For the financing of (ii) real estate construction, installation, or finishing, financing must be disbursed on tranches as the work is being completed. As for the financing of (iii) assets with special/custom specifications or hi-tech assets that are less likely to be marketable for resale, the financial leasing company must make direct payment to the supplier of the asset. Finally, when granting financing for the (iv) settlement of the lessee’s debt, the financial leasing company must require that the credit study includes a full disclosure of the lessee’s cashflow, a detailed list of the lessee’s creditors, the value of the debt and its purpose, given that said purpose must be related to the lessee’s activity. The Decision states that it comes into force one day following its publication in the Egyptian Gazette, which is yet to take place.   [1] FRA Board of Directors Decision No. 7/2019 on the rules and regulations for companies licensed to undertake financial leasing and factoring, available through this link (in Arabic). [2] FRA Board of Directors Decision No. 82/2019 amending its Decision No. 7/2019 on the rules and regulations for companies licensed to undertake financial leasing and factoring, available through this link (in Arabic). [3] Law No. 176/2018 regulating financial leasing and factoring, Official Gazette, Issue No. 32 (bis) (c), 14 August 2018.