EFSA Issues a Decision on Portfolio Management Companies
The Egyptian Financial Supervisory Authority’s ("EFSA") Board of Directors issued on 19 April 2015 its decision No. 40 of 2015 on the rules of the Registration, Relocation and Closure of Branches of Portfolio Management Companies along the lines of what had been issued to regulate Securities Brokerage Companies (the "Decision").[1]
The Decision regulates the branches that portfolio management companies may establish and clarifies the nature of activities that may be carried out by each type of branches.
Types of Branches
According to the Decision, portfolio management companies may establish two types of branches:
- Operation Branches
Operation branches may carry out all the activities that are carried out by the head office of the company and are directly supervised by the managing director of the company.
| Marketing and Promotion Branches must not engage in setting up or managing portfolios on behalf of clients. |
- Marketing and Promotion Branches
Unlike operation branches, marketing and promotion branches may only carry out marketing and promoting activities without being entitled to set up or manage portfolios on behalf of clients.
EFSA’s Decision aims at clarifying the role played by each type of branch of portfolio management companies to safeguard the interests of persons dealing in the Egyptian financial market and to limit fraud incidents in the market.
It is worth noting that the Capital Market Law had allowed the creation of branches by portfolio management companies, however said companies were not making use of these provisions and, to the best of our knowledge, none of the portfolio management companies working in the market had branches other than their head offices.
Furthermore, it should be noted that portfolio management companies may change the activities of their branches from one type to another if they meet the requirements for the type of branch to which they want to change and provided the company obtains the approval of EFSA.
Moreover, although the Capital Market Law allows companies to be licensed to carry out more than one activity set out in the law, EFSA’s present decision explicitly provides that in case a portfolio management company holds a license to carry out other activities set out in the law, it may not pursue such activities from its branches to the extent such activities exceed the scope of the license granted to a branch.
Obligations of Portfolio Management Companies
The Decision sets forth the obligations of companies in case they wish to set up branches and lists the documents to be submitted to EFSA as well as the qualifications that must be met by the officers at each type of branch.
The Decision further regulates the relocation of branches; again it lists the documents to be submitted to EFSA as well as the corporate resolutions necessary for the relocation.
Lastly, the Decision provides that should a company wish to close down any of its branches, it must apply to EFSA, submit the documents listed in the Decision as well as notify its customers of the closure.
The Role of EFSA
EFSA examines applications submitted to it in this context and issues its decisions within a maximum of 10 days from the date of completion of the required documents by the applicant, as set out in the decision. Approvals on applications are issued by a decision of the Chairman of EFSA.
Re-adjustments
| Portfolio management companies must re-adjust the status of their branches by 5 November 2015. |
The Decision provides that portfolio management companies must re-adjust the status of their existing branches within a maximum of six months from the date of entry into force of the Decision on May 6, 2015.
Conclusion
We welcome EFSA's Decision regarding the branches of portfolio management companies because EFSA shall have a better overview on the operations of the companies working in this field and is likely to be able to limit inconsistencies caused by companies and their officers which is cause for extensive losses in the market.
[1] EFSA Boards of Directors' Decision No. 40/2015 on the Rules of the Registration, Relocation and Closure of Branches of Portfolio Management Companies, Official Gazette, Issue No. 102, 5 May 2015.
The Egyptian Financial Supervisory Authority’s ("EFSA") Board of Directors issued on 19 April 2015 its decision No. 40 of 2015 on the rules of the Registration, Relocation and Closure of Branches of Portfolio Management Companies along the lines of what had been issued to regulate Securities Brokerage Companies (the "Decision").[1]
The Decision regulates the branches that portfolio management companies may establish and clarifies the nature of activities that may be carried out by each type of branches.
Types of Branches
According to the Decision, portfolio management companies may establish two types of branches:
- Operation Branches
Operation branches may carry out all the activities that are carried out by the head office of the company and are directly supervised by the managing director of the company.
| Marketing and Promotion Branches must not engage in setting up or managing portfolios on behalf of clients. |
- Marketing and Promotion Branches
Unlike operation branches, marketing and promotion branches may only carry out marketing and promoting activities without being entitled to set up or manage portfolios on behalf of clients.
EFSA’s Decision aims at clarifying the role played by each type of branch of portfolio management companies to safeguard the interests of persons dealing in the Egyptian financial market and to limit fraud incidents in the market.
It is worth noting that the Capital Market Law had allowed the creation of branches by portfolio management companies, however said companies were not making use of these provisions and, to the best of our knowledge, none of the portfolio management companies working in the market had branches other than their head offices.
Furthermore, it should be noted that portfolio management companies may change the activities of their branches from one type to another if they meet the requirements for the type of branch to which they want to change and provided the company obtains the approval of EFSA.
Moreover, although the Capital Market Law allows companies to be licensed to carry out more than one activity set out in the law, EFSA’s present decision explicitly provides that in case a portfolio management company holds a license to carry out other activities set out in the law, it may not pursue such activities from its branches to the extent such activities exceed the scope of the license granted to a branch.
Obligations of Portfolio Management Companies
The Decision sets forth the obligations of companies in case they wish to set up branches and lists the documents to be submitted to EFSA as well as the qualifications that must be met by the officers at each type of branch.
The Decision further regulates the relocation of branches; again it lists the documents to be submitted to EFSA as well as the corporate resolutions necessary for the relocation.
Lastly, the Decision provides that should a company wish to close down any of its branches, it must apply to EFSA, submit the documents listed in the Decision as well as notify its customers of the closure.
The Role of EFSA
EFSA examines applications submitted to it in this context and issues its decisions within a maximum of 10 days from the date of completion of the required documents by the applicant, as set out in the decision. Approvals on applications are issued by a decision of the Chairman of EFSA.
Re-adjustments
| Portfolio management companies must re-adjust the status of their branches by 5 November 2015. |
The Decision provides that portfolio management companies must re-adjust the status of their existing branches within a maximum of six months from the date of entry into force of the Decision on May 6, 2015.
Conclusion
We welcome EFSA's Decision regarding the branches of portfolio management companies because EFSA shall have a better overview on the operations of the companies working in this field and is likely to be able to limit inconsistencies caused by companies and their officers which is cause for extensive losses in the market.
[1] EFSA Boards of Directors' Decision No. 40/2015 on the Rules of the Registration, Relocation and Closure of Branches of Portfolio Management Companies, Official Gazette, Issue No. 102, 5 May 2015.