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Court Annuls CBE’s Decision to Set

Court Annuls CBE’s Decision to Set Maximum Tenure for Bank CEOs
A recent decision by the Administrative Court annulled the decision of the Central Bank of Egypt (“CBE”) to set a maximum amount of nine years for the tenure of bank executive officers. As addressed in the March 2016 of the Egypt Legal Update, the CBE Board of Directors had issued a decision on 23 March 2016 that prohibits extending the tenure of a bank’s “principal executive officer” beyond nine years.
Background
The CBE Board’s decision (the “Decision”) was supposed to apply on 24 March 2016 on public sector banks, and to apply on private sector banks (including foreign bank branches) when the first general assembly convened to approve the annual financial statements, after the nine-year period had run out. The Decision had restricted the maximum tenure of a principal executive officer to nine years, regardless of whether this period was consecutive or non-consecutive. While the term “principal executive officer” in itself is not defined in the Egyptian Companies Law, it has been used in the Bank Corporate Governance Rules issued by the CBE in 2011 and effectively refers to the person occupying the most senior executive position at the bank.
The Court’s Decision to Annul Maximum Tenure
The Court’s Decision to annul the maximum tenure imposed by the CBE Board relies on the powers and authorities given to the CBE by virtue of Law No.88 for the Year 2003 (the Banking Law). The Law includes a complete chapter on the regulatory authorities of the CBE over banks. In it, Article 43 holds that the opinion of the Governor of the CBE must be sought when chairmen and members of banks’ boards of directors are appointed. The same Article gives the Governor the right to ask for these officers and members to be removed, if, through inspection on the banks, it is established that they have violated safety rules of depositors’ funds and the bank’s assets. If the requested removal does not take place, the Governor may issue a substantiated decision for discharging any of them from his/her work.[1] While the Court reiterated the CBE’s general regulatory powers, it opined that powers related to the appointment and dismissal of chairmen and members of the boards are exceptional, and that they may only be invoked if it is proven that the person in question violated safety rules of depositors’ funds and the bank’s assets. This, the Court based on the fundamental right of a bank’s general assembly to appoint and dismiss its executive officers. The Court thus found that imposing a rule of general application – which would necessarily result in the dismissal of a number of chairmen of private banks without establishment of applicable violations – exceeds the powers given to the CBE by virtue of Law 88/2003.
Conclusion
The CBE decision to impose a maximum tenure of nine years on principal executive officers of banks caused a stir, and raised numerous questions as to the scope of the decision, its legality, and the impact it may have on the banking sector. The recent decision of the Administrative Court annulling the CBE decision helps to bring some clarity and stability into this issue. It is worth noting that the CBE Governor has stated that he does not intend to appeal or challenge the Court’s decision. This is a welcome step since it will help close this matter without leaving space for doubts about the future of the decision. [1] Law No. 88/2003 issuing the Central Bank Law, the Banking Sector and Money, Official Gazette No. 24 (bis), 15 June 2003.
A recent decision by the Administrative Court annulled the decision of the Central Bank of Egypt (“CBE”) to set a maximum amount of nine years for the tenure of bank executive officers. As addressed in the March 2016 of the Egypt Legal Update, the CBE Board of Directors had issued a decision on 23 March 2016 that prohibits extending the tenure of a bank’s “principal executive officer” beyond nine years.
Background
The CBE Board’s decision (the “Decision”) was supposed to apply on 24 March 2016 on public sector banks, and to apply on private sector banks (including foreign bank branches) when the first general assembly convened to approve the annual financial statements, after the nine-year period had run out. The Decision had restricted the maximum tenure of a principal executive officer to nine years, regardless of whether this period was consecutive or non-consecutive. While the term “principal executive officer” in itself is not defined in the Egyptian Companies Law, it has been used in the Bank Corporate Governance Rules issued by the CBE in 2011 and effectively refers to the person occupying the most senior executive position at the bank.
The Court’s Decision to Annul Maximum Tenure
The Court’s Decision to annul the maximum tenure imposed by the CBE Board relies on the powers and authorities given to the CBE by virtue of Law No.88 for the Year 2003 (the Banking Law). The Law includes a complete chapter on the regulatory authorities of the CBE over banks. In it, Article 43 holds that the opinion of the Governor of the CBE must be sought when chairmen and members of banks’ boards of directors are appointed. The same Article gives the Governor the right to ask for these officers and members to be removed, if, through inspection on the banks, it is established that they have violated safety rules of depositors’ funds and the bank’s assets. If the requested removal does not take place, the Governor may issue a substantiated decision for discharging any of them from his/her work.[1] While the Court reiterated the CBE’s general regulatory powers, it opined that powers related to the appointment and dismissal of chairmen and members of the boards are exceptional, and that they may only be invoked if it is proven that the person in question violated safety rules of depositors’ funds and the bank’s assets. This, the Court based on the fundamental right of a bank’s general assembly to appoint and dismiss its executive officers. The Court thus found that imposing a rule of general application – which would necessarily result in the dismissal of a number of chairmen of private banks without establishment of applicable violations – exceeds the powers given to the CBE by virtue of Law 88/2003.
Conclusion
The CBE decision to impose a maximum tenure of nine years on principal executive officers of banks caused a stir, and raised numerous questions as to the scope of the decision, its legality, and the impact it may have on the banking sector. The recent decision of the Administrative Court annulling the CBE decision helps to bring some clarity and stability into this issue. It is worth noting that the CBE Governor has stated that he does not intend to appeal or challenge the Court’s decision. This is a welcome step since it will help close this matter without leaving space for doubts about the future of the decision. [1] Law No. 88/2003 issuing the Central Bank Law, the Banking Sector and Money, Official Gazette No. 24 (bis), 15 June 2003.