Areas Covered
Registration
Issuance of Securities
Obligations of Listed Companies
Central Depository
Investment Funds
Employee Shareholders' Association (ESA)
Brokers' Obligations and Restrictions
Since the early nineties, the Egyptian financial system with
its three main sectors: the capital market, banking and insurance,
has been undergoing ambitious legislative reforms to enhance
performance and encourage competition especially from the
private sector. Since 1993, the government has stopped intervening
directly in the financial sector, and instead has been using
indirect measures to control monetary aggregates such as bond
issues. The government is currently focusing on reactivating
the bond market, creating new financial institutions and building
strategic links with international financial institutions.
Serious efforts are also being done to divest state ownership
of joint venture and public banks and insurance companies,
and increase private sector involvement in the financial sector.
Full private sector ownership, including foreign ownership,
has been allowed in the banking and insurance sectors. Thereby,
several financial intermediaries representing large international
financial institutions in the areas of commercial and investment
banking, mutual funds, insurance and securities trading are
now operating in Egypt. The recent enactment of the mortgage
law is also expected to bring liquidity to the market and
enhance the retail-banking sector.
In 1995 and 1996, amendments to the Law No. 10 of 1981 were
issued to regulate the insurance sector, and since 1996 tariffs
on insurance have been almost eliminated, thereby reducing
insurance premiums significantly.
Law No. 156 of 1998 and Decree No.45 of 1999 were promulgated
to set a comprehensive legal framework for the supervision
and control of the insurance sector in Egypt. The main provisions
included:
The private sector is permitted to own up to 100% of the
shares of an Egyptian insurance company that is fully owned
by the government. This provision applies to both local
and foreign private investors.
The Prime Minister's approval is required to own 10% or
more of an insurance company's shares. This provision applies
to individuals, except in case of inheritance, and entities.
Risk insurance must no longer be transacted in Egypt or
executed by fully owned Egyptian insurance companies. Insurance
operations, which are to be transacted outside Egypt, must
apply for EISA's approval to be conducted by other companies
abroad.
Managing directors of state-owned companies do not have
to be Egyptians as was previously required by law 10 of
1981. The company's Board of Directors should include two
expert members with experience in the insurance field, provided
that one of them should be the executive manager.
Any company wishing to enter the market and get a new
license must have a minimum issued capital of LE30 million,
50% of which should be paid upon establishment, however,
if the company is to deal in life insurance, the cap is
set at LE60 million. Another factor that determines granting
of a license is the new company's contribution to increasing
total retention in the market by introducing new covers
or developing already existing covers.
All insurance companies are required to publish annual
financial positions approved by accredited financial auditors.
USAID has established several programs with the Ministry
of Foreign Trade to provide technical assistance regarding
insurance regulations and supervision. The programs were mainly
designed to encourage the government in liberalizing the sector.
The programs also focused on developing social insurance services
such as health care and pensions.*
The CBE, Banking sector, and currency are governed by Law
No. 88/2003, regulating the banking system in Egypt.
Capital Adequacy Requirements
Pursuant to the above Law, the issued and paid in full capital
of banks should not be less than LE 500,000,000 (Five Hundred
Million Egyptian Pounds).
The CBE retains significant powers to undertake remedial
measures and impose penalties when the provisions of the above
Law are violated. For example, the CBE retains the right to
cancel the registration of a bank by virtue of a resolution
issued by the CBE's Board of Directors in case of violating
the provisions of the said Law, its executive regulations,
any of its executive decrees, and not remedy such violaton
within the period and according to the conditions fixed by
the CBE.
The Board of Directors of the CBE, may grant banks or branchs
of foreign banks, which deal only in foreign currency, the
approval to deal in local currency.
Foreign Ownership of Banks
Egyptians and non-Egyptians have the right to acquire shares
in banks; however, such should be without prejudice to the
provisions of the above Law. However, individual or entity's
ownership of over 10% of the bank's issued capital or any
other percentage resulting in the actual control of the bank
is not permitted without the approval of the CBE.
Bank Secrecy Law
The above Law governs the obligation of banks not to disclose
information relating to their customers' accounts, deposits,
safe deposit boxes and transactions, in the absence of either
the written permission of the customer, his legal representative,
a delegated agent, or a decision rendered by a competent judicial
or arbitration tribunal.
Any party legally authorized to view information relating
to a customer's account, deposits or safe deposit box is also
prohibited from disclosing such information unless either
of the above mentioned criteria have been met.
The Central Bank of Egypt (CBE) Law
The aforementioned Law (No. 88/2003) regulates the activities
of the Central Bank of Egypt. The law addresses the independence
of the Central Bank of Egypt (CBE) and its supervisory authorities
regarding inter-banks activities. According to the law, the
CBE's paid in capital is LE 1 billion and the bank is a public
legal entity reporting to the President of Egypt. The law
identifies the CBE's responsibilities in several areas including
supervision of payment systems, management of international
reserves and management of external debt.
The Capital Markets Law No. 95/1992 regulates the operations
of the capital market in Egypt. Under the Capital Market
Law, any company intending to issue securities must notify
the Capital Market Authority (CMA), which then has 3 weeks
in which to review the proposed securities issuance.
For a public issuance of securities, a company must prepare
a prospectus approved by the CMA and must provide the CMA
with periodic reports and information relating to such a
public issuance.
A company offering part of its shares in a public offering,
or trading a minimum of 30% of its shares on the stock exchange,
must inform all shareholders owning at least 1% of the company's
capital of any other shareholder wishing to increase its
shareholding above 10%. Any Board member or employee of
the Company wishing to increase his/her shareholding above
5% must also comply with the foregoing requirement.
The Capital Market Law also allows the issuing company
to set a return on securities that exceeds the limit established
in other laws (i.e. 7% ceiling in the Civil Code).
The Capital Market Law provides that trading of securities
may only be undertaken by companies licensed by the CMA.
Board members of such companies must have a minimum of 5
years experience in the field of securities or must have
4 years experience and have participated in a training course
set up by the CMA.
Areas Covered
The Capital Market Law regulates both companies that offer
their shares to the public and those that deal in securities.
In particular, it regulates the actions of companies engaging
in the following types of securities related activities:
Promoting and underwriting investments in securities
Participation in the formation of companies that issue
securities or in the increase of their capital (Egyptian
equivalent to the holding company)
Venture capital
Securities clearing and settlement activities
The creation of securities portfolios and investment funds
portfolio and investment fund management
Securities brokerage activities
Other securities activities specified by a decree of
the competent Minister following approval of the CMA
Any other activities relating to the field of securities
may be added to this list by a ministerial decree after obtaining
the approval of the CMA.
Registration
Joint stock companies must register with the Stock Exchange
in either Cairo or Alexandria. A joint stock company's securities
can be listed in either the official or the unofficial register.
The following securities may be listed in the official register:
Public issuance of securities that represents no less
than 30% of the joint stock company's nominal shares and
that is subscribed to by no fewer than 150 persons.
Public issuance of securities by the government or a public
sector company.
Securities that do not meet the criteria for listing in the
official register (including foreign securities) could be
listed in the unofficial register. Investors dealing in securities
listed in the official register are exempt both from stamp
duties ordinarily due at the time the securities are issued
and from annual stamp duties and from capital gains tax on
profits realized from trading of such securities.
Issuance of Securities
The Capital of Joint stock companies and the shares of dormant
partners in companies with a limited number of shares shall
be divided into nominal shares of equal value. However, the
company may issue bearer shares within certain limits and
according to specific terms and conditions. (Article 1)
The company's articles of association shall determine
the value of the nominal shares, but the nominal share cannot
be valued less than LE5.00 and shall not exceed LE1,000.
A share should be indivisible. New shares may be issued,
upon increasing the capital of the company with a different
value from that of shares from previous issues.
For issuing shares against a real share, or on the occasion
of merger, the value of these shares should conform to the
value of the real share or the merged rights, as determined
by the concerned evaluation committee. However, the party
submitting the real share may pay the difference in cash
or decline the deal.
No stocks/securities of any company, including public
business sector companies, and public sector companies shall
be floated for public subscription, except by virtue of
a subscription prospectus, approved by the Authority to
be published in two prominent daily newspapers, at least
one shall be in Arabic.
Obligations of Listed Companies
In order to secure the rights of investors and the users of
financial statements, listed companies must provide the following
information about their financial and business results:
The balance sheet and other financial returns and statements
of the company shall be prepared according to the accounting
criteria and auditing standards to be determined or referred
to in the executive regulations of the Capital Market Law.
All listed companies should submit to the CMA a copy of
their financial statements, reports of the Board of Directors,
and the auditors' report, one month prior to the date scheduled
for convening the general assembly meeting.
All listed companies shall publish an adequate summary
of the semi-annual reports and annual financial statements,
in two leading daily newspapers one of which to be in Arabic.
Central Depository
A new Law on Central Registration and Depository, Law 93/2000,
was adopted. This law provides for the creation of a licensed
Central Depository that is to issue deeds that will be able
to be used instead of material shares. For the first time,
the law introduces a concept of beneficial ownership of shares.
Banks and other licensed securities companies are required
to enter into agreements with the Central Depository that
include certain mandatory provisions. They are required to
participate in a special fund that will guarantee settlement
of securities transactions.
The Central Depository is owned by its members. Transactions
are to be based on cash against delivery with a settlement
time to be specified by the CMA.
Investment Funds
The Capital Markets Law stipulates that an investment fund
must take the legal form of a joint stock company. The CMA
has the authority to review and object to the members of an
investment fund company's Board of Directors as well as the
fund managers. An investment fund must be managed by a specialized
investment management company.
The Capital Market Law provides that an investment fund must
maintain a certain ratio between its paid-in capital and its
financial resources. Only banks that have been authorized
by the Minister of Foreign Trade may deal in the subscription
of investment fund shares.
Banks and insurance companies may establish investment funds
without having to create a separate joint stock company, if
they have received authorization to do so from the CMA and,
either the CBE (in the case of banks) or the General Organization
for Insurance Supervision (in the case of insurance companies).
Employee Shareholders' Association
(ESA)
The Capital Markets Law also introduced the concept of Employee
Shareholders Associations, whereby employees of a joint stock
company may form an association that owns shares in the joint
stock company's capital on behalf of the employees.
Brokers' Obligations and Restrictions
The obligations of and restrictions on brokerage companies
are set out by the Executive Regulations of the Capital Market
Law, Decree 39/1998.
Brokerage companies are bound by fiduciary duties of honesty
and integrity. Therefore, brokerage companies are required
to disclose any conflict of interest that may exist. Also
included in their fiduciary duty is the obligation not to
disclose any information regarding their clients. Insider
trading rules, Article 244 of Decree 39/1998, have been established
which stipulate that brokerage companies, their directors
and employees are expressly prohibited from engaging in insider
trading by using non-public information in accordance with,
among other things, these rules:
Brokerage companies may not execute transactions on behalf
of their clients, without sufficient evidence justifying
their advice and the resulting transactions.
Brokerage companies are prohibited from "churning"
(i.e. entering into transactions for clients participating
in excessive trading, with the aim of increasing commissions,
expenses or other fees).
Brokerage companies may only deal on behalf of their clients
in transactions for which they have been granted specific
instructions. These instructions should be recorded by the
brokers.
The client must be informed of the completion of a transaction
within 24 hours.
Transactions on behalf of the brokerage companies' directors,
employees or relatives are permitted only with the explicit
written consent of the Board of Directors of the brokerage
company.
A new mortgage law No. 148 of 2001 was passed in 2001 to
regulate real estate bank financing. The law, which is geared
towards encouraging housing of low and middle-income groups,
allows banks to offer subsidized loans for the purchase of
houses as well as administrative and commercial units and
renovating existing ones. However, it is believed that middle-income
families who can afford to pay a monthly installment not less
than LE400 will benefit most from the new law. Borrowers will
be able to make a 20% down payment and pay off the remainder
in installments over 20-30 years. Under the new law, banks
will be able to foreclose on loan defaulters in case they
default on payments for between six and nine months. However,
for protection of borrowers the idea of a mortgage guarantee
fund is applied by the law. (Article 35)
As to its effect on the real estate sector, the law is expected
to eliminate the gap between demand and supply that was created
after the rush of many investors to construct new residential
units, shopping malls and tourist villages on the outskirts
of Cairo and the Mediterranean without being matched with
an equal rise in demand due to a lack of real estate financing
for the low and middle class groups. However, the law is expected
to improve liquidity to the market, which will reflect on
the country's overall economic welfare.
The People's Assembly approved the Money Laundering Law with
all its 20 articles on May 22nd , 2002. The Law was proposed
due to the government's rising concern of the danger of this
phenomenon and its detrimental effect on Egypt's economy;
as well as, concerns expressed by the OECD Financial Action
Task Force (FATF) on Money Laundering regarding the lack of
a comprehensive legal regime in Egypt to counter this globally
recognized illegal activity. The law provides for setting
up a unit by the Central Bank of Egypt (CBE) to monitor reports
from the financial institutions on the suspected money laundering
deals.
The law stipulates that financial institutions should hold
books, which record their domestic and international money
dealings coupled with full information that shed lights on
these dealings. According to the law, the institution should
keep the books for five years at least as of the date when
the dealings were concluded. The institution is held responsible
for putting such books and records at the disposal of judicial
authorities concerned with the enactment of the law whenever
they are requested.
The law also provides that any citizen has the right to take out and bring in whatever amount of hard currency, provided that the sum should be written down on the entry visa, in case it exceeds $20,000 or its equivalent.
The law also determines a maximum 7-year imprisonment anyone convicted of money laundering, or attempted to launder money, in addition to fining the culprit twice the amount of money he/she laundered. However, it absolves from any criminal charges any body that reports, in good faith, on any suspected money deal that turns out to be illegal.
