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FRA’s Increased Control over NBFS Companies’ M&As

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In an effort to protect insider information of non-banking financial services’ companies (“NBFSs”), the FRA issued Decree No. 25 for 2022 on 20 February 2022 (the “Amendment”) amending Article (8) of the FRA’s Decree No. 53 for 2018 (the “Decree”) governing NBFSs.

The Decree defines NBFSs’ activities, sets forth the FRA’s mandate to supervise and control NBFSs, and regulates their establishment and licensing (including minimum capital and shareholding requirements). The Decree also outlines the process and the approvals required for acquiring NBFSs’ shares and the disclosure requirements relating thereto.

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The Amendment provides the FRA with a broader mandate in terms of M&As of NBFSs as it requires the prior approval of the FRA or the FRA’s board (as the case may be) before proceeding with any due diligence exercises over an NBFS target. This application to conduct due diligence will be in accordance with an FRA form in this respect.

The above requirement is added by the Amendment to Article (8) of the Decree. Article (8) outlines the cases where the FRA’s approval is required for acquiring NBFSs’ shares in addition to NBFSs’ market share triggering such requirements. In addition, Article (8) outlines the criteria to be taken into consideration by the FRA to approve acquisition requests.

Through the Amendment, the FRA is practically involved in the acquisition process of NBFSs from the outset and would have access to the parties involved with the due diligence process and the insider information subject to review. It is likely that the Amendment is a reaction to the increase of M&A activity in the market of late. Most notably, the offer by the UAE’s First Abu Dhabi Bank (“FAB”) to acquire EFG Hermes. In this case, FAB was allowed, by virtue of the Amendment, to undertake the due diligence on specific scopes agreed by EFG Hermes under the FRA’s control.

Market Reaction

Mohamed Maher, the Chairman of the Egyptian Capital Market Association, remarked that “the EFG deal is influenced by FAB’s offer to acquired up to 51% of the shares of EFG, which holds a significant market share. The requirement is being applied to all NBFS activities so that the FRA can ensure the protection of customers’ accounts and the seriousness of bidders”.