The Financial Regulatory Authority (the “FRA”) has issued several decrees that directly affect companies operating in the sectors of insurance brokerage and companies listed on the Egyptian Stock Exchange (“EGX”) in an effort to better regulate the licensing and internal management requirements of companies operating in said fields.
The FRA issued Decrees No. 82, 85, and 91 for the year 2020 (the “FRA Decrees”), thereby suspending the issuance of new licenses for insurance brokerage companies, in addition to amending the composition requirements of review committees in listed companies.
We will delve into the key highlights of the FRA Decrees as follows:
Suspension of New Licenses and Increase of Sanctions
Pursuant to FRA Decree No. 82 for the year 2020 (the “Suspension Decree”), the FRA halted the issuance of new licenses for companies wishing to operate in the sector of insurance/reinsurance brokerage for a period of one year.
The Suspension Decree also tasked the competent departments within the FRA to prepare a study on the conditions and regulations pertaining to the operations of insurance brokerage companies in an attempt to develop this sector.
In addition to the Suspension Decree, the FRA further issued Decree No. 85 for the year 2020 (the “Sanctions Decree”), which amends the list of sanctions that the FRA may impose on insurance brokerage companies failing to comply with the licensing requirements outlined in FRA Decree No. 23 for the year 2014.
The Sanctions Decree adds a new measure to the list of sanctions that the FRA may impose on insurance brokerage companies, namely the removal of the breaching company from the brokers’ registry for a period ranging between one to three years.
Amending Requirements of the Review Committee in Listed Companies
FRA Decree No. 91 for the year 2020 (the “Listed Companies’ Decree”) amends the composition requirements of review committees in the FRA’s Listing Rules.
Pursuant to the Listed Companies’ Decree, companies listed on the EGX must form a review committee constituted of at least three non-executive board members, with the option of including external members in the review committee now being possible.
While the previous Listing Rules required at least two independent members in the review committee, the Listed Companies’ Decree requires that independent members constitute the majority of the committee and that the head of the review committee be an independent director. In addition, the members of the committee must have the required competence and experience in the company’s field of business, where at least one member thereof must have financial and accounting experience, which is a new requirement.
The FRA grants listed companies until 1 December 2020 to comply with the above requirements.
Market Reaction
Dr. Mohamed Omran, the Chairman of the FRA, revealed that “the number of companies licensed to engage in insurance brokerage activity is sufficient and exceeds the current market’s needs. Thus, there is no need to increase the number of companies operating in this sector and granting them license which may damage the industry”.
Dr. Omran further emphasized that “the decision to suspend granting new licenses to insurance or reinsurance brokerage firms stems from the FRA’s responsibility to develop non-banking financial activities, including insurance activity, through continuous monitoring of the practices in Egypt and assessing its establishment and licensing to practice activity in the Egyptian market during the past ten years”.
