Sigma Capital

16-09-2024

FRA develops controls on ownership, control or merger of companies operating in non-banking financial activities

Source: MIST

The amendments aim to enhance competition levels and prevent control over non-banking financial markets through proactive measures
The Authority issues its approval for ownership or acquisition without the need to present it to its Board of Directors to facilitate procedures
Linking the condition of the Authority’s Board of Directors’ approval only to the case where the deal results in one party controlling 10% of the total market size
A workshop to familiarize Authority employees with prior control over potential economic concentrations in the non-banking financial sector
Dr. Mohamed Farid, Chairman of the Financial Regulatory Authority:
The Financial Regulatory Authority attaches utmost importance to protecting competition in the non-banking financial sector in a way that enhances the sector’s ability to attract investments and achieves market stability

The Board of Directors of the Financial Regulatory Authority, headed by Dr. Mohamed Farid, issued Decision No. 178 of 2024 regarding the controls for the Authority’s approval of ownership, control or merger of companies operating in the field of non-banking financial activities, within the framework of the Authority’s keenness to improve the business environment in non-banking financial markets and activities, reduce the time period required to complete procedures, enhance competition levels and prevent control over the markets of those activities.
The decision regulates the requirements for ownership and acquisition of non-banking financial companies other than insurance and reinsurance companies, linking the condition of the approval of the Authority's Board of Directors only in the event that the ownership or acquisition results in controlling the relevant market by more than 10%. Otherwise, the Authority issues its approval for the ownership or acquisition without the need to present it to its Board of Directors to facilitate the procedures.

The decision limited the issuance of the Authority's Board of Directors' approval for the ownership and acquisition of insurance and reinsurance companies in implementation of Law 155 of 2024, with the necessity of obtaining the prior approval of the Authority's Board of Directors before any natural or legal person and its related parties acquire insurance or reinsurance companies or when the ownership percentages in the ownership structure exceed the legal percentages specified in the decision, which are 10%, a quarter, a third, a half, two-thirds, three-quarters, or 90% of the issued capital or voting rights of those companies as a legal requirement.

These amendments come in light of the Authority's management's keenness to facilitate, simplify and accelerate the procedures necessary to complete the required acquisition process whenever the provisions regulating it are met, aiming to provide an investment environment that supports the development and growth of businesses and attracts investments.
The decision requires obtaining the prior approval of the Authority's Board of Directors for any practices or procedures that may lead to a person, whether alone or with his affiliated group, controlling a market share representing 10% or more of the total market size of the relevant activity, whether as a result of ownership, voting rights, or any other actions, as the decision defined control as an increase in the market share percentage of more than 10% of the relevant market for providing a non-banking financial service. The decision also requires companies licensed to practice any of the non-banking financial activities to obtain prior approval from the Authority when they wish to merge with another company practicing the same activity or another activity, and this results in a form of control over the markets. The Authority also publishes a statement and a summary of the merger or acquisition request in a widely circulated daily newspaper and on the Authority's website, as well as on the Egyptian Stock Exchange screen if the relevant company operating in the non-banking financial activity has securities listed on the Egyptian Stock Exchanges, so that others can submit their comments on the request to the Authority within 15 days from the date of publication. The resolution stipulated that its provisions shall apply to applications of companies operating in non-banking financial activities when they wish to own or purchase shares, ratify the minutes of boards of directors or general assemblies that include changing the ownership structure or boards of directors, issuing shares to a company as a result of a merger or other decisions related to amending the capital, obtaining the Authority’s initial approval for incorporation and licensing applications, obtaining the Authority’s approval for the prospectus, information memorandum, trading disclosure report or for the purpose of proceeding with the call for the assembly, and any other applications that lead to control or acquisition. The resolution also stipulated that the Authority or its Board of Directors shall issue, as the case may be, a decision regarding ownership, control or merger within 45 days from the date of submitting the application to the Authority, complete with supporting documents, and the approval shall be valid for a period of 6 months from the date of notification of the applicant to implement the control or acquisition, otherwise it shall be considered null and void, and the Authority’s Board of Directors may extend this period for a similar period.

The acceptance or rejection of the request for ownership, merger or control cases shall be in light of the Authority’s study of the impact of these operations on the relevant market and the provision of services to it and the extent of its impact on, restriction of or harm to freedom of competition in this market, or its impact on the continued listing of the company’s shares on the Egyptian Stock Exchanges if the shares of the company operating in non-banking financial fields were listed on the Egyptian Stock Exchanges.
For his part, Dr. Mohamed Farid, Chairman of the Financial Regulatory Authority, confirmed that the Authority’s Board of Directors issued Decisions 177 and 178 to replace the Authority’s Board of Directors’ Decision No. 53 of 2018 regarding the controls for granting and continuing the license and the rules for owning shares of companies operating in non-banking financial activities, in light of the issuance of a number of new laws and the amendment of a number of laws and regulatory decisions for a number of non-banking financial activities after the issuance of the Authority’s Board of Directors’ Decision No. 53 of 2018, such as the Unified Insurance Law, the Law on the Protection of Competition and the Prevention of Monopolistic Practices, and the Microfinance Law, as the issuance of the new decisions came to accommodate the legislative amendments that were made during the previous period.
Dr. Farid added that the Authority’s work strategy aims to develop and grow non-banking financial markets and activities and protect the rights of all stakeholders through a number of Measures including developing regulatory, supervisory and legislative controls to enhance the role of the non-banking financial system in the national economy. At the same time, the Financial regulatory Authority organized an introductory workshop for its employees, attended by representatives of a number of the Authority's technical departments whose work is related to mergers and acquisitions that may lead to economic concentrations in the future. The workshop was presented by Dr. Khaled Hamdy Attia, former Executive Director of the Competition Protection and Anti-Monopoly Authority, and included an overview of the Competition Protection and Anti-Monopoly Law, as well as the most important laws and agencies regulating economic concentrations, mechanisms for monitoring economic concentrations of non-banking financial activities, in addition to an explanation of the economic concentrations subject to the supervision and control of the Financial regulatory Authority and their relationship to the Competition Protection and Anti-Monopoly Authority, and some practical issues in this regard.