October 31, 2024

FRA’s New Approvals for Ownership, Acquisition, or Merger of Non-Banking Financial Companies

On August 29, 2024, the Financial Regulatory Authority (FRA) issued Decree No. 178 of 2024, setting out a structured framework for approving ownership, control, acquisition, or merger of companies involved in non-banking financial activities (“Non-Banking Financial Companies” or “NBFCs”). The decree enhances oversight, ensuring compliance with ownership thresholds and competition standards within Egypt’s financial sector.

Key Scenarios Requiring FRA Approval

The decree applies to the following situations:

  1. Initial Approval for New NBFCs: Applications to establish and license an NBFC.
  2. Ownership of NBFC Shares: Requests for acquiring shares in an NBFC.
  3. Mergers and Capital Increases: Approvals for share issuance due to mergers or capital increases.
  4. Structural Changes: Ratification of shareholder or board changes resulting in new ownership or board structure.
  5. Public Disclosures: Approvals for publishing subscription documents or information memoranda.
  6. Control Acquisition: Any transactions resulting in control of an NBFC.

Ownership and Control Thresholds

The decree sets clear thresholds for ownership and control in NBFCs (excluding insurance and reinsurance companies):

  • 5% to 10% Ownership: Any entity acquiring 5% to 10% of an NBFC’s capital or voting rights must notify the FRA within 15 days of acquisition.
  • 10% Ownership or More: No entity may acquire 10% or more of shares or voting rights without the FRA’s prior approval.

For insurance and reinsurance companies, the decree outlines more granular thresholds for FRA approval, including stakes of 10%, 25%, 33%, 50%, 67%, and 90% of capital or voting rights. Additionally, FRA’s approval is required if any entity, alone or with affiliates, will exert control over 10% or more of the market, based on shareholding, voting power, or other forms of influence.

Approval Requirements for NBFC Ownership or Control

Applications for FRA approval of ownership or control must be submitted at least 60 days before the intended transaction. Required documents include:

  • Ownership Disclosure: Details of securities or voting rights sought, plus any interests in other NBFCs.
  • Shareholder Agreement: Agreement between stakeholders regarding voting or board decisions.
  • Ultimate Beneficiary Disclosure: Identification of the ultimate beneficiary behind the applicant.
  • Legal Compliance: Disclosure of any court judgments or legal issues related to financial regulations.
  • Qualifications and Experience: Applicant’s relevant experience, where applicable.
  • Application Fees: Proof of payment of application fees.

Merger Approvals for NBFCs

NBFCs seeking to merge with others in the same activity must apply to the FRA, providing:

  • Merger Rationale: Reasons for the merger, including terms and draft resolutions.
  • Board Approvals: Board and shareholder meeting approvals from both merging entities.
  • Financial Review: Auditor’s report and preliminary asset, liability, and valuation assessments.
  • Shareholder Rights: Outline of rights for shareholders post-merger and exit options for dissenting shareholders.

The FRA requires its approval before any due diligence can be conducted on a target NBFC.

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