The Board of Directors of the Financial Regulatory Authority (FRA), headed by Mohamed Farid, has issued new regulations aimed at regulating the operations of non-banking financial institutions under its supervision.
One of the key decisions is Decision No. 256 of 2024, which sets the start and end dates for the fiscal year of private insurance funds, effective 1 January 2025. The fiscal year will begin on 1 January and end on 31 December each year. This decision is part of the FRA’s efforts to implement the rules outlined in the Unified Insurance Law, which took effect in July 2024.
The FRA explained that this amendment aligns the fiscal year of private insurance funds with the practical application of previous regulations and resolves the discrepancies between Egyptian and foreign companies’ fiscal years. Some procedures for companies were delayed over the past few years due to these differences.
Fiscal Year for Private Insurance Funds and Insurance Companies
This decision mandates that private insurance funds, which previously had a fiscal year starting on July 1, must prepare transitional financial statements covering the period from 1 July 2024, to December 31, 2024. These statements must adhere to Egyptian accounting standards and be reviewed and approved by the fund’s auditor and General Assembly. Additionally, these funds must prepare annual financial statements for the period from 1 January to 31 December 2025, along with their comparative figures from the previous year.
The FRA’s Decision No. 273 of 2024 establishes the start and end dates for the fiscal year of insurance and reinsurance companies. Starting from 2025, these companies are required to prepare periodic quarterly financial statements in line with Egyptian accounting standards, with comparative data from the previous year. These statements must be reviewed and audited by the company’s auditor. Companies will also have a one-time grace period to submit their financial position as of 31 December 2025.
In addition, the decision stipulates that insurance companies must submit their annual financial statements for the period from 1 January to 31 December 2025, along with comparative figures from the previous year. These reports must be reviewed, audited, and approved by the General Assembly before being submitted to the FRA by the specified dates.
The FRA emphasized its ongoing commitment to developing the insurance industry and expanding insurance coverage in Egypt. Since the introduction of the Unified Insurance Law in July 2024, the FRA has implemented several regulatory decisions to assist insurance companies in complying with the new law.
Regulation of Private Insurance Funds
The FRA’s Board of Directors also issued Decisions No. 236 and 237 of 2024, addressing the model statutes of private insurance funds and the regulations governing their registration, liquidation, and deletion. These decisions are part of the FRA’s mandate to oversee and enhance the non-banking financial markets and instruments. The aim is to enhance the operations of private insurance funds, in line with the provisions set forth in the Unified Insurance Law enacted last July. This law grants the Authority’s Board of Directors the power to establish rules and regulations regarding private insurance funds.
Decision No. 236 of 2024 authorizes individuals connected by a profession, occupation, or any other social ties to form private insurance funds, with the goal of making access to these funds easier for as many citizens as possible who meet the necessary criteria.
The decision includes amendments to the bylaws of private insurance funds, which encompass the procedures for establishing and registering these funds with the Authority. It details the conditions for membership and subscriptions, the criteria for determining and distributing insurance benefits, the financial management rules of the fund, guidelines for forming the fund’s board of directors and defining its powers, as well as procedures for conducting ordinary and extraordinary general meetings. Additionally, it outlines the rules for internal control and the processes for merging, transferring, liquidating, and deregistering the fund.
For the first time, the decision requires private insurance funds to establish a comprehensive written internal control system. This system must explicitly define the powers, responsibilities, and tasks of the board of directors to prevent conflicts of interest.
The rules stipulate that if a fund’s assets amount to EGP 500m or more, based on the most recent financial statements, the fund must include a department dedicated to internal auditing within its administrative structure. If the fund’s assets are less than EGP 500m, there must be an official with adequate internal auditing experience in the administrative body.
Furthermore, a directive from the Authority’s Board of Directors has amended the requirement that only those with experience in the insurance sector can serve on the Fund’s Board of Directors. Now, individuals with experience from all sectors are eligible, allowing for a broader range of expertise on the Boards. Each fund will be managed by a board comprising an odd number of members, with a minimum of five and a maximum of eleven, including at least two members with relevant experience.
Decision No. 237 of 2024 also regulates the executive procedures and documentation required for registering the Authority’s insurance funds, as well as the processes for amending the articles of association and for liquidation and deregistration from the Authority’s records.
Investment of Private Insurance Funds’ Money
In related developments, the FRA’s Board of Directors issued Decision No. 269 of 2024, which sets out the rules for investing the funds of private insurance funds. This decision introduces a wider range of investment options for funds operating under the defined benefits system, allowing them to diversify their investments more than before. Additionally, all funds are now required to submit investment reports every three months as part of efforts to regulate the market.
These channels include investment in metals through certificates or financial instruments guaranteed by metals traded on the Egyptian Exchange (EGX), with a maximum investment of 10% of the fund’s total issuance. Furthermore, the value invested in documents of a single investment fund cannot exceed 5% of the total funds of the fund or 10% of the net asset value of the investment fund, whichever is applicable.
Funds are also limited in their investment in stocks listed on the EGX, with a maximum of 20% and a minimum of 5% of the fund’s total investments allocated to open investment fund documents. Additionally, up to 15% of the fund’s total assets can be invested in shares traded on the Egyptian Exchange.
Investment channels for defined benefit funds also include venture capital fund documents and direct ownership funds within Egypt, limited to a maximum of 5% of the fund’s total assets.
The decision grants the boards of directors of defined benefit funds the discretion to adopt the fund’s investment policy either independently or through an investment manager. This policy must be presented to the establishing entity of the fund prior to the Authority issuing a no-objection to it.
The policy should include investment and savings options that align with the nature and needs of subscribers, considering factors such as age, expected subscription period, acceptable risk rate, and other indicators that influence the fund’s investments, without compromising the fund’s actuarial bases, if applicable.
Moreover, the decision requires the Board of Directors to choose investment or savings options that align with the available policies of the fund. Subscribers may modify their choices during the subscription period following the guidelines established by the fund’s Board of Directors during the investment policy preparation. Subscribers can also authorize the Board of Directors or the entity that established the fund to select the investment options.
The Board of Directors is obligated to establish or contract electronic systems that enable subscribers to view their subscription balances and the net investment returns associated with them. The fund may assign these systems to a contracted investment manager or collaborate with a management services company to provide data on investment balances and returns.
Additionally, the decision mandates that all private insurance funds ensure their uninvested cash balances do not exceed 5% of their total assets. This percentage can be increased for a maximum of 30 days if the Authority determines that financial dues are owed by the fund or if the fund’s investment terms are nearing expiration and require reinvestment according to the decision’s provisions.
Finally, all private insurance funds are required to submit investment reports to the Authority every three months, detailing their asset balances, funds deposited with banks, and any investor-related financial instruments. Furthermore, private insurance funds must adjust their operations to meet the minimum standards outlined in this decision within six months of its implementation, ensuring that existing investment ratios are not adversely affected.
Securities Not Listed on EGX
The FRA’s Board of Directors also issued Decision No. 303 of 2024, amending the 2018 regulations on the handling of securities not listed on the EGX and the procedures for transferring ownership of such securities.
This decision raises the minimum transfer amount for non-listed securities and introduces new procedures for brokerage firms involved in ownership transfers. Brokerage firms will be permitted to accept settlements between buyers and sellers under their responsibility, provided certain conditions are met, including obtaining the FRA’s non-objection to the transaction.
Furthermore, the decision extends the period for considering bank deposits as payment for securities transactions from one month to two months, with an option for the FRA to approve transactions involving deposits held for longer periods before the request is submitted to the stock exchange.
