Capital Market Authority

Egypt Compliance Corporate and Regulatory

: An Overview

Dr. Khaled SeyamCMA Deputy Chairman

Presentation OutlineIntroduction.Regulator, Regulation and Regulated

Companies. Financial Institutions in Egypt.Rules Governing Financial Institutions in

Egypt.CMA as a Capital Market Regulator in Egypt.Legal Framework. Judicial Rulings. Concluding Remarks.

Introduction

Background…EGX : Among oldest exchanges in region - Alexandria: established 1883, Cairo: 1903 - Ranked 5th in the world in 1940s

However, capital markets languished post WW2 - Central planning and nationalization during 1950’s -

60’s

CMA: established in late 1970’s 1991: Start of economic reforms1992: Capital Market Law1994: Start of privatization

Introduction (Cont.) Macroeconomic Stabilization & Improved Performance: - Transition to unified flexible FX rate regime

(Dec.2004) - Subsequent stabilization - Strengthened external positionStructural Reforms: - Privatization - Financial Market Reform - Recent capital market reforms: e.g. automated trading, primary dealership, “One-

stop Shop”

Regulator – Regulation and Regulated CompaniesRegulation can be either friend or foe to the main

operating company or companies. Company and regulator have a common interest

in the success of the sector. The best basis for this is successful main

operators are: competitive/profitable/innovative. However the regulator needs to enable effective

competition to develop. Successful resolution of this tension depends on

an effective working relationship.

Building an effective relationship between regulators and regulated companies Main elements: - Active management (on both sides) - Practical arrangements, e.g. interconnection - Provision of full information - Arrangements to ensure compliance - Straightforward approach to enforcement

Regulator’s main goals

The main Regulator’s aim is to create successful circumstances for the financial sector: - efficient - profitable - good services - more valuable money - extended access to affordable services

Regulated companies have similar goals This creates a strong shared interest, despite

inevitable tensions.

Mortgage Market

The Insurance

Sector

The Banking Sector

Financial Institutions in Egypt

The Capital Market

Rules Governing Financial Institutions in Egypt

1. 4.3.2.

Financial Regulators In Egypt

Before July 2009 From July 2009

- Central Bank of Egypt

- Capital Market Authority

- The Insurance Supervisory Authority

- The Mortgage Finance Authority

- New Authority was established by Law No. 10 of 2009

- Central Bank of Egypt

Why regulate capital markets?Capital markets are large and importantFinancial stability is crucial to the well-

being of a modern economyInvestors may need protection from the

risks posed by complex financial products

Therefore…

Regulator = Trust

About CMA: CMA Is a governmental body that establishes, monitors, reforms and enforces regulations In Egypt’s Capital markets.

CMA’s goals: The Authority’s primary goals are to protect investors and to encourage the development of efficient, orderly, and well-regulated primary and secondary markets for securities.

CMA’s Vision: CMA is seeking to develop Egyptian capital markets to be more efficient and competitive for attracting and directing both local and foreign savings for investment in Egypt. This approach is achieved through the application of international standards and practices in leading and emerging capital markets, and so that the Egyptian capital market becomes a pioneer on the regional level among the Middle East and the Arab countries.

Laws Governing CMA’s Role

Law of the Central Bank, the Banking Sector and Money

No. 88 of 2003

Insurance Supervision and Control Law No. 10 of 1981

Insurance Supervision and Control Law No. 10 of 1981

Main Provisions

Capital Market Law (No. 95 of 1992)

Central Depository Law (No. 93 of 2000)

Money Laundering Law (No. 80 of 2002)

Main Regulatory Procedures

Regulating the EGX

Securities Intermediation

Companies

IOSCO Principles

applied objectives and principles

CorporateGovernancePrinciples

IAAS

Egyptian Market Commitment to the International Community

International Principles & Standards

Main Categories

IOSCO had resolved thirty (30) principles in 8 categories to regulate capital markets of member countries, to fulfill the protection of investors. CMA follows these principles, and amongst them:

Principles relating to the Regulator

Principles for Self Regulation

Principles for the Enforcement of Securities Regulation

Principles for Cooperation in Regulation

Principles for Issuers

Principles for Collective Investment Schemes

Principles for Market Intermediaries

Principles for the Secondary Market

CMA SUPPORT AND DEVELOPMENT TO SECURITIES INTERMEDIARIES

In 2008, the CMA made many efforts in this respect. Chief among them were the following:

1.Working on startup of system of qualifying and licensing staff in securities companies.

2. Establishing and activating the record of branches of securities brokerage companies.

3. Studying development of licensing requirements for brokerage companies regarding insurance requirements.

4. Supporting brokerage companies as related to application of capital adequacy requirements.

5. Continuation of work of the committee for verbal and written testing of managing directors and staff in securities companies.

1 - Regulating the Egyptian Exchange

The supervision and regulation of the Egyptian Exchange include:

- Licensing private stock exchange. - Assigning maximum and minimum levels of trading

securities prices in case of emergencies. - Approving internal regulations, membership eligibility,

rules governing securities exchange. - Ensuring transparency of trading. - Supervision of exchanges and trading systems- Detecting and deterring manipulation and other unfair

trading practices.

2 - Regulating Depository and Registry Companies

The supervision and regulation of the Egyptian Exchange include:

- Licensing to practice activities. - Approving internal regulations. - Supervising the company and inspect its activities in

accordance with the provisions of the Capital Market Law applicable to securities companies.

- Appointing an observer at any meeting of the board of directors of the company

- Establishing rules pertaining to measures to be taken against the company in the event of violation of CML or any other related laws.

- Verifying the existence of appropriate and sufficient systems and procedures for safeguarding the securities.

3 - Regulating Brokerage Companies

The supervision and regulation of Brokerage Companies by the CMA include:

- Controlling the activities of these companies to ensure that transactions in securities are carried out on sound basis and are not defected by any fraud, swindle, deception, exploitation, manipulation or speculative practices.

- Licensing.- Developing standards, requirements and rules.- Approval of rules or operational changes.- Monitoring through reporting, inspections and auditing.- Enforcement.

Administrative Measures

Appointing an observer on the

board of the company

Suspension of activities

Preventing the company from

performing part or all of its licensed

activities

Revocation of the company’s license

Risks of securities brokerage companies are divided into three categories: high risk, medium risk, and low risk companies.

There are various risks: credit risks, operation risks, liquidity risks, settlement risks or market risks.

The CMA seeks to determine risks which companies are exposed to due to their non-compliance with the provisions of the CMA Chairman’s decision No. 49/ 2006 and capital adequacy rules issued by his decision No. 14/ 2007, and means to address them.

During 2008, a total of 141 companies underwent periodic inspection according to an inspection plan. In addition, 107 companies were given surprise inspection on the basis of complaints filed against them or their impact on the market.

Surveillance of compliance of companies with rules of disclosure

- Within the framework of the CMA’s commitment to make listed companies comply with rules of disclosure, the Finance and Corporate Governance Sector received a 2,228 financial statements during 2008, prepared detailed and analytical studies of data collected about these companies.

- The CMA commented on 1,915 financial statements to enforce compliance with Egyptian accounting and auditing standards. It also reviewed financial statements of 176 companies engaged in intraday trading.

Protecting investors and investigating their complaints against securities companiesWithin the framework of the strategy of the CMA for developing the

infrastructure including its organizational structure, developing the new department that was introduced to receive complaints of market participants (i.e. Market Participants Complaints Department) continued. This department is concerned with reviewing all complaints filed with the CMA and seeking the opinions of parties thereof.

To undertake this role, i.e. removing causes of complaints, some documents from institutions operating in the market (e.g. the Stock Exchange, Misr for Clearing, and custodians) must be provided. In addition, necessary investigations with parties to complaints are conducted to remove these complaints, return rights to their rightful owners, and penalize those who do not comply with provisions of Law 95/ 1992 and its executive regulations.

Complaints filed within the CMA in 2008

Status

Causes removed and complaint solved

Financial and commercial affairs office

Investor Protection Fund

Central Department for Inspection

Other complaints

314

18

8

52

8

Number ofcomplaints

In 2008, legislative amendments were

introduced to the Capital Market Law which,

according to Article 69 (bis) therein, vested the

CMA Chairman with the powers to initiate

criminal actions for offences committed in

violation of this law. The number of criminal

actions that the Chairman requested their

initiation were 46.

Issues for the Future: The Importance of Regulatory Enforcement

- Without strong regulator, market efficiency will be elusive.

- Major regulatory agencies such as SEC have failed to detect major inaccuracies in company accounts and nondisclosure.

- African regulators are still poorly resourced: Poor market surveillanceLimited analytical and investigative capacities

Doing it Right and Preparing for the Next Millennium

Extensive training needed.

Larger and stronger investment houses with

capability to organize information.

Participation by investment houses from

advanced markets will be a plus for market

efficiency.www.african-cap.org 28

FINAL REMARKS

“Legislation is not always the solution”.

- So :Increasing Regulatory Quality is a must and

continuing operation.Judicial training.Legal profession.

Concluding Remarks

Thank You