Capital Market Authority
Egypt Compliance Corporate and Regulatory
: An Overview
Dr. Khaled Seyam
CMA Deputy Chairman
Presentation Outline
 Introduction.
 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
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CMA: established in late 1970’s
1991: Start of economic reforms
1992: Capital Market Law
1994: Start of privatization
Introduction (Cont.)
 Macroeconomic Stabilization & Improved Performance:
- Transition to unified flexible FX rate regime (Dec.2004)
- Subsequent stabilization
- Strengthened external position
 Structural Reforms:
- Privatization
- Financial Market Reform
- Recent capital market reforms:
e.g. automated trading, primary dealership, “One-stop Shop”
Regulator – Regulation and Regulated
Companies
 Regulation 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.
Financial Institutions in Egypt
The Banking Sector
The
Insurance
Sector
Mortgage
Market
The Capital Market
Rules Governing Financial Institutions in Egypt
1.
2.
3.
4.
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 important
 Financial stability is crucial to the well-being of a
modern economy
 Investors may need protection from the risks
posed by complex financial products
 Therefore…
Regulator = Trust
CMA as a Market Regulator and Supervisor
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 wellregulated 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
Main Provisions
Capital Market Law
(No. 95 of 1992)
Central Depository Law
(No. 93 of 2000)
Money Laundering Law
(No. 80 of 2002)
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
CMA Regulatory Procedures
Main Regulatory
Procedures
Regulating the
EGX
Securities
Intermediation
Companies
Egyptian Market Commitment to the
International Community
IOSCO
Principles
Corporate
Governance
Principles
applied objectives
and principles
IAAS
International Principles & Standards
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:
Main Categories
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
-
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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
Suspension of
activities
Revocation of the
company’s license
Appointing an
observer on the
board of the
company
Preventing the
company from
performing part or
all of its licensed
activities
Inspecting Securities Companies
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 companies
 Within 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
Number of
complaints
Causes removed and complaint solved
314
Financial and commercial affairs office
18
Investor Protection Fund
8
Central Department for Inspection
52
Other complaints
8
Cases and Initiating Criminal Action
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 surveillance
 Limited 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
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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