Committees Arising from the Board of Directors

In Egypt, the General Authority for Investment and Free Zones (GAFI) and the Financial Regulatory Authority (FRA) are taking significant steps to establish and improve Corporate Governance (CG) regulations to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of companies and to enhance a better and smooth relationship between the board of directors, company’s shareholders, and related parties. Both regulators have issued guidelines and regulations aimed at promoting good CG practices since 2003. Recognizing the importance of CG practices for companies, we will provide a series of articles that will cover most significant laws and decrees governing CG in Egypt.

Introduction

As the non-banking financial (NBF) sector is a fast-growing and promising market in Egypt, this article sheds light on CG regulations applied on companies carrying out NBF activities in Egypt (NBF Companies).

On 23 June 2020, the FRA issued Decree No. 100 for the year 2020 (the Decree), repealing the previous CGRs issued by virtue of FRA Decrees No. 107 for the year 2016, No. 164 for the year 2018 and No. 61 for the year 2020 (the Former CGRs). The Decree introduces CGRs that are applicable to companies operating in the fields of securities, real estate finance and refinance, microfinance, financial leasing, factoring, and consumer finance.

The Board of Directors shall constitute a number of committees among its members or others, which shall be constituted by a decision of the BOD of the Company in the light of the rules of selection, the term of the membership of the Committees, the term of office and the emoluments and allowances of their members approved by the General Assembly of the Company.

These committees are constituted by a decision by the BOD of the company in the light of rules of selection, the method of operation of the committees, the duration of their membership and the remuneration and allowances of their members approved by the Joint General Assembly.

The committees shall meet periodically at least one meeting every three months and each committee shall periodically notify the Board of BOD of the company of the reports of the results of its work and the recommendations or decisions it makes if it is authorized to issue such decisions.

The Decree No. 100 of 2020 determines each committee’s role, structure and regulations. Such committees shall be composed of non-executive and independent members; the majority of the members and the chairman of the Audit committee shall be independent members.

General Provisions

The BODs shall constitute a number of committees from among its non-executive and independent members in order to assist it to perform its mandated role commensurate with the activity and needs of the company.

These committees are constituted by a decision by the BOD of the company in the light of rules of selection, the method of operation of the committees, the duration of their membership and the remuneration and allowances of their members approved by the Joint General Assembly.

The BOD establish the necessary regulations for the constitution of its committees, their terms of reference, the duration of their work, how to monitor them and the procedures necessary for their periodic follow-up. These regulations shall be submitted to the General Assembly of the company for approval.

The BOD of NBF Companies is required to form a number of sub-committees whose members may include the BOD’s members namely:

1. Audit Committee;
2. Risk Committee;
3. Governance Committee.

Both the Audit and Risk committees are mandatory to be established. The Audit Committee may assume its role as well as the role of the Governance Committee. The BOD is entitled to form additional committees when necessary (i.e. Compliance, Recommendation and Incentive and Information Technology committees etc…), as the following:

Audit Committee:

The BOD must constitute the Audit committee from an individual number of the members at least three of the BOD non-executive members and the committee may contain – in its membership- members outside of the company, and the majority of the committee members shall be independents with the head of the committee among them.

The Audit Committee shall be competent at least to:

• Studying the internal control system, prepare a written report with its observations and recommendations and propose any amendments it deems necessary to ensure its efficiency and effectiveness
• Examination of internal audit reports and development of corrective actions
• Submission of proposals to the BOD regarding the appointment, removal and fees of the auditor.
• Studying the scope of audit with the auditor.
• Consideration of draft preliminary financial statements before they are submitted to the BOD for submission to the auditor.
• Preparation of a periodic report every three months on the results of the work of the Committee
• Ensure that the company adheres to the laws and decisions governing its activity

Risks Committee:

This committee is formed from non-executive and independent members of the Board. The Managing Director, Head of the Risk Management Department, or any of the company’s executive managers may be invited to attend its meetings when necessary.

The Risk committee shall be at least to:

• Development of regulatory frameworks, procedures and rules to deal with all other types of risks
• Assisting the Board of Directors in determining and assessing the level of risk that the company can accept
• Verify that effective record-keeping and information systems are operated efficiently
• Prepare a periodic report at least every three months or whenever the results of the work of the Committee are needed to be submitted by the BOD.

Governance Committee:

This committee is formed from non-executive and independent members of the Board. The Managing Director, Head of the Governance Management Department, or any of the company’s executive managers may be invited to attend its meetings when necessary.

The Governance Committee shall be competent at least to:

• Periodically evaluate the company’s governance system and draft the guidelines, charters and internal policies on how to implement governance rules within the company.
• Prepare an annual report on the company’s compliance with the rules of corporate governance and propose appropriate procedures for full implementation of these rules.
• Review the company’s annual report and the Board of Directors’ report, specifically the articles regarding disclosure and other corporate governance related items.
• Maintain, document, and follow up on reports regarding evaluating Board performance.
• Review observations from regulatory bodies regarding governance practices within the company, consider these observations, and follow up on any corrective measures taken.