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Mortgage finance is considered an important engine for economic growth and a direct and indirect driving force for many other industries and activities (approximately one hundred industries and systems). As mortgage finance is one of the stable systems that are widely applied all over the world, Mortgage Finance Law- promulgated by Decree No. 148/2001- was issued. This law played a vital role in developing mortgage finance and was applied by the Mortgage Finance Authority. According to Law No. 10/2009, theFinancial Regulatory Authority (FRA) was established to replace the non-banking supervisory authorities, including the Mortgage Finance Authority.

 

FRA Duties

 

In terms of mortgage finance, FRA is assigned to supervise mortgage finance affaires, set controls ensuring market efficiency, follow up and develop mortgage finance activities and undertake the procedures and arrangements that maintain the market and preserve all dealers' rights.

 

The most important FRA duties are as follows:

 

• Developing the general policies required for directing mortgage finance activities, and applying same in light of the provisions of Mortgage Finance Law,

• Granting licenses to mortgage finance companies to practice activities, as well as following up and supervising these companies,

• Deciding upon any applications for merger, suspension of activities, and/or total or partial liquidation of assets, which may be submitted by mortgage finance companies, and

• Preparing and keeping lists and registries in which the names of appraisers, mortgage intermediaries, real estate agents and auditors are recorded; and supervising their activities.

 

The FRA is keen to apply a perspective in tune with the latest updates on the local and international levels, thus ensuring performance of an FRA influential role in the development of mortgage finance and creation of highly efficient and well-organized market. The FRA, for this purpose, applies properly valid rules and strong supervisory standards duly preserving all the rights of market participants, restricting market risks, maintaining market integrity and applying the principles of equity and transparency.

 

In terms of mortgage finance, the FRA supervises the companies practicing mortgage finance; whereby it is assigned to issue the licenses and approvals legally required by these companies, review financial statements, impose penalties on the companies in breach and inspect these companies to protect the rights of investors dealing in the mortgage finance market.

 

 

FRA regulatory on Mortgage Finance Companies

 

First: Issuance of Licenses and Approvals

 

As a supervisory authority,FRA grants the licenses and approvals required for practicing mortgage finance. It also directs all mortgage finance companies to apply the provisions of Law No. 148/2001, its Executive Regulations and pertinent FRA Board Resolutions. The FRA-licensed mortgage finance company is required to be in the form of an Egyptian joint stock company with issued capital of not less the legally prescribed minimum value required to practice activities.

 

In support of the FRA supervisory and regulatory role, the FRA Board issued a number of resolutions, as follows:

 

• The FRA shall be notified of all amendments to the articles of incorporation and articles of association of the mortgage finance company, as well as all amendments to the data previously provided by the company when a registration request was submitted.

• The minimum limit of duties of the auditors, assigned to review and approve the mortgage company's balance sheets, shall be determined by the FRA.

• Mortgage finance companies shall not be permitted to assign two auditors, from one accounting office, to review the company's accounts. Moreover, no auditor is permitted to review two companies' accounts at one time.

• The supervisory authorities shall be requested to verify the integrity of the financial status of the top management and main shareholders of the mortgage finance company.

• Personal meetings shall be held, at the FRA premises, with the board chairman, managing director, chief executive officer and credit manager of the mortgage finance company.

• The FRA-listed mortgage finance company shall notify the FRA  of the any changes to its leadership on whose basis the company obtained its FRA  license; failing to do so, the FRA shall undertake penalty procedures against the company, which may result in suspension of activities.

 

Second: Setting the Financial Standards of Mortgage Finance Companies

The Executive Regulations determine the financial standards that should be applied to mortgage finance companies, including:

 

1. The method for appraising the company's assets.

2. The minimum shareholders rights in proportion to the company's assets, liabilities and portfolio.

3. The minimum limit of current assets in proportion to the current liabilities.

4. The rules ensuring proper functioning of the company’s business and guaranteeing creditors' and clients' rights.

 

Third: Control and Supervision

 

Supervision over the companies operating in the field of mortgage finance is considered one of the main duties assigned to the FRA, pursuant to Law No. 148/2001 and its Executive Regulations. Through supervision, FRA can verify the scope of compliance by mortgage finance market stakeholders with all laws and rules that govern and regulate mortgage finance.

In this context,FRA plays a vital role in organizing the mortgage finance market and providing the required legal protection to investors by exercising continuous supervision over all mortgage finance stakeholders. FRA, to this effect, undertakes a number of supervisory procedures including a follow up and supervision over the companies' performance either by reviewing and analyzing data or conducting on-site inspections, whereby FRA competent inspectors review clients' files at the mortgage finance company's premises and prepare reports revealing the results of their inspections.

 

From the outset, FRA is assigned to raise awareness of the mortgage finance companies. Therefore, it convenes various symposiums and meetings with the companies' officials with the aim of restricting the violations committed by these companies and reducing the consequential risks that passively affect the overall performance of the mortgage finance market. It firstly conducted various periodic inspections over the files of mortgage finance companies and comprehensively reviewed the then conducted mortgage finance transactions, but did not impose any penalties in support of the FRA continuous awareness policy.

 

• Anti-Money Laundering

 

FRA established an anti-money laundering and anti-terrorism funding unit. This unit is assigned to supervise due compliance by mortgage finance companies with the anti-money laundering and anti terrorism funding controls. It further participates in drafting the pertinent internal controls of mortgage finance companies and carries out periodic inspections to verify due enforcement by these companies of these controls. It is to be noted that new anti-money laundering and anti-terrorism funding controls have been issued by the FRA for mortgage finance companies. The newly issued controls properly consider the recently developed international rules regarding anti-money laundering and anti-terrorism funding, and widely support the currently applied practices of mortgage finance, anti-money laundering and anti-terrorism funding. This is to cope with the changes occurring on the international level in this respect and to confirm accurate compliance by the companies operating in the field of mortgage finance in Egypt.

 

The most important of these controls is the proper compliance with the clients' identity and legal status verification rules duly issued by the anti-money laundering and anti-terrorism funding unit, pursuant to Clause (13) of Article (3) of the Executive Regulations of the Anti-Money Laundering Law issued by Premier's Decree No. 951/2003. These rules are to be applied by each company and included in the company's internal regulations regarding verification of the identity and legal status of clients, whether natural or juridical persons, as well as the actual beneficiaries. Under these controls, companies are required to apply the rules for appointing an anti money laundering and terrorism funding manager as well as determining his authorities and duties which should be in tune with the currently prevailing international standards. These controls also set a number of procedures with respect to reporting any suspected anti-money laundering or terrorism funds activities.

 

• Administrative Penalties

 

Mortgage Finance Law No. 148/2001 grants the FRA a right to claim that investigations be conducted and/or criminal cases be filed against the companies in violation of the provision of this Law and/or its Executive Regulations. This right is given according to the following articles:

 

Article 45:

Without prejudice to any severer penalties stated in any other law, the actions referred to in the following articles shall be liable to the penalties prescribed for therein.

Article 46:

Whoever exercises, without license, the mortgage finance activity prescribed for in the present Law shall be liable to imprisonment and a fine of not less than fifty thousand Egyptian pounds and not exceeding Two Hundred Thousand Pound, or either penalty.

Article 47:

In practicing mortgage finance, whoever violates the criteria and rules referred to in Articles (4) and (32) of the present Law and determined in the Executive Regulations shall be liable to imprisonment for a period not exceeding three months and to a fine of not less than Ten Thousand Egyptian Pounds and not exceeding Fifty Thousand Pound, or either penalty.

Article 48:

Whoever violates any of the provisions of Clause-I of Article (34) shall be liable to a fine of not less than Two Hundred Thousand Egyptian Pound and not exceeding Five Hundred Thousand Egyptian Pound.

Article 49:

In addition to the penalties carried for the crimes stipulated in the previous articles, a court judgment may be passed depriving a person, on whom any of these penalties is imposed, from practicing the profession or practicing the activity subject to such crime for a period not exceeding three years. This judgment shall be decisive and enforceable in case of recidivism.

Article 50:

With respect to the crimes committed in violation of the present Law and/or its Executive Regulations, no criminal cases shall be filed, set in motion by virtue of any procedure or placed under investigation, unless a request is made to this effect by the competent Minister.

The competent Minister, before a final judgment is rendered in a criminal case, may accept a composition with the violator, in return for paying the maximum limit of the fine prescribed for in the previous Articles. The composition shall then result in extinguishment of the criminal case.

 

Fourth: Protection of Mortgage Finance Investors and Dealers

 

As the FRA seeks to enhance its supervisory duties and develop the mortgage finance market as well as the other non-banking market, the FRA established an investor protection department; it further reformed the mortgage finance dealer complaints office which is assigned to study all the complaints received by the FRA, review the opinions of complainants and undertake the procedures for solving same. Under this reform, the FRA requested the complainants to support their complaints with a number of substantiating papers and documents. It also applied information technology systems electronically keeping and easily retrieving the complaints raised, and prepared complaint forms for use by complainants.