Today we are celebrating a decade since the establishment of the Financial Regulatory Authority (FRA), an entity that united three supervisory authorities, the Egyptian Insurance Supervisory Authority (EISA), the Capital Market Authority (CMA), and the Mortgage Finance Authority (MFA), into one supervisory body for Egypt’s non-banking financial sector. This adds to 8 decades of supporting the Egyptian economy, since the issuance of the first insurance legislation in 1939.
Looking back to those years, we remember the magnitude of the drastic turnarounds in the sector. It was not a simple, easy-to-do task; particularly the early years which witnessed huge political transformation and economic challenges. This placed a further supervisory burden on FRA to maintain the stability of the non-banking financial sector, make it able to mitigate the severity of external jolts, and boost Egypt’s economic growth and sustainable development.
The merger of the three supervisory authorities was a long and challenging mission. We had to unify human and material resources, the supervisory systems, and data and information infrastructure of three different authorities. It also necessitated setting a regulatory and supervisory framework for several financial instruments, developing new instruments and activities, such as financial leasing, factoring, microfinance, and the Egyptian Collateral Registry, along with preparing for the launch of much-awaited activities including consumer finance, futures markets, and crowdfunding.
This merger was unquestionably an excellent strategic decision; it illustrated a far-sighted vision, which led Egypt to be a pioneer emerging country in merging the supervisory authorities of the non-banking financial sector under one umbrella. This in turn has greatly contributed to creating a full-fledged, clear-cut institutional structure for the non-banking financial sector.
On the other hand, Egypt’s 2014 constitution marked another milestone in view of granting FRA an unprecedented autonomy. It was a key step toward upgrading markets’ supervisory and functional performance, developing market instruments, as well as accentuating the growing importance of the non-banking financial sector.
As we come to the end of the first decade, we had to launch a new roadmap for the non-banking financial sector. This aims to reset the course, address challenges, spur aspirations, and recreate an inclusive, pro-growth, and autonomous non-banking financial sector, which ensures gender equality and prioritises financial inclusion and women’s empowerment. Hence, a comprehensive strategy for the non-banking financial sector was developed for the period 2018–2022, in an effort to build a state-of-the-art economy able to effectively realise sustainable development plans and accomplish Egypt’s Vision 2030.
Today as we celebrate, we are pleased to see the development in the non-banking financial activities over the previous ten years, where Egypt’s capital market showed a considerable growth in the value of securities issues (founders’ and capital-increase shares), which recorded over EGP 1 trillion. Securitised bonds issues stood at EGP 45 billion, EGP 18 billion of which were realised this year. The Egyptian Exchange also continued its primary role in supporting the economy through providing finance to listed companies, where the period witnessed EGP 111 billion worth of capital increases.
We are also pleased to see Egypt move up 78 ranks in five years in terms of minority investor protection, acquiring the 57th place up from the 135th in 2015, according to the World Bank’s “Doing Business Report”. This was guided by the decisions issued by the Financial Regulatory Authority to increase the scope of disclosure, transparency, and the efficiency of regulatory framework for corporate governance, and minority shareholders’ protection.
Meanwhile, insurance market has witnessed significant activity since the merger, where the sector’s net investments reached EGP 102 billion in 2019, up from EGP 29 billion in 2009. Investments of private insurance funds also grew threefold, recording EGP 75 billion, compared to EGP 24 billion in 2009. Moreover, Loans granted by mortgage finance companies hiked to reach EGP 11.4 billion, compared to around EGP 2 billion in 2019. Financial leasing contracts reached EGP 200 billion, since starting the Leasing activity to date, compared to EGP 3.6 billion in 2009. Factored receivables have grown to almost EGP 50 billion in 2019, compared to EGP 2 billion in 2009, an increase of 25 folds. Moreover, loans granted to microfinance beneficiaries hiked to around EGP 15 billion, as opposed to EGP 4.5 billion in 2016. By the end of September 2019, movable collaterals increased to more than 33 thousands, with a total value of over EGP 500 billion since starting the operation of the Egyptian Collateral Registry in March 2018.
On the other hand, FRA fulfilled its pledge to include sustainability in its strategy. The non-banking financial sector’s regulator recently created a new independent sustainability department, in addition to holding meetings with FRA’s employees to spread the knowledge about the concept of sustainability and shed the light on its principles, goals, and plans for its applications.
FRA has also engaged sustainability principles in its operation, investment, and management by turning sustainability into culture, daily practice, and one of the decision-making tools within non-banking financial institutions through ratcheting up sustainability standards in the sector. FRA also issued its first sustainability report to become the-first-of-its-kind issued by a public authority in Egypt.
Relatedly, FRA set up plans to streamline an attractive climate for sustainable and green investments, sustain investor confidence to invest in green projects in an attempt to create communities capable of formulating sound investment decisions.
Furthermore, FRA’s Board of Directors also approved the establishment of the Regional Centre for Sustainable Finance (RCSF) to disseminate awareness of sustainable development and boost green economy culture in the financial sectors. RCSF also offers technical support and consultancy to investors and concerned governmental entities to accomplish sustainable development goals through raising awareness of sustainable finance, and launching e-platform highlighting developments in sustainable finance.
On the investor’s protection front, FRA amended a raft of laws and legislation, as well as issuing the first detailed guide to protect the non-banking financial sector’s stakeholders. According to this guide, companies and entities operating in the field of non-banking financial activities are obliged to comply with the principles set out in the guide, and to take all the necessary measures to publish this guide and educate their customers of their rights and obligations.
As part of its keenness to support technological progress and digital transformation, FRA keeps a close eye on technological progress, particularly Blockchain Technology, Artificial Intelligence (AI), Cloud Computing, and Cybersecurity challenges to explore their impacts on changing the dynamics of non-banking financial markets, including Financial Technology (Fintech), Regulatory Technology (Regtech), and Supervisory Technology (Suptech). FRA’s Board of Directors has also embraced an inside-out approach to ensure success and sustainability starting with the development of HR and Workflow Structure and IT Infrastructure to Business Infrastructure. The development strategy has been centred on the service approach and digital transformation.
FRA also signed a memorandum of understanding (MoU) with the Central Bank of Egypt’s (CBE) Money Laundering Combating Unit (EMLCU) and the Ministry of Communications and Information Technology (MCIT) in an effort to step up Fintech cooperation according to the remit of each party, which in turn helps start-ups and entrepreneurs iron out supervisory and legal obstacles.
Furthermore, FRA pays considerable attention to foster its national and international presence. The Egyptian regulator signed a host of bilateral cooperation agreements and MoUs to exchange supervisory information and hands-on experience.
These efforts led to bagging a slew of international recognition and awards, where Egypt, represented by FRA, won the membership of the International Organisation of Securities Commissions (IOSCO) Board, retaining its seat for the third consecutive period (2018–2020). Moreover, Africa Investor named FRA the “Most innovative Capital Markets Regulator” in the African Stock Markets in 2018, and its Chairman was awarded the most influential personality in African capital markets in 2017. FRA also joined the Mediterranean Partnership of Securities Regulators in 2009 and was elected as the president for the period 2018–2020. In addition, Egypt has won the membership of the Executive Committee of the International Organization of Pension Supervisors (IOPS) for the period 2020-2021 for the third time in a row.
Moreover, the Financial Regulatory Authority has focused on community dialogue in formulating our decisions and laws as we believe that we are all partners in realising the sector’s interest, and we will forge ahead with expanding the sector’s governance practices and ensuring the biggest possible protection for minority shareholders. In addition, there are further work in the pipeline, including the Arbitration and Dispute Settlement Centre, micro-insurance, and accomplishing the sector’s sustainability, and a lot more that have been integrated in our 2018–2022 Strategy.
Perhaps our slogan “Building Bridges not Walls” is the best illustration of our present approach for the non-banking financial sector. Our role is not limited to supervision, but we have focused on creating favourable environment for investment, a one that is open to developments and capable of building bridges to communicate with stakeholders. However, placing walls is a sine qua non in building a bridge to curb irregularities and wrong practices, which dent soundness and stability of the non-banking financial sector.
As gratitude is the sign of noble souls, appreciation is extended to our predecessors, those who paved the way for us, and to each colleague at various levels, who exerted strenuous efforts in the previous years to be where we are now. We look forward to achieving more, as great aspirations are futile if unbacked by greater endeavours.
Dr. Mohammed Omran