Legislation & Regulations

Amended Surveillance Law approves the formation of monitoring committees for finance companies

The amendments specify the duties and rules for the selection of non-executive audit committee members and impose restrictions on conflicts of interest.
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Amlak Real Estate

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<The amended Finance Companies Monitoring System approved the formation of an audit committee from non-executive board members, and the amendments indicated that its tasks, the rules for selecting its members, the duration of their membership, and how they work will be issued by a decision of the company's general assembly based on a proposal from the board of directors.
1- Amending the definition of ”Finance Company“ in Article (I) of the Law, to read as follows: ”Finance Company: A company that holds a license to practice financing activity.“
2- Adding a paragraph.
2- Adding a paragraph numbered (5) to clause (I) of Article (V) of the Law, stating the following: ”The company shall take the form of a joint stock company, and the Bank may authorize a license other than the form of joint stock companies if it deems that the proposed business model or the nature of the activity requires it, provided that this does not prejudice the safety of the financial system and the fairness of transactions.“ The current paragraph (5) will be rearranged as paragraph (6).
3- Amending paragraphs (1) and (2) of Article (Eleventh) of the Law, to read as follows:
<”1- Engaging in any activity other than financing without obtaining the Bank's approval.“
2. Owning an establishment that engages in an activity other than finance, whether directly or indirectly, without obtaining the Bank's approval.”
3.
4- Amending subparagraph (d) of paragraph (1) of Article (XII) of the Law, to read as follows: “To finance or grant facilities to persons or establishments, if one of the members of the board of directors of the financing company, one of its directors, one of its managers or their equivalent, as the case may be, or one of its external auditors, is a guarantor for obtaining the financing or facilities.”
4- Amending sub-paragraph (d) of Paragraph (1) of Article (XII) of the Law, to read as follows.
5- Amend paragraph (2) of (Article XII) of the Law, to read as follows: “Without prejudice to the public and private right established by the regulations, every member of the board of directors of the financing company, every director of the financing company, every member of the board of directors or their equivalent, as the case may be, and every external auditor of the financing company, who obtained the financing in violation of any of the provisions in paragraphs (1/b), (1/c) or (1/d) of this Article, shall be removed as specified by the regulations.”
5- Amending paragraph (2) of (Article XII) of the Law, to read as follows.
6- Amending the chest of Article (XVI) of the Law and paragraphs (1) and (2) thereof, to read as follows: “The membership of the board of directors of the finance company or its directors or their equivalent, as the case may be, shall be subject to the following:
1- Not to be a member of the board of directors of another finance company practicing the same activity or one of its directors or a member of its board of directors or their equivalent, as the case may be.
2- Not to be a member of the board of directors of another finance company practicing the same activity.
2- Not to combine the work of monitoring or auditing finance companies with membership in the board of directors of the finance company or to be one of its directors or a member of its board of directors or their equivalent, as the case may be.”
7- Amend Article (Seventeen) of the Law to read as follows: “The board of directors, directors, members of the board of directors or their equivalent, as the case may be, the general manager, senior executives, and branch managers of the finance company shall be responsible - each within his jurisdiction - for the company's violation of the provisions of the Law or its regulations.”
8- Amending Article (17) of the Law to read as follows.
8- Amending Article (Eighteen) of the Law to read as follows: “Without prejudice to the provisions of paragraph (1/a) of Article (12) of the Law, the members of the board of directors of the finance company, its directors and members of the board of directors or their equivalent, as the case may be, are jointly responsible for guaranteeing the company's rights against losses resulting from the provision of unsecured financing.”
8- Amending Article (18) of the Law, to read as follows.
9- Amending Article (Nineteenth) of the Law, to read as follows: “In every joint stock finance company, there shall be an audit committee of non-executive members of the board of directors, whose duties, rules for the selection of its members, the duration of their membership, and how they work shall be decided by the general assembly of the company based on a proposal from the board of directors.”
9- Amend Article (19) of the Law to read as follows.
10- Amending Article (Twentieth) of the Law, to read as follows: “The chairman and members of the board of directors of the finance company, its directors, members of its board of directors or their equivalent, as the case may be, and the company's employees, when making any financing contract for which they have decision-making authority, must disclose in writing the following:
1- Any relationship of any of them to the contract.
2. Any relationship of their relatives up to the second degree to the contract.
3.
3. Any financial interest they may have in the contract. <In case of non-disclosure, the aggrieved party may file a lawsuit before the competent court to request the annulment of the contract.”
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11- Amending the title of Chapter (V) of the Law from “Supervision of Finance Companies” to “Supervision”.
12- Amend Article (XXI) of the Law, to read as follows: “Subject to paragraph (2) of Article (10) of the Law, the Bank shall supervise the activities of finance companies, establishments that engage in activities supporting the finance activity, and contract registration companies licensed under the provisions of the Financial Leasing Law, and exercise its powers in accordance with the provisions of the Law and its regulations.”
12- Amending Article (21) of the Law, to read as follows: “Supervision”.
13- Amending Article (Twenty-nine) of the Law, to read as follows: “If a finance company or an entity that engages in activities supporting the financing activity or a contract registration company commits violations related to professional violations or transactions that endanger its shareholders, partners or creditors, or if the company's debts exceed its assets, the Bank shall, by a written decision - in proportion to the magnitude of the violation - take one or more of the following:
1- Warning it.
2- Assigning it to submit an appropriate program explaining the measures it will take to remove the violation and rectify the situation.
3 <Requiring them to suspend some of their operations, or prohibiting them from distributing profits.
4- Imposing the financial penalty stipulated in Article (34) of the Law, as the case may be.
5- Requiring it to suspend some of its operations, or prevent it from distributing profits.
5- Requiring it to temporarily suspend the offending person - who is not a member of its board of directors, managers, members of its board of directors or their equivalent, as the case may be - from work, or requiring it to dismiss him, depending on the seriousness of the offense.
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6- Temporarily suspend the chairman of its board of directors, or any of its board members, directors, members of its board of directors or their equivalent - as the case may be - from work.
7- Appoint an advisor or consultant. <Appoint one or more advisors to advise it in the management of its business at its expense.
8- Suspending the authority of its board of directors, managers, members of the board of directors or their equivalent, as the case may be, and appointing a manager at the company's expense to manage its business until the reasons for this are removed, at the Bank's discretion.
8- Appointing a manager at the company's expense to manage its business until the reasons for this are removed. <If the Bank believes that the violation requires the revocation of the license or the liquidation of the company or establishment, it shall file a lawsuit before the competent court. The Bank may, in cases at its discretion, suspend the license until the case is resolved.”
14- Adding an article (XXXVI bis) to the Law, with the following text: "The Bank may exclude one or more finance companies from the scope of application of some of the provisions of Chapters: (III), (IV) and (V) of the Law, taking into account the fairness of transactions and the safety of the financial system."
<A draft royal decree has been prepared, the wording of which is attached hereto.

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