FRA issues two circulars regulating the assignment of credit portfolios and the issuance of securitization bonds

On October 17, 2024, the Financial Regulatory Authority (FRA) issued Circulars No. 6 and 7, regulating the assignment of credit portfolios and the issuance of securitization bonds.

Circular No. 6 stipulates that all non-banking financial institutions intending to assign credit portfolios must comply with the following:

1. FRA approval must be obtained prior to the assignment of credit portfolios to any other financial entity licensed to practice the same activity (a bank, a securitization company, or an investment fund). The related application presented to the FRA must be accompanied by the approval of the Board of Directors or Shareholders General Meeting for such assignment.


2. The guarantee for consumer finance contracts may be used in only one assignment and is not divisible.


3. The portfolios assigned to a financial entity licensed to practice the same activity (a bank registered with the Central Bank, a securitization company, or an investment fund) should only include clients with steady debt settlement patterns.


4. The credit portfolios to be assigned must be presented to the FRA in an electronic file comprising the related FRA forms.


5. The assignment contract should identify the party responsible for updating the data in the credit inquiry register.

Data updating must comply with the applicable rules for each activity and the requirements and procedures of the credit inquiry entities registered with the Central Bank of Egypt.

Circular No. 7 stipulates that all securitization companies must comply with the following:

1. Using the related FRA forms, present to the FRA an electronic file that comprises the securitization portfolio for which bonds shall be issued. These forms must be submitted when seeking to obtain the FRA’s non-objection letter for the information memo/public subscription note for the issuance of securitization bonds against financial portfolio rights assigned from non-banking financial services or any other activity.


2. Using the related FRA forms, present to the FRA an electronic file that comprises existing assigned securitization portfolios - within a maximum delay of one month as of the circular’s date.


3. Present to the FRA the proof of the agreement concluded between the assignor and the securitization company, demonstrating that the assignee shall collect the financial debts to be delivered to the issuance custodian and that these debts are not included in the assignee’s accounts.


4. At the time of conclusion of the assignment, the securitization portfolio must not have been assigned in any prior securitization issuance or to any other financing entity or bank. Additionally, it must not be subject to any guarantee for loans, credit facilities, mortgages, or obligations to other parties.

Expert Opinion: “We believe that although Circulars No. 6 and 7 might increase the complexity of the securitization process, they will positively impact the market and safeguard the bondholders' rights. With these new directives, the FRA is now better positioned to efficiently monitor the market and prevent potential defaults.” Helal El Hossary, Partner, Head of Capital Markets & Corporate Procedures at Zaki Hashem, Attorneys at Law.