The Financial Regulatory Authority (“FRA”) has recently issued two crucial decrees, Decree No. 177 of 2023 amending the Listing Rules issued by virtue of the FRA decision No. 11 of 2014 and Decree No. 178 of 2023 amending the corporate governance rules for companies operating in the field of non-banking financial activities (“Governance Decree”) (hereinafter referred to both decrees as “Decrees”).

Definition of Independent Board Member

Pursuant to the Decrees, the definition of the independent board member was amended to be “an experienced non-executive board member who has no connection to the company or any of its senior executive management members, its auditor, it parent company, or any of its subsidiary or sister companies. Any work association, contractual relationship, or any relationship that may lead to a material benefit that would influence his decisions, and not a spouse or a relative up to second degree of any of these.”  Furthermore, these Decrees outlines specific cases where a board member cannot be considered independent, which are as follows:

1. If the board member or any of their relatives up to the second degree has been employed by the company, its senior executive management committee, its parent company, or any of its subsidiaries within two years before serving as a board member.
2. If a board member or any of their relatives up to the second degree has a direct or indirect interest in contracts concluded with the company or its subsidiaries in the two years preceding their appointment to the board of directors, except in cases where these contracts were awarded through competitive bidding or without preferential terms.
3. If they have provided consultancy services, acted as an auditor, been a partner, employee, or have provided any other services, whether to the company or any of its parent, subsidiary, or affiliated companies, within the two years preceding the date of their appointment to the board of directors.
4. If their ownership in the company’s capital or voting rights, whether individually or as part of a related group, exceeds 1%.
5. If they have served as an independent board member for a continuous six-year period and cannot be reappointed to this role until three years have passed since the end of their board membership.

In all cases, a board member’s status of independence remains unaffected if they hold the position of an independent board member in the parent company or one of its subsidiaries, provided that the parent company owns at least 51% of the subsidiary’s shares, subject to the approval of minority shareholders of the subsidiary.

Further, the Governance Decree introduced a definition for “Related Group” being “every group of parties that is subject to the effective control of the same natural persons or legal entities or an agreement among them to coordinate voting at the company’s general assembly or its board of directors’ meetings”.

How long do companies have to abide by the decree?

Listed companies and companies operating in non-banking financial activities have a grace period of three years to abide by the new definition of independent board member as stipulated under the decrees (i.e., 22 September 2026).

In conclusion, the issuance of Decrees by the FRA was to redefine the role of independent board members, outline specific scenarios where independence may be compromised, and introduce a clear definition of a “Related Group” for companies operating in non-banking financial activities. These regulatory updates highlight Egypt’s eagerness to reinforcing investor trust and upholding the integrity of its financial markets.

How can we help?

Our team of specialized lawyers would be delighted to assist the listed companies and companies operating in non-banking financial sector to assess the independence of the board members in order to abide by the Decrees.

Authors: Hegui Taha, Partner, Maha El Meihy, Legal Director, and Habiba Wahdan, Associate.

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Hegui Taha (hegui.taha@glaco.com).