FRA raises financial solvency standards for consumer finance firms

FRA raises financial solvency standards for consumer finance firms

Egyptian Financial Regulatory Authority (FRA) has issued a decision to amend the financial solvency standards for consumer finance companies. This decision comes after reviewing Law No. 10 of 2009, which regulates the supervision of non-banking financial markets and instruments.

According to the first article of the decision, the accompanying financial solvency standards shall apply to consumer finance companies and service providers licensed by the FRA to carry out their activities.

The second article obligates the addressed companies to comply with the provisions of this decision regarding the financial solvency standards and to submit the forms and reports referred to therein.

The third article stipulates that the addressed companies shall prepare an action plan that includes a timetable for compliance with the attached standards and submit it to the FRA no later than the end of the fiscal year 2020. The companies shall also provide the FRA with quarterly reports on the measures taken in this regard.

The financial solvency standards for consumer finance companies and service providers aim to emphasize the importance of risk management, strengthen their ability to apply it, and commit to maintaining the minimum solvency ratio specified in these standards.

This ratio is used to estimate the amount of capital that is exposed to risks and is estimated based on credit risk coverage and operational risk coverage for different types of assets, without taking market risks into account at this stage of implementation.

The decision requires that the total loans and financing (excluding supported loans) obtained by the company or consumer finance provider not exceed nine times its capital base after excluding the balances of loans and financing that are not subject to risk-bearing.

This decision seeks to balance assets and liabilities and enhance the financial stability of consumer finance companies.

This decision will promote financial stability in the Egyptian consumer finance sector by setting higher standards for financial solvency.

It will help ensure that companies are better able to manage their risks and protect against unexpected losses, which will ultimately lead to increased confidence in the sector.

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