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CBE introduces new regulations for FX bureaus: The Central Bank of Egypt (CBE) is imposing new regulations on foreign-exchange bureaus as it looks to get on top of a resurgent parallel market.
Exchanges have to up their issued capital to stay in the game: Under regulations (pdf) published earlier this week, FX bureaus will have to increase issued and paid-in capital to at least EGP 25 mn by 15 September. This is a 5x increase from the current EGP 5 mn requirement, sources from the industry told Enterprise yesterday. Companies have a one-year grace period to comply with the rest of the regulations starting from 14 May.
The rationale: Raising the minimum capital requirement for FX companies is part of the central bank’s push to “regulate the currency market and one way to do so is to allow only qualified and reliable companies to work in the sector,” CI Capital veteran Hany Aboul Fotouh told Enterprise yesterday. Industry sources told us this week that the industry is experiencing huge losses and that the new capital requirement will likely force some of them to shut down.
The industry is shrinking: The number of FX companies has declined from around 120 to less than 40 since the pandemic, in part due to the losses they’ve been incurring as a result of clients preferring to deal in the black market, the sources said.
Cracking down on the black market: The tightening of operational controls over these companies such as banning them carrying out business activities outside of their premises is “a significant blow to the black market,” Aboul Fotouh said, explaining that black market traders will have a harder time accessing equipment like counterfeit money detectors.
The black market rate has widened in recent months as speculation increases that the EGP could be further devalued against the USD. The official exchange rate is now at 30.95 to the USD but the EGP is currently trading at around 38.0 on the black market, down from a recent high of 42.0, according to Al Arabiya.
Keeping tabs on the FX sector is not new: The central bank cracked down on FX companies in the aftermath of the devaluation in 2016 when many of these companies acted as “a backdoor for the black market,” according to Aboul Fotouh. This was one of the ways through which the central bank was able to regulate the FX market to a huge extent, he explained.
A zero tolerance policy: Under the changes, FX companies that don’t obtain prior approval from the central bank before merging with other firms, closing any of their branches, or refusing to carry out their licensed business activities with clients, will be shut down immediately.
Industry players want breathing room: “We are looking to arrange a meeting with the CBE governor Hassan Abdallah to discuss the new regulations and their impact on the FX market,” Ali El Hariry, member of the coordination council of the FX companies told Enterprise yesterday.
