Regulation No. 2021-01 - Miscellany of Targeted Review Interventions to Current Supervisory Provisions

VICE DIRECTOR
OF THE CENTRAL BANK OF THE REPUBLIC OF SAN MARINO HAVING REGARD TO Law No. 165 of 17 November 2005 (Law on Banking, Financial and Insurance Enterprises and Services), and in particular Article 39, which grants the Central Bank of the Republic of San Marino the power to issue measures containing binding and general provisions; HAVING REGARD TO the Statute of the Central Bank of the Republic of San Marino approved by Law No. 96 of 29 June 2005, and in particular Article 30, paragraph 3, according to which acts of the Central Bank in matters of supervision, deliberated by the Supervisory Coordination, are issued by the General Director, and Article 14, paragraph 5, which regulates the case of absence or impediment of the General Director; CONSIDERING the opportunity to consolidate at the regulatory level the guidelines and pronouncements already expressed by the Supervisory Coordination, to address requests for procedural simplification from the system, and to align, in homologous parts, the current supervisory regulations; CONSIDERING the need to update the content and/or coordinate among themselves the supervisory provisions due to subsequent changes in the reference regulatory framework, as well as to strengthen regulatory standards regarding the effectiveness of the internal control system, supervision of organizational structures, and clarity of financial reporting; HAVING REGARD TO the resolutions of the Supervisory Coordination and the Board of Directors by which the text of Regulation No. 2021-01, named "Miscellany of Targeted Review Interventions to Current Supervisory Provisions," was approved; ISSUES the attached Regulation No. 2021-01 which enters into force on 17 May 2021. San Marino, 13 May 2021 Signed: THE VICE DIRECTOR Dr. Daniele Bernardi

MISCELLANY
OF TARGETED REVIEW INTERVENTIONS
TO CURRENT SUPERVISORY PROVISIONS
Year 2021 / Number 01

Article 1 - Amendments to Regulation No. 2007-07 on Savings Collection and Banking Activity

1. In Article IV.II.2 bis, after paragraph 2, the following paragraph is inserted:
   "3. For the purposes of this article, the situations listed in the previous paragraph are relevant even if they refer to jurisdictions other than the San Marino one and therefore legally framed not in accordance with the San Marino regulatory provisions cited therein but in accordance with homologous provisions of foreign legal systems."
2. In Annex A1, the bulleted list of declarations is replaced as follows:
   "- I am not aware of being subject to ongoing criminal investigations and/or proceedings, neither in San Marino nor in other jurisdictions;

• I am not the recipient of personal precautionary measures;
• I have not been the recipient of measures of disqualification, suspension, or removal imposed on me under Title IV, Part IV of BCSM Regulation No. 2007-07 or under homologous foreign regulations;
• I have not been the recipient of administrative sanctions imposed under Decree 30 May 2006, No. 76 or under Law 17 June 2008 No. 92 or under homologous foreign regulations;
• I have not held corporate executive positions in financial enterprises to which an administrative sanction was imposed under Decree 30 May 2006, No. 76 or under Law 17 June 2008 No. 92 or under homologous foreign regulations;
• I have not held corporate executive positions in financial enterprises subject to extraordinary proceedings under Part II, Title II, Chapters I and II of Law 17 November 2005 No. 165 or to resolution procedures under Law 14 June 2019 No. 102 or subject abroad to homologous strict procedures;
• I have not been the recipient of measures of suspension, deregistration, or cancellation from Registers, Lists, or Professional Orders for disciplinary reasons;
• I have not received a negative evaluation from an administrative authority regarding my suitability as an executive in the context of authorization proceedings provided for by San Marino or foreign provisions in corporate matters or related to the sectors covered by Law 17 November 2005 No. 165."

3. Annex E is repealed and letter b) of paragraph 1 of Article X.V.4 is replaced as follows:
   "b) the opening page does not prominently display the Legal Warnings;"
4. In Article X.V.1, after paragraph 1, the following paragraph is inserted:
   "2. Banks intending to start the operational mode referred to in the previous paragraph must provide prior complete information to the CENTRAL BANK, giving particular emphasis to:
   a) the text of the Legal Warnings to which the opening of relationships is subject; b) the operational procedures adopted for the correct identification of the user, also for anti-money laundering purposes, and for the conclusion of contracts; c) the IT procedures adopted to inhibit the opening of relationships online to subjects residing in countries or citizens of countries where restrictive laws or supervisory provisions exist regarding this possibility."
5. Paragraph 1 of Article IV.III.5 is replaced as follows:

"1. The resolutions definitively adopted for each CORPORATE EXECUTIVE by the COMPETENT BODY pursuant to the previous article, together with the updated certificate of validity, copies of curricula, and any reports and communications referred to in previous articles IV.II.2 quater paragraph 2, IV.II.6 ter paragraph 1, and IV.III.3 paragraph 2, must be transmitted in copy to the CENTRAL BANK and simultaneously, for information, to the other COMPETENT BODY, within thirty days from the date of registration of the appointments in the Companies Register, in the manner provided for in Article III.II.6."
6. In Article VII.IX.7, paragraph 3 is repealed.
7. Paragraph 1 of Article VIII.II.5 is replaced as follows:
"1. Banks may submit questions to the CENTRAL BANK to request clarifications on periodic reports and their implementing provisions, as well as, more generally, on the content of this Regulation and other supervisory provisions issued. In cases where the question concerns essential elements for the correctness or completeness of the report or the compliance with an upcoming obligation, the CENTRAL BANK, upon request by the requesting bank within the question itself, may grant a suspension of the compliance deadlines, which will therefore resume, for the remaining part, from the date on which the bank receives the response."
8. In paragraph 1 of Article VII.IX.1, after letter g), the following letters are added:
"h) positive circulation of internal information, including communication by CORPORATE EXECUTIVES of inspection findings referred to in the subsequent Article VIII.III.2 to the head of internal auditing and to other control or operational structures directly interested; i) correct exercise of received delegations, resorting to the institution of ratification of any acts performed in the absence or excess of delegation only in exceptional cases of actual and documented urgency."
9. Paragraph 3 of Article VII.IX.2 is replaced as follows:
"3. The three functions of RISK CONTROL, COMPLIANCE CONTROLS, and INTERNAL AUDIT ACTIVITY must in any case be carried out in a separate regime from operational functions and by personnel with adequate professionalism and in sufficient numbers, consistent with the size and operational complexity of the bank; the three functions must also coordinate with each other through periodic meetings organized with at least quarterly frequency by the internal auditing structure, also for the purposes of reporting referred to in the following Article VII.IX.6, paragraph 2, letter b)."
10. In paragraph 1 of Article VII.IX.6, letter k) is replaced as follows:
"k) verify the removal of anomalies found, also by the Board of Statutory Auditors or the Supervisory Authority, in the operation and functioning of controls;"
11. In paragraph 2 of Article VII.IX.6, after letter c), the following letter is added:
"d) verify, in cases of serious or urgent criticality for which internally reported findings to CORPORATE EXECUTIVES have remained unheard or otherwise disregarded, the conditions for sending whistleblowing reports to the CENTRAL BANK."

12. Paragraph 2 of Article VII.IX.8 is replaced as follows:
    "2. Within the scope of the monitoring referred to in the previous letter b), the monitoring of the trend of individual exposures that, due to their quantitative relevance or based on ex ante defined indicators, require a more careful evaluation must be considered included:

• the coherence of credit classification;
• the appropriateness of provisions;
• the adequacy of recovery actions put in place.
  These indicators are defined by the risk management function according to objective criteria and methods, capable of identifying in a systematic and timely manner any deficiencies in first-level control. Within this additional level of control by the risk management function must in any case fall at least:
• exposures classifiable as large risks pursuant to Article VII.IV.1;
• exposures with utilized value not less than ten thousand euros meeting at least one of the following characteristics:
• overdue and/or overdrawn for more than 180 days;
• subject to an increase in the authorized amount;
• characterized by the acquisition of new guarantees;
• subject to renegotiation and/or revision of deadlines or rates;
• subject to partial write-off;
• subject to change of classification from "DOUBTFUL CREDIT" to in bonis;
• subject to value recovery in the absence of receipts.
  If the exposure is attributable to a subject belonging to CONNECTED CLIENT GROUPS OR CONNECTED COUNTERPARTIES, the assessment carried out by the risk management structure will be extended also to the exposures of connected subjects. The risk management structure, like all other central and peripheral corporate structures, is subject to INTERNAL AUDIT ACTIVITY by the internal auditing structure."

13. In Title IX of Part VII, after Chapter IV, the following Chapter is inserted:
    "Chapter V
    Supervisory Tools on Organizational Adequacy
    Article VII.IX.20 – Convocation of Internal Control Structures
14. The CENTRAL BANK may convene at its headquarters one or more of the structures referred to in the previous Article VII.IX.2 in order to acquire data and information useful for its supervisory purposes.
15. The hearing referred to in the previous paragraph may also be induced by any whistleblowing reports referred to in Regulation No. 2007-01 and subsequent amendments.
    Article VII.IX.21 – Checks on Internal Regulations
16. The internal regulations referred to in the previous articles:

• VII.IX.4, paragraph 1, letter c) (Regulation on Organizational Structure);

• VII.IX.6, paragraph 3 (Regulation on INTERNAL AUDIT ACTIVITY);

• VII.IX.11, paragraph 1 (Regulation on the Credit Granting Process);

• VII.IX.12, paragraph 2 (Regulation on Financial Portfolio Management Activity),
  in case of modification must be transmitted in copy to the CENTRAL BANK along with the annual financial documentation in their updated text with evidence of revisions made compared to the last version transmitted to the same CENTRAL BANK.

2. If multiple modifications intervene on the same internal regulation during the year, the transmission to the CENTRAL BANK will nevertheless be unitary and carried out within the terms and with the representation methods referred to in the previous paragraph."
3. In Article II.II.3, after paragraph 4, the following paragraph is inserted:
   "5. INVESTMENT SERVICES and the ancillary service of custody and administration of client financial instruments continue to be carried out in a regime of asset separation pursuant to and for the effects of Article 72 of LISF."
4. For the purpose of coordination with Regulation No. 2020-04, the following amendments are introduced:
   a) in Article II.III.3, paragraph 1, the reference to "Regulation No. 2014-04" is corrected to "Regulation No. 2013-05"; b) in Article III.VI.7, paragraph 3, the second paragraph is eliminated; c) in Article X.IV.1, paragraph 1, letter b) is eliminated.
   Article 2 - Amendments to Regulation No. 2011-03 on Financing Activity (Financial Companies)
5. Annex E is repealed and letter b) of paragraph 1 of Article X.V.4 is replaced as follows:
   "b) the opening page does not prominently display the Legal Warnings;"
6. In Article VII.IX.7, paragraph 3 is repealed.
7. Paragraph 1 of Article VIII.II.5 is replaced as follows:
   "1. FINANCIAL COMPANIES may submit questions to the CENTRAL BANK to request clarifications on periodic reports and their implementing provisions, as well as, more generally, on the content of this Regulation and other supervisory provisions issued. In cases where the question concerns essential elements for the correctness or completeness of the report or the compliance with an upcoming obligation, the CENTRAL BANK, upon request by the requesting FINANCIAL COMPANY within the question itself, may grant a suspension of the compliance deadlines, which will therefore resume, for the remaining part, from the date on which the FINANCIAL COMPANY receives the response."
   Article 3 - Amendments to Regulation No. 2008-01 on Life Insurance Business
8. Paragraph 1 of Article 48 is replaced as follows:
   "1. The INSURANCE ENTERPRISE must equip itself with the professional skills, tools, and procedures suitable for measuring, managing, and controlling all risks, including actuarial nature. The INSURANCE ENTERPRISE, for the aforementioned purposes, establishes within itself specific units – distinct from operational ones – dedicated to the functions of:

a) risk management: for second-level controls aimed at contributing to the definition of risk measurement methodologies, verifying compliance with limits assigned to various operational structures, controlling the coherence of the operation of individual productive areas with the risk-return objectives assigned; b) compliance: for second-level controls aimed at verifying the conformity of the activity carried out with every provision of law, statute, supervision, and self-regulation applicable, also with reference to the fight against financial crime. If not constituted internally, the INSURANCE ENTERPRISE may avail itself of external structures (also of the group), respecting the criteria fixed for the outsourcing of corporate functions. These units or structures avail themselves of the collaboration of the appointed actuary referred to in Article 51 for the correct recording of data, in particular those related to the costs of the INSURANCE ENTERPRISE and their predictable trend, which are used for the assessments belonging to the actuary himself."
2. Paragraph 3 of Article 116 is replaced as follows:
"3. Within thirty days from the notification of the inspection report, the inspected subject, as well as the auditors and appointed actuaries, must communicate their considerations to the CENTRAL BANK regarding what emerged from the inspection, as well as the interventions already implemented and those planned to eliminate the anomalies and shortcomings ascertained."
Article 4 - Amendments to Regulation No. 2006-01 on the Register of Authorized Subjects

1. In paragraph 5 of Article 3, letter c) is replaced as follows:
   "c) the indication of whether the subject is subject to strict procedures or equivalent procedures in foreign legal systems, as well as the start and end dates of the aforementioned procedures;"
2. Paragraph 1 of Article 6 is replaced as follows:
   "1. The registration of foreign financial enterprises authorized to operate under the PSSS regime takes place upon conclusion of the procedure provided for the issuance of the first authorization referred to in Part I, Title II of LISF."
3. Paragraphs 4 and 5 of Article 7 are replaced as follows:
   "4. During the period in which the AUTHORIZED SUBJECT is subject to extraordinary administration, resolution, suspension of authorization, suspension of administrative bodies, suspension of payments, or equivalent procedures in foreign legal systems, the adoption of the measure is indicated in the REGISTER.
4. Foreign financial enterprises, referred to in Article 3, first paragraph, letters b) and c), are required to communicate without delay to the CENTRAL BANK their submission to procedures of extraordinary administration, resolution, compulsory liquidation, ordinary liquidation, suspension of authorization and/or administrative bodies, or equivalent procedures."
5. In paragraphs 1 and 2 of Article 8, after letter e), the following letters are inserted respectively:
   "f) conversion into an enterprise no longer falling within AUTHORIZED SUBJECTS following the resolution program referred to in Law No. 102/2019 and subsequent amendments."
   "f) loss of authorization to carry out activities reserved pursuant to LISF."

As a result of the integrations referred to in this paragraph, the current letter f) of paragraph 2 is identified as letter g).
Article 5 - Amendments to Regulation No. 2011-06 on Trusts and Supervision of Financial Trustees

1. Paragraph 1 of Article 1 is replaced as follows:
   "1. For the purposes of this Regulation, the expressions used are to be understood with the following meaning:
2. "Central Bank": the Central Bank of the Republic of San Marino governed by Law 29 June 2005, No. 96 and subsequent amendments;
3. "Trustee Decree": Delegated Decree 16 March 2010 No. 49 and subsequent amendments;
4. "Trust Law": Law 1 March 2010 No. 42 and subsequent amendments;
5. "Lisf": Law 17 November 2005, No. 165 and subsequent amendments;
6. "High-Risk Countries": the countries, jurisdictions, or territories referred to in Article 16 undecies of Law 17 June 2008 No. 92 and subsequent amendments;
7. "Head of Trustee Office": subject appointed within the company authorized pursuant to BCSM Regulation No. 2010-01 and subsequent amendments to perform the office of trustee in accordance with what is provided in the aforementioned Regulation;
8. "Financial Trustee": trustee falling within the definition of "financial enterprises" referred to in Article 1, paragraph 1, of Law 23 February 2006 No. 47 and subsequent amendments;
9. "Professional Financial Trustee": financial trustee registered in the register of authorized trustees referred to in Article 2, paragraph 7, of Delegated Decree 16 March 2010 No. 49 and subsequent amendments.
10. As a result of the modifications referred to in the previous paragraph, in Article 5 paragraph 1 and Article 6 paragraph 1, the reference to "Non-Cooperative Countries or Territories" is modified to "High-Risk Countries."
    Article 6 - Amendments to Regulation No. 2010-01 on the Professional Exercise of the Office of Trustee in the Republic of San Marino
11. In paragraph 1 of Article II.II.1, letter f) is replaced as follows:
    "f) have shareholders, direct and indirect, BENEFICIAL OWNERS, directors, and statutory auditors possessing the same integrity requirements provided for corporate executives of banks by Article IV.II.1, paragraph 1, letters a), b), and c), of Regulation No. 2007-07 and subsequent amendments;"
12. In paragraph 1 of Article II.III.1, letter d) is replaced as follows:
    "d) possess the same integrity requirements provided for corporate executives of banks by Article IV.II.1, paragraph 1, letters a), b), and c), of Regulation No. 2007-07 and subsequent amendments;"
13. Paragraph 2 of Article V.I.3 is replaced as follows:

"2. In a specific and separate section of the REGISTER OF PROFESSIONAL TRUSTEES, named "Training of Resident Agents," the following may be registered:
a) PROFESSIONAL TRUSTEES, even in a regime of self-suspension, available to also assume the office of Resident Agent; b) free professionals referred to in Article 1, paragraph 1, letter a) of the TRUST LAW who, although not PROFESSIONAL TRUSTEES, have nevertheless carried out, on a voluntary basis, in whole or in part, the training in trust matters referred to in the previous Article IV.I.2 paragraph 3."
4. In paragraph 3 of Article V.I.3, letter b) is replaced as follows:
"b) reports, at the date of the last application by the interested party, the following indications:

• corporate name or name and surname of the professional;
• registration number in the REGISTER OF PROFESSIONAL TRUSTEES or, if missing, the Professional Register of belonging;
• last year of training in trust matters;
• hours of training in trust matters obtained in the last year."
  Article 7 - Amendments to Regulation No. 2014-01 on Financial Promotion and Off-Premises Offers

1. Paragraph 1 of Article 10 is replaced as follows:
   "1. For registration in the REGISTER, it is necessary to possess the same integrity requirements required for CORPORATE EXECUTIVES of banks, as regulated in Article IV.II.1 of Regulation No. 2007-07 and subsequent amendments."
2. Article 11 is replaced as follows:
   "Article 11 – Professional Requirements of FINANCIAL PROMOTERS
3. For registration in the REGISTER of FINANCIAL PROMOTERS, the following professional requirements are necessary:
   a) educational title not lower than a secondary school diploma; b) adequate knowledge in legal, economic, financial, and technical matters, relevant in the presentation of the OFF-PREMISES OFFER.
4. To prove possession of the requirement referred to in letter b) of the previous paragraph, it is required to pass a specific evaluation test accredited by the CENTRAL BANK and carried out in San Marino, or abroad if suitable:
   a) registration in homologous Registers or Lists kept by other supervisory authorities of Member States of the European Union or by foreign self-regulatory bodies recognized in those countries for the exercise of activities equivalent to that of FINANCIAL PROMOTER; b) obtaining professional certifications issued by associations recognized by the supervisory authorities of Member States of the European Union for the aforementioned purposes.
5. To verify the requirements indicated in the previous paragraphs, the following documents must be produced:
   a) authenticated copy or certification of the educational title; b) curriculum vitae; c) certification of passing"