Banco de Cabo Verde Notice No. 3/2014 on Behavioural Supervision

1 Aviso n.º 03/2014 de 17 de Outubro Supervisão Comportamental Following the international financial crisis, it became clear that uninformed actions by banking customers can jeopardize financial stability, exacerbating market functioning failures. In this sense, the need arose to regulate and supervise the conduct of financial institutions in the marketing of retail banking products and services, as well as their information duties towards clients. It was recognized that adequate conduct by financial institutions towards their clients and informed decisions by banking customers in acquiring products and services are fundamental factors to ensure efficient functioning and stability of financial markets.

In this context, the Banco de Cabo Verde updated Notice No. 5/94 of March 7 regarding fee schedules, and revoked Notice No. 2/99 of May 3 regarding information to be provided by institutions to clients, through Notice No. 1/2013 of April 12, which established rules for fee schedule disclosure by financial institutions, defining information and assistance duties owed to clients and determining which banking services are free. On the other hand, through Notice No. 3/2013 of July 4, 2013, the regime applicable to information on interest rates and other credit operation costs to be provided by financial institutions to their clients was established.

The Financial Activities and Institutions Law (Law No. 62/VIII/2014 of April 23) regulates for the first time the procedures and mechanisms of behavioural supervision. However, it is necessary to develop the rules provided therein.

Accordingly, this Notice establishes the conduct rules that financial institutions must respect, as well as the procedures and timeframes for the Banco de Cabo Verde's assessment of customer complaints. Regarding complaint regulation, account was taken of Circular Letter No. 02/2013/BCV/GAP, as well as the general provisions of Decree-Law No. 19/2008 of June 9 regarding the complaints register. Furthermore, rules are provided for codes of conduct governing various aspects of financial institutions' relationships with their clients. Finally, the matter concerning conflicts of interest was developed, regulating, in particular, the terms of conflict of interest policies to be approved by financial institutions, as well as the rules governing credit granted to members of the administrative and supervisory bodies of financial institutions.

In the exercise of its supervisory and regulatory powers, particularly those conferred by Articles 61, 67(3), 68, 79(5), 80(1) and (2) of Law No. 62/VIII/2014 of April 23, the following Notice is approved:

Chapter I GENERAL PROVISIONS

Article 1. (Subject Matter)

1. This Notice establishes the rules and procedures to be observed by financial institutions in their relationship with clients.
2. Rules concerning conflicts of interest are also provided, namely the terms under which policies on prevention and management of conflicts of interest must be drafted by financial institutions.

Article 2. (Conduct Rules) Financial institutions must, in relations with their clients, observe the following conduct rules: a) Act in relations with clients, as well as with other institutions, with diligence, neutrality, loyalty, discretion and conscientious respect for entrusted interests; b) Act with the diligence of a prudent and orderly manager; c) Respect client rights, namely the possibility to choose and switch products or services, as well as financial institutions; d) Obtain from the client all relevant and necessary information to assess their capacity to fulfill obligations related to requested products and services; e) Inform in writing and clearly and understandably the rates, commissions and other charges levied on authorized active and passive operations; f) Ensure that clients' personal data, as well as operational data, are not used for other purposes, except to fulfill client instructions and Banco de Cabo Verde regulations or when any legal provision expressly limits the duty of confidentiality; g) Provide access to adequate and functional complaint mechanisms for the prompt resolution of issues; h) Have the resources, procedures, systems and controls necessary to ensure compliance with this and other current regulations; i) Maintain a complaints register at their premises, as legally required.

2 Chapter II CUSTOMER COMPLAINTS

Article 3. (Submission of Complaints)

1. Written complaints submitted directly to the Banco de Cabo Verde may be made using the complaint form available on the Banco de Cabo Verde website or by letter addressed to the Banco de Cabo Verde.
2. Complaints may also be submitted verbally at the Banco de Cabo Verde headquarters, with the information in Annex I to be completed by the receiving bank employee.
3. For the purposes of paragraph 1, submission by email or telefax is considered in writing.

Article 4. (Assessment of Complaints) In assessing complaints, the Banco de Cabo Verde undertakes necessary steps to verify compliance with regulations it is responsible for overseeing, adopting appropriate measures to rectify detected breaches, without prejudice to initiating administrative offense proceedings whenever the conduct of the complained entities, particularly due to their severity or recurrence, justifies it.

Article 5. (Procedures)

1. After registration and preliminary assessment of complaints directly submitted by complainants, the Banco de Cabo Verde selects those to be forwarded to financial institutions, aiming for their prompt resolution by the complained entity.
2. The Banco de Cabo Verde only selects, under paragraph 1, complaints directly related to activities carried out by the complained financial institution.
3. The complained institution must process and resolve the complaint within 10 (ten) business days following receipt, and must send a response to the complainant within that same period with the outcome of its assessment.
4. In the letter to the complainant, the complained financial institution must expressly state: a) Whether it accepted the complaint and, if so, the appropriate measures taken for its resolution; b) Whether it considers that no breach occurred on its part, providing justification.
5. The financial institution must forward to the Banco de Cabo Verde a copy of the letter sent to the complainant, as well as proof of receipt of the response, preferably by email.
6. If the financial institution fails to send any response to the client within 10 (ten) business days, or if the complaint is not resolved favorably by the financial institution, the Banco de Cabo Verde proceeds to analyze it, requesting from the complained financial institution the statements deemed necessary for its assessment.
7. The Banco de Cabo Verde informs the complainant of the outcome of their submitted complaint in accordance with paragraph 3 of this article.

Article 6. (Archiving of Complaints) The complained financial institutions must archive, for a minimum period of 5 (five) years, the elements that served as the basis for complaint assessment and make available all elements requested by the Banco de Cabo Verde during inspections conducted at the institutions.

Article 7. (Complaints Report)

1. The Banco de Cabo Verde publishes an annual report on customer complaints from financial institutions, specifying the areas of incidence, the complained entities, and information on how complaints were handled.
2. For the purposes of the preceding paragraph, financial institutions send to the Banco de Cabo Verde by the 15th day of each month statistics on complaints submitted in the previous month, indicating how they were handled.

Chapter III CODES OF CONDUCT

Article 8. (Customer service and complaints) Codes of Conduct approved under Article 68 of the Financial Activities and Institutions Law must provide policies and procedures regarding customer service and complaints, which must, in particular: a) Ensure that the financial institution has a specialized customer service function responsible for permanent complaint reception, analysis and assessment; b) Ensure that the financial institution has a customer ombudsman, who benefits from an autonomous and functionally independent status vis-à-vis the financial institution, acting as a second instance in assessing customer complaints; c) Ensure that statistical information on complaints is reported periodically to the institution's administrative body; d) Provide that the institution investigates and resolves all customer complaints brought to its attention, within legally prescribed timeframes, maintaining a complaint control system and conducting corresponding statistics.

Chapter IV CONFLICT OF INTERESTS

Article 9. (General Principles)

1. In situations of conflict of interest, financial institutions must act to ensure transparent and equitable treatment for their clients.
2. Financial institutions must give precedence to client interests, both regarding their own interests or those of affiliated/group companies, and regarding the interests of corporate body members and employees thereof.

Article 10. (Conflict of interest policy)

1. Financial institutions must draft and maintain an updated policy on prevention and management of conflicts of interest, aiming to: a) Identify organizational areas and situations most likely to generate conflicts of interest, potentially harming client interests; b) Prevent and mitigate identified conflicts of interest, as well as manage and record conflicts when prevention measures prove insufficient; c) Ensure compliance with existing legal rules regarding conflicts of interest and professional duties owed by the financial institution and its staff; d) Ensure that the financial institution's activity is pursued in accordance with rigorous ethical and deontological principles; e) Contribute to affirming an institutional image of rigor and competence.
2. Measures for information access and processing must also be implemented to limit the possibility of conflicts of interest due to improper use of information, namely: a) When the financial institution provides services resulting in knowledge of inside information, a list of persons who had access to such information must be drafted; b) All non-public documentation must be stored in a locked, restricted-access location; c) Only those with access to information concerning clients or operations as necessary for performing their duties shall have such access; d) All unnecessary documents must be immediately invalidated and destroyed, preventing third parties from accessing or improperly using them; e) All employees of financial institutions have a duty to keep confidential all information accessed in the exercise of their functions, regardless of source, being obliged not to disclose such information to third parties and not to use it for purposes other than the normal exercise of their function.
3. Inside information for the purposes of paragraph 2(a) is understood as all information that: a) Directly or indirectly relates to financial institutions or securities issued by them; b) Is precise in nature; c) Has not been made public; d) If made public, would be likely to influence sensibly the price of such securities or related underlying or derivative instruments.
4. Financial institutions must ensure that all their employees are aware of the approved conflict of interest policy.

Article 11. (Identification and management of conflict of interest situations) Upon verifying the occurrence of a conflict of interest situation, financial institutions must mobilize all necessary resources for its adequate resolution, always ensuring transparent and equitable treatment for the client.

Article 12. (Responsible Person) Financial institutions must appoint a person responsible for managing conflict of interest situations, who shall be responsible for monitoring the conflict of interest policy and drafting and maintaining a historical register of detected conflicts, concerning in particular the factual situations underlying them and the transactions in which their occurrence was verified.

Article 13. (Information Processing) Information obtained by financial institutions regarding their clients and transactions carried out or ordered by them must be kept confidential, with access to information permitted strictly as necessary for business and in accordance with criteria protecting the legitimate interests of clients.

Article 14. (Information Duties)

1. Employees must inform the person responsible for managing conflict of interest situations, in writing, of all operations they carry out outside their functional scope on the date of their realization.
2. No information duty is understood to exist when the operation in question does not translate into any financial or other benefit for its participants or third parties.

Article 15. (Significant interests or relationships) Significant interests or relationships are considered to exist for the purposes of paragraph 5 of Article 79 of the Financial Activities and Institutions Law when the situation: a) Is likely to generate financial gain or avoid financial loss, to the detriment of the client; b) Involves a financial or other benefit to favor another client's interests over those of the client in question; c) Creates a situation conflicting with a client's interest, affecting that client's results.

Article 16. (Credit to corporate body members)

1. Without prejudice to paragraphs 4 and 5, credit institutions may not grant credit, in any form or modality, including the provision of guarantees, whether directly or indirectly, to members of administrative or supervisory bodies, nor to companies or other legal entities directly or indirectly dominated by them.
2. Indirect credit granting is presumed when the beneficiary is a spouse or first-degree relative of any administrative or supervisory body member, or a company directly or indirectly dominated by such persons, with such presumption being rebuttable before the administrative council of the respective financial institution, which is responsible for verification, subject to prior communication to the Banco de Cabo Verde.
3. For the purposes of this article, acquisition of capital shares in companies or other legal entities referred to in the preceding paragraphs is equated to credit granting.
4. The provisions of the preceding paragraphs are exempted for operations of a social nature or purpose arising from personnel policy, as well as credit granted resulting from the use of credit cards associated with deposit accounts, under conditions similar to those applied to other clients of analogous profile and risk.
5. The provisions of paragraphs 1 to 3 do not apply to credit granting operations benefiting credit institutions, insurance companies, pension fund management companies, as well as insurance intermediaries that dominate or are dominated by any entity included in the consolidated supervision perimeter.
6. Members of the administrative or supervisory body of a credit institution may not participate in assessing and deciding on credit granting operations to companies or other legal entities not included in paragraph 1 of which they are managers or hold qualifying participations, nor in assessing and deciding on cases covered by the preceding paragraph, requiring in all these situations approval by a majority of at least two thirds of the remaining administrative body members and a favorable opinion from the supervisory body.

Chapter V TRANSITIONAL AND FINAL PROVISIONS

Article 17. (Transitional Provision) Financial institutions already authorized at the date of publication of this Notice have a period of 3 (three) months to comply with its provisions.

Article 18. (Entry into Force) This Notice enters into force immediately after its publication in the Official Gazette.

Office of the Governor of the Banco de Cabo Verde, Praia, October 6, 2014. The Governor, Carlos Burgo.

Annex to Notice No. 4/2014 of the Banco de Cabo Verde ANNEX I COMPLAINT FORM I. Identification of the complained financial institution Institution Name Branch Address Locality II. Identification of the complainant Full Name Address Locality Nationality Identification Document Landline Phone Mobile Phone E-mail III. Complaint Scope of the complaint Content of the complaint