Regulation for Offshore Banks Operating in the Special Economic Zone

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Regulation for Offshore Banks Operating in the Special Economic Zone

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Regulation Number: 146R2015 Volume: 44 Number: 205 Date: 27 Sha'ban 1436 - 14 June 2015 Tuesday

Maldives Monetary Authority Malé, Maldives

Regulation for Offshore Banks Operating in the Special Economic Zone

First Chapter Preliminary Provisions

This regulation is a regulation issued under Article 55 (h) and Article 81 (t) of Law No. 24/2014 (Special Economic Zone Law).

Definition. 1 This regulation is named [Regulation for Offshore Banks Operating in the Special Economic Zone].

Name. 2 This regulation shall come into force from the date it is published in the Gazette of the Government of Maldives.

Commencement of Regulation. 3

Second Chapter Issuance of License

No person shall conduct offshore banking business in a Special Economic Zone without obtaining a license issued by the Authority.

Prohibition. 4 An application for a license to conduct offshore banking business in a Special Economic Zone established under Law No. 24/2014 (Special Economic Zone Law) shall be submitted in writing to the Board of Investment, in the manner specified by the Authority, along with the information notified by the Authority.

Application for License. 5 (h)

When applying for a license, the following information must be submitted: (t) A copy of the company's Articles of Association and Memorandum of Association, as well as documents relating to corporate governance, certified as true copies, and the annual balance sheets and profit and loss accounts for the past three (3) years. These documents must be audited documents. (1) The amount proposed as authorized capital, the manner in which such capital is to be raised, and the amount received from the proposed capital. (2) The name under which the offshore banking business is intended to be conducted, and the address or addresses of the place or places where the banking business is to be conducted. (3) The names and permanent addresses of major shareholders and members of the Board of Directors, the nature of their business activities, and such other information regarding such persons as the Authority may specify. (4) The names, permanent addresses, educational qualifications, and work experience of the persons proposed as Executive Officers, and such other information regarding such persons as the Authority may specify. (5) A statement signed individually by each Executive Officer and major shareholder, declaring the truth regarding whether any criminal offense has been proven against them in court, or not, or whether they have been or are proposed to be declared insolvent, or whether they have been involved in the management of a company that has been or is proposed to be declared insolvent. (6) Details of the main objectives of the place and the business activities intended to be carried out. These details must include the manner in which the bank's operations are defined and how internal controls are established. Such internal controls must include measures specified to combat money laundering and terrorist financing activities. (7) Projected balance sheets and profit and loss accounts for the next three (3) years, and annual accounts showing the manner in which funds will be received and expenses incurred. (8) If the application for a license is submitted by a foreign bank, a statement from the regulatory authority supervising that bank confirming that the applicant has no intention of conducting offshore banking business in the country. Additionally, this statement must declare that consolidated supervision will be conducted by that regulatory authority for the applicant seeking the license. (9) The Board shall notify the Authority of the application submitted under clause (h) of this article within seven (7) working days. The Authority shall notify the applicant whether the application is complete or not. If the application is incomplete, the Authority shall notify the applicant of the missing information and documents, specify the time limit for submission, and reserve the right to reject the application if the information or documents are not submitted within that time limit.

(n) The Authority shall notify the applicant of the issuance or non-issuance of the license within thirty (30) days from the date the application is notified as complete under clause (n) of this article, or from the date the information required to complete the application under clause (n) is received by the Authority.

(r) An application fee of 3,000 (three thousand) US Dollars, or another amount specified by the Authority, must be paid to the Authority along with the application for the license.

(b) A license to conduct offshore banking business under this regulation may be issued to a company registered in the Maldives or in another country.

General Conditions for Issuance of License. 6 (h) A license to conduct offshore banking business for a foreign bank may be issued only if that bank is supervised by the banking supervisory authority of the country where its head office is located, and the entire bank, including all its branches and offices, is accepted by the Authority as a supervised bank.

(t) An offshore bank licensed under this regulation must notify the Authority and the parties served by the bank in writing at least sixty (60) days before closing the business. When notifying the Authority, the bank must submit details of the plan to close the business or transfer the business to another party.

(n) The Authority may issue a license with specific conditions. Furthermore, the Authority has the power to amend license conditions or add conditions to the license after issuance in writing.

Conditions of License. 7 (h)

(t) Every offshore bank must comply with the following: (1) Maintain the capital levels specified in this regulation, implement other measures necessary to operate the bank securely and safely, and comply with instructions and guidelines issued by the Authority. (2) Establish appropriate systems and procedures to identify internal controls and audit methods that could adversely affect the business. (3) Not commit fraud, deception, theft, money laundering, financing of terrorism, or any other criminal offense. (4) Conduct business only under the name for which the Authority has granted permission. (5) Conduct all activities of the offshore banking business from an office established at the location licensed by the Authority. (6) Major shareholders, members of the Board of Directors, branch managers, and executive officers of the offshore bank must at all times be persons deemed appropriate by the Authority. (7) No offshore bank may establish an office or branch at any location other than the licensed location without the permission of the Authority. Furthermore, no subsidiary may be established without the permission of the Authority.

Establishment of Additional Offices and Subsidiaries. 8

No offshore bank may amalgamate with another bank without the permission of the Authority. Furthermore, no bank may directly or indirectly acquire or take assets or part of the assets of another bank without permission. Nor may a bank assume liabilities of another bank without permission.

Amalgamation of Bank with Another Bank. 9

Third Chapter Capital and Measures to be Taken for Secure and Safe Operation

Every offshore bank must maintain a minimum paid-up capital or assigned capital of no less than 60,000,000/- (sixty million) Rufiyaa, or if the Authority specifies a higher amount, no less than that amount, at all times.

Capital. 10 (h)

(t) Every offshore bank must maintain capital at no less than the capital adequacy ratios specified and notified by the Authority, except in circumstances permitted by the Authority.

(1) Every offshore bank must be operated in accordance with sound banking principles, license conditions, and the procedures, guidelines, decisions, and instructions issued by the Authority.

General Principles of Bank Operation. 11 (h)

(t) Every offshore bank must maintain sufficient capital and liquidity to meet its liabilities. Furthermore, provisions must be made for potential losses from loans, depreciation of assets, and other potential losses. Banks must maintain accounts and records appropriately, take measures to minimize adverse effects on the bank, and maintain assets and liabilities in a manner that minimizes loss.

(n) If the Authority specifies a particular procedure or standard for the matters mentioned in clause (t) of this article and notifies offshore banks, banks must comply with that procedure or standard. Furthermore, if the Authority specifies procedures regarding the minimum capital levels to be maintained by offshore banks, asset classification, stopping interest income from loans, provisions for loans, amounts of debt sold to related parties, transactions with related parties, open foreign currency positions, deposits in other banks, liquidity maintenance, and other important matters for secure and safe bank operation, banks must comply with those instructions.

Except for offshore banks licensed to conduct investment banking business, unless otherwise specified in this regulation, other offshore banks may conduct all or some of the following activities, provided they do not violate the conditions of their license:

Banking Services. 12 (h) (1) Accepting any type of deposit in the form of money, with or without interest or service charges, or other forms of money repayable; (2) Granting any type of loan, with or without security, including granting all types of loans, factoring with or without recourse, granting various types of loans for business transactions, including purchasing documents circulated as money at a price lower than their face value without recourse, and providing financial leasing services; (3) Money market instruments, including checks, bills of exchange, promissory notes, and certificates of deposit; foreign currency; bullion; exchange and interest rate instruments; stocks and other securities; currency stocks, bonds, large commodities, interest rates, any type of derivative related to any of these, buying and selling in its own name or on behalf of a customer, including underwriting and brokerage services. Any security underwriting work must be conducted such that the amount spent does not exceed 15% (fifteen percent) of the bank's capital and reserves, and in accordance with general conditions set by the Authority regarding security underwriting under clause (t) of this article, and specific conditions set by the Authority for each specific underwriting; (4) Acting as an agent or broker in insurance services; (5) Making contingent commitments, including bank guarantees and letters of credit issued in its own name and on behalf of customers; (6) Payment instruments such as money securities, payment orders, checks, credit cards, debit cards, and other cards used for payment, traveler's checks, bank drafts, transfers, and previously authorized debits and credits; clearing and settlement services, and transfer services; (7) Money brokering services; (8) Trust services; (9) Safe deposit box services; (10) Providing services to hold securities of any party for benefit, or acting as an agent in financial matters, or providing advice in financial matters; (11) Providing information services on the financial status and indebtedness of various parties; and (12) Other services specified by the Authority.

(t) Prior permission from the Authority is required to conduct the banking services and activities mentioned in items 3, 4, 8, and 10 of clause (h) of this article. However, such permission is not required for activities involving buying and selling foreign currency and money market instruments as mentioned in item 3 of clause (h) of this article. In granting permission for applications, the Authority must consider the following: (1) The financial and managerial capability of the applicant, the extent of relevant information available, risk management procedures, and other matters necessary to conduct the proposed activities securely; (2) The opportunity for harm to the rights of depositors and creditors of the party due to the conduct of the proposed activities; (3) The opportunity for increased competition in the financial sector and benefit to the public if the proposed activities are conducted as applied for. The Authority may impose additional conditions when granting permission for the proposed activities.

(n) Except for accepting deposits as described in item 1 of clause (h) of this article, other matters may be conducted by an offshore bank licensed to conduct investment banking business, provided they do not violate the conditions of its license. Furthermore, the limitation mentioned in item 3 of clause (h) of this article shall not apply to an offshore bank conducting investment banking business.

Change in Shareholders. 13 If a major shareholder of an offshore bank changes, the Authority must be notified within three (3) days from the date of the change, along with details of the change.

Confidentiality. 14 Neither the Authority, nor any employee of the Authority, nor an offshore bank, nor an employee of an offshore bank, nor an appointed external auditor of an offshore bank, nor any other person having access to records, books, accounts, and other documents of an offshore bank, nor having access to or receiving information regarding shareholders, beneficial owners, or customers of an offshore bank or bank, shall disclose such information directly or indirectly to any other person, except under a court order or with the written permission of the party to whom the information relates.

Exceptions to Confidentiality. 15 The matters in Article 14 of this regulation shall be exempted if an offshore bank discloses information in the following circumstances: (1) Providing information necessary for external auditors of the bank to fulfill their responsibilities; (2) When the Authority orders the submission of specific information, records, or documents; (3) When information is submitted under the Anti-Money Laundering and Counter-Financing of Terrorism Act; (4) When disclosing some or all information regarding transactions between an offshore bank and a customer to prove a right owed to the bank in a legal case involving transactions between the offshore bank and the customer.

Fourth Chapter Board of Directors, Management, and Internal Audit

The Board of Directors of the bank shall be responsible for managing the bank, establishing procedures and policies for the operation of the offshore bank, and specifically establishing policies to prepare for matters that could adversely affect the main work of the bank. Such policies include granting loans, investing, asset-liability management, auditing, internal control systems, and accounting standards to be used by the bank.

Board of Directors. 16 (h)

(t) The Board of Directors shall consist of at least five (5) members. The number of board members must be an odd number.

(n) All members of the Board of Directors must meet the qualifications specified by the Authority as [appropriate].

(r) Members of the Board of Directors shall work without bad intentions and with honesty for the benefit of the bank. They shall perform their duties with the skill and care that other persons would use in performing similar duties in similar circumstances. If any person suffers loss due to a director's failure to exercise such skill and care in working for the benefit of the bank, that director shall be personally liable for the loss. In such a case, a lawsuit may be filed against the director in court for compensation for the loss.

The Board of Directors of the offshore bank shall appoint one of its members as Managing Director or Chief Executive Officer. For a foreign offshore bank operating in the Maldives, a Branch Manager appointed to the branch of that bank operating in the Maldives must be designated. The implementation of decisions made by the Board of Directors and daily management operations are the responsibilities of the Managing Director, Chief Executive Officer, or appointed Branch Manager of that bank.

Management. 17 (h)

(t) To fulfill the responsibility of managing the main affairs of the offshore bank, appropriate persons must be appointed as Executive Officers. Such matters include granting loans, internal audit, ensuring compliance with laws, regulations, guidelines, orders, and procedures, and maintaining assets and liabilities. Appropriate committees may be formed among members of the Board of Directors to oversee these matters and other bank affairs.

(n) The Managing Director, Chief Executive Officer, Branch Manager, and other Executive Officers of the offshore bank must be persons who meet the qualifications specified by the Authority as [appropriate].

Internal Audit. 18 Every offshore bank must conduct regular internal audits. Furthermore, the Board of Directors must specify the responsibilities, duties, and conditions of the internal audit and include them in the audit charter.

Fifth Chapter Maintenance of Accounts

Every offshore bank must prepare and maintain accounts, records, and other documents in an appropriate manner to ensure the secure maintenance of the bank's affairs.

Accounting Standards and Principles and Financial Statements. 19 (h)

(t) The balance sheet, profit and loss account, cash flow statement, and statements showing changes in the bank's capital, as well as other financial statements of the bank, must be prepared in a manner that reflects the true financial position of the bank. The financial statements of every offshore bank must be prepared in accordance with International Financial Reporting Standards. If the Authority specifies special methods regarding this matter, accounts must be prepared in accordance with those methods.

Annual Audit of Accounts. 20 (h)

(t) Every offshore bank must appoint an experienced and qualified external auditor to audit the bank. The external auditor must be an auditor accepted by the Authority.

Submission of Annual Financial Statements. 21

(t) Every offshore bank must have its annual financial statements audited by an external auditor.

(n) Every offshore bank must submit copies of its audited annual accounts and annual report to the Authority within four (4) months of the end of the bank's financial year. Furthermore, information and documents notified by the Authority regarding annual accounts or annual reports must be submitted.

Sixth Chapter Supervision

Every offshore bank must...