Instruction No. 54 on Corporate Governance of Financial Institutions

CENTRAL BANK OF THE CONGO | THE GOVERNOR INSTRUCTION NO. 54 ON CORPORATE GOVERNANCE OF FINANCIAL INSTITUTIONS

The Central Bank of the Congo,

Having regard to Organic Law No. 18/027 of December 13, 2018 on the organization and functioning of the Central Bank of the Congo, particularly Articles 10, 11, and 25;

Having regard to Law No. 22/069 of December 27, 2022 on the activity and supervision of Credit Institutions, particularly Article 167;

Having regard to Law No. 15/003 of February 12, 2015 on credit leasing activity, particularly Articles 6 and 7;

Having regard to Law No. 22/068 of December 27, 2022 on the fight against money laundering and terrorist financing and the proliferation of weapons of mass destruction, particularly Titles I and III;

Enacts the following provisions:

TITLE I: GENERAL PROVISIONS

CHAPTER I: OBJECT AND SCOPE

Article 1:

This Instruction aims to establish the prudential governance rules applicable to financial institutions referred to in Article 2 of this Instruction.

Article 2:

Without prejudice to contrary specific provisions, this Instruction applies to financial institutions, including:

• leasing companies;
• factoring companies;
• guarantee companies;
• payment institutions providing the payment services referred to in Article 168 of Law No. 22/069 of December 27, 2022 on the activity and supervision of credit institutions, including electronic money institutions and financial messaging services;
• specialized financial institutions, including investment banks, development banks, etc.

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CHAPTER II: DEFINITIONS

Article 3:

For the purposes of this Instruction, the following terms shall mean:

• director: a member of the deliberative body designated by the General Meeting of Shareholders;
• executive or active director: a member of the deliberative body simultaneously holding functions within the executive body of the financial institution;
• independent director: a member of the deliberative body who has no relationship of any kind with the financial institution or the group to which it belongs that could compromise the exercise of their judgment. They must be exclusively non-executive or passive directors;
• non-executive or passive director: a member of the deliberative body who does not hold a function within the executive body of the financial institution;
• risk appetite: the overall degree and types of risks, previously fixed and below the risk tolerance, that a financial institution is willing to assume to achieve its strategic objectives and activity plan;
• general meeting: the supreme body composed of capital contributors, natural or legal persons, namely shareholders, partners, or members, who approve the annual accounts of the financial institution;
• development bank: a financial institution that grants medium and long-term loans for the realization of economic development projects;
• investment bank: a financial institution specialized in financial engineering operations, particularly mergers and acquisitions, initial public offerings, and financial placements;
• specialized committees: structures emanating from the deliberative body with the aim of assisting it in its supervisory function;
• ethics and compliance committee: a governance committee, emanating from the deliberative body, created to assist it in exercising its supervisory missions regarding compliance, ethics, and professional conduct;

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• risk committee: a governance committee, emanating from the deliberative body, created to assist it in determining risk appetite, supervising the executive body's implementation of the risk appetite statement, and ensuring supervision of the risk management function;
• audit committee: a governance committee, emanating from the deliberative body, created to assist it in exercising its supervisory missions, particularly evaluating the quality of the internal control framework and steering internal audit;
• remuneration committee: a governance committee, emanating from the deliberative body, created to assist it in developing and implementing the remuneration system and supervising its compliance with the risk appetite policy;
• nominations committee: a governance committee, emanating from the deliberative body, created to assist it in designating candidates qualified for functions requiring prior approval or agreement from the Central Bank of the Congo;
• conflict of interest: a situation where the personal interests of a member of the governance bodies or staff, or those of persons with whom they have close family ties, are not compatible with the interests of the financial institution and could therefore influence the expected impartiality in performing their duties;
• supervisory function: an independent function from operational activity management, whose role is to provide objective assessments of the financial institution's situation within its area of competence;
• corporate governance: the set of relationships between shareholders of a financial institution, its deliberative body, its executive body, and other stakeholders that establish the framework in which the objectives of said institution are set, along with the means to achieve them and control their realization;
• duty of care: an obligation for a director to make decisions and act in an informed and prudent manner for the benefit of the financial institution. The duty of care also refers to the prudence with which a director would manage their own affairs;

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• duty of loyalty: an obligation for any director to act in good faith in the interest of the financial institution. Under this obligation, a director must not act in their own interest or in the interest of a person or group to the detriment of the financial institution and all its shareholders;
• deliberative body: an emanation of the general meeting of shareholders that determines the strategic direction of the financial institution, ensures supervision of its implementation, and reports to said shareholders. The deliberative body is the board of directors in joint-stock companies or the collegiate body in companies constituted under another form, responsible for ensuring overall sound administration of the company;
• executive body: The body responsible, on behalf of the deliberative body, for the day-to-day management of the financial institution's activities and for effectively steering the implementation of strategic objectives and risk policy set by the deliberative body. It corresponds to the General Management or Management Committee. It includes the Managing Director and Deputy Managing Director(s);
• risk profile: a point-in-time assessment of the gross risk exposures of a financial institution, i.e., before applying any mitigation measures or, where applicable, net risk exposures after mitigation, aggregated within relevant risk categories, based on current or prospective assumptions;
• financial institution: a Congolese legal entity whose activity consists, excluding any receipt of repayable funds from the public, in carrying out credit operations, performing payment operations, managing payment instruments, or conducting foreign exchange transactions;
• factoring company: a financial institution that habitually carries out operations by which it undertakes to collect and mobilize commercial claims, either by acquiring said claims or by acting as an agent for creditors, with the latter case involving a guarantee of good performance;
• guarantee company: a financial institution that habitually carries out operations consisting in substituting for the debtor in case of default, in exchange for remuneration;
• internal control system: a set of rules, methods, and control measures governing the organizational and operational structure of a financial institution. It includes reporting processes and supervisory functions;
• risk tolerance: the maximum level of risk that a financial institution is able to assume, given its equity, risk management, and control capabilities, so as to comply with all regulatory requirements.

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CHAPTER III: FUNDAMENTAL PRINCIPLES

Article 4:

The corporate governance of financial institutions refers to the relationships between shareholders, the deliberative body, the executive body, and other internal stakeholders with a view to orienting, supervising, directing, organizing, implementing, and controlling the activity of the financial institution.

The corporate governance determines the allocation of powers and responsibilities of these bodies in conducting the activities and operations of the financial institution, particularly regarding the following roles:

• definition of the strategy and objectives of the financial institution;
• selection and supervision of personnel;
• conduct of the daily activities of the financial institution;
• consideration and preservation of the interests of clients, shareholders, and other stakeholders;
• adaptation of corporate culture to establish safe, sound, and honest management respecting applicable laws and regulations;
• organization of internal control and risk management functions.

Article 5:

The financial institution is required to establish an organizational structure comprising, among others, the following corporate bodies:

• the general meeting, the supreme body of the financial institution, composed of capital contributors, partners, or shareholders;
• the deliberative body, named board of directors or equivalent body;
• the executive body, whose managers are designated by the deliberative body. It operationally implements the institution's strategy and ensures day-to-day management.

Article 6:

Corporate governance must primarily aim to preserve, in an equitable and sustainable manner, the interests of stakeholders, particularly clients, while respecting the general interest.

CHAPTER IV: GOVERNANCE FRAMEWORK

Section 1: General Governance Principles

Article 7:

The governance framework of the financial institution must, in particular:

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• be developed and implemented taking into account the prudential regulation issued by the Central Bank of the Congo, particularly Instructions Nos. 17 and 22 relating to internal control and risk management respectively;
• establish and formalize strategies, policies, objectives, and procedures to be implemented to define and organize the various means necessary for achieving sound governance;
• define the roles and obligations of stakeholders (bodies) by ensuring, in particular, the separation and independence of management and supervisory functions within the organization as well as the prevention of conflicts of interest;
• reflect, over time, changes resulting from the characteristics of the financial institution and its external environment as well as developments regarding best practices in corporate governance.

Section 2: Principle of Proportionality

Article 8:

The financial institution is required to establish a governance framework consistent with sound practices, adapted to its size, structure, nature and complexity of activities, as well as its risk profile, operational model, and, where applicable, that of the group to which it belongs.

The Central Bank of the Congo may decide, particularly regarding a financial institution with a particular risk profile, to apply additional or derogatory measures to this Instruction so that said institution has a structure and governance practices adapted to its scale.

TITLE II: ROLES AND RESPONSIBILITIES OF CORPORATE BODIES

CHAPTER I: GENERAL MEETING

Article 9:

The General Meeting is the gathering of capital contributors, entitled to participate therein, convened in ordinary and/or extraordinary sessions according to legal and statutory provisions.

Article 10:

The General Meeting proceeds, in application of the statutes, to the nomination of members of the deliberative body in accordance with legal and regulatory requirements, and respecting the provisions of the Central Bank of the Congo's Instruction on approval conditions.

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Capital contributors are regularly and sufficiently informed of the activity, financial situation, and management of the financial institution through regular and detailed reports from the deliberative body. They must meet periodically in a General Meeting to make decisions on the company's affairs.

Article 11:

The General Meeting must be convened no later than 48 hours after the finding, to take corrective measures in case of a serious violation of prudential regulation, likely to compromise the going concern of the financial institution, particularly in case of insufficient equity or serious governance dysfunction.

In the event that the General Meeting is not held under the conditions provided in the preceding paragraph when the situation clearly requires it, the statutory auditor of the financial institution must immediately inform the Central Bank of the Congo and convene said Meeting, in accordance with prevailing laws.

CHAPTER II: DELIBERATIVE BODY

Section 1: Principles for Designating Members of the Deliberative Body

Article 12:

The deliberative body is the collegiate instance representing all capital contributors and has the obligation to act in all circumstances in the interest of the financial institution.

Article 13:

Directors designated by the General Meeting are collectively responsible before said Meeting.

Unless engaging their personal liability, each director is subject to the duties of care and loyalty and must consider themselves as representing all shareholders and behave accordingly in exercising their functions.

Section 2: Composition and Independence of the Deliberative Body

Article 14:

The composition of the deliberative body must be appropriate to the shareholding structure, size, and nature of activities of each financial institution as well as particular circumstances it faces.

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The deliberative body must be composed in a balanced manner of directors with different expertise profiles and complementary skills in banking or financial fields, capital markets, financial analysis, accounting expertise, financial stability, financial information, new information technologies, strategic planning, compliance and risk management, remuneration policies, regulation, as well as corporate governance.

Without prejudice to legal or statutory provisions, the number of members of the deliberative body takes into account the principle of proportionality. The deliberative body must at all times be composed predominantly of non-executive directors.

In its pursuit of independence and professionalism, the deliberative body must include at least three (3) independent directors.

Article 15:

The deliberative body and its President must preserve their independence vis-à-vis the General Management.

Each financial institution must take all necessary measures to balance the composition of its deliberative body and that of the specialized committees by adopting provisions ensuring shareholders that missions are carried out with the necessary independence and objectivity.

Members of the deliberative body are approved by the Central Bank of the Congo according to regulatory provisions in this regard.

Article 16:

The term of office for independent directors is three (3) years, renewable once.

The term of office for non-executive directors is six (6) years, renewable.

Article 17:

To prevent conflicts of interest, a member of the deliberative body of a financial institution may not, at the same time:

• hold any other function in another credit institution or financial institution subject to the Central Bank of the Congo, except for representing the same corporate shareholder or partner;
• hold a function within a regulatory and/or supervisory body of the financial sector;

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• be an owner or hold shares as a natural person in another credit institution or financial institution subject to the Central Bank of the Congo.

Article 18:

Generally and within the limits of legal and regulatory provisions in this regard, members of the deliberative body may hold other functions outside their current term within the financial institution, provided that the exercise of these external functions:

• does not impair the availability required for exercising their director mandate within the financial institution;
• does not generate conflicts of interest or risks, particularly regarding insider transactions;
• does not impair the distribution of tasks between the deliberative body and the executive body, particularly regarding the exercise of mandates within companies in which the financial institution holds a participation.

Article 19:

Without prejudice to the definition stated in Article 3, the criteria for qualifying a director as independent are as follows:

• not being related to the financial institution, within the meaning of Instruction No. 51 of the Central Bank of the Congo;
• not being an employee or executive of the financial institution or a group company during the last three (3) years;
• not being a corporate officer of a company in which the financial institution holds a director mandate;
• not being a client or supplier of the financial institution and not having directly or indirectly with the financial institution an ongoing business relationship during the last three (3) years;
• not having been an external auditor or statutory auditor of the financial institution during the last three (3) years;
• not being a member of the deliberative body of the financial institution for more than six (6) years;
• being free from any influence, of a political or patrimonial nature originating internally or externally to the financial institution, that could compromise the exercise of their judgment freedom;

Section 3: Organization and Functioning of the Deliberative Body

Article 20:

The organization of the deliberative body's work must be adapted to the shareholding structure, size, and nature of activities of the financial institution.

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Article 21:

The deliberative body must:

• have a charter approved by a resolution of the deliberative body organizing its operating procedures to ensure appropriate governance. This charter must be reviewed and updated as necessary;
• oversee the overall sound administration of the financial institution and report to the General Meeting;
• meet at least once per quarter, according to a predefined schedule and predetermined agenda, and whenever the financial institution's situation requires it;
• provide a pre-established emergency mode for consulting directors and making decisions when the financial institution's situation requires it between two planned meetings. This exceptional procedure must not be used for convenience to reduce operating costs or limit collegial discussion opportunities among deliberative body members;
• produce minutes recording decisions as well as written, exhaustive, and detailed "verbatim" reports of its meetings, to trace debates and the expression of opinions by each participant on all discussed questions;
• have minutes approved and signed by all directors;
• certify minutes and meeting reports by a notary;
• securely store minutes and meeting reports in the financial institution's files.

Section 4: Presidency of the Deliberative Body

Article 22:

The President of the deliberative body must, in particular:

• be a non-executive director or an independent director;
• ensure the proper functioning of the body by monitoring compliance with established rules and decision-making procedures;
• possess proven experience and competence in the banking or financial field as well as other personal skills enabling them to fully exercise their duties;
• encourage debates and ensure that divergent opinions can be freely expressed and examined in the decision-making process;
• ensure that decisions taken by this body are based on precise rules and sufficiently substantiated;
• be available to exercise their responsibilities.

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Article 23:

The president of the deliberative body may not preside over a specialized committee nor be a member thereof.

Section 5: General Responsibilities of the Deliberative Body

Article 24:

The deliberative body's missions include, in particular:

• defining the strategy of the financial institution;
• supervising the implementation of the strategy by the executive body and reporting to shareholders;
• approving the financial institution's values, code of conduct, and ethics communicated to all persons required to know them within the financial institution;
• establishing, with the support of the nominations or human resources committee, criteria for competence and integrity governing the selection of its members, corporate officers, and senior management;
• proposing to the General Meeting the designation of directors meeting the required profile;
• having succession plans for members of the executive body;
• designating corporate officers;
• evaluating members of the executive body and ensuring they manage the institution in accordance with the policy defined by it;
• defining a risk appetite policy including, among others, a formalized and structured system of delegations and limits.