Decision No. 014/24/06/2016 on Consolidated Supervision of Parent Credit Institutions and Financial Companies in the UMOA

WEST AFRICAN MONETARY UNION DECISION No. 014/24/06/2016/CMIUMOA ON CONSOLIDATED SUPERVISION OF PARENT CREDIT INSTITUTIONS AND FINANCIAL COMPANIES IN THE WEST AFRICAN MONETARY UNION (UMOA)

THE COUNCIL OF MINISTERS OF THE WEST AFRICAN MONETARY UNION (UMOA), Having regard to the Treaty of the West African Monetary Union (UMOA) of 20 January 2001, particularly Articles 10, 11, 12, 14, 15, 17 and 34; Having regard to the Statutes of the Central Bank of West African States (BCEAO), annexed to the UMOA Treaty of 20 January 2001, particularly Articles 9, 30, 42, 59 and 60; Having regard to the Convention governing the UMOA Banking Commission of 4 April 2007 and its Annex; Having regard to the Uniform Law on banking regulation; Having regard to the Law on the regulation of Decentralized Financial Systems; Having regard to Regulation No. 15/2002/CMIUMOA on Payment Systems in the Member States of UEMOA and its implementing texts; Having regard to Decision No. 014/24/06/2016/CMIUMOA on the prudential framework applicable to credit institutions and financial companies in the West African Monetary Union (UMOA); Having regard to the BCEAO Note on consolidated supervision of parent credit institutions and financial companies in UMOA, presented to the Council of Ministers at its ordinary session on 24 June 2016; Having regard to the Deliberations of the Council of Ministers at its ordinary session on 24 June 2016; Whereas, due to the significant size of credit institutions and parent companies of banking groups in the Union, the failure of one such entity is likely to have negative consequences for the security and stability of the banking and financial system of the zone; Whereas consolidated supervision allows for a global assessment of the financial situation of credit institutions and parent companies of banking groups to ensure adequate monitoring of their risk profile; Whereas the application of appropriate prudential norms to all aspects of activities carried out by the banking group facilitates the evaluation of risk management at a global level and the taking of measures, when identified risks are likely to affect the security and stability of said group and the Union's banking system; Whereas consolidated supervision, to be effective, must be applied to all banking groups, including when the parent company is not a credit institution; Whereas the Banking Commission must be endowed with powers enabling it to exercise consolidated supervision,

For the purposes of this Decision: (a) Banking-dominant activities: activities carried out by a banking group when the following two conditions are met: i. the group's activities are primarily exercised in the financial sector. In this case, the ratio between the total balance sheet of entities in the financial sector as a whole and the total balance sheet of the group must exceed 40%; ii. the banking sector has a higher weight than other entities in the financial sector. In this case, the ratio between the total balance sheet of the banking sector and the total balance sheet of entities in the financial sector must be higher than the corresponding ratios of the insurance sector and the financial markets sector; (b) UMOA supervisory authority: the UMOA Banking Commission or the Banking Commission; (c) Financial companies: entities whose main activity is to acquire and manage financial participations, which directly or through intermediate entities with the same object, control one or more companies carrying out financial operations, at least one of which is a credit institution. Financial companies are subdivided into two categories as follows: i. Holding financial company: an unapproved entity acting as the parent of a banking group. ii. Intermediate holding financial company: an unapproved entity that holds all participations of a group in its subsidiaries, credit institutions, operating within UMOA; (d) Joint control: the sharing of control of an enterprise operated jointly by a limited number of shareholders, where financial and operational policies are decided by common agreement among the shareholders and none has the power to impose its decision on the others; (e) Exclusive control: the power to decide financial and operational policies of an enterprise in order to derive benefits. There are three types of exclusive control: legal exclusive control, de facto exclusive control, and contractual exclusive control; i. legal exclusive control is exercised by a company that directly or indirectly holds more than half of the voting rights of its subsidiary; ii. de facto exclusive control is exercised by a company when the following two conditions are met: it designates, for two consecutive financial years, the majority of members of deliberative and executive bodies; it holds, for two consecutive financial years, a voting rights percentage greater than 40% and no other shareholder holds a larger share; iii. contractual exclusive control is exercised by a company when there is a contract or statutory clause ensuring it exclusive control of the consolidated enterprise; (f) Financial-character enterprises: the following entities: i. banking sector enterprises; ii. financial markets sector enterprises subject to the prudential requirements of the Regional Council for Public Savings and Financial Markets, abbreviated CREPMF; iii. enterprises located outside UMOA that, in their jurisdiction, meet the definition given in point ii above. Entities under the insurance sector are excluded from financial-character enterprises. (g) Banking sector enterprises: the following entities: i. banks and financial institutions with a banking character; ii. all other entities subject to the uniform law on banking regulation; iii. financial companies; iv. Decentralized Financial Systems, abbreviated SFD; v. electronic money institutions; vi. enterprises located outside UMOA that, in their jurisdiction, meet the definitions given in points i to v above; vii. service companies whose main activity consists of providing services to the entities referred to in points i to vi above, or holding assets allocated to the operation of these entities; (h) Credit institution: a legal person that habitually carries out banking operations as defined by the uniform law on banking regulation. A credit institution is approved as a bank or financial institution with a banking character; (i) Parent credit institution: a credit institution that is not controlled by another credit institution or financial company and holds at least one subsidiary that is another credit institution; (j) Subsidiary: an enterprise controlled by a company that holds more than half of the voting rights, or any enterprise over which a company exercises exclusive control; (k) Group: a set of entities each having distinct legal personality and whose activity is directly or indirectly controlled by a parent company; (l) Banking group: a group that exercises banking-dominant activities in UMOA; (m) Significant influence: the power to participate in the financial and operational policies of a structure without holding exclusive or joint control. Significant influence by one enterprise over another is presumed when the former directly or indirectly holds more than 20% of the voting rights of the latter; (n) Parent company: a company that is not a subsidiary of another credit institution or financial company established in UMOA and holds at least one subsidiary that is a credit institution; (o) Recognized market: a market: i. that guarantees regular functioning of negotiations; ii. whose access and operating conditions, listing admission conditions, and transaction organization rules are established and approved by the competent authorities of the market's country of origin; (p) Financial-character operations: all operations carried out by entities in the financial sector, in accordance with governing legislative and regulatory texts; (q) Financial sector: an economic sector grouping all activities related to the financial domain. It consists of one or more of the following entities: i. banking sector, grouping banking sector enterprises; ii. insurance sector, grouping insurance and reinsurance companies; iii. financial markets sector, grouping Management and Intermediation Societies or SOI, Wealth Management Companies or SP, Collective Investment Funds in Securities or OPCVM, Investment Societies or CI and Business Associates or AA and other entities approved on recognized markets; (r) Consolidated supervision: the process by which a supervisory authority monitors risk exposure and capital adequacy and liquidity of a banking group under its control, based on the totality of activities of said group within and outside its jurisdiction; (s) UMOA or Union: West African Monetary Union.

Article 2: Object This Decision aims to establish a consolidated supervision framework for parent credit institutions and financial companies established in UMOA.

Article 3: Scope of Application The following entities are subject to consolidated supervision:

• parent credit institutions holding at least one subsidiary that is another credit institution within UMOA;
• holding financial companies and intermediate holding financial companies established in UMOA;
• another intermediate entity of a Group, particularly when circumstances or the evolution of the Group's structure justify it.

Article 4: Prudential Consolidation Scope The prudential consolidation scope comprises all financial-character enterprises over which the parent company exercises directly or indirectly exclusive, joint control, or significant influence. Regardless of their legal form, country of establishment, or host country of activities. Excluding insurance companies, the following are excluded from the prudential consolidation scope: (a) commercial purpose companies and other non-financial-character enterprises; (b) financial-character enterprises whose total amount of assets and off-balance sheet items is less than 1% of the consolidated total of assets and off-balance sheet items of the parent company or entity holding the participation. The Banking Commission may require the exclusion of a financial-character enterprise from the prudential consolidation scope when it considers that: (a) the enterprise is located in a state outside UMOA and there are either legal obstacles to the transfer of information necessary for determining and verifying incurred risks, or severe and lasting restrictions substantially affecting control or influence exercised by the parent company on the concerned enterprise or fund transfers from said enterprise; (b) the enterprise does not present an interest from the viewpoint of consolidated prudential supervision; (c) its inclusion in the consolidation scope is inappropriate or likely to mislead, from the viewpoint of consolidated prudential supervision objectives.

Article 5: Establishment of an Intermediate Holding Financial Company The Banking Commission may require a parent company, which holds subsidiaries, approved credit institutions in the Union, to create within the zone an intermediate holding financial company holding the group's participations in these credit institutions.

Article 6: Maintenance of the List of Financial Companies The UMOA Banking Commission establishes, updates, and annually publishes the list of financial companies it supervises on a consolidated basis.

Article 7: Rules Applicable to Parent Credit Institutions and Financial Companies on a Consolidated Basis The subjects referred to in Article 3 are required to comply, on a consolidated or sub-consolidated basis, with the decisions of the UMOA Council of Ministers, circulars of the UMOA Banking Commission, and instructions of the Central Bank. Unless expressly stated otherwise, the principle established in the preceding article does not exempt the subjects from the obligation to comply, on an individual basis, with the provisions cited above.

Article 8: Rules Applicable to Financial Companies on an Individual Basis Financial companies are subject to management, prudential, internal and external control rules as well as declarative obligations specified by Decision of the UMOA Council of Ministers, Circular of the UMOA Banking Commission, or Instruction of the Central Bank. Financial companies and their management may be subject to corrective measures as well as administrative and/or disciplinary sanctions provided for in the Annex to the Convention governing the UMOA Banking Commission.

Article 9: Particular Measures Applicable to Subjects The UMOA supervisory authority may take particular measures applicable to subjects and aimed notably at establishing restrictions on their activities and modifying their structure. To this end, the Banking Commission is authorized:

• to limit the extent of activities that a subject may undertake as well as the jurisdictions on which it carries them out, when it considers that: the safety and soundness of the subject are threatened by these activities which expose it to excessive risks or are not correctly managed; control exercised by other supervisory authorities is not satisfactory, given the risks incurred; it is prevented from exercising effective control on a consolidated basis.
• to not authorize capital or organizational structures that hinder the obtaining of consolidated financial data or otherwise impede effective monitoring of a group. Notwithstanding these measures, the Banking Commission may, depending on circumstances, apply to subjects, on a consolidated or sub-consolidated basis, any other preventive measures it deems appropriate.

Article 10: Application Procedures Circulars of the Banking Commission and Instructions of the Central Bank specify, as necessary, the application procedures for the provisions of this Decision.

Article 11: Entry into Force This Decision enters into force as of its date of signature and will be published wherever necessary. Done in Lomé, on 24 June 2016 For the Council of Ministers of the West African Monetary Union, The President Amadou SA Minister of Economy, Finance and Planning of the Republic of Senegal