Law No. 20/2020 of December 31 – Law on Credit Institutions and Financial Companies (LICSF)

BOLETIM DA REPÚBLICA PUBLICAÇÃO OFICIAL DA REPÚBLICA DE MOÇAMBIQUE SUMÁRIO A V I S O The matter to be published in the «Boletim da República» must be submitted as a duly authenticated copy, one for each subject matter, containing, in addition to the necessary indications for this purpose, the following endorsement, signed and authenticated: For publication in the «Boletim da República». IMPRENSA NACIONAL DE MOÇAMBIQUE, E.P. Assembly of the Republic: Law No. 20/2020: Law on Credit Institutions and Financial Companies, revoking Laws No. 15/99 of November 1 and No. 9/2004 of July 21. Thursday, December 31, 2020 I SERIES — Number 250 3rd SUPPLEMENT ASSEMBLY OF THE REPUBLIC Law No. 20/2020 of December 31 Given the need to establish a new legal framework for credit institutions and financial companies, which, in addition to strengthening licensing requirements, governance and supervision, stipulates mechanisms and instruments for the resolution of institutions deemed unviable or at risk of unviability or insolvency, allows for timely intervention and recovery of these institutions, or their orderly liquidation, minimizing negative repercussions on the economy, under the provisions of paragraph 1 of Article 178 of the Constitution of the Republic of Mozambique, the Assembly of the Republic determines:

CAPÍTULO I Disposições Gerais (General Provisions)

Artigo 1 (Object)

1. This Law regulates: a) the establishment, exercise of activity and supervision and resolution regime of credit institutions and financial companies; b) the establishment, exercise of activity and monitoring regime of microfinance operators that are not credit institutions.
2. This Law does not cover insurance companies, pension fund management companies and real estate investment trusts.

Artigo 2 (Superintendence) The superintendence of the monetary, financial and foreign exchange markets is the competence of the Minister responsible for finance, who may intervene whenever any disturbance occurs in these markets.

Artigo 3 (Definitions) The terms and expressions used in this Law are defined in the Glossary attached, which forms an integral part of it.

Artigo 4 (Types of credit institutions) Credit institutions are: a) banks; b) microbanks, in the various types admitted under applicable legislation; c) credit cooperatives.

Artigo 5 (Activity of credit institutions)

1. Banks may exercise the following activities: a) receipt of public deposits or other repayable funds; b) credit operations, including the granting of guarantees and other commitments; c) payment operations; d) issuance and management of payment instruments, such as bank cards, traveler's cheques and letters of credit; e) transactions, on own or third-party account, on monetary, financial and foreign exchange market instruments; f) participation in issuances and placements of securities and provision of related services; g) issuance of electronic money; 2462 — (200) I SERIES — NUMBER 250 h) consultancy, custody, administration and portfolio management of securities; i) operations on precious metals, under the terms established by foreign exchange legislation; j) taking participations in the capital of companies; k) marketing of insurance contracts; l) safe deposit and value storage; m) corporate consultancy on capital structure, business strategy and related matters; n) other analogous operations not prohibited by law.
2. Banks may also be authorized to exercise financial leasing and factoring activities.
3. Other credit institutions may only carry out operations permitted by applicable legislation.

Artigo 6 (Types of financial companies)

1. Financial companies are: a) payment service providers; b) brokerage financial companies; c) brokerages; d) investment fund management companies; e) wealth management companies; f) venture capital companies; g) group purchasing administration companies; h) financial leasing companies; i) factoring companies; j) investment companies; k) mutual guarantee companies; l) foreign exchange houses; m) discount houses; n) companies that, corresponding to their definition, are qualified as such by Decree of the Council of Ministers.
2. Payment service companies may be constituted in one of the following categories: a) electronic money institutions; b) fund transfer institutions; c) payment aggregators.
3. The Bank of Mozambique may establish other categories of payment service companies, provided they correspond to their definition.

Artigo 7 (Activity of financial companies) Financial companies may only carry out operations permitted by the specific legislation governing their activity.

Artigo 8 (Principle of exclusivity)

1. Only credit institutions may exercise the activity of receiving public deposits or other repayable funds for their own use.
2. Only credit institutions and financial companies may professionally exercise the activities referred to in letters b) to h) of paragraph 1, Article 5 of this Law.
3. The provisions of paragraph 1 of this article do not prevent the entities indicated from receiving repayable funds, under applicable legal, regulatory or statutory provisions: a) the State and local authorities; b) public funds and institutes with legal personality and administrative and financial autonomy; c) insurance companies, regarding capitalization operations.
4. The provisions of paragraph 2 of this article do not prevent the entities indicated from carrying out credit granting activities: a) the entities referred to in letter b), paragraph 3, provided such activity is foreseen in the legal instruments governing their activity; b) natural persons and other legal entities not foreseen in the preceding paragraphs, under applicable legislation.

Artigo 9 (Repayable funds and credit granting)

1. For the purposes of this Law, repayable funds received from the public obtained through the issuance of bonds under the Commercial Code and Securities Market Code are not considered.
2. For the purposes of this Law, the following are not considered credit granting: a) advances and other forms of loans and advances between a company and its respective partners; b) loans granted by companies to their employees within the scope of their personnel policy; c) payment deferrals or advances agreed between parties in contracts for the purchase of goods or services; d) treasury operations, when legally permitted, between companies in a relationship of control or group; e) issuance of vouchers or cards for payment of goods and services supplied by the issuing company.

Artigo 10 (Eligible entities) The following entities are eligible to exercise the activities referred to in this Law: a) credit institutions, financial companies and microfinance operators with headquarters in Mozambique; b) branches of credit institutions and financial companies with foreign headquarters.

Artigo 11 (Truth of firm names or denominations)

1. Only credit institutions, financial companies and microfinance operators may include in their firm name or denomination, or use, in the exercise of their activity, expressions that suggest the activity proper to them, namely "bank", "banker", “microbank”, "de crédito" (of credit), “microcrédito” (microcredit), "de depósitos" (of deposits), "locação financeira" (financial leasing), "leasing" and "factoring”, “corretoras de valores mobiliários” (securities brokerages), “banca participativa” (participatory banking), “finanças participativas” (participatory finance), “janela de banca participativa” (participatory banking window) or other similar expressions denoting the exercise of their activity.
2. These expressions are always used in a manner that does not mislead the public regarding the scope of operations the entity may perform. 31 DE DEZEMBRO DE 2020 2462 — (201)

CAPÍTULO II Instituições de Crédito e Sociedades Financeiras com Sede em Moçambique (Credit Institutions and Financial Companies with Headquarters in Mozambique)

SECÇÃO I (General Provisions)

Artigo 12 (Requirements)

1. Credit institutions with headquarters in Mozambique must meet the following requirements: a) correspond to one of the types provided for in this Law; b) adopt the form of a public limited company, except for credit cooperatives which adopt the form provided in specific legislation; c) have as their exclusive object the exercise of legally permitted activity, under Article 5 of this Law; d) have social capital not less than the legal minimum; e) have social capital represented by registered shares, or, in the case of credit cooperatives, by registered titles.
2. In addition to the requirements provided for in letters a) and d), of paragraph 1, financial companies with headquarters in Mozambique must have as their main object the exercise of one or more activities referred to in letters b) to h), of paragraph 1, Article 5 of this Law or another provided for in applicable legislation.
3. Whenever the situation justifies it, namely considering their size and scope of implementation, upon prior request by the proponents, duly substantiated, the Bank of Mozambique may authorize the establishment of microbanks with exemption from the requirement provided for in letter b), paragraph 1.
4. The Regulations of this Law may fix limits on the holding of social participations in credit institutions and financial companies.

Artigo 13 (Subscription and realization of social capital)

1. At the date of establishment, the social capital of credit institutions and financial companies must be entirely subscribed and realized in an amount not less than the legal minimum.
2. The social capital of credit institutions and financial companies must be fully realized within 6 months from the date of establishment or, in case of capital increase, from the subscription date.
3. The realization of social capital, both in establishment and capital increase cases, is made by depositing the respective amount in a credit institution operating in the Country, other than itself, or at the Bank of Mozambique.

Artigo 14 (Administrative body or equivalent)

1. The management of credit institutions and financial companies is entrusted to a Board of Directors or equivalent body, composed of executive and non-executive members.
2. The creation of any collegiate or individual body attributed with the day-to-day management of credit institutions and financial companies, namely executive direction, executive committee, board of directors, managing director, executive director or equivalents, must be stated or provided for in the statutes, with express indication of their respective competencies.
3. The body provided for in paragraph 2 must include at least one member of the Board of Directors or equivalent body.

Artigo 15 (Holders of essential functions)

1. Credit institutions and financial companies must identify positions whose holders, not belonging to the administrative or supervisory bodies, exercise functions that confer significant influence on management.
2. The positions referred to in paragraph 1 include, at least, the heads of compliance, internal audit, control and risk management functions of the institution, as well as other functions that are considered by the credit institutions and financial companies or defined by Notice of the Bank of Mozambique.

SECÇÃO II (Authorization Process)

Artigo 16 (Establishment authorization) The establishment of credit institutions and financial companies depends on case-by-case authorization granted by the Governor of the Bank of Mozambique.

Artigo 17 (Application processing)

1. The authorization request must be accompanied by the following elements: a) characterization of the type of institution to be established and substantiated exposition on the adequacy of the shareholder structure to its stability; b) draft statutes; c) activity program, geographical implementation, organizational structure, human, material and technical means, including information on the technological infrastructure architecture to be used; d) forecast accounts for each of the first five years of activity, in the case of credit institutions and three years, when financial companies; e) identification of founding partners or shareholders, specifying the capital subscribed by each and the beneficial owners of the participation; f) document proving the origin of funds to be allocated and mobilized in the institution; g) information on the corporate governance system; h) declaration that funds to be allocated and mobilized are not of illicit or criminal origin; i) certificate issued by the competent authority or, if impossible, letter of honor that none of the circumstances referred to in paragraphs 3 and 4 of Article 28 apply, and for natural persons, a valid criminal record certificate; j) proof of prior non-withdrawable deposit made at the Bank of Mozambique, corresponding to 5% of the social capital of the institution, or a bank guarantee of equal value accepted by the Bank of Mozambique; k) foreign exchange operations execution plan, as applicable to the proponents' activity program; 2462 — (202) I SERIES — NUMBER 250 l) if the applicant is a credit institution or financial company with foreign headquarters, prior authorization from the supervisory or regulatory authority of the country of origin.
2. Information on the corporate governance system must include: a) clear organizational structure with defined, transparent and coherent lines of responsibility; b) effective processes for identifying, managing, controlling and communicating risks to which the institution is or may be exposed; c) adequate internal control mechanisms, including solid administrative and accounting procedures; d) remuneration policies and practices that promote and are consistent with sound and prudent risk management.
3. The devices, processes, procedures, mechanisms, policies and practices provided for in paragraph 2 must be complete and proportional to the risks inherent to the business model, nature, level and complexity of each institution's activities.
4. The following information regarding founding shareholders that are legal entities holding qualified participations in the institution to be established must also be presented: a) statutes and list of members of the administrative body; b) report and accounts for the last three years; c) list of partners of the participating legal entity who are holders of qualified participations; d) list of companies in whose capital the participating legal entity holds qualified participations, as well as illustrative exposition of the group structure to which it belongs.
5. The Bank of Mozambique may request complementary information from applicants and carry out investigations it deems necessary, namely regarding the origin and source of funds to be allocated to the credit institution or financial company to be established, among others.
6. The provisions of letter g), paragraph 1, and paragraph 2 do not apply to the processing of authorization requests for the establishment of financial companies.
7. The Bank of Mozambique defines by Notice the form and minimum content of the elements described in paragraph 2.

Artigo 18 (Fees)

1. The licensing of credit institutions and financial companies is subject to the payment of fees to be fixed by the Government in specific regulations.
2. The fees referred to in paragraph 1 are as follows: a) licensing fee; b) annual fee.

Artigo 19 (Decision)

1. The decision on the authorization request must be taken within 180 days from receipt of the request or, if applicable, complementary information, and must be notified in writing to the applicants.
2. The request is denied with sufficient grounds whenever: a) it is not accompanied by all required information and documents; b) its processing suffers from inaccuracies and falsehoods; c) the institution does not meet the requirements provided for in paragraphs 1, 2 and 3 of Article 12; d) the institution does not have sufficient technical means and financial resources for the type and volume of operations it intends to carry out; e) the Bank of Mozambique does not consider proven that all holders of qualified participations meet the requirements established in paragraphs 2 and 3 of Article 98; f) adequate supervision of the institution to be established is jeopardized by a proximity relationship between the institution and other persons, or by legal or regulatory provisions of a third country to which some of the said persons are subject, or by difficulties inherent in applying such provisions; g) there are well-founded doubts or reasonable suspicions regarding the suitability, experience, financial capacity or competence of the applicants, or regarding the lawfulness of the origin or source of funds to be allocated to the activity; h) the legal, management, operational and ownership structure of the credit institution to be established prevents supervision on an individual or consolidated basis.
3. Notwithstanding authorization being granted for the establishment of a credit institution or financial company, the Bank of Mozambique may condition the realization of a specific operation to demonstrating the existence of technological infrastructure, technical means and human resources with specific qualifications for its correct execution.
4. Without prejudice to meeting the requirements, the authorization request may also be denied if analysis of the specific situation of the market where the entity to be established intends to operate discourages the emergence of another credit institution or financial company of the required type.
5. A positive weighting factor is the adequate qualification referred to in Article 26, by members of corporate bodies.
6. In case of denial, the Bank of Mozambique must specifically communicate the causes of refusal.
7. Failure to notify within the time limits referred to in paragraph 1 does not constitute a presumption of tacit approval of the request.

Artigo 20 (Expiration of authorization)

1. The authorization expires if the institution is not established within three months or does not commence activity within twelve months, both counted from the date of authorization.
2. In exceptional circumstances, upon request by interested parties, duly substantiated, the Bank of Mozambique may extend once for an additional six months the period for commencing activity.

Artigo 21 (Inspection)

1. Credit institutions and financial companies may only commence their activity after the Bank of Mozambique has inspected the premises where they intend to develop their activity and concluded that adequate conditions exist for this purpose, as well as data processing centers and the entire computer system. 31 DE DEZEMBRO DE 2020 2462 — (203)
2. For the purposes of paragraph 1, the Bank of Mozambique takes into account the technical opinion of competent entities or authorities on the adequacy of physical, technological conditions, as well as fire prevention and safety against other casualties.

Artigo 22 (Single Network)

1. Credit institutions and financial companies authorized to provide electronic payment services, including mobile financial services, must have their internal bank operations management systems connected to a single, common and shared national electronic payment network, established under terms set by the Bank of Mozambique.
2. For the purposes of paragraph 1, internal bank operations management system means the computer system whose function is to manage customer operations of credit institutions and financial companies.

Artigo 23 (Revocation of authorization)

1. The authorization of credit institutions and financial companies may be revoked on the following grounds, in addition to others provided for in other legislation: a) if obtained by false declarations or other illicit means, regardless of applicable criminal sanctions; b) if any of the requirements established in Article 12 cease to be met; c) if its activity does not correspond to the authorized statutory object; d) if it ceases activity for a period exceeding six months; e) if it violates laws and regulations governing its activity or fails to observe Bank of Mozambique determinations, thereby jeopardizing depositors' and other creditors' interests or normal functioning of monetary, financial or foreign exchange markets; f) if the credit institution cannot honor its commitments, especially regarding security of entrusted funds; g) if the credit institution fails to comply with obligations arising from its participation in the Deposit Guarantee Fund; h) if the institution expressly renounces authorization; i) if members of the administrative or supervisory bodies do not, from a holistic perspective, guarantee sound and prudent management of the institution; j) if the institution seriously or repeatedly violates legal or regulatory provisions aimed at preventing and combating money laundering and terrorist financing; k) if the institution fails to meet prudential requirements regarding own funds, large exposure rules or liquidity.
2. Prior to the decision to revoke authorization, the Bank of Mozambique notifies the concerned credit institution or financial company to present, if it wishes, within 10 days, clarifications it deems pertinent.
3. In the cases provided for in letter h), paragraph 1, credit institutions and financial companies must communicate their intention to renounce to the Bank of Mozambique and present proof