Banque de la République d'Haïti

CIRCULAR No. 10 TO SAVINGS AND CREDIT COOPERATIVES (CEC)

In accordance with Articles 12 and 15 of the Law of June 26, 2002 on Savings and Credit Cooperatives (CEC), these cooperatives are required to comply with the following provisions regarding good governance practices.

1. Definitions

The following definitions apply to this circular.

a) Administrator: any natural person elected to the board of directors of a savings and credit cooperative b) Credit Committee: the body responsible for managing credit in accordance with credit policies and procedures defined and adopted by the board of directors c) Supervisory Committee: the body responsible for overseeing all activities of the institution regarding compliance with cooperative principles, sound management practices, and all applicable regulations; d) Board of Directors: the deliberative body vested with powers to manage the affairs of the CEC and act on its behalf in all circumstances within the limits of the powers attributed to it by the bylaws, internal regulations, and the general assembly of members; e) Director (General): a natural person appointed by the board of directors to manage the CEC. They are vested with powers exercised within the limits of the bylaws and powers delegated by the board of directors; f) Executive: any natural person elected at a general assembly of a savings and credit cooperative and member of one of the bodies, primarily the board of directors, the supervisory committee, and the credit committee. The term "Executive" also applies to any person appointed by the board of directors of the CEC as director of the CEC. g) Related Persons: any person related to an executive or employee, including their spouse, minor child, or minor child of their spouse, the person with whom they are associated or the partnership in which they are a partner, a legal entity in which they hold 50% of the capital, a legal entity controlled by them or their spouse, individually or together.

2. Role of Executives

Executives of a savings and credit cooperative play a decisive role in the governance of the institution by guiding activities and ensuring they are conducted effectively in the interest of the institution. In this regard, they have a triple obligation of loyalty, diligence, and vigilance.

The obligation of loyalty, based on a relationship of trust, commits the executive to protect the interests of the CEC by acting in good faith towards the institution and its members, demonstrating competence and honesty in the exercise of their duties, avoiding any conflict of interest, and strictly preserving the confidentiality of matters concerning the institution, without prejudice to the principles of financial transparency.

Furthermore, the obligation of loyalty requires executives to practice sound management based on transparency. Annually, executives and senior management of the institution must submit a declaration of interests and related persons to avoid any situation of conflict of interest that could be open to misinterpretation.

The obligation of diligence requires the executive to demonstrate discernment and a strong sense of responsibility in directing and overseeing the institution's activities. In this regard, the executive is required to strictly adhere to the rule of reasonable prudence, according to which they must act with the diligence, application, competence, and caution that a reasonable person would exercise in the same circumstances.

The obligation of vigilance requires executives to take all measures to effectively manage the various risks to which the CEC is exposed, and simultaneously prevent the CEC from being used for money laundering and terrorist financing purposes. Consequently, executives must ensure the implementation of effective policies, procedures, and methods for combating money laundering and terrorist financing. Executives, particularly administrators, are required to appoint a compliance officer and ensure that their recommendations are followed.

3. Election of Executives

All CECs must establish policies and procedures governing the organization of elections for new executives. Furthermore, annually and no later than 90 days prior to the holding of general assemblies, CECs are required to form a five-member committee responsible for organizing the elections. The term of office for members of this committee ends with the closing of the annual general assembly.

The notice of summons, including the various positions to be filled, must be posted in a visible location at the CEC within the 90 days preceding the general assembly.

Subject to the restrictions of Article 48 of the Law of June 26, 2002, the committee is constituted as follows:

• 1 member of the board of directors
• 1 member of the credit committee
• 1 member of the supervisory committee
• 2 active members chosen by the three CEC bodies

4. Bodies of the CEC

The main bodies of the CEC are: a) The General Assembly b) The Board of Directors c) The Supervisory Committee d) The Credit Committee

4.1 Powers of the General Assembly

The General Assembly of members is the supreme authority of the CEC. It is composed of all members and has jurisdiction to: a) determine the interest payable on permanent shares, if applicable; b) elect and remove executives; c) review the annual report of the institution, including the annual reports of the board of directors, the supervisory committee, and the annual credit report; d) appoint an external auditor; e) rule on the distribution of overpayments; f) amend the bylaws and internal regulations; g) rule on CEC expansion projects; h) rule on CEC merger or acquisition projects; i) approve decisions regarding the use of the Social and Community Fund; j) decree the dissolution of the CEC; k) address all matters related to the organization and functioning of the CEC.

Decisions of the general assembly are recorded in minutes, which will be read at the next summons and signed by the president and secretary of the board of directors, as well as by all members of the supervisory committee. However, a reading of these decisions must be conducted on the same day for the members. The signed minutes are transcribed into a special register designated for this purpose.

4.2 Powers of the Board of Directors

The board of directors is the decision-making body responsible for the sound management of the CEC. To this end, it is required, among other things, to: a) actively engage in the institution's activities, stay informed of new and prominent facts closely or remotely related to CEC operations and dependent on the economic environment, and act promptly to protect the short, medium, and long-term interests of the institution; b) ensure the definition of the institution's strategic objectives, including general risk policy and risk management procedures, approve them, and ensure their execution; c) periodically review the institution's strategic and operational objectives, as well as situations and operations that could generate significant risks for the institution, which evolve with events; d) define and oversee the implementation of the governance framework, and regularly verify its relevance regarding significant changes in the CEC's size, including its increasingly complex activities, geographic footprint, operational strategy, and regulatory requirements; e) ensure the continuity of CEC activities and the renewal of executives' mandates; f) ensure the completion of a risk assessment and establish lines of defense; g) establish risk appetite, taking into account the competitive and regulatory environment, as well as the institution's long-term interests, risk exposure, and capacity to effectively manage risks; h) define and ensure the proper functioning of the institution's internal control system, and approve the internal auditor's report (or control structures) and their annual activity plan; i) authorize investment and operating expenses, as well as the acquisition and disposal of CEC assets; j) appoint the director (general), and if applicable, any other senior executive of the CEC, and monitor their performance as well as that of internal control and compliance function heads; k) approve the organizational chart and administrative structure of the institution; l) define CEC policies and procedures while ensuring their update, particularly those regarding control, human resources, credit, savings, and treasury, etc.; m) deliberate on the establishment of specialized committees by defining their objectives, composition, and operating procedures; n) promote and establish a sound and strong corporate culture by valuing responsible and ethical behavior; o) adopt a code of ethics applicable to executives and employees and ensure its update; p) ensure the financial education and continuous training of members; q) approve interim and annual financial statements; r) report to the general assembly on the overall management of the institution; s) ensure the implementation of an adequate external communication policy, particularly with the BRH; t) ensure compliance with legal, regulatory, and statutory provisions.

4.3 Powers of the Supervisory Committee

The supervisory committee's function is to oversee CEC operations. It must ensure, in particular, that: a) cash and other asset items are verified on a periodic basis; b) CEC operations comply with applicable laws and regulations; c) internal affairs and CEC activities are inspected in accordance with legal, regulatory, and statutory provisions; d) the CEC complies with standards and instructions issued by the BRH; e) the annual plan and reports of the internal auditor or control structures receive appropriate follow-up; f) reports from the external auditor, as well as those from the BRH and/or the Federation, receive appropriate follow-up by the board of directors; g) rules adopted by the CEC are respected.

Furthermore, the supervisory committee is responsible for receiving member complaints, referring them to other CEC bodies as needed, and responding to the complainant. It must also approve the periodic inventory of CEC assets.

Deliberations of the supervisory committee are transcribed into a minutes register and signed by the president and secretary. This register and all communications from said committee are kept at the CEC premises.

4.4 Powers of the Credit Committee

The credit committee is responsible for managing credit in accordance with credit policies and procedures defined and adopted by the board of directors. Credit committee members must meet to: a) approve credit applications from CEC members; b) receive and analyze the report on loans granted under the delegation of authority assigned to CEC management; c) regularly monitor all loans granted by the CEC (disbursement and repayment); d) review credit reports of the CEC and propose corrective measures to the board of directors regarding identified weaknesses; e) receive the list of written-off loans.

Deliberations of the credit committee are transcribed into a minutes register and signed by the president and secretary. This register and all communications from said committee are kept at the CEC premises.

4.5 Composition and Qualifications of the Various Bodies

The board of directors is composed of at least five (5) members and at most nine (9) members. The credit and supervisory committees are each composed of three (3) members.

Every CEC is required to provide the BRH with the following information for any new executive on the board of directors, supervisory committee, or credit committee: a) first name(s) and last name(s), profession, address, and nationality; b) loan and savings balances; c) criminal record and police certificate; d) declaration of interests and related persons by the executive; e) a curriculum vitae including personal data, education and professional training, various mandates, a chronological list and description of previous and current professional activities.

The BRH reserves the right to object to the choice or election of an executive and to request all necessary information to ensure the quality of executives.

Any candidate for an elected position must meet the criteria imposed by Article 48 of the CEC Law. Other criteria may be imposed by the CEC with BRH approval, without prejudice to cooperative principles and statutory provisions.

Any executive who has been subject to at least two past sanctions by the BRH or is involved in situations contrary to legal and regulatory provisions, as well as sound and prudent management principles of their institution, is ineligible to run for any elected or appointed position to become an executive of a CEC or CEC federation. These sanctions or situations include, in particular: a warning to an executive or one of the CEC bodies they belong to; suspension of their activities by the BRH during their term; suspension of powers of a body they belong or belonged to; their direct or indirect involvement in a fraud or embezzlement case; voluntary conflict of interest situations; non-repayment of their loan(s) at any CEC.

5. Characteristics of Governance Responsibilities of the Various Bodies

The board of directors, credit committee, and supervisory committee must be composed of members capable of exercising independent judgment on CEC activities. Their members must possess sufficient knowledge of financial cooperatives and attest to experience in business administration.

Each member of the CEC bodies must possess the competence required to understand the CEC's functioning and demonstrate integrity in exercising their mission. Thus, the board of directors must annually approve a training program for all executives and employees. This program will take into account the evolving situation of the institution and its needs.

Executives of a CEC must act with care, prudence, and diligence as a reasonable person would under similar circumstances. They must also act with honesty and loyalty in the interest of the CEC and respect its objects. To this end, they must consider the interests of members and avoid placing themselves in situations of conflict between their personal interests and their obligations.

To avoid any situation of favoritism and reduce the possibility of collusion, executives (elected and appointed) must not have any familial relationship with each other. Similarly, executives, the director, and staff must not have any familial relationship up to the third degree.

All executives, members of specialized committees, and senior management of the CEC are required to submit annually a declaration of interests and related persons in accordance with Annexes A and B of this circular.

5.1 Governance Responsibilities of the Board of Directors

The board of directors manages the affairs of the CEC and exercises, within the limits of the bylaws and internal regulations, the powers generally or specifically delegated by the general assembly of members. It must ensure the proper functioning of the institution, the achievement of set objectives, and the protection of the institution's resources and values. No executive is authorized to act on behalf of the board of directors without prior authorization.

All decisions of the board of directors are recorded in minutes, signed by the president and secretary of said board. These decisions are communicated to the director for appropriate follow-up. The board of directors maintains a register of all its communications classified chronologically and/or thematically.

Minutes, communications, and all files processed or under study by the Board of Directors must be kept in an orderly and secure manner at the CEC premises.

The board of directors may create specialized committees within its ranks. The number, nature, and composition of these committees depend, in particular, on the size of the CEC and its risk profile. These committees, which have a recommendatory power, cannot replace the board of directors, supervisory committee, or credit committee. They report their activities to the board of directors, and all their decisions must be approved by said board.

Committees must keep a register of their deliberations and decisions, including the meeting agenda, recommendations formulated, and divergent opinions expressed. For the constitution of specialized committees, subject to Article 48 of the CEC Law, the board of directors may add one or more members of the institution, provided they do not hold the status of related persons.

For all institutions with assets amounting to one (1) billion gourdes, the formation of an audit committee is mandatory. This committee is composed of board of directors members and external professionals who are members of the institution. The composition of this committee cannot exceed three members. This committee's main role is to contribute to the relevance of information, ensure oversight of the institution's risks, and guarantee the effectiveness of the CEC's internal control system.

It should be noted that external professionals who are consultants must have the required competence and experience to serve on specialized committees. Annual fees not exceeding 1/10 of the director's annual salary may be attributed to them, and their files must be forwarded to the BRH, which reserves the right to express a non-objection opinion.

The board of directors must pay particular attention to preventing potential conflicts of interest, ensuring transparency and confidentiality of provided information, and truly harmonizing all parties involved. To this end, it must ensure the development and implementation of a