Regulation on Financing Business

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Financing Business Regulation Regulation Number -132/R2021: 17 October 2021 (Including amendments made on 7 July 2022)

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Financing Business Regulation

First Chapter Preliminary

Definitions. 1) (a) This regulation defines the powers, responsibilities, and other matters related to the issuance of licenses for financing businesses and the regulation of such businesses. (b) This regulation is issued under the authority granted by Articles 29 and 38 of Act No. 6/81 (Maldives Monetary Authority Act 1981). (c) This regulation is referred to as the "Financing Business Regulation."

Application of Regulation Preliminary. .2 This regulation shall come into force from the date of its publication in the Gazette of the Republic of Maldives.

Second Chapter Prohibition of Financing Business Without License

Prohibition of Business. .3 (a) No person shall conduct a financing business in the Maldives or represent themselves as conducting such business, whether through advertisements or otherwise, without obtaining a license from the Authority. (b) Except for persons holding a license issued by the Authority, no person shall, without the Authority's permission, use any words, phrases, or expressions in the Maldivian language or any other language that indicate or imply the conduct of a financing business, or use any title or name in the course of providing services that suggests such business.

(1) Financing means lending money. (2) Finance leasing means leasing money or finance leasing.

Exempted Institutions. 4. Unless otherwise specified in this regulation, this regulation shall not apply to banks and insurance companies operating under licenses issued by the Authority for banking and insurance businesses in the Maldives.

Application for License .5 (a) Applications for licenses shall be submitted in writing to the Authority as specified in this regulation. (b) When applying for a license, the following information and documents must be submitted: (1) The Memorandum and Articles of Association of the proposed company; (2) The amount of share capital and the method for raising it; the source of funds for the share capital must be declared, and any funds transferred to the company must be from legitimate sources. If the Authority requires a specific format for this declaration, it must be followed; (3) The intended business activity for which the license is sought; (4) Details of each applicant, including major shareholders, beneficial owners, directors, board members, and senior management members, such as name, nationality, permanent address, income sources, and other information determined by the Authority; (5) Financial statements of legal entities included in the major shareholding structure of the proposed company for the past three (3) years, showing the major shareholding structure and financial position of beneficial owners and related entities. Consolidated financial statements must also be provided for each legal entity and its group. Audited statements are required, and the Authority may require audited statements for related entities; (6) A declaration signed by each applicant, major shareholder, beneficial owner, director, board member, and senior management member confirming that they are not bankrupt, have not been declared bankrupt, have not been involved in bankruptcy proceedings, and have no criminal record; a police clearance certificate for each person; (7) A list of interests held by major shareholders and beneficial owners in other industries, including registered addresses and the extent of interests; (8) A business plan for the proposed financing business, including: (i) The organizational structure, corporate governance, risk management framework, and internal controls; (ii) Measures to combat money laundering and terrorist financing; (iii) Projected financial statements for the next three (3) years, including balance sheets, profit and loss accounts, cash flow statements, and annual accounts, based on reasonable assumptions; (c) The Authority may require additional written information or documents from the applicant to clarify the application. (d) If deemed necessary, the Authority may require the applicant to deposit a specific amount in a bank account designated by the Authority as a security deposit. (e) All required documents and information must be submitted to the Authority within three (3) months from the date of application. If not submitted within this period, or if required documents under paragraph (c) are not provided within the specified time, the application shall be deemed withdrawn, and the application fee shall be forfeited to the Authority.

Application Fee. 6. When applying for a license, the application fee determined by the Authority under Regulation No. -80/R2016 (Regulation on Fees and Charges Payable by Financial Institutions) must be paid. The application fee is non-refundable, regardless of whether the license is granted or denied.

General Conditions for License Issuance .7 (a) The applicant must be registered as a company under the Companies Act No. 10/96 of the Maldives. (b) The license will be issued only if the business has an office in the Maldives where operations will be conducted.

License Issuance or Refusal .8 (a) The Authority may decide to issue or refuse a license based on the application. (1) If the Authority finds grounds for refusal, it shall refuse the license; (2) Otherwise, the license shall be issued. (b) When issuing a license, the Authority shall specify the type of financing company (Tier 1 or Tier 2) and the specific activities permitted for the financing business.

Amendment of License .9. The holder of a license may cease any activity specified by the Authority or add new activities, subject to Authority approval.

License Conditions .10 (a) The Authority may issue the license with additional conditions beyond those specified in paragraph (b) of this article. The Authority may also amend or add conditions to the license after issuance via written notice. (b) License holders must comply with the following conditions: (1) The business must commence operations within twelve (12) months from the date of license issuance, unless a longer period is granted; (2) Maintain the minimum capital determined by the Authority, operate prudently, and comply with other requirements set by the Authority; (3) Implement appropriate systems to mitigate risks, including corporate governance, risk management frameworks, internal controls, and audit procedures; (4) Operate in accordance with the approved business plan. Any deviation requires prior Authority approval; (5) Operate prudently in compliance with Maldivian laws and Authority regulations; (6) Engage in no illegal activities, including money laundering, terrorist financing, or other crimes, and prevent facilitation of such activities; (7) Operate only for the purpose approved by the Authority; (8) Major shareholders, directors, and senior management must meet the qualifications determined by the Authority at all times; (9) License holders may not conduct any other business except with Authority permission.

Suspension and Revocation of License .11. The Authority may suspend or revoke a license if it believes any of the following circumstances exist: (a) The application contained false or misleading information or documents; (b) The licensee violated any law, Authority regulation, direction, or license condition; (c) The licensee failed to maintain solvency or withdrew assets; (d) The licensee failed to operate prudently; (e) The licensee became bankrupt; (f) The licensee failed to submit required information, documents, or reports; (g) Major shareholders, beneficial owners, directors, or senior management no longer meet qualification requirements; (h) The licensee provided false or misleading information to the Authority;

Annual Fee. 12 (a) Licensees must pay an annual fee to the Authority as determined under Regulation No. -80/R2016 (Regulation on Fees and Charges Payable by Financial Institutions) for financing companies. (b) The annual fee shall not be refunded in cases of license revocation, suspension, or withdrawal of the business.

Third Chapter Prudential Standards and Minimum Capital Requirements for License Holders

Minimum Capital Requirements. .13 (a) Tier 1 financing companies must maintain a minimum paid-up capital of MVR 50,000,000/- (Fifty Million) at all times. This amount must be in the form of paid-up capital. (b) Tier 2 financing companies must maintain a minimum paid-up capital of MVR 20,000,000/- (Twenty Million) at all times. This amount must be in the form of paid-up capital. (c) License holders must also maintain: (1) A Capital Adequacy Ratio of not less than 12%; (2) A Leverage Ratio of not less than 10%; (d) The Authority shall prescribe the methods for calculating Capital Adequacy and Leverage Ratios, as well as the types of capital and assets to be included.

Minimum Capital Reserves .14. Each licensee must establish and maintain a minimum capital reserve equal to the minimum capital specified in Articles 13(a) and 13(b) of this regulation. The reserve shall be formed as follows: (1) At the end of each financial year, at least 50% of the net profit after tax must be transferred to the reserve until the reserve equals 50% of the minimum capital; (2) Once the reserve equals 50% of the minimum capital, at least 25% of the net profit after tax must be transferred to the reserve until the reserve equals the full minimum capital.

Provisions. .15. License holders must make provisions for potential losses on exposures as required by the Authority and international accounting standards. Provisions must be made for asset depreciation and other potential losses.

Exposure Limits .16 (a) Licensees must limit their exposures as follows: (1) Exposure to a single person or group of connected persons (including funded and unfunded exposures) must not exceed 15% of the licensee's capital base. However, for risk-rated exposures, the Authority may allow up to 30% of the capital base; (2) Exposure to a borrowing group (including funded and unfunded exposures) must not exceed 40% of the licensee's capital base. This includes: (i) Exposure to any individual in the borrowing group must not exceed 15% of the capital base; (ii) The borrowing group must have the capacity to repay each other; (iii) Collateral for exposures to any group member must be held separately; (iv) Proceeds from exposures under the group must be used for the same purpose; (3) Total aggregate exposure must not exceed 500% of the capital base; (4) Combined exposure to related parties and corporate groups must not exceed 15% of the capital base. Total exposure to related parties must not exceed 50% of the capital base; (b) No exposure shall be secured by any condition that waives the principal, interest, or profit repayment obligations, unless explicitly permitted by the Authority; (c) For the purposes of this article, "Capital Base," "Large Exposure," "Borrowing Group," "Related Parties," and "Persons Treated as One" are defined by the Authority and communicated to licensees.

Disposal and Repurchase of Shares by License Holders .17. Licensees must not acquire shares in any exposure. They must also not repurchase shares of any person without Authority permission. However, with Authority permission and under specified conditions, a licensee may acquire shares in an exposure to secure its interest. The minimum capital and capital adequacy ratios must be calculated including such acquired shares, and the shares must be disposed of within the timeframe determined by the Authority.

Prohibition of Deposit Acceptance .18 (a) Tier 1 financing companies must not accept deposits from any person for a term exceeding one (1) year, except with the Authority's permission for term deposits from legal entities. (b) Tier 2 financing companies must not accept deposits from any person.

Prohibitions. 19. Licensees must not engage in wholesale or retail trade, manufacturing, agriculture, fishing, horticulture, mining, construction, insurance underwriting, or any other business, except as an insurance agent with Authority permission. They must not act as partners or agents in such businesses.

Permissible Investments .20 (a) Licensees must not invest in any business or company, except for Shariah-compliant services approved by the Authority. (b) Licensees may invest up to 15% of their capital in stocks, bonds, shares, or units of other companies, excluding financial institutions. For other companies, the investment limit is 5% of the voting shares. (c) With Authority permission, licensees may acquire up to 5% of voting shares in other financial institutions. The Authority may impose additional conditions. (d) Licensees may acquire land or buildings for: (1) Employee housing or business operations; (2) Shariah-compliant financial services if prescribed by the Authority; (3) Temporary holding pending sale due to debt recovery; (e) Investments exceeding the limits in this article must be divested within six (6) months. Extensions may be granted by the Authority for valid reasons. (f) Licensees must comply with the provisions of Article 20(d)(3) regarding...