Circular No. 19/2019 Regarding the Sanctions Matrix Issued Under Law No. 1/17 of August 22, 2017 Governing Banking Activities

BANQUE DE LA REPUBLIQUE DU BURUNDI - THE GOVERNOR

CIRCULAR NO. 19/2019 REGARDING THE SANCTIONS MATRIX ISSUED UNDER LAW NO. 1/17 OF AUGUST 22, 2017 GOVERNING BANKING ACTIVITIES

Having regard to Law No. 1/34 of December 2, 2008 establishing the Statutes of the Banque de la République du Burundi, particularly Articles 7 (paragraphs 4 and 6) and 8; Having regard to Law No. 1/17 of August 22, 2017 governing banking activities, particularly Articles 43, 50, 60, 70, 71, 76, 132, and 133; Having regard to the circulars and regulations issued by the Central Bank under Law No. 1/17 of August 22, 2017 governing banking activities; Having reviewed Circular No. 19/2016 regarding the sanctions matrix;

The Banque de la République du Burundi, hereinafter referred to as the "Central Bank", hereby enacts:

Article 1: Purpose
This circular aims to specify the sanctions to be imposed based on types of breaches related to violations of legal and regulatory provisions governing banking activities, as well as the procedures to be followed in their application.

Article 2: Scope of Application
This circular applies to a credit institution, an Executive, an Administrator, a Shareholder, or an Auditor who:

1. infringes a legal or regulatory provision related to their licensing conditions or activities;
2. violates an agreement signed with the Central Bank;
3. fails to comply with an injunction or disregards a warning.

Article 3: Categories of Breaches
The breaches covered by the sanctions matrix are subdivided into the following categories:

1. breaches related to licensing conditions;
2. breaches related to the transmission of information to the Central Bank;
3. breaches related to credit risk management;
4. breaches related to accounting obligations;
5. breaches related to internal control;
6. breaches related to governance;
7. breaches related to the exercise of activities;
8. miscellaneous breaches.
   The breaches, reference regulatory provisions, and corresponding sanctions are recorded in the matrix attached to this circular.

Article 4: Procedure for Applying Sanctions
To ensure progressive application of sanctions and allow credit institutions to implement appropriate corrective measures, the Central Bank follows this procedure:

1. upon identifying an offense or breach, the Central Bank sends a letter to the credit institution recommending regularization;
2. in case of an immediate-regularization breach or offense where the provided explanation is unsatisfactory, the Central Bank issues an injunction with a deadline beyond which a sanction may be imposed;
3. in case of a breach or offense requiring complex corrective measures, the Central Bank may grant the credit institution a deadline for implementation. Otherwise, it issues an injunction with a deadline beyond which a sanction may be imposed;
4. in case of a breach or offense involving an Executive, Administrator, Shareholder, or Auditor, the same procedure applies: a request for explanations followed by an injunction serving as a final warning is issued before imposing the sanction.

Notwithstanding the above procedure, for serious cases, the Central Bank may directly apply the sanction after a request for explanations or after hearing the concerned Executive, Administrator, Shareholder, or Auditor. In cases of monetary penalties or sanctions, the corresponding amounts are immediately settled by automatic debit from the credit institution's account held at the Central Bank.

Article 5: Entry into Force
This circular replaces Circular No. 19/2016 of February 18, 2016, and enters into force on the day of its publication on the Central Bank's website and in the Official Gazette of Burundi.
Done at Bujumbura, on February 14, 2019.
Jean CIZA
Governor.-(Signed)

ANNEX TO CIRCULAR NO. 19/2019 REGARDING THE SANCTIONS MATRIX FOR BREACHES RELATED TO LEGAL AND REGULATORY PROVISIONS GOVERNING CREDIT INSTITUTION ACTIVITIES

I. BREACHES RELATED TO LICENSING CONDITIONS

Item / Breach Description	Reference to Legal and Regulatory Provisions	Sanctions
1. Failure to meet the mandatory minimum capital	Art. 24 of Banking Law<br>Art. 3 of Circular No. 01/2018	Withdrawal of license or divestment of the credit institution
2. Modification to any element presented during license application without obtaining Central Bank's non-objection	Art. 33 of Banking Law<br>Art. 7 & 11 of Circular No. 20/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of license from the institution, executives, or administrators
3. Declaration of false or misleading information during license application	Art. 43 of Banking Law<br>Art. 10 of Circular No. 20/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of license from the institution, executives, or administrators
4. License conditions no longer met	Art. 43 of Banking Law	Withdrawal of license from the credit institution
5. Cessation of licensed activity for six months	Art. 43 of Banking Law	Withdrawal of license from the credit institution
6. Failure to use license for twelve months	Art. 43 of Banking Law<br>Art. 10 of Circular No. 20/2018	Withdrawal of license from the credit institution
7. Exceeding the 25% shareholding limit in a credit institution without Central Bank authorization	Art. 27 of Banking Law<br>Art. 17 of Circular No. 20/2018	Monetary sanction of 0.25% of mandatory minimum capital and obligation to sell excess shares
8. Opening a foreign subsidiary or representative office without authorization	Art. 21 of Banking Law<br>Art. 5 of Circular No. 10/2018	Monetary sanction of 5% of mandatory minimum capital or withdrawal of license from the institution, executives, or administrators; and immediate closure
9. Opening a subsidiary or representative office in Burundi without authorization	Art. 20 of Banking Law<br>Art. 12 of Circular No. 20/2018	Closure of the subsidiary or representative office
10. Failure by a representative office to use its license within six (6) months of obtaining it	Art. 16 of Circular No. 20/2018	Withdrawal of license from the representative office
11. Representative office ceases activities for six (6) months	Art. 16 of Circular No. 20/2018	Withdrawal of license from the representative office
12. Failure to meet deadline for full capital release or endowment	Art. 24 of Banking Law<br>Art. 17 of Circular No. 20/2018	Cancellation of unissued subscriptions
13. Creating confusion regarding the institution's category	Art. 16 of Banking Law	Monetary sanction of 0.25% of mandatory minimum capital and correction of denomination to remove confusion
14. Failure to designate a reference shareholder or group	Art. 26 of Banking Law<br>Art. 8 of Circular No. 20/2018	Monetary sanction of 0.25% of mandatory minimum capital and immediate appointment
15. Serving as Administrator or Executive without Central Bank approval	Art. 15 & 30 of Banking Law<br>Art. 3 of Circular No. 15/2018	Monetary sanction of 0.5% of mandatory minimum capital
16. Serving as Chairman or Vice-Chairman without obtaining Central Bank's non-objection	Art. 4 of Circular No. 15/2018	Monetary sanction of 0.25% of mandatory minimum capital
17. Declaration of false/misleading information during executive/administrator license application	Art. 47 of Banking Law<br>Art. 5 of Circular No. 15/2018	Withdrawal of license from the concerned executive/administrator
18. Failure to meet initial license conditions by an Administrator or Executive	Art. 47 of Banking Law<br>Art. 5 of Circular No. 15/2018	Withdrawal of license from the concerned executive/administrator
19. Poor management by an Administrator/Executive causing significant harm to the institution, proven a posteriori	Art. 5 of Circular No. 15/2018	Withdrawal of license from the concerned executive/administrator
20. Failure to have at least two executives approved by the Central Bank	Art. 31 of Banking Law<br>Art. 30 of Circular No. 21/2018	Monetary sanction of 0.25% of mandatory minimum capital and immediate appointment
21. Declaration of false/misleading information motivating the auditor's license	Art. 7 of Circular No. 16/2018	Withdrawal of auditor's license
22. Failure to meet initial license conditions by an Auditor	Art. 7 of Circular No. 16/2018	Withdrawal of auditor's license

II. BREACHES RELATED TO INFORMATION TRANSMISSION TO THE CENTRAL BANK

Item / Breach Description	Reference to Legal and Regulatory Provisions	Sanctions
4. Failure to transmit required documents and information	Art. 63 & 72 of Banking Law	Withdrawal of executives' licenses
5. Failure to meet transmission deadlines for required documents and information	Art. 63 & 72 of Banking Law	Penalty of BIF 1,000,000 per day of delay or withdrawal of executives' licenses
6. Failure to meet transmission format requirements for required information	Art. 63 & 72 of Banking Law	Penalty of BIF 2,000,000 or withdrawal of executives' licenses
7. Incomplete or false declaration of related/connected persons, major risks, and staff loans	Art. 51, 52 & 63 of Banking Law<br>Art. 8 of Circular No. 06/2018	Monetary sanction of 0.5% of mandatory minimum capital or withdrawal of executives' licenses
8. Failure to communicate any changes to required information for qualified shareholders, administrators, executives, and auditors	Art. 30 of Banking Law<br>Art. 6 of Circular No. 15/2018	Monetary sanction of 0.5% of mandatory minimum capital
9. Failure to communicate rules/procedures for benefits granted to related persons regarding deposits, credits, and guarantees	Art. 53 of Banking Law<br>Art. 4 of Circular No. 21/2018	Monetary sanction of 0.5% of mandatory minimum capital or withdrawal of executives'/administrators' licenses
10. Failure to meet deadlines for transmitting annual financial statements and minutes of the Ordinary General Meeting	Art. 59 of Banking Law	Penalty of BIF 1,000,000 per day of delay or withdrawal of executives'/administrators' licenses
11. Failure to notify any detected incident, including legal/prudential obligation breaches, as soon as known	Art. 63 of Banking Law<br>Art. 8 of Circular No. 10/2018	Monetary sanction of 0.25% of mandatory minimum capital
12. Failure to declare a defaulting client or declaration on the defaulting clients list without providing minimum identification information	Art. 7 of Circular No. 17/2018	Monetary sanction of 0.5% of mandatory minimum capital
13. Undue declaration of a client on the defaulting clients list	Art. 2 & 7 of Circular No. 17/2018	Monetary sanction of 0.5% of mandatory minimum capital
14. Failure to declare the termination of functions of a Board Office member and reasons for departure	Art. 17 of Circular No. 21/2018	Monetary sanction of 0.05% of mandatory minimum capital
15. Failure to promptly declare fraud and theft cases to the Central Bank	Art. 63 of Banking Law<br>Art. 8 of Circular No. 10/2018	Monetary sanction of 0.25% of mandatory minimum capital

III. BREACHES RELATED TO CREDIT RISK MANAGEMENT

Item / Breach Description	Reference to Legal and Regulatory Provisions	Sanctions
12. Exceeding regulatory limits in credit risk management without Central Bank authorization	Art. 51 & 52 of Banking Law<br>Art. 4 of Circular No. 06/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives'/administrators' licenses and immediate 100% provisioning of the exceeded amount or total credit exposure
13. Failure to set aside a reserve of at least 50% of the year's result during which an exemption for exceeding limits was granted	Art. 7 of Circular No. 06/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of one or more administrators' licenses
14. Violation of prohibitions regarding loans to related persons	Art. 53 of Banking Law	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives'/administrators' licenses and immediate 100% provisioning
15. Failure to meet minimum rules for classifying claims and setting related provisions	Circular No. 12/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives' licenses
16. Failure to meet limits, observation period, reclassification, rescheduling, or restructuring of unpaid claims	Art. 10, 11 & 12 of Circular No. 12/2018<br>Art. 5 of Circular No. 17/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives'/administrators' licenses
17. Exceeding the usury rate set by the Central Bank	Art. 83 of Banking Law	Monetary sanction of 0.5% of mandatory minimum capital or withdrawal of one or more executives'/administrators' licenses
18. Failure to comply with the "double rule"	Art. 89 of Banking Law	Monetary sanction of 0.25% of mandatory minimum capital and regularization of the affected client
19. Support to a defaulting client at another regulated institution without purchasing all commitments or without formal guarantee	Art. 4 of Circular No. 17/2018	Monetary sanction of 0.25% of mandatory minimum capital and purchase of commitments

IV. BREACHES RELATED TO ACCOUNTING OBLIGATIONS

Item / Breach Description	Reference to Legal and Regulatory Provisions	Sanctions
1. Serving as Auditor without Central Bank approval	Art. 74 of Banking Law<br>Art. 3 of Circular No. 16/2018	Monetary sanction of 0.5% of mandatory minimum capital or cancellation of contract between institution and Auditor, and withdrawal of executives'/administrators' licenses
2. Failure by Auditor to notify Central Bank of resignation reasons	Art. 80 of Banking Law<br>Art. 8 of Circular No. 16/2018	Permanent prohibition from serving as Auditor in regulated institutions
3. Suspension or dismissal of Auditor without seeking Central Bank's opinion	Art. 80 of Banking Law<br>Art. 8 of Circular No. 16/2018	Monetary sanction of 0.5% of mandatory minimum capital or withdrawal of executives'/administrators' licenses
4. Failure to comply with content and form of Auditor's report	Art. 12 of Circular No. 16/2018	Prohibition from serving as Auditor for at least three financial years
5. Obstruction to Auditor's activity, duly notified by the Auditor	Art. 10 of Circular No. 16/2018	Monetary sanction of 0.5% of mandatory minimum capital or withdrawal of executives'/administrators' licenses
6. Unreliable certification of financial statements	Art. 78 of Banking Law<br>Art. 12 of Circular No. 16/2018	Permanent prohibition from serving as Auditor
7. False opinion on internal control, accounting/information systems, or risk management quality	Art. 78 of Banking Law<br>Art. 12 of Circular No. 16/2018	Permanent prohibition from serving as Auditor
8. Granting direct/indirect benefits (favorable conditions other than remuneration) to Auditors	Art. 77 of Banking Law	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives' licenses and/or prohibition from serving as Auditor for at least three financial years
9. Failure to meet deadline for transmitting Auditor's report	Art. 78 of Banking Law<br>Art. 13 of Circular No. 16/2018	Permanent prohibition from serving as Auditor
10. Failure to comply with the accounting plan and periodicity of preparing financial statements	Art. 54 of Banking Law	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives' licenses
11. Transmission of unreliable financial data to the Central Bank	Art. 55 of Banking Law	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives' licenses
12. Renewal of Auditor's mandate without Central Bank approval	Art. 74 of Banking Law<br>Art. 3 of Circular No. 16/2018	Monetary sanction of 0.5% of mandatory minimum capital or cancellation of contract, and withdrawal of executives'/administrators' licenses
13. Exceeding the legal term of office as Auditor at the same institution	Art. 74 of Banking Law<br>Art. 4 of Circular No. 16/2018	Monetary sanction of 0.5% of mandatory minimum capital and cancellation of contract, or withdrawal of executives'/administrators' licenses
14. Relocation of Auditor's domicile outside Burundi without Central Bank exemption	Art. 74 of Banking Law<br>Art. 5 of Circular No. 16/2018	Permanent prohibition from serving as Auditor
15. Holding incompatible functions (e.g., consulting/assistance to the institution whose accounts they certify)	Art. 75 of Banking Law<br>Art. 11 of Circular No. 16/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives' licenses and/or permanent prohibition from serving as Auditor
16. Failure by Auditor to transmit required information	Art. 79 of Banking Law<br>Art. 14 & 15 of Circular No. 16/2018	Permanent prohibition from serving as Auditor

V. BREACHES RELATED TO INTERNAL CONTROL

Item / Breach Description	Reference to Legal and Regulatory Provisions	Sanctions
1. Absence of an internal audit function	Art. 19 of Circular No. 07/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives'/administrators' licenses
2. Failure to meet deadlines for transmitting the annual internal control system report and board meeting minutes	Art. 19 of Circular No. 07/2018	Monetary sanction of 0.25% of mandatory minimum capital or withdrawal of executives'/administrators' licenses