COBAC Decision D-2010/004 Establishing a Code of Conduct for On-Site Inspection Missions

[LOGO] COMMISSION BANCAIRE
DE L’AFRIQUE CENTRALE

DECISION COBAC D-2010/ 004 ESTABLISHING

A CODE OF CONDUCT FOR ON-SITE INSPECTION MISSIONS OF THE COBAC

The President of the Banking Commission of Central Africa;

Having regard to the Treaty establishing the Economic and Monetary Community of Central Africa;

Having regard to the Monetary Cooperation Convention of 22 November 1972;

Having regard to the Convention of 16 October 1990 establishing a Banking Commission of Central Africa;

Having regard to the Convention of 17 January 1992 on the Harmonization of Banking Regulation in Central African States;

Having regard to the Internal Rules of COBAC;

Having regard to the deliberations of the Banking Commission of Central Africa at its session held in Yaoundé on 23 September 2009;

DECIDES

Article 1: A Code of Conduct for COBAC's on-site inspection missions is hereby established.

Article 2: The Code of Conduct for COBAC's on-site inspection missions is attached to this Decision and forms an integral part thereof. Its purpose is to specify the procedures for conducting on-site inspections of credit institutions as provided for in Article 10 of the Annex to the Convention of 16 October 1990 establishing a Banking Commission of Central Africa.

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Article 3: This Regulation shall be notified to the Ministers responsible for Finance and Credit, as well as to all credit institutions subject to it and their professional associations.

Article 4: The Secretary General of COBAC is responsible for the execution and monitoring of this Decision, which shall enter into application as of 1 April 2010.-

Thus made and decided in Yaoundé, on 15 FEB. 2010

For the Banking Commission of Central Africa,

The President,

[Signature and seal]

Lucas ABAGA NCHAMA

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[LOGO] COMMISSION BANCAIRE DE L’AFRIQUE CENTRALE

CODE OF CONDUCT FOR ON-SITE INSPECTION MISSIONS OF THE COBAC (Annex to Decision COBAC D-2010/004 of 15 February 2010)

Introduction

Established by the Convention of 16 October 1990, COBAC constitutes, together with the Monetary Committee and the Bank of Central African States (BEAC), one of the statutory bodies for implementing monetary cooperation among the six member states of the Economic and Monetary Community of Central Africa (CEMAC). Being "responsible for ensuring that credit institutions comply with the legislative and regulatory provisions enacted by national authorities, BEAC, or itself, which are applicable to them, and for sanctioning observed breaches," it possesses extensive powers in the regulation and organization of banking activities, the most important being:

• Administrative power: COBAC is responsible for issuing conforming opinions in individual approval and authorization procedures, which remain the prerogative of national monetary authorities. It may take conservatory measures by placing a credit institution under provisional administration and is authorized to appoint a liquidator to institutions that cease to be approved;
• Regulatory power: COBAC has full competence to define the accounting plans and procedures applicable to credit institutions, as well as prudential management standards (solvency ratios, liquidity ratios, risk diversification ratios, transformation ratios, coverage of fixed assets by permanent resources, etc.);
• Supervisory/Control power: COBAC ensures that banking regulations are respected by credit institutions. To this end, it organizes and conducts on-site and off-site inspections of these institutions. It is authorized to carry out all verifications deemed urgent and simply reports the results of investigations to national monetary authorities. COBAC members and authorized persons are subject to professional secrecy;

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• Sanctioning power: COBAC is also a judicial body and may act in a disciplinary capacity, without prejudice to sanctions that national judicial authorities may impose. The provided sanctions are: warning, reprimand, prohibition on carrying out certain operations or other limitations in the exercise of banking activities, revocation of statutory auditors, suspension or ex officio dismissal of responsible executives, and finally, withdrawal of approval of the institution.

COBAC is composed of a College of twelve members, chaired by the Governor of BEAC. In application of its instructions, COBAC's General Secretariat conducts off-site inspections and dispatches on-site verifications.

1. The Object of On-Site Inspections

1.1. COBAC annually deliberates on the list of on-site inspections to be conducted and defines a framework program. To make its choices, it relies in particular on:

• Conclusions from the analysis of declaratory statements and reports communicated by credit institutions, conducted within the framework of off-site inspections;
• Market developments likely to generate the emergence of new risk areas;
• Findings made during on-site inspections.

1.2. During the year, COBAC may complete this list of on-site verification missions, in particular to account for the evolution of institutions' situations and the national and international economic and financial environment.

1.3. On-site verification missions may be of general scope, covering all activities and processes of the supervised entity, or thematic, limited to a business line or specific risk type. The nature and extent of the mission are determined based on incurred risks and take into account the size of the inspected institution. Some thematic missions may be conducted transversally and simultaneously across multiple institutions. The results of these thematic investigations are reported to the banking profession promptly, in a format taking into account professional secrecy obligations applicable to General Secretariat agents.

The missions generally aim to assess the nature and quality of risks borne by supervised entities, and to evaluate their capacity to address them, particularly financially. They examine the adequacy of the institution's internal organization to its activities and risks, and evaluate risk control and management devices. Of course, information submitted to the supervisory authority is examined to verify its sincerity and completeness.

Missions may also be dispatched within the framework of monitoring recommendations issued following previous on-site verification missions, in particular when there are questions regarding the completeness or relevance of corrective measures implemented by institutions or when the severity of findings necessitates it. These missions ensure that all identified deficiencies have been effectively corrected.

COBAC finally has the possibility to decide on more ad hoc verification missions on any question that needs clarification for off-site inspection purposes.

1.4. In application of the inspection program established by COBAC (except in urgent cases where a control may be dispatched by its President, who reports to it at the next session), the President or Secretary General, or in their absence, the Deputy President or Assistant Secretary General of the Banking Commission, or an agent(s) having received delegation from the Secretary General, issue Powers designating the Mission Head and verification team members. Furthermore, the Secretary General or Assistant Secretary General, or an agent(s) having received delegation from the Banking Commission's Secretary General, sign mission orders specifying the object of the verification.

2. Organization, Resources, and Follow-up of On-Site Inspections

2.1. On-site verification missions, regardless of their scope at an individual institution or Group level, are conducted by Mission Heads, who are independent from units responsible for off-site inspections.

2.2. The Mission Head is directly responsible for the team placed under his/her authority.

2.3. Agents participating in on-site inspections may, as needed, include specialists in specific fields to enhance team expertise, particularly for examining devices using modeling techniques or analyzing risks inherent to information systems and exploiting verified institutions' files.

When engaging such persons, COBAC ensures they have the necessary capabilities and resources to perform their mission. The Principles of this Code also apply to tasks performed by these specialists.

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On-site verification teams have various analysis tools for preparing and conducting missions and may, depending on the themes addressed, rely on standardized software and questionnaires.

2.4. Any on-site inspection conducted on behalf of COBAC concludes with the drafting of a report by the Mission Head entrusted with conducting the investigation. Based on this report, which contains all findings and observations deemed useful by the Mission Head, as well as other available information, COBAC's General Secretariat:

• Sends the inspected institution a "follow-up letter" focused on aspects requiring management attention, supplemented by a Technical Annex containing remarks and recommendations for corrections to be made, according to a schedule monitored by permanent control services;
• Or submits the file to COBAC for examination of the institution's situation. Following this examination, the Commission may decide to exercise one of its conferred powers and open a procedure accordingly, either administrative (formal notice, warning, or injunction) or judicial if it is a disciplinary procedure susceptible, after adversarial proceedings, to result in a sanction.

3. Applicable Legal and Regulatory Provisions

3.1. Powers and Obligations of Persons Participating in On-Site Inspections

3.1.1. Powers of Persons Participating in Inspections

3.1.1.1. Access to Professional Premises: The Mission Head and collaborators have the right of access to professional premises, inseparable from COBAC's ability to conduct on-site inspections provided for in Article 10 of the Annex to the Convention of 16 October 1990.

3.1.1.2. Right to Receive Information or Documents: Mission Heads benefit from the right of information conferred by the Convention of 16 October 1990 (Article 9 of its Annex) and the Convention of 17 January 1992 on Harmonization of Banking Regulation in Central African States (notably Articles 36 and 38 of its Annex). In this framework, they have a very broad communication right authorizing them to request all information and documents, regardless of format, obtain copies, and receive all necessary clarifications or justifications. They can therefore, in particular, demand documents in electronic format.

Professional secrecy cannot be invoked against COBAC (Article 11 of the Convention of 16 October 1990 and Article 42 of the Annex to the Convention of 17 January 1992).

3.1.1.3. Hearing Any Person: In application of Article 38 provisions cited above, agents responsible for on-site inspections may summon and hear any useful person to obtain information.

3.1.1.4. Extending the Mission Scope to Related Companies: On-site inspections may be extended by COBAC to subsidiaries of the inspected institution, to legal persons controlling it directly or indirectly, to subsidiaries of these legal persons, as well as to all related enterprises or legal persons (Article 10 of the Annex to the Convention of 16 October 1990). Under specific international agreements, the mission may also cover subsidiaries or legal persons with headquarters outside CEMAC (Article 6 of the Annex to the same Convention).

3.1.2. Obligations of Persons Participating in Inspections

Article 5 of the Annex to the Convention of 16 October 1990 stipulates that BEAC ensures, on its budget and with the support of its staff, the functioning of the Commission. Consequently, verification teams are composed of BEAC agents made available to COBAC's General Secretariat.

Article 6 of the Annex to the Convention of 16 October 1990 specifies that persons authorized to act on behalf of COBAC "cannot be subject to any proceedings for acts performed in the exercise of their functions." Nevertheless, these agents must adhere to particularly strict behavioral rules.

3.1.2.1. Not Subject to Prohibitions Provided by Article 27 of the Convention of 17 January 1992: The Mission Head and team members must meet criteria of integrity and exemplarity. Thus, no person may participate in an on-site inspection if they themselves do not satisfy the obligations imposed on executives of inspected institutions by Article 27 cited above.

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Furthermore, it is recalled that Article 56 of BEAC's Statutes stipulates that "all Bank agents must enjoy their civil and political rights, and have not suffered any afflictive or infamous penalties."

When a person potentially integrated into an on-site inspection mission for a credit institution is under internal investigation at BEAC or proceedings by judicial/police services, their participation in COBAC verifications is suspended.

3.1.2.2. Not Maintaining or Having Maintained Relationships with the Inspected Institution that Could Interfere with Inspection: The Mission Head and team members also adhere to an impartiality criterion.

Article 57 of the cited Statutes specifies that "all Bank agents must respect the principles of independence, impartiality, and neutrality inherent to their functions. Under penalty of revocation for serious fault, they cannot directly or through intermediaries exercise any other financial, industrial, or commercial activity, nor hold a political and/or elective function."

By extension of this principle, no one may be designated to conduct an inspection within a legal entity where, during the previous three years, they held a professional role, advised it, or conducted an inspection as Mission Head regarding the same facts.

3.1.2.3. Not Disclosing Information Known During On-Site Inspections: During their missions, persons assigned to on-site inspections are subject to professional secrecy (Article 6 of the Annex to the Convention establishing COBAC and Article 33 of its Internal Rules).

This may only be lifted before judicial authorities within a judicial liquidation procedure regarding the institution or criminal proceedings, before bodies seized of disputes related to COBAC's activities, or in case of hearing before a parliamentary inquiry commission.

3.1.2.4. Respecting Financial Ethics Provisions: Article 34 of COBAC's Internal Rules stipulates that it is prohibited for its members and General Secretariat agents to claim external affiliation to benefit, directly or indirectly, from any advantage whatsoever. This provision applies particularly to agents responsible for on-site inspections, who are in constant contact with supervised entities. It applies notably to relationships that COBAC agents may maintain with credit institutions as clients, which must not give rise to preferential treatment in any field.

In this framework, the prohibition on using privileged information for personal purposes must also be strictly observed, as well as the obligation to refuse any gift, even if of low value. To respect these rules, the Mission Head is the sole judge during verification regarding the appropriateness of responding to any invitation falling within banking profession customs.

COBAC requires qualified external persons it engages to comply with all these obligations when integrated into a team under a Mission Head. When acting autonomously, they are also required to respect equivalent obligations.

3.1.2.5. Not Holding or Acquiring an Interest of Any Kind in a Controlled Institution: Article 57 of the cited Statutes specifies that BEAC agents "cannot, unless express and prior authorization is given by the Governor, take or receive participations or any interest whatsoever, nor exercise paid or unpaid work or advisory services in any enterprise."

It follows from these provisions that no person assigned to on-site verifications conducted on behalf of COBAC may take or receive a participation, interest, remuneration for work or advisory services in an institution subject to their control.

When selected to lead or participate in a verification mission at a supervised entity, these persons must decline if they are likely to face conflicts of interest or delicate positions regarding compliance with ethical principles.

3.1.2.6. Identifying Facts Susceptible to Criminal Qualification: A control mission on behalf of COBAC, as an administrative Authority, does not primarily aim to search for criminal offenses. However, this latter, as a constituted Authority, is obligated to notify national judicial authorities of crimes or misdemeanors it becomes aware of.

Consequently, when their investigations reveal facts they consider potentially constitutive of such infractions (subject to the sovereign appreciation of courts), Mission Heads identify them, with COBAC taking decisions it deems appropriate.

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Furthermore, COBAC is entitled to join as a civil party in all proceedings initiated under the provisions of the Convention of 17 January 1992 (Article 41 of its Annex).

3.2. Rights of Controlled Institutions

3.2.1. To Be Informed of the Decision to Conduct an On-Site Inspection: The supervised entity is informed of the decision to conduct a control by correspondence from COBAC's Secretary General. At the start of the investigation, the Mission Head presents to the inspected institution his/her Powers and mission order signed by the authorities designated in paragraph 1.4. A copy of these Powers and, if applicable, a copy of the mission order specifying the scope of verification may be handed to the institution's executives.

When the concerned supervised entity is a subsidiary of a Group whose parent company is itself an institution subject to COBAC control, COBAC's Secretary General informs the parent company by letter of the start of the investigation in its subsidiary.

3.2.2. To Have Knowledge of the Results of On-Site Inspections: Article 10 of the Annex to the Convention of 16 October 1990 provides that investigation results "are communicated to the Board of Directors of the concerned institution, or to the body acting in its place." In practice, they are also transmitted to the General Director of the supervised entity.

The results provided by this text are the conclusions drawn from the investigation report by General Secretariat services or by COBAC itself.

However, prior to this communication, COBAC wishes for credit institutions to have access to the report preparation stages under the conditions specified in paragraph 4.13 below.

4. Principles of Good Conduct for On-Site Inspections

4.1. The Principles set forth in this Code are valid for all on-site inspection activities performed by agents under the authority of COBAC's General Secretariat, within missions conducted on behalf of this latter, including those that may give rise to personnel exchanges between supervisory authorities provided by international Conventions.

During missions possibly executed by these same agents on behalf of other Authorities, the Principles specific to inspections dispatched by those authorities become applicable to COBAC personnel, when they exist. Otherwise, the principles set forth in this Code remain valid.

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Likewise, when COBAC entrusts another Authority, for example within international cooperation, with the task of conducting an on-site inspection abroad on its behalf, it is still the specific legal framework of that Authority that applies.

4.2. Mission Heads conduct their inspections and organize the management of their investigations autonomously, within the framework defined by the mission order given to them. Their work may be subject to on-site supervision carried out by the Head of the Banking Inspection Department or any other person designated by COBAC's Secretary General.

4.3. At the beginning of the investigation, the mission's object is presented to the executives of the controlled institution or Group. On this occasion, the major stages of inspection progress are indicated (preliminary interviews, possible visits to branches, key steps of the adversarial process...) and an indicative duration for inspections may be announced. The Mission Head hands over during this meeting a copy of the Powers mentioned in paragraph 1.4 and introduces his/her team members to executives with whom they will interact.