Regulation No. 002-2018/BCC/DSBR on Corporate Governance in Credit Institutions

[CENTRAL BANK OF THE COMOROS]

REGULATION NO. 002-2018/BCC/DSBR

RELATING TO CORPORATE GOVERNANCE IN CREDIT INSTITUTIONS

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Having regard to Law 80/08 of June 26, 1980, relating to currency and the role of the Central Bank of the Comoros in the control of banks, financial institutions, credit, and foreign exchange, and notably Articles 6 and 7;

Having regard to Law No. 13-003/AU of June 12, 2013, regulating the activities of financial institutions, in its Articles 26, 36, and 103;

Having regard to Law 12-008/AU of June 28, 2012, combating money laundering and the financing of terrorism;

Having regard to Law 12-011/AU of June 28, 2012, regulating and organizing credit leasing;

Having regard to the OHADA Uniform Act relating to commercial company law and economic interest groups of April 17, 1997, in its Title I;

Having regard to the OHADA Uniform Act relating to cooperative company law of December 15, 2010.

THE GOVERNOR OF THE CENTRAL BANK OF THE COMOROS

Sets the rules regarding corporate governance in credit institutions as defined in Article 1 of Law 13-003/AU.

Article 1

Corporate governance refers to the relationships between the management of the credit institution, its board of directors or the body acting in its place, its shareholders, and other stakeholders. Corporate governance determines the structure through which the objectives of the credit institution are defined

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the objectives of the credit institution, as well as the means to achieve them and ensure effective monitoring of the results obtained.

The purpose of this regulation is to encourage the board of directors, or the body acting in its place, to pursue objectives consistent with current regulations, the interests of the credit institution and its shareholders, and to facilitate effective monitoring of results obtained, by encouraging efficient use of the credit institution's resources.

TITLE I. DEFINITIONS

Article 2

• General Meeting: The decision-making body of the holders or owners of a fraction of the capital of the credit institution, or of the social endowment or the element of social patrimony;
• Board of Directors: The body responsible, on behalf of the shareholders or associated members, for monitoring the situation and management of the credit institution as defined by Regulation No. 011/2015/BCC/DSBR.
• General Management (Executive Body): The body responsible for the day-to-day management and operational conduct of the credit institution as defined by Regulation No. 011/2015/BCC/DSBR.
• Director: Any member of the board of directors who has relations of any nature whatsoever with the credit institution;
• Independent Director: Any member of the board of directors who has no relations of any nature whatsoever with the credit institution, or the group to which the credit institution belongs, that could compromise the exercise of their freedom of judgment;
• Responsible Executive: A person possessing the necessary skills to perform the missions and responsibilities of the executive body as defined by Regulation No. 017/2015/BCC/DSBR and responsible for implementing the strategy developed by the board of directors.

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TITLE II. THE BOARD OF DIRECTORS

Article 3

The board of directors is the collegial body that represents all capital providers and is obliged to act in the interest of the credit institution under all circumstances.

Directors, designated by the general meeting, are collectively responsible to said meeting.

Before their designation, the general meeting must ensure, in accordance with the provisions of Article 6 below, that directors possess the necessary qualifications to fulfill their mission, notably a precise understanding of their role in corporate governance and the capacity to exercise informed judgment on the activities of the credit institution.

Chapter I: Role and Responsibilities of the Board of Directors

Article 4

The board of directors: a) defines the strategy of the credit institution, b) approves corporate values, codes of conduct, and ethical values communicated to the entire credit institution, c) proposes to the general meeting the designation of independent and competent directors, d) designates corporate officers, e) selects and evaluates general management and ensures that general management exercises appropriate management in conformity with the policy it has defined, f) controls management, and ensures the quality of information provided to shareholders and the market, g) monitors compliance with ethics, codes of conduct, and ethical codes, as well as compliance with current banking and financial regulations and, in general, sound international practices in banking management, h) defines and enforces a clear hierarchy of responsibilities at all levels of the credit institution, i) approves the organizational chart and administrative organization of the institution as well as general operational management procedures, j) ensures the presence of a strong finance function, responsible for accounting and financial data; k) ensures the independence of risk management, internal audit, compliance, and ethics functions, l) supervises the evaluation of risk management, internal control systems, financial information, compliance, and ethics,

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m) ensures that external auditors respect the codes and standards of professional practice applicable, n) acts through specialized committees, such as the audit committee, the surveillance committee, the risk management committee, the ethics committee, the nominations committee, and the remuneration committee. o) approves the remuneration of general management members and key personnel, in conformity with the corporate culture, objectives, long-term strategy, and control structure of the credit institution.

Chapter II: Composition and Qualifications of Board of Directors Members

Article 5

Every credit institution must implement a formalized and transparent procedure for the selection and nomination of directors.

The designation of directors is subject to prior non-objection opinion from the Central Bank of the Comoros.

Article 6

The board of directors functions in association, but also with complete independence from the management of the credit institution.

The board of directors must be composed of directors possessing different types of expertise in the banking, financial, and any other equivalent field, and in the management of a credit institution.

In addition to expertise in the banking and financial fields and experience in corporate administration, directors must have the necessary skills to solicit and understand any type of information relating to the management of the credit institution.

Article 7

The composition and organization of the board of directors' work must be adapted to the shareholding structure, the size, and the nature of the activities of the credit institution.

To ensure the independence of the board of directors, its composition must generally include at least one independent director.

In the specific case of decentralized financial institutions, the Executive General Manager or Manager participates in board of directors meetings without voting rights.

The Central Bank may also take regulatory provisions, not contrary to the present ones, concerning the governance of decentralized financial institutions.

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Article 8

Independent directors must not belong to the board of directors for a period of more than two (2) terms.

To prevent conflicts of interest, independent directors must not:

• be an employee or agent of the credit institution, or of a company in the group to which the credit institution belongs,
• be a former employee or retiree who held a position in the executive of the credit institution;
• be a corporate officer of a company in which the credit institution holds a directorship;
• be a client or supplier of the credit institution;
• have a family relationship in the first and second degree with a corporate officer of the credit institution;
• have been an auditor or statutory auditor of the credit institution during the last five years;

Chapter III: Operation of the Board of Directors.

Article 9

The board of directors must not participate in the day-to-day management of the credit institution but must receive sufficient information to judge the quality of management.

Article 10

The board of directors must:

• have a charter defining the mode of governance operation, jointly elaborated with the executive body, and approved by the General Meeting; The responsibilities, strategic objectives, and corporate values must be clearly defined therein; this charter must be communicated to the Central Bank;
• meet regularly according to a predefined calendar and predetermined agenda. The Central Bank of the Comoros may, upon its request, attend board of directors meetings without voting rights,
• produce written minutes of its meetings and approve them after formally reviewing them,
• ensure that these minutes are kept in the permanent files of the credit institution,
• ensure that decisions taken during its meetings, recorded in the minutes, are properly implemented,

The minutes of the board of directors meetings are transmitted to the Central Bank whenever it makes a request.

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Article 11

The board of directors must ensure the quality of information on the shareholding structure and the objectives of the credit institution.

The board of directors must ensure the prevention of conflicts of interest and the implementation of procedures for the management of conflicts of interest.

The board of directors must implement a code of ethics and business conduct and ensure its monitoring.

The board of directors must implement mechanisms allowing personnel to alert the board of directors and general management about observed anomalies or deviations.

TITLE III. SPECIALIZED COMMITTEES

Article 12

Without prejudice to legal and regulatory provisions, the board of directors must be assisted in its control function by an audit committee and a risk management committee for Banks collecting more than 10% of customer deposits.

For other categories of credit institutions, the board of directors is assisted in its control function either by the two aforementioned committees or by a single committee, combining the two missions.

The delegation by the board of directors of certain responsibilities to a specialized committee cannot in any way limit the responsibilities of the board of directors and the directors.

Article 13

The specialized committees of the board of directors must:

• have a charter approved by the board of directors,
• meet regularly according to a predefined calendar and predetermined agenda,
• produce written minutes of their meetings and approve them after formally reviewing them,
• ensure that these minutes are kept in the permanent files of the credit institution.

Article 14

Depending on the size of the credit institution, the board of directors establishes an audit committee under the conditions provided for in Title II, Chapter II of Regulation No. 011/2015/BCC/DSBR, which must include directors of the credit institution whose:

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• directors having skills and knowledge in financial and banking matters (recognized expertise in accounting and financial management),
• independent professionals experienced in audit in accordance with Article 1, point c of Regulation No. 011/2015/BCC/DSBR,

In accordance with Article 1, point c of Regulation No. 011/2015/BCC/DSBR, the audit committee is tasked with:

• ensuring the adequacy of the internal control system to the activities of the credit institution,
• supervising and controlling the internal control function,
• approving the internal audit charter as well as the annual internal control program,
• examining activity reports and recommendations from internal control, statutory auditors, external auditors, and the supervisory authority, as well as corrective measures taken,
• ensuring complete coverage of the credit institution's activities by internal controls and external audits,
• supervising the examination and approval of financial statements made public by the credit institution.

The audit committee is responsible for recommending to the board of directors the recruitment or dismissal of external auditors and for supervising the relations of external auditors with the credit institution.

To ensure its independence from the executive management of the credit institution, the head of internal control and/or internal audit must report directly to the board of directors or the audit committee the conclusions of their work.

Article 15

Depending on the size of the credit institution, the board of directors also establishes a risk management committee which must:

• examine all risk strategies on an aggregated basis as well as by type of risk, and formulate recommendations to the board on this subject;
• review the risk policies of the credit institution at least once a year;
• ensure that management puts in place processes encouraging the credit institution to respect established risk policies.

The risk management committee is notably responsible for monitoring liquidity and capital management strategies, as well as strategies related to all risks to which the bank is exposed, such as strategic, operational, credit, market, and reputation risks.

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TITLE IV. GENERAL MANAGEMENT

Article 16

The mandate of the first responsible executive begins to run from the notification by the Central Bank of their approval as a responsible executive.

The duration, conditions of remuneration, revocability, and possibility of renewal of the mandate of the first responsible executive must be mentioned in the employment contract.

A copy of this contract must be attached to the approval application file. The final version signed by the credit institution must be communicated to the Central Bank within a period not exceeding five working days after approval.

Article 17

Any procedure aimed at revoking the approved first responsible executive from their functions before the end of their mandate must be brought to the knowledge of the Central Bank by the corporate bodies one month before the decision is taken, except in cases of gross misconduct provided for by law.

Article 18

The distribution of responsibilities between the board of directors and the general management of the credit institution must be clearly defined to guarantee the balance of powers and avoid the concentration of decision-making power.

The board of directors defines the distribution of powers between the chairman of the board of directors and the general management of the credit institution.

General management:

• is responsible for the consistency of business conduct conditions with the strategy, principles, and risk limits defined by the board of directors in accordance with Article 1, point b of Regulation No. 011/2015/BCC/DSBR,
• is responsible for the day-to-day management of the credit institution and adequate information of the board of directors,
• is responsible for monitoring the managers of the different business lines of the credit institution,
• must have the necessary skills to manage the activities placed under its responsibility,
• must exercise appropriate control over key personnel in the business lines placed under its responsibility.

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TITLE V. PREVENTION AND MANAGEMENT OF CONFLICTS OF INTEREST

Article 19

The credit institution must define a policy and implement procedures to identify and prevent conflicts of interest.

The credit institution must inform stakeholders about the general nature of potential sources of conflicts of interest that may arise in its activities, and about the policy followed for the identification, prevention, and management of conflicts of interest.

Article 20

In the event that situations giving rise to conflicts of interest appear in the relations of the credit institution with its shareholders, its directors, its personnel, its clients, the credit institution must manage them in such a way as to cause no prejudice to itself or to other stakeholders.

TITLE VI. MISCELLANEOUS PROVISIONS

Article 21

Credit institutions are required to ensure strict observance of the provisions of this regulation by their shareholders and directors, notably by requesting all useful justifications from them.

Non-compliance by credit institutions with the provisions of this regulation exposes offenders to the sanctions provided for by the legal and regulatory provisions in this matter.

Article 22

Credit institutions approved at the date of publication of this regulation have a period of one year from its date of signature to comply with all these provisions.

This regulation enters into force as of its date of signature.

Moroni, September 26, 2018

The Governor,

Dr. Younoussa Imani

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