Notice No. 6/2017 of September 7 – Regarding the Corporate Governance Code for Financial Institutions

98. Operations in which clients instruct the financial institution to deliver the countervalue subsequently to a third party.

99. Operations in which clients insist on receiving the countervalue via a cheque issued by the financial institution, despite this practice not being commonly adopted by it.

100. Operations in which clients request to receive the countervalue in foreign currency, in banknotes with the highest possible face value.

101. Operations in which clients request to receive the countervalue in several postal orders of reduced amounts, payable to order by various beneficiaries.

F. Indicators related to financial institution employees

102. Employees who, on a repeated basis, fail to comply with legal obligations or internal procedures regarding AML/CFT prevention.

103. Employees who establish familiarity and close relationships with clients that exceed the normal standard in the context of their assigned functions or are inconsistent with the financial institution's internal practices.

104. Employees who demonstrate a social behavior pattern or other external signs inconsistent with their known financial situation by the financial institution.

G. Other indicators

105. Operations related to the sale of real estate in which: a) The selling price is significantly higher than market values; b) Payment is made by bearer cheque or endorsed cheque in favor of a third party without an apparent relationship to the transaction; c) Payment is made in cash, especially when originating from a bank deposit account held by a third party without an apparent relationship to the buyer; or d) The real estate transacted was recently acquired by the seller.

106. Operations related to non-profit organizations when: a) The nature, frequency, or amount of operations are inconsistent with the organization's size, objectives, and known activity; b) The frequency and amount of operations increase suddenly; c) The organization maintains substantial funds in its bank deposit account for long periods of time; d) The organization only collects contributions from persons or entities not resident in Cabo Verde; e) The organization appears to have few or no human and logistical resources dedicated to its activity; f) The organization's representatives are not resident in Cabo Verde, especially when large amounts are transferred to the country of residence of those representatives; or g) The organization has some type of connection with countries or jurisdictions publicly recognized as drug production/trafficking locations, holders of high corruption indices, platforms for money laundering, promoters or supporters of terrorism, or promoters or supporters of the proliferation of weapons of mass destruction.

107. Clients who, suddenly and substantially, increase the number of visits to their rented safes.

108. Clients who conduct high-value transactions through prepaid cards or acquire a large number of prepaid cards from the same financial institution.

The Governor, João António Pinto Serra.

Notice No. 6/2017

Corporate Governance Code for Financial Institutions

The Corporate Governance Code for Financial Institutions addresses the establishment of good governance criteria, given their specificities, which are of greater relevance to the activities carried out by financial institutions.

In this context, it is necessary to highlight the recommendatory nature of the norms contained in the Code. Indeed, the conduct standards provided herein do not claim inflexible application. On the contrary, aiming to improve existing practices, Cape Verdean financial institutions are recognized with the freedom to choose whether or not to adopt them.

Given its non-mandatory nature, each financial institution's governance culture will prove fundamental to the greater or lesser, and better or worse, acceptance of the proposed solutions.

The Code performs a complementary and unifying dual function. At one time, it does not aim to replace the corporate governance guidelines to which financial institutions are already bound. At another time, it proposes a unified normative body, susceptible of uniform application by the set of financial institutions in Cabo Verde.

The assessment of compliance with the benchmarks established below adopts the usual "comply or explain" approach, that is, financial institutions may opt for the acceptance of recommendations or, alternatively, by justifying their non-acceptance.

To this end, the annual corporate governance report of financial institutions, regulated through Notice 7/2017, complements this Code by imposing annual disclosure of the necessary information regarding the degree of acceptance thereof in each financial institution.

As with the Notice on the Annual Corporate Governance Report, it is also clarified within this Code that financial institutions dedicated to insurance and reinsurance activities are subject to special legislation, without prejudice to the provisions of this Code, with necessary adaptations and insofar as they do not contradict applicable special legislation.

The possibility to explain the grounds for non-acceptance of a recommendation (explain) enables a positively differentiated assessment whenever the recipient of the recommendations can demonstrate that the practice adopted by them safeguards, with equal effectiveness, the rationale of the foregone recommendation.

Finally, it is recognized that the impossibility of crystallizing, at any given moment, corporate governance practices deemed most appropriate will necessarily imply the periodic review of the catalog of recommendations now presented.

Thus, the Bank of Cabo Verde, using the competence conferred upon it by Article 33(1) of Law No. 62/VIII/2014, of April 23, approves the following Corporate Governance Code for Financial Institutions:

I. Administration

I.1. Executive Administration

I.1.1. The governing body must delegate the current administration of the financial institution, and each executive administrator shall be specifically responsible for certain matters.

I.1.2. The governing body must approve an internal regulation regarding its functioning, including that of the executive committee.

I.1.3. Administrators exercising executive functions, when requested by other members of corporate bodies, must provide, in a timely and adequate manner to the request, the information requested by them.

I.1.4. The governing body must ensure that the financial institution acts in accordance with its objectives, without delegating its competence, namely regarding: (i) defining the strategy and general policy strategies of the company; (ii) defining the corporate structure of the group; (iii) decisions that should be considered strategic due to their amount, risk, or special characteristics.

I.1.5. The Regulation of the governing body must provide that the exercise by executive administrators of executive functions in companies outside the group is previously authorized by the governing body itself or by the oversight body.

I.1.6 The governing body of credit institutions must include at least two resident executive members.

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I.2. Non-Executive Administration

I.2.1. The governing body must include a number of non-executive members that guarantees effective capacity for monitoring, supervision, and evaluation of the activity of the remaining members of the governing body.

I.2.2. Among non-executive administrators, an adequate proportion of independent members must be counted, taking into account the adopted governance model.

Considered for this purpose as independent is the administrator who is not associated with any specific interest group in the company nor found in any circumstance likely to affect their independence of analysis or decision, namely by virtue of: a) Having been an employee of the company or of a company in a relationship of control or group with it within the last three years; b) Having, in the last three years, provided services or established a significant commercial relationship with the company or with a company in a relationship of control or group with it, either directly or as a shareholder, administrator, manager, or executive of a legal entity; c) Being a beneficiary of remuneration paid by the company or by a company in a relationship of control or group with it, beyond remuneration arising from the exercise of administrative functions; d) Living in de facto union or being a spouse, relative, or affine in the straight line and up to the 3rd degree, inclusive, in the collateral line, of administrators or of natural persons holding directly or indirectly a qualified participation; e) Being the holder of a qualified participation or representative of a shareholder holding qualified participations.

I.2.3. If the president of the governing body exercises executive functions, this body must designate, from among its members, an independent administrator who ensures the coordination of the work of the other non-executive members and the conditions for them to decide independently and informedly, or find another equivalent mechanism that ensures such coordination.

I.2.4. The governing body must constitute, within its midst, specialized committees to assist in the exercise of their management functions, taking into account criteria of rationality and organizational efficiency.

I.3. Diversity

I.3.1. Financial institutions must establish criteria and requirements regarding the profile of new members of the governing body, adequate to the function to be performed, and beyond individual attributes (such as independence, integrity, experience, and competence), these profiles must consider diversity requirements, giving particular attention to gender, which may contribute to improving the body's performance and balancing its composition.

I.3.2. Financial institutions must establish and publish a program aimed at ensuring, by 2020, balanced gender representation in the composition of corporate bodies, distinguishing between executive and non-executive administrative positions.

II. Supervision

II.1. The president of the oversight body must be independent, according to the applicable legal criterion, and possess adequate competencies for exercising their functions.

II.2. The oversight body must be the main interlocutor of the external auditor and the primary recipient of their reports, with the duty, namely, to propose their remuneration and ensure that adequate conditions are provided within the institution for the provision of services.

II.3. The oversight body must evaluate the functioning of internal control and risk management systems and propose necessary adjustments.

II.4. The oversight body must pronounce itself on work plans and resources allocated to internal audit services and compliance services that monitor the application of norms applicable to the institution, and must be the recipient of reports prepared by these services at least when matters related to accountability, identification or resolution of conflicts of interest, and detection of potential illegalities are involved.

III. Internal Control

III.1. The governing body of the financial institution must ensure the existence of sufficient and adequate material and human resources for the execution of functions and tasks inherent to the internal control system, and promote necessary training actions in internal control matters.

III.2. To safeguard the independence of the internal control system, heads of internal audit, compliance control, and risk management areas must hierarchically report to an administrator without portfolio in the supervised areas.

III.3. Financial institutions must provide internal whistleblowing mechanisms that foresee adequate protection for good-faith informants.

IV. Remuneration

IV.1. All members of the Remuneration Committee or equivalent must be independent relative to executive members of the governing body and include at least one member with knowledge and experience in remuneration policy matters.

IV.2. The declaration on the remuneration policy of the governing and oversight bodies must indicate, namely: a) Identification and explicit statement of criteria used to determine remuneration to be attributed to corporate body members; b) Information regarding the maximum potential amount, in individual terms, and the maximum potential amount, in aggregate terms, to be paid to corporate body members, and identification of circumstances under which these maximum amounts may be due; c) Information regarding the exigibility or non-exigibility of payments related to the dismissal or cessation of functions of administrators.

IV.3. The remuneration of executive members of the governing body must be based on actual performance and discourage excessive risk-taking.

IV.4. The remuneration of non-executive members of the governing body and the remuneration of members of the oversight body must not include any component whose value depends on the performance or value of the financial institution.

IV.5. The variable component of remuneration must be globally reasonable relative to the fixed component, and maximum limits must be established for all components.

IV.6. A significant portion of variable remuneration must be deferred for a period of not less than three years, and the right to receive the deferred component must depend on the continuation of positive performance by the company over that period.

IV.7. When the dismissal of an administrator does not result from a serious breach of their duties nor from their unfitness to exercise their normal functions but is still attributable to inadequate performance, the financial institution must be equipped with adequate and necessary legal instruments so that any indemnification or compensation beyond what is legally due is not exigible.

V. Information

V.1. Institutions must provide, through their website, in Portuguese and English, access to information that allows knowledge of their evolution and current reality in economic, financial, and corporate governance terms.

V.2. Financial institutions must make available on their website, in Portuguese and English, at least the following elements: a) Reports and accounts of the institution for the last two years; b) Curricula vitae of administrators currently serving in the financial institution; c) Internal policies adopted by the financial institution; d) Evaluation reports and other preparatory information for the General Assembly.

Office of the Governor and Councils of the Bank of Cabo Verde, in Praia, on August 25, 2017. – The Governor, João António Pinto Serra.