NAP No. 11/2017 - Provisional Special Administration and Intervention Programme

Friday, July 07, 2017 Number 96 OFFICIAL GAZETTE SÃO TOMÉ AND PRÍNCIPE S U M M A R Y CENTRAL BANK OF SÃO TOMÉ AND PRÍNCIPE NAP No. 11/2017 Provisional Special Administration and Intervention Programme. NAP No. 12/2017 Transition Bank. NAP No. 13/2017 Rules for definition and control of financial groups.

No. 96 – July 07, 2017 SÃO TOMÉ AND PRÍNCIPE - OFFICIAL GAZETTE 1307 CENTRAL BANK OF SÃO TOMÉ AND PRÍNCIPE Permanent Application Norms – NAP No. 11/2017 Subject: Provisional Special Administration and Intervention Programme The supervisory functions assigned to the Central Bank of São Tomé and Príncipe through Law No. 8/92, the Organic Law of the Central Bank, allow for the adoption of measures deemed necessary to correct situations that may jeopardize the stability and robustness of the Financial System. Correspondingly, Law 6/2015 on the Special Measures for the Sanitation, Resolution and Liquidation of Banking Institutions, of December 30, reinforces the powers of the Central Bank and the measures provided align with the advances recorded in the matter of sanitation, recovery and resolution of said institutions; Whereas the current regulatory framework grants the Central Bank powers that enable it to intervene in institutions subject to its supervision that are in financial difficulty; Whereas, likewise, there is a need to apply a broad set of specific sanitation measures provided for in Law 6/2015, notably the Provisional Special Administration; Whereas the “Provisional Special Administration” is one of the alternative resolution mechanisms applicable to banking institutions; In these terms, in the exercise of the powers conferred upon it by letters d) and f) of paragraph 2 of Article 8 of its Organic Law-Law 8/92, combined with paragraph 1 of Article 10 of Law No. 6/2015, “Law on Special Measures for the Sanitation, Resolution and Liquidation of Banking Institutions”, the Board of Directors of the Central Bank of São Tomé and Príncipe, determines the following:

CHAPTER I GENERAL PROVISIONS Article 1. Object and Scope

1. This NAP regulates the procedures applicable to Provisional Special Administration processes and the Intervention Programme.
2. The adoption of the procedures regulated by this NAP aims to safeguard the financial solidity of the banking institution, the interests of depositors and creditors, and the stability of the financial system.
3. This NAP is applicable to banking institutions and the financial groups to which they belong.

Article 2. Definition of Provisional Special Administration Provisional Special Administration constitutes a precautionary measure characterized by the appointment, by the Central Bank, of a new administration for the banking institution, with the essential objective of eliminating or resolving the irregularities that determined the adoption of such measure.

Central Bank of S. T. P. NAP PERMANENT APPLICATION NORM CODE SIF 09 Proponent(s) ENTRY INTO FORCE DATE OF ISSUE DOC. No. FL 6/14 CA 07/07/2017 07/07/2017 11/2017

1308 SÃO TOMÉ AND PRÍNCIPE - OFFICIAL GAZETTE No. 96 – July 07, 2017 Article 3. Prerequisites for the Appointment of Provisional Special Administration

1. The Central Bank may determine the suspension of the term of office of the administrative body of a banking institution and appoint a Provisional Special Administration when: a) a banking institution is in a situation of financial imbalance, manifested, inter alia, by the reduction of own funds to a level below the legal minimum or by non-compliance with solvency or liquidity ratios; b) the bank adopts illicit or illegal practices or fails to comply with directives issued by the Central Bank, or frequently resorts to the Central Bank's liquidity facilities; c) there is a situation of undeniable gravity regarding the banking institution arising from any act by a main Shareholder that violates the law or any act of a serious nature or contractual default resulting from a misaligned and unsuitable corporate structure, jeopardizing the development of the common scope, which is the development of the institution's activities; d) the administration does not offer guarantees of prudent activity, placing the interests of the institution's depositors and creditors at serious risk; e) the accounting organization or internal control procedures present serious deficiencies that do not allow for a proper assessment of the institution's financial situation; f) the institution does not cooperate with the Central Bank in carrying out its activities related to banking supervision, including by failing to report on requested records or documents; g) the institution or persons linked to it fail to observe restrictions or prohibitions determined by the Central Bank within the scope of corrective measures.
2. For the purposes of applying letter c) of the preceding paragraph, a misaligned and unsuitable corporate structure is one that results from any act by the main shareholders of banks, which violates their corporate duties and thus hinders the normal course of the bank's activity or places it at substantial risk that prevents the continuation of its activities.
3. The Provisional Special Administration of an institution may be determined for a maximum period of 90 (ninety) days, extendable twice for an equal period.
4. When the measure of appointing provisional administrators is adopted, and while it lasts, all executions are suspended, nor may new executions, including tax ones, be initiated against the bank, or covering its assets, new actions are not initiated, with the exception of those aimed at collecting preferential or privileged claims, and the limitation or expiration periods applicable by the institution are interrupted.
5. No right or obligation of third parties within the scope of any contracts in which the banking institution is a party may be terminated, prematurely demanded or modified, solely due to the appointment of an official administrator or any measure taken by it.

CHAPTER II CONSTITUTION AND APPOINTMENT OF PROVISIONAL SPECIAL ADMINISTRATION Article 4. Criteria for the Appointment of Provisional Special Administration

1. The Provisional Special Administration appointed by the Central Bank must be constituted by a maximum of 3 (three) members.
2. The members of the Provisional Special Administration are designated by the Central Bank based on the following criteria: a) Suitability; b) Experience in exercising functions in the financial sector; c) Other requirements required by the Norm on Qualification of Administrators.
3. The Central Bank may designate technical staff and consultants to provide support to the Provisional Special Administration team.
4. The Central Bank may subject certain acts to be carried out by the members of the Provisional Special Administration to its prior approval.
5. In case of a material conflict of interest between the Provisional Special Administration and a measure to be taken regarding the banking institution, such measure should only be taken after prior written authorization from the Central Bank.
6. The appointment of a Provisional Special Administration does not depend on the prior application of corrective measures and may be tasked with implementing the intervention programme.
7. The appointment of a Provisional Special Administration must be published for the knowledge of depositors and the general public.
8. The remuneration of the members of the Provisional Special Administration and of the contracted technical staff or consultants is fixed by the Central Bank, and the responsibility for their payment must be attributed to the banking institution subject to the measure.

Article 5. Method of Appointment of Provisional Special Administration

1. The Provisional Special Administration is decreed by an act of the Board of Directors of the Central Bank, which must indicate: a) the reasons; b) the name(s) of the appointed provisional administrator(s); c) the duration period of the provisional special administration; d) the eventual unenforceability of the institution's clients' deposits or investments, if necessary; e) the suspension of the institution's administrators and the blocking of their personal assets.
2. The institution's administrators, for the purposes of the suspension mentioned in paragraph 2, are the members of the institution's Board of Directors and the directors with executive and representation functions of the institution, including branch managers.
3. The appointment of the Provisional Special Administration suspends, until its termination, the terms of office of the institution's administrators, who may only resume their respective positions if they are not considered ineligible to exercise them.
4. The blocking of the administrators' personal assets aims to guarantee the payment of any damages caused to the institution or to third parties.
5. The Central Bank must notify the President of the institution's Board of Directors and the President of the Executive Committee, informing them of this decision, the reasons for the act, the powers of the provisional administrator(s) and their term.
6. The Central Bank must publish a clarification note to the public informing of the act that decided on the Provisional Special Administration of the institution, the appointed provisional administrator(s) responsible for the institution from that date, and the objectives of the provisional special administration.

CHAPTER III IMPLEMENTATION OF PROVISIONAL SPECIAL ADMINISTRATION Article 6. On the Publicity of Provisional Special Administration After the appointment of the Provisional Special Administration by the Central Bank, the provisional special administrators must, within a period of up to two days: a) Place a notice in the premises of the banking institution, informing about the provisional special administration, its start date and specifying that: i) Authorizations for any persons to assume financial obligations on behalf of the institution are cancelled; ii) Persons who held authorizations to give instructions on behalf of the institution regarding payments, transfer of institution assets or assets administered by it cease to have such authorizations; b) The probable duration of the provisional special administration. c) Publish the same notice in available media, including major circulation newspapers, at least once a week, for four weeks; d) Carry out the necessary registrations with competent authorities, such as registries, notaries and courts; e) Communicate in writing to employees, shareholders, correspondents, depositors, creditors and suppliers; f) Send a copy of the notices and registrations to the Central Bank within two days of each event.

Article 7. Appointment of the Provisional Administrator

1. A person from the private sector or a Central Bank employee who meets the qualifications required to be an administrator of a financial institution may be appointed as provisional administrator of an institution.
2. The provisional administrator must render accounts to the Central Bank, regardless of any requirement, during the exercise of their functions, whenever requested and after the completion of said functions.

Article 8. Duties of Provisional Special Administration

1. The provisional administrators designated by the Central Bank have the powers and duties conferred, by law and by the statutes, on the members of the administrative body, and also the following: a) Adopt measures to recover and sanitize the bank, as authorized by the Central Bank, including the measures provided for in Article 8 of Law No. 6/2015, without prior consent of the bank's shareholders; b) Veto the resolutions of the General Assembly of shareholders, notably those that may jeopardize the objectives of the measures applied or to be applied by the Central Bank with a view to safeguarding the institution's viability and financial stability; c) Convene the General Assembly of shareholders and determine the agenda; d) Implement the specific recovery and sanitation plan of the institution, when applicable; e) Immediately suspend the payment of dividends or any other form of capital distribution to shareholders or any payment to directors that is not related to salary payments; f) Suspend some or all payments of the institution, except those due to central counterparties and settlement and custody systems; g) Prepare, as soon as possible, a report on the financial and asset situation of the institution and its causes and submit it to the Central Bank, within a period not exceeding 30 (thirty) days from the date of assumption of their functions; h) Prepare and submit to the Central Bank proposals for the financial recovery of the institution, within a period not exceeding 60 (sixty) days from the date of assumption of their functions, which may include: (i) capitalization measures for the institution; (ii) measures for the transfer of assets, rights and obligations of the institution; i) Adopt corrective measures for any irregularities committed by the institution's corporate bodies or by any of its members; j) Promote an agreement between shareholders and creditors of the institution regarding measures that allow for the financial recovery of the institution, notably the renegotiation of debt conditions, the conversion of debt into share capital, the reduction of share capital to absorb losses, the increase of share capital or the alienation of part of the activity to another authorized institution for its exercise; k) Other prerogatives and duties to sanitize the bank as determined by the Central Bank in the decision appointing the provisional administrators; l) Keep the Central Bank informed about their activity and the management of the institution, notably through the preparation of reports with the frequency defined by it; m) Observe, in the performance of their functions, the general guidelines and strategic objectives defined by the Central Bank upon their appointment; n) Provide all information and cooperation required by the Central Bank on any matters related to their activity and to the administered institution; o) Ensure the security of data and facilities of the institution under Provisional Special Administration, taking any necessary measures, such as changing locks to prevent unauthorized access; password changes; control of access to the institution's premises.
2. The Provisional Special Administration has unrestricted access and control over all branches and departments of the institution, accounting books and other records, and any other assets of the institution.
3. The provisions of Articles 10 and 11 of Law No. 06/2015 must also be observed.

CHAPTER IV MEASURES APPLICABLE WITHIN THE SCOPE OF PROVISIONAL SPECIAL ADMINISTRATION Article 9. Capitalization measures for the institution

1. Regarding the capitalization of the institution referred to in letter h) of paragraph 1 of Article 8 of this Norm, the Provisional Special Administration may determine that: a) a rapid recapitalization of the institution is necessary to maintain financial stability; b) the institution has not adopted the corrective measures indicated by the Central Bank with the objective of recovering its minimum capital level; c) current shareholders are unable to maintain significant capital in the institution.
2. With the objective of capitalizing the institution, the Provisional Special Administration of the institution: a) must determine the extent of losses and prepare the institution's financial statements considering the amounts of losses, profits, reserves and capital; b) must reduce the value of existing shares to reflect verified losses, if necessary; c) may notify shareholders of the amount of additional capital to bring capital levels in line with the minimum solvency ratio; d) may authorize shareholders to subscribe to additional shares, through the submission of a binding commitment equal to the total value of the required capital, within a maximum period of 5 (five) business days after the notification referred to in letter c) of this article.
3. While current shareholders do not subscribe to the new shares as per letter d) of this article, the Provisional Special Administration of the institution may issue new shares to new shareholders.

Article 10. Restructuring of Liabilities

1. The restructuring of liabilities or their conversion into shares may be determined within the scope of Provisional Special Administration.
2. The applicable measure referred to in paragraph 1 of this article concerns the institution's internal recapitalization plan, provided for in Article 19 of Law No. 6/2015, which states the following: a) The bank's debt may be restructured under paragraph 5 of Article 19 of Law No. 6/2015 only when the institution's capital is reduced to reflect its losses; b) The plan must, first of all, restructure subordinated debt and then the other debts; c) The plan establishes the order in which debt is reduced and converted, taking into account the reverse order to that provided for in Article 29 of Law No. 6/2015; d) Claims of the Central Bank, claims of small depositors, tax claims of the State and Local Authorities, as well as the salaries of bank employees in resolution proceedings are excluded from the application of internal recapitalization measures; e) The plan may exclude any claims if the Central Bank considers that this serves the purposes defined in Article 12 of Law No. 6/2015; f) Debt is irrevocably converted into capital upon the decision of the Central Bank; g) The provisions of this article take effect regardless of any legal or contractual provision to the contrary.
3. The restructuring of liabilities referred to in paragraph 1 of this article is not applicable to secured debts.

CHAPTER V ADDITIONAL MEASURES WITHIN THE SCOPE OF PROVISIONAL SPECIAL ADMINISTRATION Article 11. Other provisions on Provisional Special Administration

1. The Central Bank may, at any time, replace the members of the Provisional Special Administration or terminate their functions, whenever deemed appropriate.
2. The members of the Provisional Administration are liable for damages resulting from illicit actions or omissions committed by them with intent or with negligence and zeal manifestly lower than those to which they were obliged by reason of the office held.
3. With the appointment of a Provisional Special Administration, the Central Bank may appoint a Supervisory Commission, as established in Article 9 of Law No. 06/2015.
4. The members of the administrative body suspended under the provisions of Article 3 of this Norm must immediately provide all information and render the cooperation required by the Central Bank or by the members of the Provisional Special Administration.
5. In case of non-compliance with the provisions of paragraph 4 of this article, the members of the administrative body are subject to sanctions under Law 9/92, “Law on Financial Institutions” and the Norm on Supervisory Action and Application of Penalties.
6. The Provisional Special Administration may decree the adoption of resolution measures provided for in the norms on recovery, sanitation and resolution plans and measures within the scope of resolution.

CHAPTER VI IMPLEMENTATION OF THE INTERVENTION PROGRAMME Article 12. Intervention Programme

1. The Provisional Special Administration must, by determination of the Central Bank, implement an intervention programme.
2. The Central Bank may determine an intervention programme for a banking institution when the specific recovery and sanitation plan is not approved by it or if the measures provided for therein are not complied with or involve amounts that may jeopardize their implementation, or if there is a serious risk of the bank being unable to honor its commitments, especially regarding the security of the funds entrusted to it.

Article 13. On the Intervention Report

1. Within a period of 1 (one) month from the start of implementation of the intervention programme, the Provisional Special Administration must present, in a specific report, a complete inventory of the institution's assets and properties and send a copy to the Central Bank.
2. The report must include an assessment of the estimated realization value of the assets in case of a liquidation of the institution.

Article 14. Liquidity Support

1. During the period of Provisional Special Administration, the Central Bank may provide financial support to the institution, under the conditions it specifies, aiming to cover temporary liquidity shortages.
2. The resources made available by the Central Bank during the period of Provisional Special Administration have priority over other claims of the institution's responsibility, which will follow the classification established in specific legislation.

Article 15. End of Provisional Special Administration

1. The Provisional Special Administration must subsist while the situation of imbalance that determined it persists and will be considered lifted after the expiration of the period fixed by the Central Bank, if there is no extension.
2. If the Central Bank, based on the information and reports of the Provisional Special Administration, considers that the institution is financially recovered, has returned to acceptable conditions, complies with the prudential standards established by law or regulations, and that the circumstances that justified the Provisional Special Administration no longer exist, allowing it to operate under normal conditions, the Provisional Special Administration must be terminated and the institution may resume its activities under the control of its statutory bodies.
3. It is for the Central Bank to decide whether the members of the board of directors and executive management can resume their functions or should be replaced.
4. During the Provisional Special Administration, or at its end, if the reorganization of the banking institution is more costly than its liquidation, the Central Bank must decide on its liquidation under legal terms.
5. The Provisional Special Administration may be lifted as provided for in paragraphs 1 and 2 of this article only after the institution has paid or formally agreed, in writing, with the Central Bank, for the payment of the advanced resources for liquidity support.
6. The Provisional Special Administration must present to the Central