Decision No. 18 Concerning Supervisory Commissioners

Decision No. 18 Concerning Supervisory Commissioners Chairman of the Financial Markets Authority / Governor of the Central Bank of Lebanon, Based on Law No. 161 dated August 17, 2011, concerning Financial Markets, particularly Article Fifteen thereof, and based on the decision of the Financial Markets Authority Council No. 15/13/9, taken in its meeting held on August 31, 2015, Decides as follows:

Article 1: The provisions of this Decision shall apply to the supervisory commissioners of institutions and companies operating in Lebanon as financial brokers, on behalf of their clients and/or for their own account, within the meaning of Articles One and Two of Law No. 161 dated August 17, 2011 (concerning Financial Markets).

Article 2: Institutions and companies operating in Lebanon as financial brokers, on behalf of their clients and/or for their own account, shall be required to appoint supervisory commissioners to submit the financial disclosures prepared by them, as stipulated in Articles Forty and Forty-One of Law No. 161 dated August 17, 2011 (concerning Financial Markets), and the information concerning financial activities set forth in the attached Annex to this Decision, as a minimum.

Article 3: The supervisory commissioners of the aforementioned institutions and companies shall submit to the Supervision Department on Financial Markets such reports, documents, and information as may be requested by them in the course of performing their supervisory duties regarding financial activities, pursuant to the applicable laws and regulations.

Article 4: The supervisory commissioners of the aforementioned institutions and companies, upon submitting their reports to them, shall conduct additional audit or analysis for activities concerning the institutions and companies related to financial activities, which may be requested by the Financial Markets Supervision Unit directly from them in order to verify the compliance of these institutions and companies with the applicable regulations and decisions.

Article 5: This Decision shall take effect upon its publication in the Official Gazette.

Beirut, on August 31, 2015
Chairman of the Financial Markets Authority / Governor of the Central Bank of Lebanon Riad Tawfiq Saleh

Annex No. 1

-1 Annual Report on Financial Disclosures a- Inclusion of copies of on-balance sheet and off-balance sheet items on a comparative basis between the financial year subject to the report and the preceding financial year. b- Presentation of the profit and loss statement on a comparative basis between the financial year subject to the report and the preceding financial year. c- Explanation of the supervisory procedures performed by them for each item of on-balance sheet and off-balance sheet items, and the profit and loss accounts. d- Clear and comprehensive presentation of the following matters:
i. The value of financing granted to fund margins on activities, if existing, and the reclassification of this financing in the statements prepared for publication and reporting to reflect the correct image of the figures.
ii. Doubtful debts, provisioned allowances, and uncollected interest attributable to them, if existing.
iii. Credit and debit accounts with other group entities, if existing, on a gross basis rather than net.
iv. Off-balance sheet activities.
e- Explicit indication that they have verified:
i. Whether customer accounts are segregated from the institution's accounts (Balance Sheet Off).
ii. Whether customer accounts are deposited with brokers in a single omnibus account or in segregated accounts (Accounts Segregated) from each other and from the institution's accounts.
iii. Review of the clearing house activities and compliance with applicable circulars to ensure any daily loss exceedances do not exceed 2% of the core proprietary assets (according to Annex No. 10 of the Financial Markets Authority Decision).
iv. Review of the clearing house activities and compliance with applicable circulars to ensure any loss exceedances do not exceed 20% of the core proprietary assets (according to Annex No. 10 of the Financial Markets Authority Decision).
v. Review of the notional value (Value Notional) for open positions and comparison with free core proprietary assets (according to Annex No. 10 of the Financial Markets Authority Decision).
f- Confirmation that the statements prepared for publication and reporting reflect the correct image of the figures contained in the final statements submitted to the Financial Markets Authority, and clearly state the conclusions drawn. g- Mention of the aggregate materiality amounts adopted by them in audit procedures for each of on-balance sheet and off-balance sheet accounts, and revenue and expense accounts. h- Description of the nature and volume of each correcting entries and reclassifications performed that exceed their aggregate materiality thresholds. i- The supervisory commissioners shall explicitly indicate the extent of compliance by the institution with the adopted accounting rules and principles in recording on-balance sheet and off-balance sheet activities, revenues, and expenses, and highlight any changes in the rules followed for the preceding financial year, if existing, and their impact on comparative figures and adopted standards. j- Explicit indication that they have verified the accuracy of figures contained in accounting statements. k- Expressing opinions on financial statements and results of operations in accordance with adopted accounting rules, and clearly indicating that audit procedures were performed according to recognized supervisory accounting standards, within the paragraph specifying the scope of the audit. l- In case of qualifications, supervisory commissioners shall ensure their qualified opinion includes a comprehensive explanation of the reasons for such qualifications and their reflections on the financial position and results of operations. m- The supervisory commissioners shall express observations on weaknesses in the implemented internal control system (exclusively related to activities concerning instruments and securities) in the institution, and the significance and impact of these points on current and future operations. n- Proposals and recommendations submitted by supervisory commissioners to improve the internal control system (exclusively related to activities concerning instruments and securities) and to overcome current and potential challenges. o- Presentation of the institution's management views on these points and their responses thereto.

-2 Special Report of Supervisory Commissioners stipulated in Article 152 and Paragraph Three of Article 187 of the Monetary and Credit Law. a- Indication that they have verified all relationships and agreements between the institution and its board of directors members, and between the institution and other related institutions to the board of directors members, in accordance with provisions stipulated in Article 158 of the Commercial Law. b- Expressing opinions on statements submitted to him regarding their legality, if required. c- Verification that all financing subject to Articles 152 and 187 of the Monetary and Credit Law are included in this report. d- Detailed mention of the nature and type of relationships and activities existing between the institution and all group entities belonging to it or to which it belongs.

-3 Other Requirements a- Promptly notifying the Financial Markets Authority of:
i. Any difficulties or pressures encountered by them during the performance of their duties.
ii. Any violations requiring immediate reporting pursuant to laws, regulations, and circulars, which supervisory commissioners believe their mandated duties require them to report to the Authority.
b- Pursuant to Article 174 of the Commercial Law, the Authority draws the attention of supervisory commissioners that the scope of audit covers the institution's activities for the entire financial year, and not only at the date of annual account audit. c- Preparation of reports on procedures that may lead to increased risks of fraud or error, particularly when there is a possibility of an individual exceeding the control system limits or fraudulent transactions which are not detected due to the development and complexity of information technology systems, or lack thereof. d- Supervisory commissioners shall retain all documents, records, and evidentiary papers related to audit procedures in banks, financial institutions, and brokerage companies, and submit them to the Financial Markets Authority upon request.