UNION OF THE COMOROS

Unity - Solidarity - Development

President of the Union

Moroni, [Date]

DECREE No. 21-017/PR

Promulgating Law No. 20-027/AU of December 29, 2020, on the Restructuring and Resolution of Financial Institutions.

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THE PRESIDENT OF THE UNION,

HAVING REGARD TO the Constitution of the Union of the Comores of December 23, 2001, revised by referendum on July 30, 2018, particularly Article 64;

DECREES:

ARTICLE 1: Law No. 20-027/AU, on the Restructuring and Resolution of Financial Institutions, adopted on December 29, 2020, by the Assembly of the Union of the Comores, is hereby promulgated, the text of which follows:

"TITLE I: GENERAL PROVISIONS

CHAPTER I: DEFINITIONS, OBJECT, AND SCOPE

Article 1: Definitions

For the purposes of this Law, the following terms are defined as:

"Strategic Activities", activities and associated services that represent significant sources of revenue, profit, or franchise value for a financial institution;

"Critical Functions", activities, services, or operations whose interruption within the Union of the Comores is likely to cause severe shocks to the real economy or financial stability due to the size or market share of the establishment or group, its interdependence, with particular attention paid to the substitutability of these activities, services, or operations;

"Market Infrastructures", market infrastructures refer to payment systems, clearing systems, and securities settlement systems;

"Insolvency", the inability of a financial institution to honor its financial obligations and make corresponding payments using its available resources;

"Restructuring", the set of actions aimed at saving a credit institution in difficulty but whose situation is not irremediably compromised, and where it is still possible to restore its fundamental financial balances, management, and administration in accordance with regulations;

"Restructuring Plan Indicators", a restructuring plan contains alert indicators defined by a financial institution to allow the deliberative body and management to closely monitor the financial situation and, in the event of its deterioration, decide on the implementation of restructuring options;

"Resolution", the set of rules governing the crisis prevention and management mechanisms of financial institutions;

"Restructuring Plan", a document prepared and kept up to date by a financial institution in accordance with Chapter I of Title II;

"Resolution Plan", a plan prepared by the Central Bank of the Comores in accordance with Chapter III of Title III of this Law, which outlines the measures it may take to address the actual failure of a financial institution subject to this Law, based on information communicated by said institution;

"Internal Bailout", a mechanism that allows losses to be absorbed and equity to be rebuilt by the shareholders and creditors of an establishment subject to resolution proceedings.

Article 2: Object
This Law aims to establish the regime and procedures for restructuring and resolution applicable to financial institutions experiencing difficulties in the exercise of their activities that could have an immediate or foreseeable impact on their management and/or financial situation and/or create uncertainty and disruptions throughout the Comorian financial system.

Article 3: Scope
This Law establishes the restructuring and resolution regimes applicable to financial institutions operating within the territory of the Union of the Comores.

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TITLE II: RESTRUCTURING PLANS AND MEASURES

CHAPTER I - RESTRUCTURING PLANS

Article 4: Preparation and Submission Obligations Financial institutions shall prepare and submit to the Central Bank of the Comores a restructuring plan identifying measures that may be taken in the event of financial difficulty, in order to reduce or eliminate the causes of these difficulties and restore the financial position.

The restructuring plan presents various unfavorable macroeconomic hypotheses and scenarios, particularly systemic events and idiosyncratic stress situations adapted to the characteristics of the institution, which would lead to a deterioration of its financial situation and trigger restructuring measures.

The minimum elements to be included in the restructuring plan, the frequency of transmission and updating, the procedures for their evaluation by the Central Bank, as well as the conditions related to exemptions and simplified obligations, are defined by regulatory means by the Central Bank of the Comores.

Article 5: Validation of the Restructuring Plan The restructuring plan is approved by the deliberative body of the concerned institution before being submitted to the Central Bank of the Comores.

The restructuring plan is evaluated by the Central Bank of the Comores, which may require its revision to remedy identified deficiencies.

The content of the restructuring plan is not binding on the Central Bank of the Comores and confers no rights to the institution or third parties.

The management of the institution must immediately notify the Central Bank of the Comores of:
a) the presence of financial difficulties as measured by the restructuring plan indicators; b) the adoption of restructuring measures provided for in the restructuring plan; c) the adoption of measures not provided for in the restructuring plan aimed at reducing or eliminating the causes of financial difficulties and restoring the institution's financial position; d) The failure to take measures provided for in the restructuring plan if these prove inappropriate given the circumstances; e) Or any other event likely to compromise the establishment's situation.

Article 6: Insufficiency of the Restructuring Plan If the institution does not present a revised restructuring plan or does not adequately correct failures or potential obstacles to its implementation, the Central Bank of the Comores may inform the institution and request it to indicate, within the deadline it determines, any modifications made to its activity to remedy these gaps and obstacles.

If the institution does not propose the necessary modifications within the allotted time or if the Central Bank of the Comores considers the proposed modifications inappropriate or insufficient, the latter may determine the implementation of measures it deems necessary, taking into account the severity of the identified gaps and the impact of these measures on the activities of institutions, including:
a) reducing the risk profile; b) capital strengthening measures; c) revision of corporate strategy, via modification of the legal organization, governance structure, operational structure, or that of the group to which the institution belongs; d) legal separation between financial and non-financial activities at the group level to which the institution belongs; e) reduction of activities, operations, or agency network; f) reduction of the inherent risk of its activities and products; g) provision of additional information to the Central Bank of the Comores.

The preceding paragraph does not prevent the Central Bank of the Comores from applying any corrective intervention measures provided for by Law No. 13-003/AU relating to banking law.

CHAPTER II - EARLY INTERVENTION MEASURES AND PROVISIONAL ADMINISTRATION

SECTION I - GENERAL PROVISIONS

Article 7: Application of Measures
The Central Bank of the Comores may combine measures of different nature and take any measure set out in this chapter without prejudice to corrective actions taken previously.

Article 8: Obligation to Communicate
When an establishment is, for any reason, in a situation of insolvency, or at risk of becoming insolvent, the deliberative body must immediately inform the Central Bank of the Comores.

The deliberative body and/or the management of the institution must notify the Central Bank of the Comores of any of the following financial difficulty situations:
a) risk of violation of prudential rules and limits, including minimum levels of equity and/or liquidity; b) significant decrease in deposits; c) significant deterioration of the institution's assets or significant losses, even without immediate recognition in financial statements; d) deterioration of liquidity likely to compromise the institution's ability to meet its maturities; e) financing difficulties to meet the institution's cash flow needs; f) difficulties for shareholders to provide the necessary funding for a capital increase, in order to comply with legal and regulatory provisions; g) occurrence of legal or regulatory changes, in the Comoros or abroad, having a significant impact on the institution's activity; h) occurrence of events likely to have a significant negative impact on results, capital, or liquidity, as well as on the operational continuity of the institution; i) Or any other situation likely to compromise the viability of the institution.

In the event of failure to notify the information provided for in the preceding paragraphs, the members of the deliberative body and/or management are individually liable, and the Central Bank of the Comores may impose the resignation of the deliberative body or management. In this case, the provisions of paragraph 4 of Article 11 apply, and the termination of the employment contract would not be attributable to the institution, and the employee cannot claim damages of at least equal to the remuneration they would have received until the end of the contract.

Without prejudice to any other communication obligations provided by law, the deliberative body and/or management or any of its members, as well as holders of participations, must immediately report to the Central Bank of the Comores any serious irregularity or financial deterioration of which they may have knowledge.

The notification obligation provided for in the preceding paragraphs shall remain in effect after the cessation of functions or the end of the holding of participations regarding facts observed during the exercise of these functions or the holding of these participations.

Following these communications, the Central Bank of the Comores may at any time require any information it deems necessary, within a timeframe it sets.

SECTION II - EARLY INTERVENTION MEASURES

Article 9: Early Intervention Measures
The Central Bank of the Comores may require institutions that do not comply or are at risk of not complying with the rules governing their activity to immediately take the measures or actions it deems necessary to remedy this situation.

For the purposes of the preceding paragraph, the Central Bank of the Comores may determine the application of appropriate measures, including:
a) preparation and submission by the institution of an action plan identifying and proposing adapted solutions to ensure compliance or reduce the risk of non-compliance with legislative or regulatory provisions governing its activity; b) implementation by management of the measures set out in the restructuring plan; c) imposition of additional equity requirements beyond those fixed by law and adjustment of the provisioning level; d) strengthening of governance, internal control, and risk assessment mechanisms; e) restriction or limitation of the institution's activities or operations; f) prohibition or limitation of dividend distribution and interest payments; g) restrictions on deposit remuneration terms; h) limitation of variable remuneration for any employee when such remuneration is not compatible with maintaining an adequate capital level; i) imposition of additional or more frequent reporting obligations, particularly regarding capital and liquidity; j) submission of certain operations or acts to the prior approval of the Central Bank of the Comores; k) obligation to present a debt restructuring statement with relevant creditors, in accordance with the restructuring plan where applicable; l) an audit of all or part of the institution's activity by an independent entity designated by the Central Bank of the Comores, at the institution's expense; m) a modification of the institution's structure, including the removal or modification of existing management positions, or the early termination of a manager's functions; n) engagement with potential investors likely to acquire the rights and obligations of the institution, including its assets, liabilities, off-balance sheet items, as well as shares or other securities representing its share capital.

Holders of management positions or other positions that have ceased their functions in accordance with this Law must demonstrate cooperation and provide as soon as possible all information requested by the Central Bank of the Comores or the institution.

Article 10: Action Plan
The action plan provided for in the previous article is submitted to the Central Bank of the Comores for approval within the deadline set by the latter.

The Central Bank of the Comores may, at any time, set mandatory conditions for the acceptance of the action plan.

If shareholders or the management body do not respect the conditions set out in the preceding paragraph, or if the action plan approved by the Central Bank of the Comores is not implemented by the institution, the Central Bank of the Comores may decide to suspend the board of directors and appoint provisional administration, or withdraw the authorization of the institution or responsible managers, without prejudice to the possibility of applying one or more additional resolution measures.

SECTION III - PROVISIONAL ADMINISTRATION

Article 11: Suspension and Revocation of Members of Management Bodies and Board of Directors. The Central Bank of the Comores may suspend or revoke one or more members of the management body and/or the board of directors when:

a) early intervention measures prove insufficient to remedy significant deterioration and financial restructuring of the institution; b) any of the following situations is likely to endanger the financial balance or solvency of the institution:
i. detection of a serious or repeated violation of laws and regulations governing the institution's activity, as well as its statutes and internal procedures;
ii. existence of serious suspicions of irregularities in the management of the institution;
iii. existence of reasonable grounds to suspect the inability of shareholders or members of the institution's management body to ensure sound and prudent management or to financially restructure the institution;
iv. existence of reasonable suspicions and other irregularities jeopardizing the interests of depositors and creditors;
v. presence of serious suspicions of irregularity in the steering of the institution's policy and the observation of actions harmful to the institution, its depositors, and creditors, emanating from a member of the board of directors and/or the permanent representative of the legal entity member of the board of directors.

Members of the management body who have ceased their functions under the previous article must demonstrate cooperation by providing all information required by the Central Bank of the Comores or the institution when deemed necessary.

The cessation of functions of management body members provided for in paragraph 1 cannot give rise to the indemnities provided for contractually or by legislative provisions.

By derogation from Article 53 of Law No. 12-012/AU of June 28, 2012, establishing the labor code, the termination of the employment contract entered into under the first paragraph does not entitle the worker linked to the establishment by a fixed-term employment contract to receive damages of at least equal to the remuneration they would have received until the end of the contract.

Article 12: Appointment, Powers, Cessation of Functions, and Replacement of Provisional Administrators

When it considers that the suspension or revocation of management body members is not sufficient to resolve one of the situations described in the previous article, the Central Bank of the Comores may, by reasoned decision, designate one or more provisional administrators for the institution.

Without prejudice to other functions legally provided for or that may be set by the Central Bank of the Comores, the following missions are imposed on provisional administrators:

a) inform the Central Bank of the Comores about the financial situation and management of the institution during the period of provisional administration, through the preparation of periodic reports as well as at the end of their mandate; b) respect the general guidelines and strategic objectives defined by the Central Bank of the Comores for the accomplishment of its mission; c) provide all information required by the Central Bank of the Comores on any question related to its activity and the institution; d) exercise, subject to the prior approval of the Central Bank of the Comores, the powers described in the following paragraph.

In addition to the powers conferred by banking law and any other administrative regulation, provisional administrators also have the power:

a) to oppose deliberations of the General Assembly that could undermine the objectives of the measures aimed at or implemented by the Central Bank of the Comores to safeguard the viability and financial stability of the institution; b) to veto deliberations of other management bodies of the institution; c) to convene the General Assembly of the institution and set the agenda in accordance with the legal and regulatory provisions governing the institution; the summons to these assemblies may be made by any means leaving a written record; the Central Bank of the Comores may participate in these general assemblies when its presence is necessary and/or required by one or more shareholders of the financial institution, or when the situation of the establishment justifies it; d) to undertake a detailed assessment of the financial situation of the institution, in accordance with the hypotheses defined by the Central Bank of the Comores; e) to submit proposals to the Central Bank of the Comores for the financial restructuring of the institution; f) to ensure that any irregularity committed previously by the institution's bodies or by any of its members is promptly corrected; g) to adopt measures they deem appropriate in the interest of depositors and the financial situation of the institution; h) to promote an agreement between shareholders and creditors on measures allowing the institution to financially restructure, including renegotiation of debt terms, conversion of debt into equity, reduction of share capital to cover losses, increase of share capital, or sale of part of the business to another regulated institution; i) to manage all or part of the strategic activity sectors of the institution; j) to order financial and legal audits of the institution; k) to organize the provisional administration of subsidiaries and branches established throughout the territory of the Union of the Comores that have benefited from the authorization of the financial institution; l) to organize the provisional administration of affiliated savings banks established throughout the territory of the Union of the Comores that have benefited from the authorization of the network.

If necessary, the Central Bank of the Comores appoints a secondary provisional administrator for subsidiaries, branches, or affiliated savings banks installed in all territories of the Union of the Comores.

The Central Bank of the Comores may subordinate certain acts to be performed by provisional administrators to its prior approval, as well as limit some of the powers set out in the preceding paragraphs.

When appointing provisional administrators, who may be recruited abroad if necessary, the Central Bank of the Comores will take into account criteria of aptitude, professional qualification, availability, and independence, and the criteria for approving responsible managers of financial institutions will apply accordingly. The provisional administrator must not be subject to ongoing criminal proceedings for offenses related to financial delinquency, and/or must not have any conviction, incompatibility, forfeiture, or prohibition covered by banking regulation.

The provisional administrator must not, during the previous five (5) years, have received, under any title whatsoever, directly or indirectly, remuneration or payment from the financial institution or a person who controls the financial institution, nor have been in a situation of subordination relative to the financial institution, nor have been part of the deliberative or management body by decision or injunction of the Central Bank of the Comores.

The provisional administrator must not be among the current or former administrators or independent administrators, de jure or de facto managers who have been subject to a decision of revocation, dismissal, resignation for cause, or withdrawal of authorization for disciplinary reasons. Furthermore, they must have no interest in the financial institution or real, apparent, or potential conflict of interest, nor have been subject to an action ut universi and/or ut singuli.

Provisional administrators exercise their functions for the duration fixed by the Central Bank of the Comores.

The Central Bank of the Comores may extend the duration of the provisional administration or pronounce its lifting. The extension can only be granted once, and its duration cannot exceed the period initially provided by the Central Bank of the Comores based on the preceding paragraph.

The Central Bank of the Comores may at any time revoke provisional administrators or modify the functions and powers conferred upon them and/or proceed to their replacement, if necessary.

The remuneration of provisional administrators is fixed by the Central Bank of the Comores and borne by the institution.

The decision to place a financial institution under provisional administration is not subject to the prior adoption of other early intervention measures and does not affect the application of these measures.

Article 13: Responsibility