Law No. 119/AN/11/6th L on the Establishment and Supervision of Credit Institutions and Financial Auxiliaries

R E P U B L I C O F D J I B O U T I UNITY-EQUALITY-PEACE

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PRESIDENCY OF THE REPUBLIC

Law No. 119/AN/11/6th L On the establishment and supervision of credit institutions and financial auxiliaries.

THE NATIONAL ASSEMBLY HAS ADOPTED THE PRESIDENT OF THE REPUBLIC PROMULGATES THE LAW WHOSE TEXT FOLLOWS

HAVING REGARD TO the Constitution of 15 September 1992; HAVING REGARD TO Law No. 191/AN/86/1st L of 03 February 1986 on commercial companies; HAVING REGARD TO Law No. 196/AN/02/4th L of 29 December 2002 on money laundering, confiscation, and international cooperation regarding proceeds of crime; HAVING REGARD TO Law No. 117/AN/11/6th L establishing, organizing, and governing the operation of financial cooperatives; HAVING REGARD TO Law No. 91/AN/05/5th L of 16 January 2005 approving the statutes of the Central Bank of Djibouti; HAVING REGARD TO Law No. 92/AN/05/5th L of 16 January 2005 on the opening, activity, and supervision of credit institutions; HAVING REGARD TO Law No. 179/AN/07/5th L of 16 May 2007 regulating microfinance activities on the territory of the Republic of Djibouti; HAVING REGARD TO Decree No. 2008-0083/PRE of 26 March 2008 appointing the Prime Minister; HAVING REGARD TO Decree No. 2008-0084/PRE of 27 March 2008 appointing members of the Government; HAVING REGARD TO the amended Decree No. 2002-0133/PR/MEF establishing the Djibouti Economic Development Fund; HAVING REGARD TO Decree No. 97-142/PR/MJ M on the organization of the profession and professional status of statutory auditors of companies;

The Council of Ministers heard in its session of 14 December 2010.

HAVING REGARD TO Circular No. 12/PAN of 12/01/11 convening the fourth public session of the 2nd Ordinary Session of 2010,

HAS ADOPTED, IN ITS SESSION OF 16/01/2011, THE LAW WHOSE TEXT FOLLOWS:

TITLE 1: GENERAL PROVISIONS

Chapter 1: On the definition of financial institutions and the scope of application of the law

Article 1: On the definition of financial institutions

1. Financial institutions include:

• credit institutions, as defined in Article 3;
• financial auxiliaries, as defined in Article 10;
• microfinance institutions, as defined in point 3 of Article 1 of the aforementioned Law No. 179/AN/07/5th L;

2. The following are excluded from the scope of financial institutions:

• the Central Bank of Djibouti;
• the National Treasury;
• the Post Office;
• international financial institutions, foreign public aid or cooperation institutions, whose activity on Djiboutian territory is authorized by treaties, agreements, or conventions to which the Republic of Djibouti is a party.

Article 2: On the scope of application of the law

1. Except for Article 1, only credit institutions and financial auxiliaries operating on Djiboutian territory are subject to this law, regardless of their legal status, the location of their registered office or principal establishment in the Republic of Djibouti, as well as the nationality of their shareholders or partners and their management.

2. By derogation from the second paragraph of Article 1 and the first paragraph of this Article, the Post Office is subject to the provisions of Titles 4 to 7 for its manual foreign exchange and fund transfer activities abroad, as defined in Articles 11 and 12.

Chapter 2: On credit institutions

Article 3: On the definition of credit institutions

Credit institutions are legal entities that habitually perform banking operations, as defined in Article 4. They may also, on an ancillary basis, carry out ancillary operations related to their activity, the list of which is detailed in Article 8.

Article 4: On the definition of banking operations

Banking operations consist of receiving funds from the public, granting credits or commitments by signature, as well as making available or managing payment instruments.

Article 5: On the receipt of funds from the public

1. Funds collected by a person from a third party, notably in the form of a deposit, with the right to dispose of them for their own account, but under the obligation to return them with or without interest, are considered funds received from the public.
2. The consideration for the issuance of cash certificates is considered funds received from the public.
3. Funds received from shareholders, directors, management, and employees of the credit institution are considered funds received from the public, provided they do not differ, particularly regarding remuneration conditions, from those collected from clients.
4. Participatory loans and funds received from other financial institutions are not considered funds received from the public.

Article 6: On the granting of credits and commitments by signature

1. A credit operation consists of: a - any act by which a person makes or promises to make funds available to another person, under the obligation for the latter to return them; b - any granting of a commitment by signature such as a guarantee, surety, or collateral.
2. The following are thus considered credit operations: loan operations, discounting, repurchase agreements, guarantee operations, financing of credit sales, leasing, and generally any leasing operation accompanied by a purchase option, as well as factoring operations consisting of purchasing commercial receivables held by a company for the purpose of collecting them.

Article 7: On the making available and management of payment instruments

1. Payment instruments are considered all instruments that, regardless of the medium or technical method used, allow any person to receive or transfer funds, or to settle a debt by a monetary means.
2. Making payment instruments available consists of issuing payment instruments, whether they concern book money or any other form of money.
3. Managing payment instruments consists of processing claims and debts associated with the use of payment instruments.
4. However, by exception to Article 3, fund transfers abroad, as defined in Article 12, may also be carried out by fund transfer offices, as referred to in Article 10.

Article 8: On ancillary operations to banking operations

1. Credit institutions are authorized to carry out, for their own account or for third parties, but as ancillary to their main activity, all or part of the ancillary operations to banking operations, comprising:

• manual foreign exchange activity, as defined in Article 11;
• fund transfer activity abroad, as defined in Article 12;
• cash transports within the Republic of Djibouti or between it and abroad;
• safe deposit box rental;
• operations on gold, precious metals, and coins;
• placing, subscribing, purchasing, managing, and holding securities and any financial product, within the limits of the legislative or regulatory texts governing them;
• advice and assistance in wealth or financial management, and financial engineering.

3. Any activity not included in the list of operations enumerated in the first paragraph 1 of this Article may only be carried out subject to specific authorization from the Central Bank of Djibouti.

Article 9: On the different categories of credit institutions

1. Credit institutions are divided into three categories: banks, financial companies, and specialized financial institutions.
2. Only banks are authorized to perform all banking operations, as referred to in Article 4.
3. Financial companies may perform all banking operations referred to in Article 4, except for the receipt of funds from the public.
4. Specialized financial institutions are legal entities authorized to perform certain banking operations referred to in Article 4. The Djibouti Economic Development Fund falls under this category. 5 - The Central Bank of Djibouti may, where appropriate, specify by instruction all forms of activities that may be carried out by specialized financial institutions.

Chapter 3: On financial auxiliaries

Article 10: On the definition of financial auxiliaries

1. Financial auxiliaries consist of:

• money changers exclusively performing manual foreign exchange activity, as defined in Article 11;
• fund transfer offices exclusively performing fund transfer activity, as defined in Article 12.

2. The same financial auxiliary may simultaneously perform manual foreign exchange and fund transfer abroad activities, including at the same counters, provided it has been approved by the Central Bank of Djibouti to do so, according to the procedures set out in Title 3.

Article 11: On the definition of manual foreign exchange activity

Manual foreign exchange activity, as defined by this law, is that defined in the first paragraph of Article 2-2-9 of the aforementioned Law 196/AN/02/4th L, consisting of the immediate exchange of banknotes or currencies denominated in different currencies and the delivery of cash against settlement by another payment method denominated in a different currency. Manual foreign exchange activity may only be performed as a principal activity by a financial auxiliary.

Article 12: On the definition of fund transfer activity

1. Fund transfer activity consists of:

• on the one hand, the receipt by a legal entity of a sum in Djiboutian francs or foreign currency, with a view to making it available to another person, called the beneficiary, located in the Republic of Djibouti or abroad;
• on the other hand, the making available of a sum in Djiboutian francs or foreign currency to a natural or legal person residing in the Republic of Djibouti, at the request of another person, called the ordering party, located in the Republic of Djibouti or abroad.

2. Fund transfer activity may only be performed by a financial auxiliary or a credit institution.

TITLE 2: Rules for the establishment and approval of credit institutions

Chapter 1: On the legal form and capital of credit institutions

Article 13: On the legal form of credit institutions

1. Credit institutions must be established in the form of a public limited company (société anonyme) or a financial cooperative under Djiboutian law.

2. Credit institutions established in the form of public limited companies are subject to the provisions of the aforementioned Law 191/AN/86/1st L, provided they are not contrary to the prescriptions of this law, which shall then apply.

3. By derogation from the first paragraph of Article 89 of the aforementioned Law 191/AN/86/1st L, the limitation to three members of the board of directors does not apply to credit institutions established in the form of a public limited company.

Article 14: On the amount of capital of credit institutions

The amount of the share capital of a credit institution, if established in the form of a public limited company, or its partnership shares, if it takes the legal form of a cooperative, must permanently be at least equal to:

• 1 billion Djiboutian francs for banks referred to in the second paragraph of Article 9 of this law;
• 200 million Djiboutian francs for financial companies referred to in the third paragraph of Article 9;
• an amount fixed by the texts governing them, for specialized financial institutions referred to in the fourth paragraph of Article 9.

Article 15: On the form of shares and partnership shares as well as their holding

1. Shares or partnership shares issued by credit institutions must necessarily be in registered form.
2. Credit institutions are prohibited from acquiring their own shares or partnership shares.
3. Credit institutions are prohibited from granting loans secured by their own shares or partnership shares.

Article 16: On the allocation of share capital or partnership shares

The Central Bank of Djibouti sets, by instruction, the rules for the allocation of share capital or partnership shares for the portion equal to the minimum provided for by the provisions of Article 14.

Chapter 2: On the approval of credit institutions by the Central Bank of Djibouti

Article 17: On the obligation of approval for credit institutions

1. No one may exercise the activity of a credit institution, nor claim this status, nor create the appearance of it, in its name or corporate title, trade name, advertising, or in any manner in its activity, unless it has been previously approved by the Central Bank of Djibouti.
2. The list of documents constituting the approval application file is fixed by instruction of the Central Bank of Djibouti.

Article 18: On prohibitions to exercise certain functions in a credit institution or hold its capital

1. No one may exercise, within a credit institution, the function of responsible manager, as defined in Article 24, be a member of its supervisory or executive body, or hold more than 10% of its capital, if they have been subject to a final conviction, pronounced by a court of the Republic of Djibouti or a foreign jurisdiction, for crime, forgery and use of forgery, theft, fraud, breach of trust, bankruptcy, and fraudulent insolvency, extortion of funds or valuables, misappropriation of public funds.
2. Any conviction for attempt or complicity in the offenses enumerated in the first paragraph of this Article entails the same prohibition.
3. Approved credit institutions are required to open an account in their name in the books of the Central Bank of Djibouti.
4. Set-off between the reciprocal obligations of credit institutions takes place at the places, days, and hours prescribed by the Central Bank. The movements resulting from it are recorded and carried out using the accounts they hold in the books of the Central Bank.

Article 19: On the examination of the approval application by the Central Bank of Djibouti

1. Approval applications are processed by the Central Bank of Djibouti, which verifies whether the persons seeking approval meet the conditions and obligations provided for by this law as well as those that may be set by instructions of the Central Bank of Djibouti.
2. In examining the approval application, the Central Bank of Djibouti takes into account in particular:

• the legal form of the institution;
• the amount and distribution of capital;
• the quality of capital contributors and, where applicable, guarantors;
• compliance with the requirements set forth in Article 18;
• the quality of responsible managers, as defined in Article 24;
• the institution's activity program and the technical and financial means it plans to implement;
• the institution's ability to achieve its development objectives under conditions compatible with the proper functioning of the banking system and ensuring the security of its clients;
• its organization;
• the means implemented for controlling operations, to ensure their compliance with legislative and regulatory provisions, particularly those set in the fight against money laundering and financing of terrorism, by the aforementioned Law 196/AN/02/4th L.

Article 20: On conditional approval

The Central Bank of Djibouti may approve a credit institution, provisionally for a period limited to 6 months, subject to commitments taken by the institution to implement obligations set by the Central Bank of Djibouti.

Article 21: On the notification and publication of the approval decision

1. The Central Bank of Djibouti notifies its decision in writing, whether approval or refusal.
2. The granting of approval, referred to in the first paragraph of this Article, must be published by the beneficiary in a national press journal of the Republic of Djibouti as soon as it is notified by the Central Bank of Djibouti.
3. The beneficiary sends a copy of the publication to the Central Bank of Djibouti.

Article 22: On the publication of the list of approved credit institutions

The list of approved credit institutions is published at least once a year by the Central Bank of Djibouti.

Article 23: On the Professional Association of credit institutions

1. Credit institutions are grouped within a professional association of credit institutions of Djibouti.
2. This association aims to represent the collective interests of credit institutions, notably before public authorities, and to promote cooperation among them as well as the organization and management of services of common interest.
3. Any newly approved credit institution must, within one month of its approval, join the professional association of credit institutions of Djibouti.

Chapter 3: On the responsible managers of credit institutions

Article 24: On the designation of responsible managers

1. The general management of a credit institution must be ensured by at least two natural persons, referred to as "responsible managers," who are subject to authorization by the Central Bank of Djibouti. This authorization is notified to them. These persons cannot be responsible for another company, unless it is a financial institution, as defined in the first paragraph of Article 1.
2. The role of responsible managers is to ensure the effective determination of the credit institution's activity orientation. The nature and functions they exercise must allow each of them to have complete and in-depth knowledge of the entire activity of the institution.
3. Credit institutions communicate to the Central Bank of Djibouti the name and functions of their responsible managers, as well as all elements allowing an assessment of their competence, integrity, and experience.
4. Managers and holders of more than 10% of the share capital must, in writing, swear on honor not to be in any way in violation of Article 18 of this law and to act within the framework of their function and power in respect of said law.
5. Any change of a responsible manager must be immediately brought to the knowledge of the Central Bank of Djibouti, according to the procedures set out in the third paragraph of this Article.
6. For credit institutions established in the form of a public limited company, the chairman of the board of directors, referred to in the first paragraph of Article 110 of the aforementioned Law 191/AN/86/1st L, or the chairman of the executive board, mentioned in the first paragraph of Article 120 of said law, constitutes de facto one of the responsible managers.

Article 25: On the qualification of responsible managers

1. No one may exercise the function of responsible manager, as defined in Article 24, unless they possess the necessary professional and moral qualities to practice the profession.
2. Responsible managers must hold a higher education degree and justify at least five years of professional experience in management functions. At least one of them must justify at least five years of experience in the banking or financial sector.
3. At least one of the responsible managers must have written and oral mastery of one of the official languages of the Republic of Djibouti.

TITLE 3: Rules for the establishment and approval of financial auxiliaries

Chapter 1: On the legal form and capital of financial auxiliaries

Article 26: On the legal form of financial auxiliaries

1. Financial auxiliaries exclusively performing manual foreign exchange activity may be natural or legal persons.
2. Financial auxiliaries performing fund transfer abroad activity must be established in the form of one of the commercial companies defined by the aforementioned Law 191/AN/86/1st L or a cooperative.

Article 27: On the minimum capital of financial auxiliaries

1. Financial auxiliaries established in the form of a commercial company or cooperative must permanently justify a capital of a minimum amount fixed at:

• 20 million Djiboutian francs for money changers;
• 50 million Djiboutian francs for fund transfer offices.

2. The Central Bank of Djibouti sets, by instruction, the rules for the allocation of share capital or partnership shares for the portion equal to the minimum provided in the first paragraph.
3. Money changers not having the form of a company are required to hold a guarantee from a credit institution, in the amount of 20 million Djiboutian francs, or to deposit this same amount with the Central Bank.

Chapter 2: On the manager of the financial auxiliary

Article 28: On the designation of the manager of the financial auxiliary and its notification to the Central Bank of Djibouti

1. Financial auxiliaries are required to notify the Central Bank of the name of their manager, a natural person, to it, as well as all elements allowing an assessment of their competence, integrity, and experience.
2. The manager of the financial auxiliary must comply with the requirements enumerated in Article 18 and meet the criteria of the first and third paragraphs of Article 25.
3. The decision to change the manager must be immediately brought to the knowledge of the Central Bank of Djibouti, according to the procedures set out in the first paragraph of this Article.

Chapter 3: On the approval of financial auxiliaries by the Central Bank of Djibouti

Article 29: On the obligation of approval for financial auxiliaries

Subject to the application of the option given to the Central Bank of Djibouti in the third paragraph of Article 2, no one may exercise the activity of a financial auxiliary, nor claim this status, nor create the appearance of it, in its name or corporate title, trade name, advertising, or in any manner in its activity, unless it has been previously approved by the Central Bank of Djibouti.

Article 30: On the examination of the approval application by the Central Bank of Djibouti

Approval applications for financial auxiliaries are processed by the Central Bank of Djibouti, which verifies whether they meet the conditions provided for by this Title.

Article 31: On the notification and publication of the approval decision

1. The Central Bank of Djibouti notifies its decision in writing, whether approval or refusal.
2. The granting of approval, referred to in the preceding paragraph, must be published by the beneficiary in a national press journal of the Republic of Djibouti as soon as it is notified by the Central Bank of Djibouti.
3. The beneficiary sends a copy of the publication to the Central Bank of Djibouti.

Article 32: On the publication of the list of financial auxiliaries

The list of approved financial auxiliaries is published at least once a year by the Central Bank of Djibouti.

TITLE 4: D