Law No. 6/2015 Establishes Rules for the Supervision and Control of Banking Institutions in São Tomé and Príncipe

Wednesday, December 30, 2015

Number 165

[IMAGE OF THE COAT OF ARMS OF SÃO TOMÉ AND PRÍNCIPE]

SÃO TOMÉ AND PRÍNCIPE

OFFICIAL GAZETTE

SUMMARY

NATIONAL ASSEMBLY

LAW NO. 6/2015

Establishes Rules for the Exercise of Supervision and Control of Banking Institutions Established in São Tomé and Príncipe.

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NATIONAL ASSEMBLY

LAW NO. 6/2015

Special Measures for the Sanitation, Resolution and Liquidation of Banking Institutions

Preamble

The National Assembly decrees, under the terms of paragraph b) of Article 97 of the Constitution, the following:

CHAPTER I General Provisions on Sanitation Measures

Section I General Provisions

Article 1. Object

This Law establishes rules for the exercise of supervision and control of banking institutions established in São Tomé and Príncipe, defining prevention, sanitation, resolution and liquidation measures aimed at safeguarding the financial soundness of these institutions, the interests of depositors and the stability of the financial system.

Article 2. Definitions

For the purposes of this Law, the following shall be understood as:

a) Acting in concert – acting based on an agreement, understanding, or formal or informal commitment to actively cooperate to hold voting shares in a company.

b) Banking institutions – companies whose activity consists of receiving deposits or other repayable funds from the public in order to lend them out on their own account, and are identified under the name “bank” in the Financial Institutions Law.

c) Control is considered to exist when the person:

i. Directly or indirectly, or acting through one or more persons, owns or controls 10% or more of the shares of the institution or voting rights deriving from said shares;

ii. Has the power to appoint the majority of the institution’s directors;

iii. Exercises significant influence over the management, operations or policies of the institution, as established by regulation of the Central Bank.

d) Central Bank – Central Bank of the Democratic Republic of São Tomé and Príncipe according to the definition provided in Law No. 08/92 – Organic Law of the Central Bank or any other law that amends or repeals it.

e) Financial Institutions Law – Law No. 09/92 or any other law that amends or repeals it.

f) Person – natural person, legal entity, or both.

g) Principal shareholder – any person holding a participation equal to or greater than 10% of the share capital or a significant participation in the bank.

h) Persons connected to banking institutions are:

i. The directors, thus considered to be members of the board of directors and managers, including branch/agency managers;

ii. Members of the supervisory board;

iii. Companies controlled by the bank or principal shareholders and directors thereof;

iv. The spouse, parents, relatives or in-laws up to the third degree, of a director or a member of the supervisory board, or of a director or principal shareholder/stockholder of the controlled company, or of any branches or affiliates;

v. The company in which any of the persons referred to in the preceding subparagraphs holds directly or indirectly a participation equal to or greater than 10% of the share capital;

vi. The principal shareholders of the banking institution and the companies controlled by them, directly or indirectly.

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i) Qualified participation – direct or indirect holding in a company by a person acting in concert with one or more persons in the institution, representing 10% or more of the share capital or voting rights that make it possible to exercise control over the company, as determined by the Central Bank.

Article 3. Competence

1. It is the responsibility of the Central Bank to intervene in banking institutions within the scope of prevention, management and resolution of crises, aimed at safeguarding the financial soundness of the institution in difficulty, the interests of depositors/creditors and the stability of the financial system.

2. The application of prevention, management and resolution measures for banking crises is subject to the principles of necessity, appropriateness and proportionality, taking into account, inter alia, the risk or degree of non-compliance by banking institutions with good practices in the banking business, legal and regulatory rules and requirements governing their activity. The severity of the impact of such non-compliance on the financial soundness of banking institutions, the interests of depositors/creditors and the stability of the financial system shall be considered.

Section II Preventive and Corrective Measures

Article 4. Duty to Report

1. When any member of the administrative and supervisory bodies of a banking institution finds that the bank is unable to meet its obligations or is at risk of becoming so, or has engaged or may engage in unlawful practices or conduct likely to place it in a situation of financial imbalance, such member must immediately report the fact to the Central Bank.

2. Members of the administrative and supervisory bodies are individually obliged to make the report referred to in the preceding paragraph, which must be made as quickly as possible and no later than two business days after they become aware of the situation in question, indicating the reasons for its emergence.

3. Upon receipt of the report referred to in the preceding paragraph, the Central Bank adopts measures consistent with the characteristics of the reported situation, in accordance with applicable laws and regulations.

4. Failure to report or delays in reporting, as provided for in this Article, are punishable by the sanctions provided for in the Financial Institutions Law.

Article 5. Preventive Plan

1. Banks must submit to the Central Bank:

a) A recovery and sanitation plan, with the objective of identifying the measures the institution has implemented, and those that are likely to be implemented, to timely correct a situation of financial imbalance, or the risk that such a situation may occur;

b) A resolution plan, with the objective of providing necessary information to ensure that the Central Bank has the possibility to proceed with an orderly resolution of the institution, should the conditions for applying resolution measures arise.

2. The Central Bank shall define, by regulation, the contents of the plan referred to in paragraph 1, as well as any other additional rules necessary for the application of this Article.

3. The plans referred to in paragraph 1 must be approved by the bank’s board of directors, the contents of which shall not be disclosed to any person, including the bank’s shareholders, even if it is an institution listed on a regulated market, except for persons involved in their respective preparation and approval.

4. The plans referred to in paragraph 1 must be reviewed by the banks:

a) At a frequency of not less than once a year, to be defined by regulation of the Central Bank;

b) After the occurrence of any event related to the legal-corporate organization, operational structure, business model or financial situation of the institution that could have a relevant impact on the execution of the plans;

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c) When any change occurs in the assumptions used for their preparation, with a relevant impact on their implementation;

d) Whenever the Central Bank requests it, considering the provisions of subparagraphs b) or c).

5. Without prejudice to the provisions of paragraph 1, the parent institution of a group subject to consolidated supervision must submit to the Central Bank a recovery plan and a resolution plan, with reference to all entities integrated within the scope of consolidated supervision.

6. The contents of the plans submitted in accordance with this Article do not bind the Central Bank and do not confer on banks or third parties any right to the execution of the measures provided for.

7. The Central Bank may exempt a bank covered by paragraph 1 from submitting the plans provided for, based on any of the following criteria:

a) The bank’s market share in deposits being less than 2%;

b) The limited relevance of the bank within payment, clearing and settlement systems;

c) The limited size and importance of the bank in terms of number of clients within the national or regional context of the national banking or financial system.

8. The application of the provisions of this Article may be carried out gradually by the Central Bank, depending on the situation and development perspective of the financial system, over a period not exceeding five years, from the date of entry into force of this Law.

9. The application of the provisions provided for in this Article does not prejudice the other provisions of this Law that require banks to submit recovery and resolution plans to the Central Bank.

Article 6. Corrective Measures

1. The Central Bank may require banking institutions that fail to comply with the rules regulating banking activity or engage in unlawful practices in the banking sector to quickly adopt measures or actions necessary to correct the situation.

2. For this purpose, the Central Bank may issue specific instructions or directives, determine the application of appropriate sanctions and adopt the following measures:

a) Require the restoration of liquidity levels at values the Central Bank considers appropriate to the circumstances of the case in question;

b) Require banking institutions to hold capital above the minimum legally established;

c) Require banking institutions to adopt a policy of setting aside provisions or asset treatment for capital requirement purposes;

d) Require the strengthening of provisions, processes, mechanisms and strategies created for the purpose of corporate governance, internal control and risk self-assessment;

e) Restrict or limit the business, operations or network of banking institutions;

f) Reduce the risks inherent to the activities, products and systems of banking institutions, including:

i. Restriction on receiving deposits based on their respective modalities and interest rates; and

ii. Restriction on granting credit and investing funds in certain types of assets, particularly transactions carried out with institutions that have a relationship of dominance or group affiliation with the banking institution in question, or other entities with which the banking institution in question has a relationship of dominance or group affiliation.

g) Require banking institutions to limit variable remuneration in the form of a percentage of net profits, when such is incompatible with maintaining a solid capital base;

h) Require the application of net profits to strengthen core capital;

i) Submit certain transactions or activities to prior approval by the Central Bank;

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j) Require that the average total asset, during a quarter, does not exceed the average total asset of the previous quarter, or require the diversification or alienation of certain asset elements;

k) Prevent the acquisition of participations, opening or acquisition of branches or agencies or the start of a new line of business;

l) Prevent remunerative interest rates on deposits from excessively exceeding comparable market rates in São Tomé and Príncipe;

m) Impose the dismissal of one or more directors;

n) Require the banking institution to make investments in subsidiaries or liquidate branches;

o) Restrict director remuneration;

p) Restrict the distribution of dividends or corporate assets;

q) Suspend the voting right(s) of the majority shareholder(s), in case of non-compliance with prior instructions and directives until compliance is observed;

r) Other measures necessary to correct the situation in question faced by the bank in question, including those as reported, in accordance with the preceding Article;

3. The measures provided for in the preceding paragraph must be adopted by the Central Bank, without prejudice to the application of any sanction provided for in the Financial Institutions Law.

Section III Sanitation Measures

Article 7. Sanitation Measures

1. The use of sanitation measures may occur in any of the following situations:

a) When a banking institution is in a situation of financial imbalance, reflected, inter alia, in the reduction of own funds to a level below the legal minimum or in the failure to comply with solvency or liquidity ratios;

b) When the bank adopts unlawful 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) In situations of undeniable gravity regarding the banking institution arising from any act by a principal shareholder that violates the law or any act of a serious nature or contractual non-performance resulting from a misaligned and unsuitable company, putting at risk the development of the common scope, which is the development of the institution’s activities.

2. For the purposes of applying subparagraph c) of the preceding paragraph, a misaligned and unsuitable company is one that results from any act by the principal shareholders of banks that violates their corporate duties and thus hinders the normal course of the bank’s activity or places it at substantial risk that prevents the continuity of its activities.

3. The Central Bank may determine the application of some or all of the following recovery and sanitation measures:

a) Submission, by the institution in question, of a recovery and sanitation plan;

b) Restrictions on the exercise of certain types of activity;

c) Restrictions on granting credit and investing funds in certain types of assets, especially regarding operations carried out with persons considered connected;

d) Restrictions on receiving deposits, based on their respective modalities and remuneration;

e) Imposition of the setting aside of special provisions;

f) Prohibition or limitation of dividend distribution;

g) Subjecting certain operations or certain acts to prior approval by the Central Bank;

h) Appointment of a Supervisory Commission;

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i) Appointment of Provisional Directors;

j) Other measures considered necessary for the sanitation and recovery of the bank, including any of the corrective measures provided for in the aforementioned Article 5.

Article 8. Recovery and Sanitation Plan

1. Upon the occurrence of any of the situations referred to in the preceding article, the Central Bank may require the bank in question to submit a recovery and sanitation plan, which, after obtaining the prior consent of the board of directors and the principal shareholders controlling the bank, must be submitted to the Central Bank for approval within a timeframe set by it.

2. The Central Bank may establish the conditions it deems appropriate for the acceptance of the recovery and sanitation plan, namely capital increase or reduction, alienation of corporate participations and other assets.

3. If the plan is not approved by the Central Bank or if the measures provided for therein are not complied with or involve amounts of such importance that they may jeopardize its implementation, the Central Bank, in the event of serious risk that the bank may be unable to honor its commitments, especially regarding the security of funds entrusted to it, may, as appropriate:

i. Impose an intervention program that, among other measures, defines the necessary capital increase and, if applicable, determines that it be preceded by the absorption of the bank’s losses by the relevant positive elements of its own funds;

ii. Appoint a supervisory commission in accordance with Article 9. and provisional directors, as provided for in Article 10., to implement the intervention program.

4. Instead of taking the decisions described in the preceding paragraph, the Central Bank may apply resolution measures provided for in Chapter II or submit the bank to an extrajudicial process, in accordance with Chapter III, as appropriate.

5. The measures provided for within the scope of the intervention program must encompass the recovery and sanitation plan provided for in paragraph 1 with the conditions established by the Central Bank, as well as the temporal limits of that intervention and the recomposition of its corporate bodies, if deemed appropriate.

6. If provisional directors are appointed to implement the intervention program, during the sanitation process, they are authorized to adopt measures in accordance with the program, without the prior consent of the bank’s shareholders.

Article 9. Appointment of Supervisory Commission

1. When any of the situations provided for in Articles 5. and 6. or in paragraph 1 of Article 8. occurs, the Central Bank may, together or not with the appointment of provisional directors, appoint a Supervisory Commission.

2. The Supervisory Commission must be composed of:

a) Two auditors appointed by the Central Bank, one of whom shall preside;

b) One member appointed by the general meeting;

3. The failure to appoint the member referred to in subparagraph b) of the preceding paragraph does not prevent the exercise of the functions of the Supervisory Commission.

4. The Supervisory Commission has the powers and duties conferred, by law or by the articles of association, on the supervisory board or sole auditor, depending on the company’s structure, which are suspended for the duration of its activity.

5. The Supervisory Commission exercises its functions for the period determined by the Central Bank, for a maximum of 90 (ninety) days, extendable twice by an equal period.

6. The remuneration of the members of the Supervisory Commission is fixed by the Central Bank and constitutes a charge on the institution in question.

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Article 10. Appointment of Provisional Directors

1. The Central Bank may appoint one or more provisional directors to the banking institution in the following cases:

a) In the face of any of the situations indicated in Articles 7. and 8.;

b) When, for any reason, the management does not offer guarantees of prudent activity, placing the interests of creditors at serious risk;

c) When the accounting organization or internal control procedures present serious deficiencies that do not allow for a proper assessment of the institution’s financial situation.

2. The provisional directors appointed by the Central Bank have the powers and duties conferred, by law and by the articles of association, 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 those measures provided for in the intervention program provided for in Article 8., without prior consent of the bank’s shareholders;

b) Veto resolutions of the General Meeting of shareholders;

c) Prepare, as soon as possible, a report on the institution’s financial situation and its causes and submit it to the Central Bank, including recommendations, within a period not exceeding 30 (thirty) days from the date of assumption of their functions;

d) Other prerogatives and duties to sanitize the bank, as determined by the Central Bank in the decision appointing the provisional directors.

3. With the appointment of provisional directors, the powers and functions of the administrative body, the general council and any other bodies with analogous functions are suspended.

4. Immediately after appointment, provisional directors must ensure the security of the bank’s real estate, offices, assets, books and records and may adopt all measures necessary for this purpose;

5. Upon request by the provisional directors, police authorities must provide assistance to allow access to all bank facilities and assume control and protect such real estate, offices, assets, books and records.

6. The directors, managers and employees of the bank must make available to the provisional directors all records, documentation and all additional information or reports requested.

7. Provisional directors exercise their functions for the period determined by the Central Bank, for a maximum of 90 (ninety) days, extendable twice by an equal period.

8. If provisional directors have reasonable grounds to believe that shareholders, directors, managers, lawyers, accountants or other professionals have committed fraudulent acts, they must immediately notify the Central Bank and initiate legal actions aimed at recovering damages caused.

9. The remuneration of provisional directors is fixed by the Central Bank and constitutes a charge on the institution in question.

Article 11. Other Measures

1. Together with the appointment of provisional directors, the Central Bank may determine the following measures:

a) Temporary exemption from compliance with prudential control or monetary policy rules;

b) Temporary exemption from punctual fulfillment of previously incurred obligations;

c) Temporary closure of counters and other facilities where transactions with the public take place.

d) Request the conduct of an external audit at the expense of the banking institution;

e) Request that the bank’s capital be partially reduced in order to absorb accumulated losses, and in this case, determine the increase of share capital through cancellation of existing shares and the issuance of new shares.

2. The provisions of subparagraph b) of the preceding paragraph do not prevent the preservation of all creditors’ rights against co-obligors or guarantors.

3. The measures referred to in this article have a maximum duration of 90 (ninety) days, extendable twice by an equal period of time.

4. The measures provided for in this Section subsist only while the situation that determined them persists.

5. When the measure of appointing provisional directors is adopted, and while it lasts, all executions are suspended, nor may new executions be initiated, including tax ones, against the bank, or covering its assets, new actions are not initiated, with the exception of those aimed at collecting preferred or privileged credits, and the limitation periods or statutes of limitations opposable by the institution are interrupted. Likewise, no right may be extinguished, prematurely demanded or modified, solely due to the appointment of an official administrator or any measure taken by him.

6. The provisions of this Section are applicable, with the due adaptations fixed by the Central Bank by regulation, to branches and banking institutions authorized to operate in the Country.

7. In the regulations provided for in the preceding paragraph or through a Memorandum of Understanding, appropriate provisions on information sharing and coordination between the Central Bank and the supervisors of the country where the branch-owning institution is headquartered are included.

8. The adoption of sanitation measures does not prevent the application of sanctions provided for in the Law in case of infringement.

CHAPTER II Resolution Measures

Article 12. Purposes of the Mea