Regulation No. 2017-01 — Amending Regulations No. 2007-07, No. 2011-03 and No. 2016-02

THE GENERAL DIRECTOR OF THE CENTRAL BANK OF THE REPUBLIC OF SAN MARINO HAVING REGARD to Law No. 165 of 17 November 2005 (Law on banking, financial and insurance undertakings and services) and in particular Article 39, which grants the Central Bank the power to issue measures containing binding and general provisions, and Article 45 which assigns to the Central Bank the regulation of prudential matters; HAVING REGARD to Law No. 96 of 29 June 2005 (Statute of the Central Bank of the Republic of San Marino) and in particular Article 33 which assigns to the Central Bank the functions of supervision and investor protection; HAVING REGARD to Article 30, paragraph 3 of the aforementioned Statute, according to which acts of the Central Bank in matters of supervision, deliberated by the Supervisory Coordination, are issued by the General Director; HAVING REGARD to the deliberations of the Supervisory Coordination and the Board of Directors regarding the approval of the text of Regulation No. 2017-01 titled "Amending Regulation of Regulations No. 2007-07, No. 2011-03 and No. 2016-02"; HEREBY ISSUES the attached Regulation No. 2017-01 which enters into force on 27 January 2017. San Marino, 26 January 2017 Signed: THE GENERAL DIRECTOR Dr. Lorenzo Savorelli

AMENDING REGULATION OF REGULATIONS NO. 2007-07, NO. 2011-03 AND NO. 2016-02 year 2017 / number 01

Central Bank of the Republic of San Marino Regulation No. 2017-01 – Amending Regulation of Regulations No. 2007-07, No. 2011-03 and No. 2016-02 2 Article 1 - Amendments to Regulations Nos. 2007-07 and 2011-03

1. Article VII.III.4 is hereby replaced as follows: "Article VII.III.4 – Debtor Counterparties
2. The weighting system assesses the default risk of debtors on a lump-sum basis and is articulated through the following multiplicative factors: a) 0% for risk exposures towards central governments, central banks, multilateral development banks, the European Union, public administration and the broad public sector of the Republic of San Marino; b) 20% for risk exposures towards public sector entities of foreign countries (central and local), banks, FINANCIAL COMPANIES and other FINANCIAL ENTERPRISES, NON-FINANCIAL ENTERPRISES listed on regulated markets or held in terms of CONTROL PARTICIPATION by entities and/or companies listed on regulated markets; c) 50% for credits towards natural persons fully secured by a mortgage on "residential real estate" let or used – or intended to be used – directly by the borrower; d) 50% for credits arising from finance lease contracts with "real estate" as the object, used or intended to be used directly by the lessee as a residence or headquarters of its economic activity; e) 50% for credits arising from finance lease contracts with objects other than those referred to in letter d), where the outstanding principal debt is less than half of the original contract value; f) 100% for other risk exposures and for non-deducted participations from supervisory capital; g) 150% for participations in NON-FINANCIAL ENTERPRISES not listed on regulated markets and with negative balance sheet results in the last three financial years; h) 150% for NON-PERFORMING LOANS, except for those referred to in letters d) and e) above, for which the multiplicative factor changes from 50% to 100%.
3. The application of the reduced weighting provided for in letters a) and b) may be applied subject to what is provided for in the following article and, with regard to FINANCIAL ENTERPRISES, only for those subject to prudential supervision rules equivalent to those contained in this Part of the Regulation; for LIMITED OPERATIONAL FINANCIAL COMPANIES the multiplicative factor referred to in the previous paragraph is 40%."
4. Article VII.III.5 is hereby replaced as follows: "1. In order to take into account the country risk profile in the assessment of risk exposures towards central governments, central banks, public sector entities, banks, other FINANCIAL ENTERPRISES, NON-FINANCIAL ENTERPRISES listed on regulated markets or held in terms of CONTROL PARTICIPATION by entities and/or companies listed on regulated markets, it is necessary to distinguish between "Zone A" and "Zone B". Zone "A" includes the Republic of San Marino, Member States of the European Union, all full member countries of the OECD, countries that have concluded general lending arrangements (NAB) with the International Monetary Fund, as well as countries identified by the acronym BRICS (Brazil, Russia, India, China, South Africa); however, countries that have restructured their external debt in the last 5 years are excluded from Zone "A". Zone "B" includes all countries not included in Zone "A".
5. Risk exposures towards entities or subjects (specifically: central governments, central banks, public sector entities, banks, other FINANCIAL ENTERPRISES, NON-FINANCIAL ENTERPRISES listed on regulated markets or held in terms of CONTROL PARTICIPATION by entities and/or companies listed on regulated markets) of countries falling within Zone "A" have a weighting of 0% or 20% as indicated in Article VII.III.4.
6. Risk exposures towards entities or subjects (specifically: central governments, central banks, public sector entities, banks, other FINANCIAL ENTERPRISES, NON-FINANCIAL ENTERPRISES listed on regulated markets or held in terms of CONTROL PARTICIPATION by entities and/or companies listed on regulated markets) of countries falling within Zone "B" have a weighting of 100%. The following cases are exceptions: a) risk exposures towards central governments and central banks denominated in the currency of the debtor country and funded with provision in the same currency have a null weighting value; b) risk exposures with a remaining maturity of up to one year, towards banks in Zone "B" or bearing the explicit guarantee of such subjects, are weighted at 20%."
7. Article VII.III.6, paragraph 3 is hereby replaced as follows: "3. Real guarantees, other than the mortgage referred to in Article VII.III.4, are admitted to weighting only in cases where they concern: a) cash deposits at the reporting bank; b) securities (other than equity shares, subordinated loans and hybrid capital instruments) issued by the reporting bank and deposited with the same; c) securities issued by governments or central banks of Zone "A"; d) securities (other than equity shares, subordinated loans and hybrid capital instruments) issued by multilateral development banks; e) securities issued by public sector entities of Zone "A"; f) cash deposits at banks in Zone "A" other than the reporting bank; g) securities (other than equity shares, innovative capital instruments, subordinated loans and hybrid capital instruments) issued by banks, other FINANCIAL ENTERPRISES, or NON-FINANCIAL ENTERPRISES listed on regulated markets or held in terms of CONTROL PARTICIPATION by entities and/or companies listed on regulated markets referred to in Article VII.III.4 of Zone "A".

Central Bank of the Republic of San Marino Regulation No. 2017-01 – Amending Regulation of Regulations No. 2007-07, No. 2011-03 and No. 2016-02 4 Article 2 – Amendments to Regulation No. 2016-02

1. In Article I.I.2, the definition of "Zone A countries" is hereby modified as follows: ""Zone A countries": the Republic of San Marino, Member States of the European Union, all full member countries of the OECD, countries that have concluded general lending arrangements (NAB) with the International Monetary Fund, as well as countries identified by the acronym BRICS (Brazil, Russia, India, China, South Africa); however, countries that have restructured their external debt in the last 5 years are excluded from Zone "A";" Article 3 – Final and Transitional Provisions
2. Banks and financial companies shall produce the first prudential supervision reports incorporating the amendments introduced by this Regulation, starting from reports with a reference date of 31 March 2017.
3. All current supervision provisions, including reporting templates, are adapted to the amendments set forth in this Regulation. Article 4 – Entry into Force
4. This Regulation enters into force on 27 January 2017. Article 5 – Consolidated Texts
5. The consolidated texts with the amendments introduced by this Regulation will be made available on the website of the Central Bank of the Republic of San Marino (www.bcsm.sm).