Regulation (NAP) – Norm on Supervisory Action and Application of Penalties

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 1/10 10/01/2007 03/01/2007 Subject: Norm on Supervisory Action and Application of Penalties Considering the responsibilities of the Central Bank under Article 42 of Law 9/92 of August 3, the Financial Institutions Act, published in the Official Gazette No. 16; Considering that the activity of financial institutions must be exercised under the supervision of the authority responsible for supervising the financial system; Considering the need to create a unified disciplinary framework regarding offenses and penalties, enabling greater transparency and effectiveness of the instruments used by Supervision in compliance with current legislation and regulations, thereby holding economic agents accountable for their actions, the Central Bank determines:

Article 1. Subjects

1. This norm applies to all financial institutions supervised by the C.B. operating in São Tomé and Príncipe, even if they exercise their activity irregularly.
2. Natural persons holding management positions in the aforementioned institutions are equally held liable.

Article 2. Scope
This NAP applies to all cases provided for by law, regulations, instructions, or norms of the Central Bank, resulting in communications, recommendations, application of sanctions, penalties, or payment of fines to financial institutions or natural persons for non-compliance with determined duties and obligations.

Article 3. Supervisory Instruments

1. To exercise supervisory activity, the Directorate has the following means:
   a) Inspection letters; b) Agreements (Protocols).
2. Inspection letters inform on the results of direct or indirect inspection work, particularly facts that do not affect the institution's solvency, and request corrective actions on the part of the institution.
3. Agreements signed between the financial institution and the Supervision Directorate commit the entity to comply with prudential norms, particularly regarding liquidity, solvency, internal controls previously mentioned in inspection letters but not yet regularized, and other matters deemed relevant by the BCSTP at its discretion.

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 2/10 10/01/2007 03/01/2007

Article 4. Disciplinary Power
Whenever the Supervision Directorate deems it necessary to enforce compliance with laws or regulations, it may exercise the disciplinary power granted by Article 42 of the Financial Institutions Act.

Article 5. Penalties
The BCSTP may apply the following penalties:
a) Warning; b) Directives; c) Fines; d) Revocation of operating authorization.

Article 6. Warning
The warning penalty is applied to offenses not characterized as subject to a fine by law, or at the discretion of the C.B., to offenses that have not been significant enough for a fine, as they did not affect the minimum required solvency or liquidity ratios.

Article 7. Directives
Whenever there is a breach of law or regulation, a violation of agreements or conditions established in the operating authorization constituting a threat to an institution's solvency or liquidity, or an unhealthy banking practice, the BCSTP may issue a directive determining:
a) Suspension of dividend payments or distribution, or capital portions; b) Specific limits for operations or a determined class of the institution's operations; c) Replacement of the institution's independent auditors; d) Removal of the institution's executives while investigation proceedings are carried out; e) Replacement of executives convicted of financial crimes, whether personal or professional in nature; f) Suspension of an activity by the institution until final judgment of the offense; g) Suspension of voting rights of shareholders involved in violations of law or regulation, financial crimes, or unauthorized practices.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 3/10 10/01/2007 03/01/2007

Article 8. Fines
Fines are applied when there is a breach of law or regulation, non-compliance with an agreement established through a protocol or operating authorization, or failure to comply with a directive.

Article 9. Serious Offenses
The following offenses are punishable by a fine of 65 million to 1 billion DBs, or 13 million to 650 million DBs, depending on whether applied to a legal or natural person:
a) Exercise of activity with non-compliance with registration norms at the Central Bank; b) Violation of norms regarding subscription or realization of social capital, concerning time limit, amount, and form of representation; c) Breach of rules on the use of designations in Article 4 of the Financial Institutions Act; d) Non-compliance with prudential ratios and limits determined by law or the Central Bank in exercising their functions; e) Omission, within legal deadlines, of mandatory publications; f) Non-compliance with accounting norms and procedures determined by law or the Central Bank, when it does not result in serious prejudice to understanding the entity's financial and asset status; g) Violations of mandatory provisions of this instrument and specific legislation governing financial institutions' activity, not foreseen in the preceding subparagraphs or the following article, as well as regulations issued by the Central Bank to implement or execute said provisions.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 4/10 10/01/2007 03/01/2007

Article 10. Especially Serious Offenses

1. The following offenses are punishable by a fine of 650 million DBs to 13 billion DBs, or 130 million to 2 billion DBs, depending on whether applied to a legal or natural person:
   a) Unauthorized practice by any individuals or entities of operations reserved for financial institutions; b) Exercise by financial institutions of activities not included in their corporate object, as well as carrying out unauthorized or specifically prohibited operations; c) Fraudulent realization of social capital; d) Execution of statutory amendments provided in Article 24 of the Financial Institutions Act, when not preceded by Central Bank authorization; e) Exercise of any positions or functions in a financial institution, in violation of legal prohibitions or against the express opposition of the Central Bank; f) Disregard for the prohibition on exercising voting rights; g) Accounting falsification and lack of organized accounting, as well as non-compliance with other applicable accounting rules determined by law or the Central Bank, when such non-compliance seriously prejudices understanding of the entity's financial and asset status; h) Non-compliance with ratios and prudential limits in Article 29 of the Financial Institutions Act when it results or may result in serious prejudice to the entity's financial balance; i) Breaches of norms on conflict of interest in Articles 37 and 38 of the Financial Institutions Act; j) Violation of norms on credit granted to principal partners as defined in Article 35 of the Financial Institutions Act; k) Fraudulent acts of poor management, to the detriment of depositors, investors, and other creditors, committed by members of the governing bodies; l) Acts by holders of qualified participations that seriously impede or hinder sound and prudent management of the entity in question; m) Illegitimate disobedience to Central Bank determinations issued specifically, under the law, for the individual case considered, as well as practice of acts subject to prior Central Bank approval when it has expressed opposition; n) Refusal or obstruction of the Central Bank's inspection activity; o) Omission to communicate to the Central Bank facts provided in paragraph 2 of Article 2 of the norm on qualification of administrators after registration of appointment of members of administrative or supervisory bodies, as well as omission of cessation measures referred to in paragraph 2 of Article 5 and paragraph 3 of Article 7 of the administrator qualification norm; p) Submission to the Central Bank of false or incomplete information capable of inducing erroneous conclusions identical or similar to those that would arise from false information regarding the same object.
2. Proposals for applying fines under Article 38 of the Financial Institutions Act shall be forwarded to the body responsible for exercising criminal action, upon request by the BCSTP, in accordance with paragraph 3 of Article 42 of said Act.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 5/10 10/01/2007 03/01/2007

Article 11. Accessory Sanctions

1. Together with the penalties provided in the preceding articles, the following accessory sanctions may be applied to the offender:
   a) Seizure and forfeiture of the object of the offense, including its economic proceeds; b) Publication by the Central Bank of the final penalty, at the offender's expense; c) When the accused is a natural person, prohibition from holding social positions and management, directorate, executive, or leadership functions in any financial institutions, for a period of 6 months to 3 years, for cases provided in Article 7 (simple offenses), or 3 to 10 years, for cases provided in Article 8 (serious offenses); d) Suspension of voting rights attributed to partners for a period of 1 to 5 years.
2. The publications referred to in subparagraph b) of the preceding paragraph shall be made in one of the most widely read newspapers in STP.
3. The BCSTP shall request the body responsible for exercising criminal action to apply the prohibition on holding social positions mentioned in subparagraph c) of this article, in accordance with paragraph 3 of Article 42 of the Financial Institutions Act.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 6/10 10/01/2007 03/01/2007

Article 12. Attempt and Negligence

1. Attempt and negligence are always punishable.
2. The penalty for attempt is reduced by one third of the completed offense.
3. In case of negligence, the maximum and minimum fine limits are reduced by half.
4. Whenever the agent's liability is mitigated under the preceding paragraphs, corresponding gradation of the penalty applicable to the legal entity shall be applied.

Article 13. Gradation of Penalty

1. Determination of the fine amount and accessory sanctions is based on the objective and subjective gravity of the offense, considering whether the agent is individual or collective.
2. The gravity of offenses committed by legal entities is evaluated, among other circumstances:
   a) Danger or damage caused to the financial system or national economy; b) Occasional or repeated nature of the offense.
3. For individual agents, in addition to the corresponding circumstances listed above, the following are also considered:
   a) Level of responsibilities and sphere of action in the relevant legal entity; b) Personal benefit to the agent, spouse, relative, or in-law up to the 2nd degree.
4. In determining the applicable penalty, in addition to the offense's gravity, the following are considered:
   a) The agent's economic situation; b) The agent's prior conduct.
5. The fine should, whenever possible, exceed the economic benefit that the agent, or person intended to benefit, derived from committing the offense.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 7/10 10/01/2007 03/01/2007

Article 14. Fulfillment of Omitted Duty

1. Whenever the offense results from omission of a duty, application of the penalty and payment of the fine do not exempt the offender from fulfilling it, if still possible, without excluding the respective civil liability proceedings under the law.
2. The Central Bank obliges the offender to fulfill the duty in question.

Article 15. Administrative Procedure

1. The Supervision Directorate is responsible for initiating the administrative procedure.
2. The file must contain a notification and all evidence of the offenses committed.
3. The notification must clearly and objectively describe the offenses, allowing adequate understanding by interested parties, the violated legal norms and regulations, the involved persons, the deadline for submitting a defense, and the location where notified parties or their legal representatives may access the file.
4. The deadline for submitting a defense is 15 working days, which may be extended, upon justified request, once for an equal period.
5. Notification of the accusation is made by mail with acknowledgment of receipt, or personally; the BCSTP may, if necessary, request police assistance.
6. When the agent cannot be found or refuses to receive it, notification is made by announcement published in one of São Tomé's most widely read newspapers.
7. The defense of the notified parties is submitted in writing, duly signed by the interested parties or a legal representative with express powers, attaching all evidence or elements brought for consideration of the file.
8. The Banking Supervision Directorate is responsible for analyzing the file, elements presented by the defense, and deciding on the application or non-application of a penalty under this regulation.
9. Failure to submit a defense does not prejudice the process at any stage, which proceeds according to its terms and concludes with a final decision.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 8/10 10/01/2007 03/01/2007

Article 16. Requirements of the Decision

1. The decision applying a sanction must include:
   a) Identification of the accused and any co-participants; b) Description of the imputed fact and obtained evidence, as well as violated and punitive norms; c) Applied sanction(s), with indication of elements contributing to their determination; d) Indication of the terms under which the conviction may be judicially challenged and become enforceable; e) Conviction in costs and indication of the person(s) obligated to pay them.
2. Notification of the decision must be made in the forms provided in paragraph 5 of the preceding article and include, besides the decision terms and cost amount, a warning that the fine must be paid within 15 working days after final judgment, under penalty of coercive collection.

Article 17. Enforceability of the Decision
The final decision becomes enforceable if not judicially challenged.

Article 18. Judicial Challenge
The deadline for filing an appeal against a decision applying a sanction is 15 working days from its knowledge by the accused, and the respective petition must be submitted to the Central Bank.

Article 19. Competent Court
The competent court for judicial challenge, review, and execution of Central Bank decisions in offense proceedings, initiated under this instrument, is the Judicial Court of the São Tome District.

Article 20. Central Bank Participation in Contested Phase

1. The Central Bank may always participate, through a representative, in the hearing of judgment.
2. The Central Bank has standing to appeal decisions rendered in the challenge proceedings that are subject to appeal.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 9/10 10/01/2007 03/01/2007

Article 21. Communication to Other Bodies
As a public authority, the BCSTP is committed to informing other administrative and judicial authorities of indications of crimes, irregularities, or offenses observed during supervision work and within the competence of those entities.

Article 22. Delay in Remittance of Information

1. Financial institutions that do not submit legally or regularly required information within fixed deadlines are subject to an automatic fine, applied by the Banking Supervision Directorate, according to the delay in delivering documents or information.
2. Submission of documents or information with errors is not considered compliant.
3. The fine will be applied per information or document due, as follows:
   a) 350 thousand DBS per day for the first 10 days; b) 700 thousand DBS per day, from the 11th day; c) 1 million and 300 thousand DBS per day, from the 21st day.
4. Fines resulting from application of this article are not considered for antecedent records, provided they do not exceed 30 days.
5. When the delay exceeds 30 days, the BCSTP initiates administrative proceedings against the institution and the responsible director, in accordance with Article 15.
6. Payment of fines referred to in this article shall be made by automatic debit from the institutions' deposit accounts at the Central Bank.

Article 23. Revocation of Operating Authorization
Revocation of operating authorization is applied in the following cases:
a) If the authorization was obtained using false means or incorrect information; b) If the institution fails to meet, within the deadline indicated by the Central Bank, the replacement or increase of social capital or legally established own funds; c) If the institution is a repeat offender in committing offenses subject to fines; d) If the institution fails to comply with directives or agreements established by the Central Bank; e) As a consequence of an intervention process.

Reviewed and Revocation Data:

Banco Central de S.T.P.
PROPOSER(S)
P.S.B
NAP
PERMANENT APPLICATION NORM
ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE 10/10 10/01/2007 03/01/2007

Article 24. Entry into Force
This norm enters into force in accordance with the law applicable to its publication.

Banco Central de São Tomé e Príncipe, January 3, 2007 Reviewed and Revocation Data: