Financial System Framework Law (LBSF) (Articles 20 et seq.)

932 I SÉRIE — NO 28 «B. O.» OF THE REPUBLIC OF CAPE VERDE — 23 APRIL 2014

Lei No. 61/VIII/2014 of 23 April
By mandate of the People, the National Assembly decrees, in accordance with paragraph b) of Article 175 of the Constitution, as follows:

CHAPTER I
Object, scope of application and guiding principles

Article 1.
Object
This instrument defines the foundations, guiding principles and reference regulatory framework for the financial system.

Article 2.
Definitions
For the purposes of this instrument, the following are considered:
a) «Auxiliary activities of financial activities», the activities and services that, under the law, auxiliary institutions of the financial system are authorized to develop and provide to financial institutions, namely prospecting activities aimed at client acquisition for financial institutions, accounting and external audit services provided to financial institutions, credit information services, and risk rating activities; b) «Banking activity», the activity carried out by banks, involving public reception of deposits or other refundable funds for their own use, notably in credit operations; c) «Financial activities», the banking activity, financial intermediation in financial instruments and insurance as such, qualified by law; d) «Bank», a credit institution that carries out banking activity; e) «Financial contracts», contracts: that give rise to financial instruments or have financial instruments as their object; in which one of the parties is necessarily a financial institution or that involve exclusively financial institutions; f) «Reporting date», the date to which the financial information subject to disclosure relates; g) «Own funds», the difference between the net assets of the financial institution, evaluated at realizable and eligible values for this purpose, and its liabilities, firm or contingent, evaluated at exigible values; h) «Auxiliary financial system institutions», natural and legal persons, public or private, referred to in paragraph 3 of Article 3., legally qualified to carry out one or more auxiliary activities of financial activities and so qualified by law; i) «Credit institutions», financial institutions that, in addition to other financial activities, carry out the activity of granting credit; j) «Financial institutions», natural and legal persons, public or private, referred to in paragraph 2 of Article 3., legally authorized by the Bank of Cape Verde to carry out one or more financial activities, as defined in Article 20.; k) «Financial instrument», a negotiable instrument on the financial market, in the form of a security or a financial derivative; l) «Financial market», organized or unorganized, where freely transferable inter vivos financial instruments are traded and in which: (i) one of the parties to the transaction is a financial institution; or (ii) the business involves the mediation of a financial institution; m) «Financial operations», an ordered set of legal and material acts executed with a common purpose by a financial institution in the exercise of a financial activity; n) «Collective investment schemes», institutions so qualified by applicable law, with or without legal personality, whose purpose is the collective investment of capital, whose operation is subject to a risk-sharing principle and the exclusive pursuit of participants' interests; o) «Risk profile», probabilistic characteristics of possible losses associated with a given financial contract or portfolio of financial instruments; p)
«Reporting period», the time period between two consecutive reporting dates; q) «Prudential regime», the body of rules, including unwritten rules arising simply from good practice, emanating from a regulatory authority or accepted by it, and in force in a given financial system; r) «Financial yield», a transfer of liquidity that is not the consideration for a transaction in goods or services; s) «Risk», the possibility of occurrence of a patrimonial loss to which the financial institution is subject; t) «Financial risks», the set of risks to which financial institutions are exposed, including counterparty risk, credit risk, market risks (price risk, exchange rate risk and interest rate risk), operational risks and reputation risk; u) «Insurable risks», the set of risks traditionally covered by the traditional insurance sector, notably in the "Life", "Non-Life" and "Health and Assistance" branches; v) «Financial system», the set of institutions and persons involved in receiving deposits and other refundable funds, granting credit and financing, the payment system, financial markets, contracts concerning money and precious metals, insurance activity, pension fund management, related services, and their regulation and supervision; w) «Payment systems», funds transfer systems governed by formal and standardized provisions as well as common rules relating to the processing, clearing and settlement of payment operations; x) «Securities», a financial instrument as so qualified by applicable law, including all documents representing homogeneous legal situations capable of being traded on the market.

Article 3.
Scope of application

1. This instrument applies to:
   a) Financial institutions and auxiliary financial system institutions that have their headquarters, stable establishment or any other form of representation in the territory of the Republic of Cape Verde; b) All financial operations and financial contracts involving residents in the territory of the Republic of Cape Verde who are not financial institutions.
2. Financial institutions are:
   a) Credit institutions, including:
   i. Banks;
   ii. Investment companies;
   iii. Leasing companies;
   iv. Factoring companies;
   v. Consumer finance companies;
   vi. Credit card issuing or management companies;
   vii) Mutual guarantee societies; viii) Regional development societies; ix) Others qualified as such by law; b) Electronic money institutions; c) Insurers and pension fund management companies; d) Pension funds and collective investment schemes, provided they have legal personality; e) Investment fund management companies and depositary companies for assets allocated to investment funds, in accordance with Decree-Law No. 15/2005 of 14 February; f) Financial management companies; g) Venture capital companies; h) Exchange agencies; i) Others qualified as such by law.
3. Auxiliary financial system institutions are:
   a) Financial intermediaries; b) Certified auditors and accountants and external auditors; c) Private credit information bureaus; d) Rating agencies; e) Self-regulatory organizations; f) Others qualified as such by law.

Article 4.
Pillars of trust, solidity and stability

1. The financial system is structured to promote trust, solidity and stability of the financial system, favor efficient capture of savings and promote economic development.
2. The security, solidity and stability of the financial system are based on:
   a) The capitalization level of the financial institutions comprising it; b) Behavioral and prudential supervision exercised by the Bank of Cape Verde and the General Audit of the Securities Market (AGMVM), within their respective competences; c) Market discipline, based on the disclosure by financial institutions of timely, accurate, comparable and credible information.

Article 5.
Competition
A sound competitive environment must prevail in the financial system so that it is secure, solid and stable, requiring for this purpose that financial institutions of the same type are subject to identical own funds requirements.

Article 6.
Own funds adequacy
Any financial institution that is part of the financial system must, at all times, have adequate own funds, whether relative to its adopted risk exposure policy or to the risk it is actually exposed to.

Article 7.
Rights of third parties with direct and legitimate interest This instrument recognizes the right of a third party, resident or non-resident, to judicially raise the question of the unlawfulness of any acts or omissions carried out by financial institutions, provided it demonstrates having a direct and legitimate interest therein.

Article 8.
Irrelevance of denomination currency
The denomination currency of financial instruments issued or traded is not relevant for the purposes of applying this instrument, unless otherwise provided by a provision contained therein.

CHAPTER II
Regulation and supervision
Section I
Organization, general objectives and scope of regulation and supervision

Article 9.
Regulation

1. The regulation of the financial system is carried out in accordance with the Constitution of the Republic of Cape Verde, with the intervention of competent authorities, as established by law.
2. The regulatory authorities of the financial system are the Government, the Bank of Cape Verde and, depending on the Governor of the Bank of Cape Verde, the General Audit of the Securities Market (AGMVM).
3. The Government may delegate its regulatory powers to the Bank of Cape Verde, observing the provisions of the Constitution and this instrument.
4. The Government consults the Bank of Cape Verde prior to approving any legislative acts that fall within its regulatory powers.

Article 10.
Supervision

1. The supervision of the financial system by competent authorities is behavioral and prudential.
2. At the macro-prudential level, supervision focuses on the financial system as a whole and has as its main function limiting instability risks and the resulting losses.
3. At the micro-prudential level, supervision is based on each financial institution individually considered and integrated in its consolidation perimeter, as well as on each financial market individually considered.
4. The supervisory authorities of the financial system are the Bank of Cape Verde and, depending on the Governor of the Bank of Cape Verde, the AGMVM.

Article 11.
Objectives of regulation and supervision
The objectives of the regulation and supervision of the financial system are:
a) Preserving the stability of the financial system; b) Preventing systemic risk; c) Protecting the legitimate interests of acquirers of financial services, including consumers and unqualified investors, and strengthening the degree of financial literacy; d) Defending the regular functioning of financial markets; e) Promoting free and sound competition and efficiency of financial markets; f) Preventing, processing and sanctioning financial offenses; g) Preventing the use of the financial system for money laundering and terrorist financing purposes.

Article 12.
Entities subject to regulation and supervision The following are subject to regulation and supervision:
a) Financial institutions; b) Auxiliary financial system institutions; c) Members of the governing bodies of the institutions referred to in paragraphs a) and b), individually and collectively; d) Natural persons holding management positions in the institutions referred to in paragraphs a) and b); e) Legal persons holding, directly or indirectly, a qualified shareholding in the share capital of the financial institution; f) Each promoter of a financial institution or collective investment scheme to be constituted, from the moment the authorization application for operating in the financial system is submitted to the competent authority.

Article 13.
Qualified shareholding

1. The concept of qualified shareholding in a financial institution is defined in complementary legislation.
2. The regulation of the application of the provisions of the preceding paragraph is within the competence of the Bank of Cape Verde.

Section II
Powers of regulatory and supervisory authorities

Article 14.
Powers of the Government

1. Within the regulation and supervision of the financial system, it is incumbent upon the Government, through the Member of the Government responsible for the Finance area:
   a) To establish policies regarding the financial system, after consulting the Bank of Cape Verde, and generally on matters regulated in this instrument and complementary legislation; b) To exercise the powers attributed to it in paragraph 3 of this article and complementary legislation.
2. Within sixty days after exercising the powers referred to in the preceding paragraph, the Government sends a report to the National Assembly for information.
3. When disturbances occur in the money, financial and exchange markets that pose a serious threat to the national economy, it is incumbent upon the Member of the Government responsible for the Finance area, with the possibility to order, through an ordinance, after consulting the Bank of Cape Verde, appropriate and proportional measures, notably the temporary suspension of certain markets or categories of operations, or the temporary closure of financial institutions.

Article 15.
Powers of the Bank of Cape Verde

1. It is incumbent upon the Bank of Cape Verde, within the regulation and supervision of the financial system, in particular:
   a) The exercise of powers attributed to it by its organic law, notably the full and autonomous exercise of central bank functions; b) The full and autonomous exercise of regulatory powers resulting from this law and complementary legislation and regulation; c) The full and autonomous performance of prudential and behavioral supervision functions under this law, complementary legislation and regulation; d) Intervention in the identification and control of systemic risks; e) Collaboration with other competent authorities to ensure effective supervision of the financial system from a macro-prudential perspective; f) Disclosure of information to pursue regulation and supervision objectives, namely legal and regulatory texts governing the financial system in Cape Verde, general criteria and methodologies used in supervising financial institutions, and statistical data on fundamental aspects of applying prudential rules and requirements; g) Strengthening the degree of financial literacy, notably through training and disclosure actions and promoting public awareness regarding the benefits of financial planning and the specific advantages and risks of certain financial products and operations; h) Inspection of compliance with laws and regulations, and prevention, processing and sanctioning of financial offenses; i) Prevention of the use of the financial system for money laundering and terrorist financing purposes; j) Establishing rules regarding payment services, controlling and supervising access to payment systems, and promoting their safe and efficient operation; k) The exercise of other powers attributed to it under this law and complementary legislation and regulation.
2. Subject to the principles and rules established in this law and complementary legislation and regulation, it is incumbent upon the Bank of Cape Verde to define, by notice, the relationships between balance sheet and non-balance sheet items, as well as to establish prudential limits on operations that financial institutions are authorized to carry out, in both cases individually and consolidated.
3. The Bank of Cape Verde is the competition authority in the financial system, generally, and in financial markets, in particular.

Article 16.
Powers of the General Audit of the Securities Market (AGMVM) It is incumbent upon the AGMVM, within the regulation and supervision of the securities market and other financial instruments, to exercise the powers attributed to it under the Securities Market Code and complementary legislation and regulation.

Section III
Regulations and decisions of the Bank of Cape Verde

Article 17.
BCV regulatory rules

1. Within the regulation of the financial system, the Bank of Cape Verde drafts regulations on matters integrated within its attributions and powers.
2. The Bank of Cape Verde regulations must observe the principles of legality, necessity, clarity and publicity.
3. The Bank of Cape Verde regulations that revisit the form of notices are published in the Official Gazette of Cape Verde and on the Bank of Cape Verde website, entering into force on the date stated therein or five days after publication.
4. The Bank of Cape Verde regulations that only aim to regulate internal procedures of one or more categories of entities are called instructions, are not published under the preceding paragraphs, are notified to their respective recipients and enter into force three days after notification or on the date stated therein.

Article 18.
BCV decisions

1. Appeals against administrative decisions of the Bank of Cape Verde taken under this law follow, in all respects not specially regulated therein, the terms provided for appeals against administrative acts.
2. In the actions referred to in the preceding paragraph and in appeals against other decisions taken under specific legislation governing financial institutions' activities, except for contra-ordenação proceedings, it is presumed that suspension of efficacy causes serious harm to public interest, preventing the suspension of executability of acts unless proven otherwise.
3. In cases where decisions referred to in the preceding paragraphs result in damages to third parties and compensation has been paid by the Bank of Cape Verde, the personal civil liability of their authors may only be enforced through a recourse action by the respective supervisory authority if the gravity of the agent's conduct justifies it, in cases of intent or gross negligence, unless constituting a crime.
4. The Bank of Cape Verde compensates its permanent or temporary collaborators, or governing body members, for costs incurred in defending against judicial actions brought against these persons in connection with the performance of public functions related to the powers and attributions of the Bank of Cape Verde, provided such persons have not been convicted of crimes related to the activities subject to those judicial actions.

Section IV
Governance of regulatory and supervisory authorities

Article 19.
Good governance rules

1. The Bank of Cape Verde and the AGMVM adopt good governance rules, in line with internationally accepted practices and deemed appropriate to their legally attributed regulatory and supervisory functions.
2. Good governance rules are approved by their respective administrative bodies and reviewed at least biennially.

CHAPTER III
Financial institutions
Section I
Generic authorization

Article 20.
Activities of financial institutions

1. A financial institution may only exercise the financial activities for which it is duly qualified under this instrument and complementary legislation and regulation.
2. Financial activities are:
   a) Reception of deposits or other refundable funds; b) Credit operations, including granting guarantees and other commitments, leasing and factoring; c) Payment services, provision of payment services, and issuance and management of other means of payment, such as paper checks, travel checks on paper and letters of credit; d) Investment activities in financial instruments and provision of investment services relating to these instruments; e) Transactions, on own or client account, on money and exchange market instruments, forward financial instruments, options and transactions on foreign exchange, interest rates, commodities and securities; f) Assumption of risks through insurance and reinsurance contracts and insurance mediation; g) Participation in issuances and placements of securities and provision of related services; h) Advisory, custody, administration and portfolio management of securities; i) Management and advisory in management of other assets; j) Participation in interbank markets; k) Leasing of movable property, under terms permitted to leasing companies; l) Transactions on precious stones and metals; m) Corporate advisory...