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NATIONAL PARLIAMENT:

Law No. 10/2026 of 12 August
General regime of the financial system and banking activity ...... 862

GOVERNMENT:

Decree-Law No. 22/2026 of 12 August
First amendment to Decree-Law No. 2/2023 of 15 February, which creates the meal allowance for workers performing duties at integrated border and customs posts ...... 965

Decree-Law No. 23/2026 of 12 August
Third Amendment to Decree-Law No. 18/2012 of 4 April, which approves the Conditional Support Allowance "Mother's Grant" ...... 965

Decree-Law No. 24/2026 of 12 August
Accounting Council of Timor-Leste ...... 966

Government Resolution No. 35/2026 of 12 August
Suspension of the Opening of Recruitment and Hiring Procedures for Personnel for Entities of the Public Administration ...... 969

Government Resolution No. 36/2026 of 12 August
Sets the vacancies for the promotion of personnel integrated in the General Regime of Public Administration Careers for the year 2026 ...... 970

PUBLIC SERVICE COMMISSION:

Deliberation No. 445/2026/CFP,
which amends Deliberation No. 415/2025/CFP, on the terms and conditions of the Character Training of Officials integrated in Public Administration Careers ...... 971

$ 7.25 OFFICIAL PUBLICATION OF THE DEMOCRATIC REPUBLIC OF TIMOR-LESTE

Wednesday, 12 August 2026 — Series I, No. 32

LAW NO. 10/2026

of 12 August

GENERAL REGIME OF THE FINANCIAL SYSTEM AND BANKING ACTIVITY

Regulation No. 2000/8 of 25 February 2000, of the United Nations Transitional Administration in East Timor (UNTAET), which deals with banking licensing and supervision, was approved with the aim of responding to the economic and institutional requirements of the time, ensuring the protection of depositors' interests, the prevention of systemic risks and the promotion of a stable and competitive banking sector.

In recent years, technological advances, increasing integration into global financial markets and the economic growth of Timor-Leste have driven a structural transformation of the financial system, allowing the expansion of financial institutions and the development of financial intermediation activities, resulting in an increasingly complex and diversified market, covering banks, microfinance institutions, insurance companies, financial companies, money transfer service providers, exchange houses, cooperatives, fintechs and other entities in the sector, imposing the need for an adequate and updated regime that strengthens supervision and promotes the transparency and efficiency of the national financial system.

The development of an adequately regulated financial system aligned with international standards is a determining factor for the sustainability of the sector in Timor-Leste, and the present General Regime of the Financial System and Banking Activity therefore aims to respond to contemporary challenges and to the evolution of financial markets, strengthening the legal framework applicable to banking regulation and supervision and introducing significant changes to the regime in force, namely with regard to the institutional structure, licensing, supervision, the adoption of remedial measures and the sanctioning regime, ensuring that banking operations are conducted with safety, efficiency and resilience and that consumer and investor protection measures are strengthened.

This law adopts a dual approach, providing, on the one hand, an overview of the national financial system, and on the other, establishing a specific regime for banking activity,

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covering licensing, supervision, remedial provisions and the sanctioning regime, with the aim of modernizing and strengthening the regulatory framework of the banking sector in Timor-Leste, aligning it with best international practices and promoting stability, effective supervision and confidence in the system.

Furthermore, and in addition to the improvements introduced in the regulation of banks and non-bank financial institutions, this law introduces, for the first time, in the national banking and financial system, development banks. These are financial institutions that do not take deposits, and that intervene in the economy through the granting of credits, guarantees, technical assistance and investment, remaining equally subject to the supervision of the Central Bank of Timor-Leste (BCTL).

In order to ensure the resilience of the financial sector, especially the banking sector, this law introduces relevant innovations in the national context, namely the creation of the Resolution Fund and the Deposit Guarantee Fund. The Resolution Fund has the objective of financially supporting the implementation of resolution measures for institutions in difficulty, while the Deposit Guarantee Fund aims to protect depositors in situations of bank insolvency, contributing to the maintenance of confidence in the financial system.

The modernization of the legal regime of the financial sector also assumes particular relevance with regard to the prevention and combating of money laundering and the financing of terrorism. In this context, the law reinforces the BCTL's powers in the implementation of rigorous supervision measures, in accordance with international principles and recommendations, including the guidelines of the Financial Action Task Force (FATF) and the recommendations of the Asia/Pacific Group on Money Laundering (APG).

To this end, the reform clarifies the functions and responsibilities of financial institutions, introducing rigorous rules of corporate governance and risk management to ensure transparent and professional conduct by administrators. Prudential supervision and corrective intervention are also reinforced, providing the BCTL with more effective mechanisms to prevent banking crises and mitigate systemic risks. In this way, the General Regime of the Financial System and Banking Activity consolidates the sector as a pillar of economic stability, financial inclusion and national development.

The National Parliament decrees, under the terms of Articles 142 and 143 of the Constitution of the Republic, to have the force of law, the following:

PART I

GENERAL PROVISIONS

Article 1

Object

This law defines the general structure of the financial system, regulates access to and the exercise of financial and banking activity, and provides the rules for the supervision of financial institutions.

Article 2

Definitions

For the purposes of this law, the following shall mean:

a) "Basel Accords", the set of international standards and recommendations for prudential banking regulation issued by the Basel Committee on Banking Supervision, including their revisions and updates, relating, in particular, to the quality and adequacy of own funds, liquidity requirements, the leverage ratio, risk management and the resilience of banking institutions, as received and adapted by the prudential regulations issued by the BCTL;

b) "Administrator", any person who performs management functions in a bank, or other institution covered by this law, and includes members of the board of directors, as well as any person who, individually or jointly, has powers to assume commitments on behalf of the entity in question;

c) "Agency", the branch, in Timor-Leste, of a bank, or other financial institution, that has its head office in Timor-Leste;

d) "Bank with head office in Timor-Leste", the bank that has its head office in Timor-Leste and is not a subsidiary of a bank, or other entity with head office abroad;

e) "BCTL", the Central Bank of Timor-Leste, a public institution established by Law No. 5/2011 of 15 June, the Organic Law of the Central Bank of Timor-Leste;

f) "Beneficial owner", the beneficial owner as defined in Law No. 17/2011 of 28 December, which approves the Legal Regime for the Prevention and Combating of Money Laundering and the Financing of Terrorism, as amended, without prejudice to the additional application of criteria contained in the Commercial Companies Law;

g) "Regulatory capital", the amount of capital required of a financial institution, as defined by regulation of the BCTL, under the applicable legal and regulatory rules, including the rules on own funds, minimum capital limits and additional risk coverage requirements, and that amount must be periodically reviewed, taking into account internationally applicable prudential standards;

h) "Crypto-assets", the digital representation of values or rights, capable of transfer or electronic storage, through the use of distributed ledger technology, excluding financial instruments, electronic money and bank deposits, under the terms of applicable legislation and within the scope of applicable BCTL regulations;

i) "Deposit", credits constituted in favour of a client that, under the applicable legal and contractual terms, are

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demandable from the bank, consisting of monetary funds recorded in an account opened with the institution, and includes amounts that may or may not be immediately mobilizable, as well as amounts arising from banking operations that are in a transitional situation, such as, for example, amounts pending good collection, funds tied up for specific purposes, transfers in processing or others of an equivalent nature;

j) "Senior management", the natural persons who perform executive functions in a bank and who are directly responsible for its day-to-day management before the management body;

k) "Subsidiary", the legal person in relation to which another legal person, designated as the parent company, is in a control relationship or over which the BCTL considers that the parent company exercises a dominant influence, and it is further considered that a subsidiary of a subsidiary is also a subsidiary of the parent company on which both depend;

l) "Own funds", the equity elements of a financial institution, which correspond to the residual value of its assets after the deduction of all liabilities, and include capital instruments, reserves, accumulated results and other components, in accordance with the standards contained in the Basel Accords;

m) "Law applicable to money laundering and financing of terrorism", Law No. 17/2011 of 28 December, which provides the Legal Regime for the Prevention and Repression of Money Laundering and the Financing of Terrorism, in its current wording;

n) "Licence", the permissive administrative act through which the BCTL grants the financial institution the right to exercise the banking activity and/or financial activities specified in the licence;

o) "Electronic money", the monetary value stored electronically, including in magnetic form, consisting of a credit on the issuer, recorded in an account in return for the receipt of banknotes, coins and scriptural money, to carry out payment operations and that is accepted by a person other than the issuer of electronic money;

p) "Qualified holding", the direct or indirect holding that represents a percentage not less than 10% of the share capital or voting rights of the participating company or that, for any reason, makes it possible to exercise significant influence on the management of the participating company, and in the calculation of voting rights, in addition to those inherent to the shares of which the participant has ownership or usufruct, the following voting rights are considered:

i. Held by third parties in their own name, but on behalf of the participant;

ii. Held by a company that is in a relationship of domination or group with the participant;

iii. Held by third parties holding the right to vote with whom the participant has entered into an agreement for its exercise, unless, by the same agreement, it is bound to follow third-party instructions;

iv. Held, if the participant is a company, by the members of its management and supervisory bodies;

v. That the participant may acquire by virtue of an agreement entered into with the respective holders;

vi. Inherent to shares held in guarantee by the participant, or managed by it or deposited with it, if the voting rights have been attributed to it;

vii. Held by holders of the right to vote who have conferred on the participant discretionary powers for its exercise;

viii. Held by persons who have entered into any agreement with the participant that aims to acquire control of the company or frustrate the change of control or that, in another way, constitutes an instrument of concerted exercise of influence over the participating company;

ix. Attributable to any of the persons referred to in one of the previous subparagraphs by application, with the necessary adaptations, of a criterion contained in any of the other subparagraphs.

q) "Client acceptance policy", the set of procedures adopted by a financial institution to assess the suitability and risks associated with accepting a new client, including background checks and risk analysis;

r) "Exposure", an asset or an off-balance sheet item;

s) "BCTL Regulation", the regulatory act issued by the BCTL, with external effect, that contains general and abstract rules, regardless of the denomination given to it by the BCTL, namely "instruction", "circular" or "order", and for the purposes of this law, rules whose scope of application is restricted to financial institutions under the supervision of the BCTL are also considered general and abstract;

t) "Control relationship" or "relationship of domination", the relationship between a parent company and a subsidiary, or between any natural or legal person and a company, provided that, in this case, the former is in any of the following situations:

i. Holding the majority of the voting rights;

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ii. Being a partner of the company and having the right to appoint or dismiss more than half of the members of the management body or the supervisory body;

iii. Being able to exercise dominant influence over the company, by virtue of a contract or a clause in its articles of association;

iv. Being a partner of the company and controlling alone, by virtue of an agreement concluded with other partners of the company, the majority of the voting rights;

v. Being able to exercise, or effectively exercising, dominant influence or control over the company;

vi. In the case of a legal person, managing the company as if both constituted a single entity.

u) "Parent company", the company that can exercise, or exercises, dominant influence or control over another company;

v) "Branch", a business unit, without legal personality, installed in Timor-Leste, based on a licence from the BCTL, by a bank, or other financial institution headquartered abroad, through which financial activities are exercised in the national territory;

w) "Distributed ledger technology", a digital system of electronic data recording that allows its distribution among various users, with shared cryptographic validation in a decentralized, continuous and secure manner, without the need for a central entity (distributed ledger technology);

x) "Suspicious transactions", any transaction or activity that, by its nature, volume, complexity or origin, raises suspicions of involvement in money laundering, financing of terrorism or other illicit activities.

In the cases provided for in subparagraph ii. of paragraph p) of no. 1, the BCTL may disregard the attribution of voting rights when the participant demonstrates that the entity whose voting rights are attributed to it exercises them independently, not obeying its instructions or guidelines.
For the purposes of the provisions of subparagraph viii. of paragraph p) of no. 1, agreements relating to the transferability of shares representing the share capital of the participating company are presumed to be instruments of concerted exercise of influence, and the BCTL may recognize the rebuttal of the presumption upon proof that the relationship established with the participant is independent of the influence, effective or potential, over the participating company.
It is irrelevant for the calculation of voting rights, under the terms of paragraph t) of no. 1, the fact that their exercise is suspended.
For the purposes of applying subparagraphs i., ii. and iv. of paragraph t) of no. 1:

a) The rights of any other company dependent on the dominant one or that is in a group relationship with it, as well as those of any person acting in their own name, but on behalf of the dominant one or any other of the said companies, are equated to the voting, appointment or dismissal rights of the participant;

b) Rights relating to shares held on behalf of a person other than the dominant one or another of the said companies, or relating to shares held in guarantee, are not considered, provided that, in the latter case, such rights are exercised in accordance with the instructions received, or the possession of the shares is a current operation of the holding company in matters of loans and the voting rights are exercised in the interest of the provider of the guarantee.

For the purposes of applying subparagraphs i. and iv. of paragraph t) of no. 1, the voting rights relating to the holding held by this company, by a subsidiary of it or by a person acting in their own name, but on behalf of any of these companies, are deducted from the total voting rights corresponding to the share capital of the dependent company.

PART II

GENERAL STRUCTURE OF THE FINANCIAL SYSTEM

Article 3

Financial system

The financial system is composed of the BCTL and financial institutions, public and private.
The functions of the financial system are the provision, circulation and application of the financial means necessary for economic and social development, promoting the capture of savings and guaranteeing their security.

Article 4

Central Bank of Timor-Leste

The BCTL, in carrying out its constitutional mission, is co-responsible for the definition and execution of monetary and financial policy, and its main objective is to achieve and maintain internal price stability.
Subsidiarily, under the terms of its organic law, the BCTL fosters and maintains a stable and competitive financial system based on the principles of a free market.
In view of the pursuit of its objectives, the BCTL has exclusive responsibility for the regulation, licensing and supervision of financial institutions and financial markets, the imposition of corrective measures and administrative sanctions.
In the exercise of its functions as set out in its respective organic law, the BCTL, without prejudice to any others attributed to it by law or regulation, has, in particular, the following powers:

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Series I, No. 32 Wednesday, August 12, 2026 Page 866 a) Issuance of regulations and administrative acts with external effect, namely within the scope of exercising financial intermediation; b) Issuance and revocation of licenses for the exercise of financial activities; c) Conducting inspections of financial institutions; d) Supervision and application of measures to prevent and combat money laundering and terrorist financing in the financial sector; e) Application of corrective intervention measures; f) Application of fines and ancillary sanctions; g) Initiation of resolution or liquidation of financial institutions.
Article 5
Financial Institutions
1. Financial institutions are public or private entities that professionally and habitually carry out one or more financial activities.
2. Financial institutions comprise banks, investment banks, non-banking financial institutions, and development financial institutions.
3. Banks are legal entities authorized to engage in the activity of raising deposits or other repayable funds from the public, and to apply these resources, in whole or in part, in granting credit, or in making investments on their own account and risk.
4. Investment banks are financial institutions that, without raising deposits from the public, are authorized by the BCTL to carry out financial activities, namely financial intermediation and provision of investment services, under terms to be defined by BCTL regulation.
5. The following are considered non-banking financial institutions:
a) Microfinance institutions; b) Insurance companies and insurance intermediaries; c) Cash transfer operators; d) Exchange houses; e) Financial companies; f) Pawn shops; g) Payment service providers and payment system operators; h) Custody service providers, including crypto-assets; i) Other institutions that, corresponding to the definition of non-banking financial institutions, are qualified as such by law.
6. Development financial institutions are legal entities with exclusively public capital, created by decree-law, which, without raising deposits or other repayable funds from the public, carry out other financial activities, namely, credit granting activities or other forms of financing, provision of guarantees, technical assistance or investment, with the aim of promoting economic and social development in strategic sectors defined by the Government.
7. Insurance and reinsurance activity, as well as the regulation and supervision of insurance companies and insurance intermediaries, are governed by special legislation.
8. The activity of pawn shops is governed by special legislation.
Article 6
Financial Activities
1. Financial activities are those whose object is, directly or indirectly, the creation, circulation, and application of monetary value, regardless of its form of representation, whether physical, book-entry, or electronic, using or not, in the latter case, distributed ledger technologies.
2. For the purposes of the preceding paragraph, the following activities are considered, by way of example, to be of a financial nature:
a) Acceptance of third-party funds in the form of deposits, or other unconditionally repayable funds obtained from the public, regardless of whether remuneration is due; b) Granting of monetary loans and documentary credits; c) Issuance of electronic money; d) Purchase of bills of exchange and issuance of checks; e) Purchase and sale of financial instruments on own account or on behalf of third parties; f) Provision of custody services; g) Assumption of the obligation to repurchase previously assigned credits before their maturity; h) Provision of guarantees, granting of guarantees, and assumption of other obligations on behalf of third parties; i) Execution of payment operations through non-monetary means, and clearing operations;

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Series I, No. 32 Wednesday, August 12, 2026 Page 867 j) Purchase of financial instruments on own account and risk for placement on the market or assumption of equivalent guarantees; k) Provision and management of payment services; l) Provision of fund remittance services; m) Trading on own account or on behalf of third parties, of financial instruments, including money market instruments, foreign exchange, futures and options contracts, swap contracts, interest rate derivatives, commodities or financial assets, as well as transferable securities and any other instruments habitually traded on regulated markets or derivative trading systems; n) Participation in issues of securities and their placement, and provision of related services; o) Entering into foreign exchange contracts, spot or forward; p) Management of securities portfolios, provision of custody and management services, and financial advisory services; q) Carrying out financial leasing (leasing) and factoring operations; r) Trading, on own account or on behalf of third parties, in precious metals and stones; s) Provision of credit responsibility information collection and provision services.
Article 7
Banking Activity
1. Banking activity consists of accepting deposits or other repayable funds from the public and carrying out credit operations on its own account.
2. For the purposes of the preceding paragraph, the receipt of funds whose repayment is due by virtue of the issuance, within the limits of the Commercial Companies Law, of bonds or similar financial instruments, regardless of whether their representation is materialized in securities, account records, or electronic documents, is not considered as acceptance of repayable funds.
3. For the purposes of applying paragraph 1, the following are not considered as credit granting:
a) Advances and other forms of loans and advances between a company and its partners; b) Loans granted by a company to its employees for social reasons; c) Delays or advance payments agreed between the parties in contracts for the acquisition of goods and services; d) Treasury operations, when legally permitted, between companies in a control or group relationship; e) Issuance of tokens or cards for payment of goods and services provided by the issuing entity.
4. Without prejudice to the operations provided for in the preceding paragraph, other operations that do not fall within the definitions above may also be considered credit granting operations if they are qualified as such by BCTL regulation.
Article 8
Exercise of Activity and Principle of Exclusivity
1. Only entities that, based on a BCTL license, are constituted as banks may professionally and habitually carry out banking activity.
2. Only financial institutions may professionally and habitually carry out financial activities, under the terms provided for in Article 5.
3. For the purposes of this law, financial institutions may also professionally, but not exclusively, carry out consulting activities on non-financial asset management, capital structures, commercial management strategies, and other similar advisory services, and acquire equity participations in companies or other enterprises.
4. For the purposes and under the terms of paragraph 2, non-banking financial institutions may only carry out financial activity provided for in subparagraph a) of paragraph 2 of Article 6 within the limits fixed by BCTL regulation, which shall establish the maximum total admissible amount for the acceptance of deposits or other repayable funds from the public by such entities, in order to ensure that the raising of funds by these entities does not assume a nature equivalent to the exercise of banking activity nor allows for the generalized raising of public deposits.
5. The provisions of paragraph 1 do not prevent the following entities from receiving repayable funds from the public, under the terms of the applicable legal, regulatory, or statutory provisions:
a) The State, including public funds and institutes endowed with legal personality and administrative and financial autonomy; b) The Special Administrative Region of Oe-Cusse Ambeno and Municipalities;

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Article 9
Firm, Denomination, Brand and Logo
1. Only entities authorized as banks, or investment banks, and development financial institutions may include the word “bank” or any other words that directly or indirectly denote that they are authorized to carry out banking activity in their firm, denomination, brand or logo, as well as in their commercial communication.
2. Only entities constituted as non-banking financial institutions may include in their firm, denomination, brand or logo, words or expressions that denote their respective type or any others that directly or indirectly denote that they are authorized to carry out the corresponding financial activities.
3. In any case, the use of any words, expressions, images or symbols that are likely to mislead the public as to the financial activities that a certain entity is authorized to carry out is prohibited.
PART III
BANKS
TITLE I
BANKS HEADQUARTERED IN TIMOR-LESTE
CHAPTER I
PERMITTED ACTIVITIES
Article 10
Minimum Capital
1. It is exclusively the responsibility of the BCTL to define, by regulation, the minimum capital requirements applicable to different categories of banks and banking licenses, depending on the nature of the authorized activities, risk profile, and whether or not deposits are raised from the public.
2. The minimum capital applicable to banks with an unrestricted license cannot be less than US$ 25,000,000, and may be periodically updated by BCTL regulation.
Article 11
Banks with Unrestricted License
1. Banks to which the BCTL grants an unrestricted license may, in addition to the banking activity reserved for banks, carry out any financial activities, namely those provided for in paragraph 2 of Article 6.
2. A license that does not mention any of the categories provided for in the following article is considered unrestricted.
Article 12
Banks with Restricted License
1. The BCTL may, by regulation, establish different categories of banks, defined according to the set of financial activities they are permitted to carry out.
2. The requirements for granting the license and prudential requirements applicable to each of the categories of banks are defined by BCTL regulation.
CHAPTER II
LICENSING
Article 13
Prerequisites for Granting the License
1. The granting of a license for the constitution of a bank headquartered in Timor-Leste depends on the cumulative verification of the following prerequisites:
a) The bank being constituted as a public limited company under the terms of the Commercial Companies Law; b) Having as its exclusive object the exercise of legally permitted activities, under the terms of Articles 11 and 12; c) Having share capital not less than the minimum, to be fully subscribed and paid up by the date of constitution, in cash or other forms defined by the BCTL; d) The share capital being mandatorily represented by ordinary and registered shares; e) Having its principal and effective administration headquarters in Timor-Leste; f) The board of directors being composed of an odd number of members, with a minimum of three, with responsibility for day-to-day management falling to at least two of them, who must be residents of Timor-Leste; g) The supervisory board being composed of three members; h) Having an adequate and credible shareholder structure, including the ultimate beneficial owner, capable of ensuring the operational capacity and financial stability of the bank; i) Having sound governance systems, including a clear organizational structure, with well-defined, transparent, and coherent lines of responsibility, respecting the provisions of Article 93; j) Having effective processes for identifying, managing, monitoring, and communicating the risks to which the bank is or may be exposed, respecting the provisions of Articles 95 to 97, based on a robust information system; k) Having adequate internal control mechanisms, including sound administrative and accounting procedures;

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Series I, No. 32 Wednesday, August 12, 2026 Page 869 l) Having remuneration policies and practices that promote and are consistent with sound and prudent risk management, as well as being gender-neutral, respecting the provisions of Article 74; m) The holders of the administrative and supervisory bodies being persons whose suitability, professional qualification, independence, and availability provide, both individually and at the level of the bodies as a whole, guarantees of sound and prudent management of the bank; n) Compliance with BCTL regulations that establish supplementary basic information, including, among other aspects, the presentation of a business plan, the organizational structure, and financial statement projections for a three-year period.
2. In the evaluation of the prerequisites provided for in subparagraphs g) to i) and k) of the preceding paragraph, the degree of exigence is proportional to the risks inherent in the business model and the nature, level, and complexity of each bank's activities, taking into consideration the technical criteria provided for in this law.
3. Non-subscription and non-payment of the share capital, under the terms of subparagraph c) of paragraph 1, prevents the registration provided for in Article 34.
Article 14
Instruction of the License Application
1. The license application, addressed to the Governor of the BCTL, must be accompanied by the following documents:
a) Draft articles of association; b) Detailed program of activities, indicating the type of operations to be carried out, geographical deployment, internal organization, human, technical, and material resources to be used; c) Forecast accounts for each of the first three years of activity in models as required by BCTL regulation; d) Identification of the founding members, indicating the share capital subscribed by each; e) Justified exposition on the adequacy of the shareholder structure to the operational capacity and stability of the bank; f) Declaration of commitment that at the time of constitution and as a condition thereof, the amount of the share capital is deposited in a bank headquartered in Timor-Leste; g) Description of the bank's governance system; h) Identification of the proposed members for the administrative and supervisory bodies, justifying their adequacy to the objective of ensuring sound and prudent management of the bank; i) Identification of the shareholders' parent companies, if applicable.
2. If there are shareholders who are legal entities with qualified participations in the bank to be constituted, the following documents must also be attached to the license application:
a) Commercial certificate or equivalent document, duly certified by the competent authority; b) Company statutes and list of members of the respective board of directors; c) Balance sheet and accounts for the last three years; d) List of partners of the legal entity in question who hold a qualified participation in it; e) List of entities in which the legal entity in question holds a qualified participation, as well as an explanatory memorandum of the business group to which it belongs.
3. The BCTL may exempt applicants from presenting any of the documents mentioned in the preceding paragraph when it already has knowledge of the facts that these documents intend to prove.
4. The BCTL may request additional information from applicants and carry out any investigations it deems necessary.
5. The license application is subject to a preliminary decision by the BCTL, and, in case of approval, to a definitive license, under the terms of Article 16.
6. For the purposes of Article 16, when deficiencies or insufficiencies are detected in the instruction of the license application, the BCTL notifies the applicants to remedy and correct them within a reasonable period, as provided for in BCTL regulation, under penalty of rejection.
Article 15
Prior Consultation with Foreign Authorities
1. The license to constitute a bank that is a subsidiary of a bank or other entity authorized in a foreign country also depends on prior consultation, promoted by the BCTL, with the supervisory authority of the respective country.
2. The provisions of the preceding paragraph are equally applicable when the bank to be constituted is controlled by the same persons, natural or legal, who hold a controlling position in a bank or another type of financial institution licensed in another country.
Article 16
Preliminary Decision and Definitive License
1. Applicants are notified by the BCTL about the preliminary decision

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2. In case of a preliminary decision of approval, and in order for the BCTL to issue the definitive license, applicants are notified by the BCTL to, within a maximum period of 12 months, initiate the authorized operations contained in the preliminary decision, namely:
a) Realize the initial capital, by the bank's shareholders; b) Hire the bank's employees; c) Lease or purchase operational equipment and establish operational and IT systems; and d) Lease or purchase the bank's premises.
3. Without prejudice to interim deadlines for the receipt of additional information requested from applicants, or deadlines for remedying insufficiencies or correcting deficiencies, as established by BCTL regulation, the maximum deadline for a final decision on a license application cannot exceed 16 months from the initial receipt of the application, unless there is a reasoned request from the applicants, in which case the BCTL may extend the period provided for in the preceding paragraph by an additional 12 months.
4. The BCTL's preliminary decision regarding rejection observes the grounds provided for in Article 19.
5. The BCTL establishes, by regulation, the criteria and procedures necessary for the exercise of decision duties.
Article 17
Scope of the License and Fees
1. The definitive license is granted for an indefinite period, is non-transferable, and is subject to the provisions of Articles 20 and 21.
2. The BCTL may charge fees for processing license applications, in accordance with Article 14, or for requesting a license to undertake additional financial activities, under the applicable regulatory terms, these fees being non-refundable in case of rejection of the application, non-commencement of activity by the bank, interruption of its operations, or revocation of the license under Article 21.
3. The issuance and possession of a license is subject to the payment of a fee, the value of which is to be fixed by BCTL regulation.
4. The fees provided for in this article are intended to cover the administrative, technical, and prudential costs inherent in the instruction, appraisal, decision, issuance, renewal, alteration, maintenance, and control of the acts referred to.
5. The value of the fees is fixed by BCTL regulation, which must respect the principles of legality, proportionality, transparency, and equivalence between the amount of the fee and the cost of the administrative or prudential activity to which it relates.
Article 18
Continuous Compliance with License Conditions
1. Banks headquartered in Timor-Leste must continuously satisfy the conditions of the license for their respective constitution, under the terms provided for in this Chapter.
2. The banks referred to in the preceding paragraph must immediately notify the BCTL of any material changes to the license conditions referred to in the preceding paragraph.
Article 19
Grounds for Rejection
1. The license application is rejected at the preliminary decision stage, when:
a) The license application is not complete and correctly instructed, accompanied by all required information and documents, without prejudice to the provisions of paragraph 6 of Article 14; b) The license application has been instructed with inaccurate or false documents or declarations; c) There are links between the applicant and other entities, natural or legal persons, that make its adequate supervision unfeasible or difficult; d) The applicability of rules of foreign legal systems to entities linked to the applicant prevents or hinders its adequate supervision; e) The applicant fails to demonstrate capacity to comply with the duties established in the applicable legislation, namely regarding the prevention of money laundering and terrorist financing.
2. The definitive license is not granted when:
a) Any of the license prerequisites provided for in Article 13 are not met; b) The applicant fails to demonstrate having adequate technical, material, and financial means for the type and volume of operations it intends to carry out, under the terms of the authorization contained in the preliminary decision.
3. The economic needs of the market do not constitute grounds for rejecting the license application.
Article 20
Lapse of License
1. Without prejudice to the provisions of the second part of paragraph 3 of Article 16, the license lapses if the bank does not commence its activity within a period of 12 months.

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2. The licence also expires with the dissolution of the bank, without prejudice to the actions necessary for its liquidation.
Article 21
Revocation of licence
1. The BCTL may revoke the licence for the incorporation of a bank when any of the following grounds is verified, without prejudice to others provided for by law:
a) The licence having been obtained by means of false declarations or any other irregular means, regardless of the applicable sanctions; b) Any of the conditions on which the licence decision depended ceasing to be met; c) The bank's activity not corresponding to the authorised statutory object; d) The bank ceasing or reducing its activity to an insignificant level for a period exceeding six months; e) Serious irregularities having been committed in the management, accounting procedures or internal control of the bank; f) The bank's inability to meet its commitments, in particular as regards the safety of the funds and other assets entrusted to it; g) The bank's failure to comply with the obligations arising from its participation in the Deposit Guarantee Fund; h) The bank's violation of the laws and regulations governing its activity, as well as of the BCTL's determinations, in a manner that jeopardises the interests of depositors and other creditors or the proper functioning of the monetary, financial or exchange market; i) Express waiver of the licence, except in the case of voluntary liquidation; j) Absence of guarantees, by the members of the bank's management and supervisory bodies, taken as a whole, of sound and prudent management of the institution; k) Serious and repeated violation of the laws and regulations preventing money laundering and terrorist financing; l) The bank's failure to comply with prudential requirements relating to own funds, liquidity and large exposures; m) The occurrence of any of the administrative offences provided for in Article 252.
2. The revocation ground provided for in subparagraph j) of the preceding paragraph is deemed verified when the members of the management or supervisory bodies, as a result of non-compliance with the requirements in Article 30, cease, taken as a whole, to provide guarantees of sound and prudent management of the bank.
3. Revocation of the licence entails the liquidation and dissolution of the bank, unless, in the cases mentioned in subparagraphs d) and i) of paragraph 1, the BCTL exempts it.
Article 22
Form of revocation
1. The revocation decision is reasoned and immediately notified in writing to the bank.
2. The BCTL gives the revocation decision due publicity and adopts the necessary measures for the immediate closure of all the bank's establishments, this situation being maintained until the liquidators take up their duties.
CHAPTER III
FITNESS OF MEMBERS OF MANAGEMENT AND SUPERVISORY BODIES AND OF HOLDERS OF ESSENTIAL FUNCTIONS
Article 23
General provision
1. The fitness, for the exercise of their respective functions, of the members of the management and supervisory bodies of banks is subject to assessment for the exercise of the office, at the time of appointment and throughout their entire term of office.
2. The fitness of the members of the management and supervisory bodies consists of the ability to ensure, on a permanent basis, guarantees of sound and prudent management of banks, with a view in particular to safeguarding the financial system and the interests of their respective clients, depositors, investors and other creditors.
3. For the purposes of the preceding paragraph, the members of the management and supervisory bodies must comply, at all times, with the requirements of repute, professional qualification, independence and availability referred to in the following articles.
4. In the case of collegiate bodies, the individual assessment of each member must be accompanied by a collective appraisal of the body, with a view to verifying whether the body itself, considering its composition, has sufficient professional qualification and availability to fulfil its respective legal and statutory functions in all relevant areas of activity.
5. The assessment of the members of the management and supervisory bodies follows the principle of proportionality, considering, among other factors, the nature, size and complexity of the bank's activity and the requirements and responsibilities associated with the specific functions to be performed.
6. The members of the management and supervisory bodies are appointed by the general meeting composed of the

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7. The preceding paragraph does not prejudice the provision of more restrictive rules in the articles of association of each bank.
8. The functioning of the management and supervisory bodies is subject to the provisions of the Commercial Companies Law and of BCTL regulations applicable to them.
Article 24
Assessment by banks
1. It is for the banks to verify, in the first instance, that all members of the management and supervisory bodies possess the fitness requirements necessary for the exercise of their respective functions.
2. The general meeting of each bank must approve an internal policy for the selection and assessment of the fitness of the members of the management and supervisory bodies, which must include at least the identification of those responsible at the bank for the fitness assessment, the assessment procedures adopted, the fitness requirements demanded, the rules on prevention, communication and remediation of conflicts of interest and the professional training means made available.
3. The internal policy for the selection and assessment of the members of the management and supervisory bodies referred to in the preceding paragraph must promote the diversity of qualifications and skills necessary for the exercise of the function, setting objectives regarding balanced representation between men and women, and provide for measures aimed at increasing the participation of the under-represented gender, with a view to achieving those objectives.
4. Persons to be appointed to the management and supervisory bodies must submit to the bank, under the terms of paragraph 6, prior to their appointment, a written declaration with all relevant information necessary for the assessment of their fitness, including that required within the scope of the BCTL authorisation process.
5. The appointed persons must communicate to the bank any supervening facts after the appointment or authorisation that alter the content of the declaration provided for in the preceding paragraph.
6. If the office is to be filled by election, the declaration referred to in paragraph 4 is submitted to the chairman of the board of the general meeting of the bank, who is responsible for making it available to the shareholders within the scope of the preparatory information for the general meeting and for informing the shareholders of the fitness requirements of the persons to be elected, and in all other cases, the declaration is submitted to the management body.
7. If the bank concludes that the assessed persons do not meet the fitness requirements demanded for the performance of the office, they may not be appointed or, in the case of a reassessment motivated by supervening facts, the necessary measures must be adopted with a view to remedying the lack of requirements detected, suspending functions or removing the persons concerned, except in any of the cases if those persons are authorised by the BCTL under the process established in the following article.
8. The results of any assessment or reassessment carried out by the bank must be set out in a report which, in the case of the assessment of persons for elective offices, must be made available to the general meeting within the scope of its preparatory information.
9. The bank reassesses the fitness of the persons appointed to the management and supervisory bodies whenever, during their term of office, supervening circumstances occur that may determine the non-fulfilment of the required requirements.
10. The assessment report of the members of the management and supervisory bodies must accompany the licence application addressed to the BCTL or, in the case of reassessment, be provided to it as soon as concluded.
Article 25
Assessment and authorisation by the BCTL
1. The fitness of the members of the management and supervisory bodies of banks is subject to assessment by the BCTL in the bank's licence procedure.
2. Whenever there is a change in the members of the management and supervisory bodies, the bank must request from the BCTL the respective authorisation for the exercise of functions.
3. The bank, or any interested party, may request from the BCTL authorisation for the exercise of functions prior to the appointment of the members of the management and supervisory bodies, this prior authorisation expiring within 60 working days after its issuance if registration has not been requested under the terms provided for in this regime.
4. Authorisation for the exercise of functions of the members of the management and supervisory bodies by the BCTL is a necessary condition for the commencement of their respective functions.
5. If the application or the documentation submitted presents remediable insufficiencies or irregularities, the interested parties are notified to remedy them within a reasonable period set by the BCTL, under penalty of rejection of the authorisation request.
6. The BCTL's assessment is based on the information provided by the assessed person and by the bank, on investigations directly promoted and, whenever convenient, on a personal interview with the interested party.

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7. Changes in the members of the management and supervisory bodies, as well as renewals of terms of office, are deemed authorised if the BCTL does not pronounce within 90 working days from the date on which it receives the respective duly completed request, extendable for one or more periods up to a maximum limit of 30 working days, by reasoned decision.
8. Without prejudice to the preceding paragraph, the definitive registration of the appointment of a member of the management or supervisory bodies in the commercial register depends on the BCTL's authorisation for the exercise of functions.
9. The provisions of the preceding paragraphs apply, with the necessary adaptations, to the managers of branches, subsidiaries and representation offices provided for in Articles 46, 47 and 55.
10. For the purposes of this article, the BCTL may exchange information with other national and foreign supervisory entities.
11. The BCTL may, by regulation, make the exercise of essential functions by their respective holders subject to its authorisation.
Article 26
Refusal and revocation of authorisation
1. The lack of repute, professional qualification, independence or availability of the members of the management and supervisory bodies is a ground for refusal of the respective authorisation for the exercise of functions.
2. Refusal of authorisation on the ground of lack of any of the requirements mentioned in the preceding paragraph is notified by the BCTL to the interested parties and to the bank.
3. If the term of office of the member concerned has already begun, refusal of authorisation for the exercise of functions has the effect of terminating that term of office, and the provisions of paragraph 6 apply.
4. Authorisation for the exercise of functions may be revoked at any time in the face of supervening circumstances capable of determining the non-fulfilment of the requirements on which the authorisation depends.
5. Authorisation is revoked when it is verified that it was obtained by means of false declarations or other unlawful expedients, without prejudice to the sanctions applicable in the case.
6. Revocation of authorisation for the exercise of functions has the effect of immediate cessation of functions of the member concerned, and the BCTL must communicate this fact to the said person and to the bank, which adopts the appropriate measures so that such cessation occurs immediately, and must promote the registration of the cessation of functions of the member concerned with the commercial register.
7. For the purposes of paragraph 4, the BCTL assesses, in particular, whether the requirements of repute, professional qualification, independence or availability are still met, if it has reasonable grounds to suspect that, in relation to that bank, a money laundering or terrorist financing operation has been or is being carried out or attempted, within the meaning of the applicable legislation in this matter, or that there is an increased risk that this will happen.
8. The provisions of the preceding paragraphs apply, with the necessary adaptations, to the managers of branches and representation offices provided for in Articles 47 and 55.
Article 27
Repute
1. In assessing repute, account must be taken of the way in which the person habitually manages business, professional or personal, or exercises the profession, in particular in aspects that reveal their capacity to decide in a considered and judicious manner, or their tendency to punctually fulfil their obligations or to have behaviours compatible with preserving market confidence, taking into consideration all circumstances that allow assessing the professional behaviour for the functions in question.
2. The assessment of repute is carried out based on criteria of an objective nature, taking as a basis information that is as complete as possible on the interested party's past functions as a professional, the most salient characteristics of their behaviour and the context in which their decisions were taken.
3. In the assessment referred to in the preceding paragraphs, at least the following circumstances must be taken into account, according to their seriousness:
a) Indications that the member of the management or supervisory body did not act in a transparent or cooperative manner in their relations with any national or foreign supervisory or regulatory authorities; b) Indications that, in relation to an institution in which the assessed person exercised management or supervisory functions or held a qualifying holding at the date of the facts in question, a money laundering or terrorist financing operation was consummated or attempted, within the meaning of the applicable legislation on the prevention of money laundering and terrorist financing, or in which there was an increased risk that this could happen; c) Refusal, revocation, cancellation or cessation of registration, authorisation, admission or licence for the exercise of a commercial, business or professional activity, by a supervisory authority, professional order or body with analogous functions, or removal from the exercise of an office by a public entity;

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4. In its assessment, the BCTL must take into consideration, taking into account the preventive purposes of the repute assessment, in addition to the facts set out in the preceding paragraph or others of an analogous nature, any circumstances whose knowledge is legally accessible to it and which, by their seriousness, frequency or other relevant characteristics, allow founding a prognosis judgment on the guarantees that the person concerned offers with regard to sound and prudent management of the bank.
5. For the purposes of the preceding paragraph, at least the following situations must be taken into consideration, according to their seriousness:
a) The insolvency, declared in Timor-Leste or abroad, of the interested person or of a company controlled by them or of which they have been a director, manager or de facto manager, or member of the supervisory body; b) The accusation, indictment or conviction, in Timor-Leste or abroad, for crimes against property, crimes of forgery and falsity, crimes against the administration of justice, crimes committed in the exercise of public functions, tax crimes, crimes specifically related to the exercise of financial and insurance activities and to the use of means of payment or to money laundering or terrorist financing operations; c) The accusation or conviction, in Timor-Leste or abroad, for infringements of the rules governing the activity of financial institutions, in particular, the rules concerning the prevention of money laundering or terrorist financing, as well as the rules governing the securities market and the insurance or reinsurance activity, including insurance or reinsurance mediation; d) Infringements of disciplinary, deontological or professional conduct rules, within the scope of regulated professional activities; e) Facts that have determined the judicial removal, or the judicial confirmation of removal for just cause, of members of the management and supervisory bodies of any commercial company; f) Facts practised in the capacity of director, manager or de facto manager of any commercial company that have determined conviction for damages caused to the company, to partners, to social creditors or to third parties.
6. Conviction, even if final, for the practice of criminal, administrative or other offences does not automatically determine the loss of repute for the exercise of functions in banks, and its relevance must be weighed, among other factors, according to the nature of the offence committed and its connection with the financial activity, its occasional or repeated nature and the level of personal involvement of the interested person, the benefit obtained by them or by persons directly related to them, the harm caused to the institutions, their clients, their creditors or the financial system and, also, the eventual violation of duties relating to BCTL supervision.
7. The BCTL, for the purposes of this article, exchanges information with other national and foreign supervisory entities.
Article 28
Professional qualification

The members of the management and supervisory bodies must demonstrate that they possess sufficient knowledge, skills, qualifications and experience for the exercise of their functions, acquired through academic qualifications or specialised training appropriate to the office, as well as through professional experience with a duration and level of responsibility compatible with the characteristics, complexity and size of the bank, as well as with the risks associated with the activity carried out by it.
The prior training and experience must be sufficiently relevant to allow the holders of those offices

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understand the operation and activity of the bank, assess the risks to which it is exposed and critically analyse the decisions taken.
3. The BCTL may carry out consultations regarding verification of compliance with the professional qualification requirement with a competent authority which, in the exercise of its duties, is in a position to issue a reasoned opinion on the matter.
4. The members of the supervisory board and the members of the management board who do not perform executive functions must possess the skills and qualifications that enable them to carry out a critical assessment of the decisions taken by the management board and to effectively supervise its function.
5. The management and supervisory boards:
a) Have, collectively, adequate knowledge, skills and experience to understand the bank's activities, including the main risks to which it is exposed; and b) Are composed of members with a sufficiently broad set of experience.

Article 29
Independence

The independence requirement is intended to prevent the risk of members of the management and supervisory boards being subject to undue influence from other persons or entities, promoting conditions that allow them to perform their functions impartially.
In the assessment, all situations likely to affect independence are taken into account, namely the following:
a) Positions that the interested party holds or has held at the bank in question or at another bank; b) Family or similar relationships, as well as professional or economic relationships that the interested party maintains with other members of the management or supervisory board of the bank, its parent company or its subsidiaries; c) Family or similar relationships, as well as professional or economic relationships that the interested party maintains with a person who holds a qualifying holding in the bank, its parent company or its subsidiaries.
The performance of functions in associated entities is not, by itself, an indicator that the board member acts without independence.

Article 30
Supervening lack of suitability

Banks shall notify the BCTL, as soon as they become aware of them, of any facts supervening to the authorisation to perform functions that may affect the requirements of repute, professional qualification, independence or availability of the authorised person, on the same terms as these should have been or would be notified for the purposes of submitting the application for authorisation to perform functions, by reference to the provisions of Articles 23 to 29 and 32.
Both facts occurring after the granting of the authorisation and prior facts of which knowledge is only obtained after it are considered supervening.
The duty established in paragraph 1 is considered fulfilled if the notification is made by the persons to whom the facts relate.
If, for any reason, the requirements of repute, professional qualification, independence or availability of a given member or, as a whole, of the management or supervisory board cease to be met, the BCTL may adopt one or more of the following measures:
a) Set a reasonable deadline for the adoption of measures appropriate to compliance with the missing requirement; b) Suspend the authorisation to perform functions of the member concerned, for the period necessary to remedy the lack of the identified requirements; c) Set a reasonable deadline for changes in the allocation of portfolios; d) Set a reasonable deadline for changes in the composition of the board concerned and submission to the BCTL of all relevant information necessary for the assessment of the suitability and authorisation of substitute members.
The BCTL shall communicate the measures referred to in the previous paragraph to the persons concerned and to the bank, which shall take the necessary steps for their implementation.
Failure to adopt measures by the person concerned or the bank within the deadline set may result in the revocation of the authorisation to perform functions of the member concerned.
The adoption of the measure referred to in paragraph 4(d) and the occurrence of the circumstance provided for in the previous paragraph determine the corresponding annotation in the register of the cessation of functions of the member concerned.
Where suspension of the authorisation has been determined under paragraph 4(b), it shall only cease to have effect after a decision by the BCTL.
The provisions of this article apply, with the necessary adaptations, to branch and representative office managers provided for in Articles 47 and 55.

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Article 31
Provisional suspension of functions

In situations of justified urgency and to prevent the risk of serious harm to the sound and prudent management of a bank or to the stability of the financial system, the BCTL may determine the provisional suspension of the functions of any member of its management or supervisory boards.
The communication to be made by the BCTL to the bank and to the holder of the position concerned, following the decision taken under the previous paragraph, must state that the provisional suspension of functions is preventive in nature.
The provisional suspension ceases to have effect:
a) By decision of the BCTL determining it; b) By virtue of revocation of the authorisation to perform functions of the suspended person; c) As a consequence of the adoption of one of the measures provided for in paragraph 4 of the previous article; d) Upon the expiry of 30 business days from the date of suspension, without proceedings being initiated with a view to adopting any of the decisions provided for in paragraphs (b) and (c), of the initiation of which the bank and the holder of the position concerned must be notified.

Article 32
Accumulation of positions

The BCTL may object to members of the management or supervisory boards of banks performing management or supervisory functions in other entities if it considers that the accumulation is likely to impair the performance of the functions that the interested party already performs, namely because of serious risks of conflicts of interest or because this results in a lack of availability to perform the position, on terms to be regulated by the BCTL.
In its assessment, the BCTL must take into account the specific circumstances of the case, the particular requirements of the position and the nature, scale and complexity of the bank's activity.
Without prejudice to the provisions of paragraph 1, members of the management and supervisory boards of banks that are significant by virtue of their size, internal organisation, nature, scope and complexity of their activities are prohibited from accumulating more than one executive position with two non-executive positions, or four non-executive positions.
For the purposes of the previous paragraph, executive or non-executive positions in a management or supervisory board of banks or other entities included in the same perimeter of supervision on a consolidated basis or in which the bank holds a qualifying holding are considered a single position.
The provisions of paragraph 3 do not apply to members of the management and supervisory boards of banks that benefit from extraordinary public financial support and that have been specifically designated in the context of that support.
Positions held in entities whose main object is the performance of activities of a non-commercial nature are excluded from the limit provided for in paragraph 3, unless, by their nature and complexity, or by the size of the respective entity, it is shown that there are serious risks of conflicts of interest or lack of availability to perform the position at the bank.
The BCTL may authorise members of the management and supervisory boards covered by paragraph 3 to accumulate one additional non-executive position.
Banks must have rules on the prevention, reporting and sanctioning of situations of conflicts of interest, on terms to be regulated by the BCTL, which must form an integral part of the internal assessment policy.
In the case of functions to be performed in an entity subject to BCTL supervision, the power of objection is exercised within the scope of the application for authorisation of the member to perform the position.
For the purposes of the previous paragraph in other cases, banks must notify the BCTL of the interested parties' intention at least 30 business days in advance of the expected date for the start of the new functions, and in the absence of a decision within that period, the BCTL is deemed not to object to the accumulation.

Article 33
Holders of essential functions

Banks must identify the positions whose holders, not belonging to the management or supervisory boards, perform functions that give them significant influence over the management of the bank.
The positions referred to in the previous paragraph include, at least, those responsible for the compliance control, internal audit, risk control and management functions of the bank, as well as other functions that are considered as such by the bank or defined by regulation by the BCTL.
The suitability, for the performance of their respective functions, of the holders of essential functions of banks is subject to assessment, and the regime provided for in the previous articles applies, with the necessary adaptations.
It is for banks to verify in advance compliance with the requirements of repute, professional qualification and availability of the holders of essential functions, and the results of that assessment must be included in the report referred to in paragraph 8 of Article 24.
The BCTL may, at any time, carry out a new assessment of the suitability of the holders of essential functions of

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banks based on relevant supervening circumstances, circumstances previously existing but not known, for a reason not attributable to the bank at the date of their appointment, or others, in cases of manifest error or fraud in the initial assessment, and must in any case ensure the right to be heard, reasoning and respect for the principles of legality and proportionality.
6. In the situation provided for in the previous paragraph, the BCTL shall apply or set a deadline for the bank to take the appropriate measures as provided for in paragraph 4 of Article 30, and must in any case communicate its decision to the persons concerned and to the bank.

CHAPTER IV
REGISTER

Article 34
Subjection to registration

Banks may not commence their activity until they are entered in a special register organised by the BCTL.
A bank whose licence is revoked shall have its special registration automatically cancelled.

Article 35
Elements subject to registration

The registration of banks headquartered in Timor-Leste covers the following elements:
a) Firm or denomination and, where applicable, trademark or trade name; b) Object; c) Date of incorporation; d) Place of the head office; e) Share capital; f) Identification of shareholders holding qualifying holdings, as well as their beneficial owners; g) Identification of the members of the management and supervisory boards and of the chair of the general meeting of the bank; h) Delegations of management powers, including, as regards members of the management boards, the allocation of portfolios or executive functions; i) Suspension of the performance of functions, and its lifting, of the members of the management and supervisory boards; j) Date of commencement of activity; k) Place and date of the creation of subsidiaries, branches, agencies and representative offices; l) Identification of the managers of branches and representative offices established abroad; m) Shareholders' agreements referred to in Article 120; n) Amendments to the elements listed in the previous paragraphs.
The registration of banks authorised in a foreign country and which have branches or a representative office in Timor-Leste covers the following elements:
a) Firm or denomination and, where applicable, trademark or trade name; b) Date from which it may establish itself in Timor-Leste; c) Place of the head office; d) Location of branches, agencies and representative offices in Timor-Leste; e) Capital allocated to operations to be carried out in Timor-Leste, where required; f) Operations that the bank may carry out in the country of origin and operations that it intends to carry out in Timor-Leste; g) Identification of the managers of branches and representative offices; h) Amendments occurring in the elements referred to in the previous paragraphs.

Article 36
Registration of members of the management and supervisory boards

Registration of members of the management and supervisory boards must be requested after the respective authorisation by the BCTL, by application of the bank, which must indicate the date of the respective commencement of functions.
In the case of reappointment, this shall be annotated in the register, at the request of the bank.

Article 37
Deadlines, supplementary information, certificates and publicity of the register

Save as provided in the following paragraph, the deadline for requesting any registration is 30 business days from the date on which the facts to be registered occurred.
The initial registration of banks, as well as any others without which the exercise of activity is not permitted, are not subject to a deadline.
If the application or the documentation submitted contains remediable insufficiencies or irregularities, the interested parties are notified to remedy them within a reasonable deadline set by the BCTL, under penalty of refusal of the registration request.

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Registration is deemed to have been made if the BCTL does not issue any express decision within 30 business days from the date on which it receives the duly completed application, or, if it has requested supplementary information, within 30 business days after receipt thereof.
Certificates of registration are issued to anyone demonstrating a legitimate interest.
Without prejudice to the regime applicable to certificates and the protection of elements subject to reserve or secrecy, the BCTL shall ensure up-to-date publicity of the register of financial institutions authorised to operate in Timor-Leste.
The publicity referred to in the previous paragraph is ensured, in particular electronically, by making available to the public an up-to-date list containing at least the identification of the entity, the institutional category, the head office or branch or representative office, the date of authorisation, the authorised activities and the status of the licence.
The BCTL shall promptly update the information provided for in the previous paragraph whenever there are relevant changes to the institution's status or the status of its licence.

Article 38
Refusal of registration
In addition to other legally provided grounds, registration is refused when:
a) It is manifest that the fact is not evidenced in the documents submitted; b) It is verified that the fact contained in the document is already registered or is not subject to registration; c) Any legally required authorisation is missing; d) The fact is manifestly null; e) It is verified that any of the assumptions on which the authorisation necessary for the incorporation of the bank or for the exercise of activity depends is not met.

CHAPTER V
AMENDMENTS TO ARTICLES OF ASSOCIATION, DISSOLUTION AND ACTS SUBJECT TO AUTHORISATION BY THE BCTL

Article 39
General provision
Amendments to the articles of association of banks relating to the following aspects are subject to prior authorisation by the BCTL:
a) Firm or denomination; b) Object or business plan; c) Place of the head office; d) Share capital, in the case of a reduction; e) Creation of classes of shares or amendment of existing classes; f) Structure of the management or supervisory board; g) Limitation or extension of the powers of the management or supervisory boards; h) Dissolution.

Article 40
Merger and division

The merger of banks, with each other or with other financial institutions, is subject to prior written authorisation by the BCTL.
Operations for the division of banks also depend on prior authorisation by the BCTL.
Chapter II of this Title applies to the cases provided for in the previous paragraphs.

Article 41
Voluntary dissolution
Any project for the voluntary dissolution of a bank must be communicated to the BCTL at least 90 business days in advance of the date of its implementation.

Article 42
Acts subject to authorisation by the BCTL

The following are subject to prior written authorisation by the BCTL:
a) The distribution of dividends by banks; b) The amortisation of shares, the reduction or transformation of the bank's capital; c) Significant changes in the banks' business plan; d) The merger, division, sale or acquisition of the bank; e) The appointment and change of members of the banks' management and supervisory boards; f) The change of the banks' corporate object or firm; g) Acquisition and reduction of holdings.
Failure to request authorisation or a reasoned refusal by the BCTL implies the nullity of the acts or legal transactions carried out.

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TITLE II
ACTIVITY ABROAD OF BANKS HEADQUARTERED IN TIMOR-LESTE

Article 43
Establishment of branches abroad

A bank headquartered in Timor-Leste that intends to establish a branch abroad must notify the BCTL in advance, providing the following information:
a) Country where it intends to establish the branch; b) Programme of activities, indicating, among others, the types of business envisaged and the structural organisation of the branch; c) Address of the branch abroad; d) Identification of the branch managers.
The day-to-day management of the branch must be entrusted to at least two managers, who are subject to all the requirements imposed on members of the management board of banks.
The opening of new establishments abroad where the bank already has a branch requires only notification of the new address.
The BCTL shall refuse applications if the host country does not adhere to the supervisory standards established by the Basel Committee.
The BCTL, through a duly reasoned decision, may refuse the application, considering, in particular, the inadequacy of the bank's financial situation for the project and the existence of obstacles that prevent or hinder the control and inspection of the branch by the BCTL.
The decision must be taken and notified to the applicant bank within three months, and in the event of silence, the application is deemed tacitly rejected.
The branch may not carry out operations that the bank is not authorised to carry out in Timor-Leste or that are not mentioned in the programme of operations referred to in paragraph 1(b).
In the event of a change to any of the information referred to in paragraph 1(b) to (d), the bank must notify the BCTL in writing at least one month in advance.

Article 44
Establishment of subsidiaries abroad

A bank headquartered in Timor-Leste that intends to establish a subsidiary abroad must notify the BCTL in advance, on the terms established in a BCTL regulation.
The BCTL, through a reasoned decision, may refuse the application, considering in particular the inadequacy of the bank's financial situation for the project.
The decision must be taken and notified to the applicant bank within three months, and in the event of silence, the application is deemed tacitly rejected.

Article 45
Qualifying holdings in companies headquartered abroad Banks headquartered in Timor-Leste that intend to acquire, directly or indirectly, holdings in banks headquartered abroad or in financial institutions representing 10% or more of the share capital of the investee entity or 2% or more of the share capital of the investing institution must notify their projects to the BCTL in advance, on the terms to be defined by BCTL regulation.

TITLE III
SUBSIDIARIES, BRANCHES AND REPRESENTATIVE OFFICES IN TIMOR-LESTE OF BANKS HEADQUARTERED ABROAD

CHAPTER I
SUBSIDIARIES

Article 46
Principle of equivalence

Banks incorporated in Timor-Leste that are subsidiaries of banks, or other entities, headquartered abroad are equated, for all purposes, with banks headquartered in Timor-Leste, and this law applies to them in full.
Without prejudice to the provisions of the previous paragraph and of Article 15, the BCTL, in the performance of its functions and in the exercise of its powers, shall consult, whenever it considers it useful and appropriate, the foreign authorities responsible for the authorisation and supervision of the parent company.
The provisions of Articles 10 to 15 also apply to subsidiaries in Timor-Leste of banks headquartered abroad, with the necessary adaptations.

CHAPTER II
BRANCHES

Article 47
Licensing

The establishment, by a bank headquartered abroad, of a branch in Timor-Leste depends on authorisation by the BCTL.
The licence application is accompanied by the following elements:
a) Programme of activities, indicating, in particular, the type of operations to be carried out and the organisational structure of the branch, as well as the certificate that such operations are permitted to the applicant bank in the country where it is headquartered;

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3. The following are conditions for the issuance of the licence by the BCTL:
a) The branch's ability to guarantee the safety of the funds entrusted to it, as well as the sufficiency of technical means and financial resources, considering the type and volume of operations it intends to carry out; b) Having effective processes for identifying, managing, monitoring and communicating the risks to which the branch may be exposed, considering the type and volume of operations it intends to carry out; c) Having adequate internal control mechanisms, including sound administrative and accounting procedures, considering the type and volume of operations it intends to carry out; d) The branch's managers being persons whose suitability, professional qualification, independence and availability provide, whether individually or collectively, guarantees of sound and prudent management of the branch; e) The branch's management being composed of a minimum of two members, with sufficient powers to deal with and definitively resolve, in Timor-Leste, all matters relating to its activity; f) The existence of cooperation agreements, including provisions governing the exchange of information in order to preserve market integrity and protect depositors, investors and other creditors, between the BCTL and the competent supervisory authorities of the third country in which the applicant bank is headquartered.
4. The licence application is refused by the BCTL if:
a) The licence application is not complete and correctly prepared, accompanied by all required information and documents, without prejudice to the provisions of paragraph 6 of Article 14; b) The licence application has been prepared with inaccurate or false documents or declarations; c) The BCTL considers that any of the conditions provided for in paragraph 3 of this Article is not met.
5. The provisions of Article 16 apply, with the necessary adaptations, with the maximum period for a final decision provided therein being reduced to three months.
Article 48
Expiry and revocation
The provisions of Articles 20 and 21 apply, with the necessary adaptations, to the expiry and revocation of the licence decision for branches.
Article 49
Allocated capital
1. The operations to be carried out by the branch must be allocated capital adequate to guarantee those operations, which may not be less than the minimum provided for in Article 10.
2. The capital allocated to the branch must be deposited in advance in a bank authorized in Timor-Leste, failing which its registration with the BCTL shall be refused.
3. The branch must apply in national territory the funds arising from the realization of the capital allocated to its activity, as well as the reserves constituted, deposits and other resources raised in Timor-Leste.
4. The foreign bank that establishes the branch is fully liable for compliance with the obligations arising from the activities carried out by it in Timor-Leste.
Article 50
Liability for debts
1. The branch's assets and assets may be used to answer for debts contracted by the bank not related to its activity in Timor-Leste, namely debts contracted in other countries, only after all debts and all obligations assumed in national territory have been fully paid and fulfilled.
2. The decision of a foreign authority declaring the bankruptcy

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Article 51
Accounting and bookkeeping
The bank must keep centralized at the first branch it has established in national territory all the specific accounting of operations carried out in Timor-Leste, and the use of one of the official languages in the bookkeeping of the books is mandatory.
Article 52
Regime
1. Save for the specificities provided for in this Chapter, and with the exception of rules whose application presupposes the existence of a legal person, this law applies to branches.
2. The BCTL, in the performance of its functions and in the exercise of its powers, consults, whenever it considers it useful and appropriate, the foreign authorities responsible for the licensing and supervision of the bank authorized abroad.
3. The BCTL may, by reasoned decision and on a case-by-case basis, adapt or waive, in whole or in part, compliance with prudential, organizational or reporting requirements applicable to branches, when this proves adequate and proportionate depending on the nature, size, complexity, volume and risk profile of the activities carried out in Timor-Leste, taking into account the supervision exercised by the home country authority, the existence of effective cooperation and information exchange mechanisms, and the protection ensured to depositors and other clients.
4. The adaptation or waiver provided for in the preceding paragraph may not compromise the stability of the financial system, the protection of depositors, investors and other clients, the prevention of money laundering and terrorist financing, the effectiveness of the BCTL's supervision, nor result in unjustifiably more favourable treatment of branches compared to banks headquartered in Timor-Leste.
5. The decision to adapt or waive must identify the requirements covered, their duration, the applicable conditions and may be revoked or amended by the BCTL whenever the respective conditions cease to be met.
CHAPTER III
REPRESENTATION OFFICES
Article 53
Registration
1. The establishment and operation in Timor-Leste of representation offices of banks headquartered abroad depend, without prejudice to the applicable law on commercial registration, on prior registration with the BCTL, the application for which must be accompanied by a certificate issued by the supervisory authority of the home country proving the nature of the applicant and the activities it is authorized to carry out, as well as the decision of the board of directors of the parent bank or parent company to establish the office in Timor-Leste, and the letter of appointment of the representative or manager.
2. The BCTL may request additional information for the purposes of the preceding paragraph.
3. The commencement of activity of representation offices must take place within three months following registration with the BCTL, and the latter may, if there is a founded reason, extend the period by an equal period.
4. The cancellation of registration must be duly reasoned, and may occur in the event of non-compliance with applicable legal and regulatory provisions, cessation of the representation office's activities, revocation of authorization by the supervisory authority of the home country or any other relevant reason that compromises its regular operation in Timor-Leste.
Article 54
Scope of activity
1. The activity of representation offices is carried out in strict dependence on the banks that establish them, and they are only permitted to represent their interests in Timor-Leste and ensure their relationship with local authorities, and may not carry out, directly or indirectly, any financial activity.
2. Representation offices are especially prohibited from:
a) Using the name "bank", except when this forms an integral part of the firm or name of the foreign bank represented, and its use is always accompanied, clearly and visibly, by the expression "representation office", without misleading the public as to the nature and scope of the activity authorized in Timor-Leste; b) Carrying out financial activities reserved for or permitted only to banks; c) Acquiring shares or holdings in any national companies; d) Acquiring real estate that is not indispensable for their establishment and operation.
Article 55
Management
The managers of representation offices must have sufficient powers to deal with and definitively resolve, in national territory, all matters relating to their activity, failing which their registration shall be refused.

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PART IV
OTHER FINANCIAL INSTITUTIONS
Article 56
Regime applicable to investment banks and non-bank financial institutions
1. The financial institutions referred to in paragraphs 4 and 5 of Article 5 are subject to the provisions of special legislation, and Parts III, V, VI and IX of this law also apply to them, with the necessary adaptations.
2. For the purposes of the preceding paragraph, to the extent necessary and as applicable, the BCTL is responsible for issuing the regulations necessary to implement, adapt and apply, to each type of financial institution, the rules provided for in the referred Parts.
3. Article 10 does not apply to the entities referred to in this Article.
4. Payment service providers and payment system operators are governed, as regards their access to activity, authorization, operation, supervision and other special regime applicable, by Decree-Law No. 17/2015 of 24 June, and its complementary regulation, with this law applying only subsidiarily, to the extent that it is compatible with that special regime and in the absence of specific rules.
5. The qualification of the entities referred to in the preceding paragraph as non-bank financial institutions does not, by itself, determine the requirement of a new authorization when a valid authorization already exists under the special legislation of the national payment system.
Article 57
Regime applicable to development financial institutions
1. Development financial institutions are governed by the regime provided for in their respective creation decree-law, as well as, subsidiarily, by the provisions of this law applicable to them under Article 56.
2. Development financial institutions are subject to the supervision of the BCTL and to the regulations issued by it, which must establish, among others, rules relating to:
a) Prudential requirements and own funds; b) Specific limits per borrower or counterparty; c) Credit granting procedures; d) Integrated risk management; e) Internal policies and procedures on risk, conduct and compliance control.
PART V
SUPERVISION
TITLE I
CONDUCT SUPERVISION
CHAPTER I
CONDUCT RULES
Article 58
Technical competence
Banks must comply with high standards of technical competence, ensuring that their business organization has adequate human and material resources to ensure appropriate conditions of quality and efficiency.
Article 59
General duties
The members of the management bodies and the employees of banks must act, both in relations with clients and in relations with other institutions, with diligence, neutrality, loyalty and discretion, and with conscious respect for the interests entrusted to them.
Article 60
Diligence criterion
The members of the management bodies of banks, as well as persons holding positions of direction, management, leadership or similar therein, must exercise their functions with the diligence of a prudent and organized manager, in accordance with the principle of risk diversification and the safety of investments, taking into account the interests of depositors, investors, other creditors and all clients in general.
Article 61
Regulation
The BCTL may establish, by regulation, conduct rules it considers necessary and appropriate to complement and develop those established in this law.
CHAPTER II
RELATIONS WITH CLIENTS
Article 62
Duty of information and assistance
1. Banks must clearly inform clients about the remuneration they offer for funds received and the characteristic elements of the products offered, as well as about the price of services provided and other charges.
2. In particular, in the context of granting consumer credit, banks provide the client, before entering into the credit contract, with adequate information, on paper or another durable medium, about the conditions and total cost

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3. To ensure transparency and comparability of the products offered, the information referred to in the preceding paragraph must be provided to the client at the pre-contractual stage and must include the characteristic elements of the proposed products, namely including the respective global effective annual charge rate, indicated through representative examples.
4. The BCTL defines, by regulation, the method of calculating the global effective charge rate, establishes the minimum requirements that banks must satisfy in disclosing to the public the conditions under which they provide their financial services and determines the mandatory content and manner of presentation of the contractual forms prepared by them.
5. Contracts entered into between banks and their clients must contain all necessary information and must be drafted clearly and concisely.
6. Banks are obliged to send annually to the client, in the month of January, an information note, at no cost, itemizing all commissions and expenses associated with current deposit accounts applied in the previous calendar year.
7. The information note referred to in the preceding paragraph consists of a global recapitulative statement of all commissions and expenses associated with current deposit accounts, without prejudice to the invoicing and declaratory obligations provided for in tax legislation.
8. The information note provided for in paragraph 7 must contain the following information:
a) The unit commission charged for each service and the number of times the service was used during the period covered and, in cases where services are combined in a package, the commission charged for the package, the number of times the commission corresponding to the package of services was charged during the period covered and the additional commission charged for any service exceeding the quantity covered by the package commission, where they exist; b) The total amount of commissions charged during the period covered for each service, each package of services provided and any service exceeding the quantity covered by the package commission; c) The interest rate applied to the overdraft facility or overrunning credit associated with the payment account and the total amount of interest charged in respect of the overdrawn balance during the period covered, where applicable; d) The remunerative interest rate applied to the payment account and the total amount of interest earned during the period covered, where applicable; e) The total amount of commissions charged for all services provided during the period covered.
9. The information note provided for in paragraph 7 must also comply with the following characteristics:
a) Have a clear presentation and layout that facilitates reading, with legible-sized characters; b) Be accurate, not misleading and be expressed in the currency of the payment account or, if the consumer and the payment service provider have so agreed, in another currency; c) Contain the title "statement of commissions" at the top of the first page, together with a common symbol, so as to allow its distinction from any other documentation; d) Be drafted in one of the official languages, whenever the client falls within the concept of consumer provided for in consumer protection legislation.
Article 63
Client complaints

Without prejudice to the right to effective judicial protection, bank clients must address their complaints to the banks, which are obliged to acknowledge receipt thereof within a maximum period of 10 working days.
In the absence of a response from the bank within the period referred to in the preceding paragraph, or if the client considers the response received unsatisfactory, the client may submit the complaint, provided it is duly reasoned, directly to the BCTL.
The BCTL is responsible for assessing complaints, regardless of the manner in which they are submitted, as well as defining the procedures and periods relating to their assessment, in both cases observing the principles of impartiality, speed and free of charge.
In assessing complaints, the BCTL identifies the types of complaint and promotes the necessary steps to verify compliance with the rules it is responsible for ensuring and adopts appropriate measures to remedy the non-compliances detected, without prejudice to the initiation of administrative offence proceedings whenever the conduct of the entities complained of, namely due to its seriousness or repetition, justifies it.
The BCTL regularly publishes a report on complaints from bank clients, regardless of the manner in which they are submitted, specifying their areas of incidence and the entities complained of and with information on the treatment given to them.

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6. Banks must establish a specific unit for consumer protection, with a designated officer responsible for ensuring the adequate handling of complaints and the defence of clients' rights.
Article 64
Codes of conduct
1. Banks, or their representative associations, must adopt codes of conduct and disclose them to clients, at least through a website, and those codes must contain the principles and rules of conduct governing the various aspects of their relations with clients, including the internal mechanisms and procedures adopted by them in the context of assessing complaints.
2. The BCTL must issue instructions on the codes of conduct referred to in the preceding paragraph and also define guiding rules for that purpose.
CHAPTER III
PROFESSIONAL SECRECY
Article 65
Duty of secrecy
1. The members of the management and supervisory bodies of banks, their workers, representatives, agents and any other person or entity that provides services to them on a permanent or temporary basis may not disclose or use information on facts or elements relating to the bank or its relationship with its clients, knowledge of which arises from the exercise of their functions or the provision of their services.
2. Subject to secrecy are, in particular, the names of clients, deposit accounts and their balances and transactions, and any other banking operations or contractual relationships.
3. The duty of secrecy does not cease with the termination of functions or the provision of services.
Article 66
Exceptions to the duty of secrecy
1. Facts or elements relating to clients' relationships with banks may be disclosed with their express consent, given in writing.
2. In addition to the cases provided for in the preceding paragraph, facts and elements covered by the duty of secrecy may only be disclosed:
a) To the BCTL, within the scope of its functions; b) To judicial authorities, within the scope of criminal proceedings; c) When there is any other legal provision that expressly limits or makes an exception to the duty of secrecy.
3. The BCTL creates a database of bank accounts existing in the banking system, guaranteeing its security and inviolability.
4. In the database provided for in the preceding paragraph, only information relating to the bank, the account holder and other persons with powers to operate it, the account number, and the opening and closing dates may be stored.
5. Save for the express consent of the account holder, given in writing, the disclosure of the information referred to in the preceding paragraph is lawful only by judicial determination.
6. Banks are obliged to collect and provide to the BCTL all information necessary for the database, and the BCTL is responsible for defining, by regulation, the rules relating to its creation, management and information collection procedures.
Article 67
Duty of secrecy of BCTL bodies and staff
1. The holders of BCTL bodies and staff, as well as temporary or permanent service providers, are subject to the duty of secrecy on facts or elements knowledge of which arises exclusively from the exercise of their functions or the provision of their services.
2. Facts and elements covered by the duty of secrecy may only be disclosed with the express consent of the person to whom they relate, given in writing, by judicial determination or by virtue of the application of corrective intervention measures, under Article 146.
3. The disclosure of summarized or aggregated information that does not allow the individual identification of persons or institutions is lawful, namely for statistical purposes.
4. The duty of secrecy does not prevent the BCTL from communicating centralized data to other entities, under the respective legislation.
Article 68
Cooperation with other entities
1. The BCTL may, subject to confidentiality and on the basis of reciprocity, exchange information with foreign supervisory authorities, within the scope of cooperation agreements entered into for the purposes of the effective exercise of their respective supervisory functions.
2. The BCTL may also exchange information with the following authorities, bodies and persons, within the scope of cooperation agreements entered into on a reciprocal basis:
a) Bodies responsible for managing deposit guarantee or investor protection systems, relating to the information necessary for the exercise of their functions;

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3. The cooperation agreements referred to in the preceding paragraphs may only be concluded when the information to be provided benefits from confidentiality guarantees at least equivalent to those established in this law and when the objective is the development of the tasks assigned to the entities concerned.
4. All authorities, bodies and persons participating in the exchanges of information referred to in the preceding paragraphs are subject to the duty of confidentiality.
5. The BCTL may only disclose information received from foreign entities with the express consent of those entities.
6. Information received by the BCTL under this article may only be used:
a) In the assessment of applications for licences to carry on financial activities; b) In the supervision of the activity of banks, in particular with regard to liquidity, solvency, large exposures and other capital adequacy requirements, administrative and accounting organisation and internal control; c) For the application of sanctions; d) In the context of appeals against decisions of the BCTL; e) For monetary policy purposes and for the operation or supervision of payment systems.
Article 69
Breach of the duty of confidentiality
Without prejudice to other applicable sanctions, breach of the duty of confidentiality is punishable under criminal law.
CHAPTER IV
CONFLICTS OF INTEREST
Article 70
Granting of credit to members of the management bodies

Without prejudice to the provisions of paragraphs 6 and 7, banks may not grant credit, in any form or modality, including the provision of guarantees, whether directly or indirectly, to members of their management or supervisory bodies, nor to companies or other entities directly or indirectly controlled by them.
Indirect granting of credit is presumed when the beneficiary is the spouse, person living in a de facto union, relative or relative by marriage in the 1st degree of any member of the management or supervisory bodies or a company directly or indirectly controlled by any one or more of those persons, and such presumption may be rebutted, before the granting of credit, by a reasoned decision of the bank's board of directors, subject to prior notification to the BCTL, in accordance with a procedure to be defined by regulation.
Excepted from the provisions of the preceding paragraphs are operations of a social nature or purpose or arising from personnel policy, as well as credit granted as a result of the use of credit cards associated with the deposit account, under conditions similar to those practised with other clients of similar profile and risk.
The BCTL may determine the application of Article 117 to members of other bodies that it considers to perform equivalent functions and to companies or other entities controlled by them.
Members of the management or supervisory body of a bank may not participate in the assessment and decision of credit granting operations to companies or other entities not included in paragraph 1 of which they are managers or in which they hold qualifying holdings, and in that case approval by a majority of at least two thirds of the remaining members of the management body and a favourable opinion of the supervisory body are required.
The beneficiaries and amounts of credit granting operations carried out under the provisions of this article shall be itemised in the bank's annual report.
The BCTL shall establish the limits within which banks may grant credit to their employees.
Article 71
Duty of registration and information
Banks shall duly document and make available to the BCTL, upon request, data relating to credit granted to the following persons:

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i. Holds a qualifying holding equal to or greater than 10% of the capital or voting rights;
ii. May exercise significant influence;
iii. Holds top management positions; or
iv. Is a member of the management body.
Article 72
Other operations
Members of the management body, directors and other employees, consultants and representatives of banks may not intervene in the assessment and decision of operations in which they themselves, their spouses, or persons with whom they live in a de facto union, relatives or relatives by marriage in the 1st degree, or companies or other entities that any of them directly or indirectly control, are directly or indirectly interested.
Article 73
Mechanisms and prevention measures
1. Banks must have organisational and administrative mechanisms appropriate to the nature, scale and complexity of their activity that enable, effectively, the identification of possible conflicts of interest, the adoption of appropriate measures to avoid or minimise the risk of their occurrence and the adoption of reasonable measures designed to prevent, once a conflict of interest situation has arisen, the interests of their clients from being harmed.
2. If they verify, with a reasonable degree of certainty, that the organisational and administrative mechanisms adopted are insufficient to avoid risks of harm to the client's interests, banks must, prior to the client's acquisition of products or services, provide the client with clear and precise information on the origin and nature of the conflicts of interest in question and also on the measures adopted to mitigate the identified risks.
3. The information to be provided under the preceding paragraph must be transmitted through a document on paper or another durable medium and must be sufficiently detailed to allow, taking into account the nature of the client, that client to make an informed decision.
4. The organisational and administrative mechanisms to be implemented by banks, under the terms provided for in the preceding paragraphs, must enable the identification, prevention or mitigation of situations of conflict between their interests and those of their clients, including those of the holders of their management bodies, employees, persons providing services to them on a permanent or occasional basis and any companies with which they are in a relationship of control or group, or between the interests of different clients that arise or may arise, in particular those arising or that may arise from the acceptance of incentives from third parties, from the bank's own remuneration and other incentive structures.
Article 74
Remuneration and incentives for employees
1. Banks must define a remuneration and performance evaluation policy for employees who have direct contact with banking clients in the context of the marketing of deposits and credit products and also for those who, directly or indirectly, are responsible for the management or supervision of those persons.
2. The remuneration and evaluation policy for the employees referred to in the preceding paragraph may not impair their ability to act in the interest of clients, and must in particular ensure that measures relating to remuneration, sales targets or otherwise are not likely to incentivise them to prioritise their own interests or the interests of the bank to the detriment of the interests of clients.
3. Banks shall evaluate, at least annually, the remuneration policy, adopting, whenever necessary, the measures that prove adequate to ensure that it duly takes into account the rights and interests of clients and does not create incentives for the interests of clients to be harmed.
CHAPTER V
ADVERTISING AND COMPETITION PROTECTION
Article 75
Advertising
1. Banks shall submit to the BCTL all information relating to any advertising or sponsorship, including samples of materials, that they intend to disseminate.
2. If it considers that the advertising materials and content do not comply with the rules of this Chapter, the BCTL, within 10 business days from receipt of the elements referred to in the preceding paragraph, or of the additional elements it requests from the bank, may, by reasoned decision, prohibit their dissemination, in whole or in part.
3. All advertising content must be presented in one of the official languages, without prejudice to translations into other languages.
4. The fact that the BCTL does not issue any decision within the period referred to in paragraph 2 implies tacit permission of the submitted advertising materials.

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5. Content of a merely institutional, informative or educational nature, as well as ordinary communications in digital channels, including social networks, are not subject to prior notification, and are subject to the obligations provided for in the following article.
Article 76
Prohibited advertising content
Banks are prohibited, regardless of the medium used, from disclosing or disseminating advertising content that:
a) Contains false information or indications; b) Misleads or is likely to mislead the recipient as to the characteristics and qualities of the service or product advertised; c) Is directed at minors, except with prior authorisation from the BCTL; d) Is related to betting or games of fortune or chance; e) Is related to illegal activities; f) Promotes activities, products or services not authorised by the BCTL, where authorisation is imposed by law or regulation; g) Contains pejorative, offensive or derogatory comments or observations in relation to other financial institutions; h) Includes the logo, name, identification marks, trade names or any type of sponsorship or support of the BCTL, except with its express authorisation; i) Exceeds the limits of sobriety appropriate to the preservation of the reputation and good name of the financial sector.
Article 77
Agreements, practices and operations harmful to competition Banks are prohibited from:
a) Through agreements or concerted practices with other banks or entities, creating a dominant position in any of the financial markets in which they operate, under the terms of the applicable competition legislation; b) Adopting any manipulative practices that may result in an unfair advantage for themselves or for third parties; c) Making the provision of any financial service conditional on the client's contracting of other services or products offered by them or by their subsidiaries; d) Acquiring assets from a subsidiary or securities to be subscribed, placed or distributed by them or that have been subscribed, placed or distributed in the year immediately preceding the transaction; e) Granting credit, directly or through the provision of guarantees, to finance the purchase of securities subscribed, placed or distributed by them or by a subsidiary.
CHAPTER VI
INTERNAL PROCEDURES
Article 78
Records and filing
1. Banks must keep records of all services, activities and operations carried out by them that are sufficient to allow verification of compliance with the duties to which they are subject, under the applicable rules, including their respective obligations towards clients.
2. Banks shall create a record of each client, containing, in particular, updated information relating to the rights and obligations of both parties under the contracts entered into, which is based on the respective supporting documents.
3. Without prejudice to the provisions of other legal and regulatory instruments, the records and documents referred to in this article must be kept in a medium that does not allow their alteration and permits subsequent consultation and exact reproduction of the stored information.
4. Banks must record and store the communications they establish with clients for the conclusion of contracts, preserving them for a period of five years, and the BCTL may establish, by regulation, that these be kept for a longer period, up to seven years.
5. For the purposes of the preceding paragraph, the records cover telephone conversations and electronic communications, without prejudice to the provisions of the law on the protection of personal data.
6. Banks shall ensure that the communications that persons performing functions therein or providing services to them on a permanent or occasional basis establish with clients, for the conclusion of contracts, are carried out using equipment provided or authorised by them.
7. Banks must provide the records to the BCTL whenever it requests them.
8. Banks must provide clients, upon request, with the records that concern them.
Article 79
Design of deposits and credit products
1. Banks must define and apply specific procedures for the governance and monitoring of deposits and credit products, applicable to the design, combination or significant alteration of those products, in order to ensure that the interests, objectives and characteristics of the

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2. The governance and monitoring procedures referred to in the preceding paragraph must be proportionate to the nature, scale and complexity of each bank's activity, and their application must take into account the level of potential risk to the client and the complexity of the products in question.
3. Banks responsible for the design, combination or significant alteration of the products referred to in paragraph 1 must periodically review and update the respective governance and monitoring procedures.
4. All measures adopted in the context of the specific procedures established for governance and monitoring must be duly documented and recorded for audit purposes, and banks are obliged to make them available to the BCTL whenever it requests.
5. Banks must create and maintain a database of credits granted and deposits constituted in Timor-Leste, including the opening and maintenance of accounts, and inactive accounts, as well as any other information on their commercial relations with their clients and other persons, in accordance with BCTL regulations.
Article 80
Marketing of deposits and credit products
1. Banks must define and apply specific procedures for the governance and monitoring of the marketing of deposits and credit products, regardless of whether these were designed by them or by another bank, in order to ensure that the interests, objectives and characteristics of their consumers are taken into account, to prevent situations potentially harmful to consumers and to minimise the risk of conflicts of interest.
2. The governance and monitoring procedures referred to in the preceding paragraph must be adequate and proportionate to the nature, scale and complexity of the banks' function in the context of the marketing of the products in question, and they are obliged to periodically review and update those procedures in order to ensure that they remain adequate for their purpose.
3. In situations where several banks collaborate jointly in the marketing of deposits or credit products, responsibility for compliance with the obligations provided for in this article lies with the one that establishes the direct relationship with the consumer.
4. The measures adopted by banks in the context of the marketing of the products referred to in paragraph 1 must be duly documented and recorded, for audit purposes, and banks are obliged to make them available to the BCTL, or to the banks that designed, combined or significantly altered the products or services in question, whenever these request it.
Article 81
Intervention by the BCTL
1. Without prejudice to the use of other supervisory instruments, the BCTL may order the suspension of the marketing of deposits and credit products whenever banks have not developed or applied an effective approval process for the product in question or have not otherwise managed to comply with the provisions of the preceding articles if there is a risk that such omission seriously undermines the interests of banking clients.
2. The adoption of the measure referred to in the preceding paragraph must respect the principles of necessity, adequacy and proportionality, and must be preceded by a hearing of the interested party, except if this puts at risk the objective or effectiveness of the measure.
3. The suspension of the marketing of deposits and credit products shall last for the period fixed by the BCTL, up to a maximum of 180 business days, and may be extended within this period if the conditions referred to in paragraph 1 remain.
CHAPTER VII
ACCOUNTING AND AUDIT
Article 82
Accounts and publications
1. The accounting rules applicable to banks, including the determination of the elements and contents that they must send to it and those that are subject to publication, are established by regulation of the BCTL.
2. Banks must comply with the following obligations in the context of financial transparency:
a) Within 30 business days from the end of each quarter, publish, in a newspaper of national circulation, a faithful and accurate summary of their quarterly balance sheet relating to the previous quarter; b) Within four months from the end of each financial year, publish, in a newspaper of national circulation, a faithful and accurate summary of their balance sheet referring to the year ended; c) Within four months from the end of each financial year, publish the audit opinion relating to the year ended; d) Publish the bank's annual report; and e) Make copies of the annual report available to the public free of charge, whenever requested.

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Article 83
External auditor

Banks must engage external auditors previously authorized by the BCTL, and the audits carried out must comply with the applicable international auditing standards.
Without prejudice to the provisions of the preceding paragraph, the BCTL may, exceptionally, by reasoned decision, order an extraordinary external audit of any bank, which is responsible for the respective costs.
The BCTL reserves the right to specify priority areas for the focus of audits, including, but not limited to, assessment of loan and asset portfolios; and of internal controls related to financial reporting.
The BCTL may order the termination of the appointment of an external auditor if inadequacies are found in their independence, impartiality or technical knowledge necessary for the exercise of the function.
Banks must ensure the periodic rotation of external auditors, under the terms defined by the BCTL, in order to preserve the independence and objectivity of audits.
External auditors are obliged to immediately communicate to the BCTL any relevant fact or circumstance, namely:
a) Violations of applicable banking legislation; b) Non-compliance with established licensing criteria; c) Significant deficiencies in the management or internal control of the audited institution.
External auditors who, in good faith, transmit to the BCTL the information provided for in the preceding paragraph, cannot be held liable for any breaches of confidentiality duties arising from that communication.

Article 84
Reports and supervision

Each bank must prepare and submit to the BCTL detailed reports on its administration, operations, liquidity, solvency and profitability, including those of its branches and subsidiaries, which must adequately reflect the financial situation of the bank and of each of its branches and subsidiaries, both on an individual and consolidated basis, being prepared in the format and with the level of detail stipulated in a BCTL regulation and submitted on the dates indicated therein.
All banks and their respective branches or subsidiaries shall be subject to supervision conducted by BCTL inspectors or by auditors designated by it, including through the participation of officials of a foreign banking authority responsible for monetary or prudential supervision in the country of origin, if the supervision involves a bank that:
a) Is a branch or subsidiary of a foreign bank headquartered in that foreign country; or b) Holds a significant participation in a foreign bank located in that country.
In the context of the supervision of banks and their branches or subsidiaries, the BCTL and the auditors designated by it may:
a) Examine the accounts, books, documents and other records of the bank or of the branch and subsidiary; and b) Request from the directors, officials and agents of the bank or of the branch and subsidiary all information relating to the administration and operations of the bank, to the extent that this is considered reasonable.
Banks and their branches or subsidiaries must cooperate fully with BCTL inspectors and with the auditors designated by it, and any act that constitutes an attempt to obstruct, intimidate or influence said inspectors or auditors is expressly prohibited.
All affiliated entities of banks, as well as professional or operational service providers, must provide the BCTL with all information considered necessary on the bank's operations and on its relations with these entities or persons.

CHAPTER VIII
PREVENTION OF MONEY LAUNDERING AND TERRORISM FINANCING

Article 85
Internal control and compliance control functions

Each financial institution must designate a compliance officer, responsible for overseeing anti-money laundering policies and compliance with the law applicable to money laundering and terrorism financing and applicable regulations.
The compliance officer must have sufficient independence, as well as the resources and authority necessary to perform their functions effectively.
The compliance officer will also be responsible for ensuring that the institution implements and follows internal policies and procedures related to the prevention of money laundering, reporting directly to the management body.

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Article 86
Customer identification policy

Banks must apply due diligence measures in identifying their customers (Know Your Client - KYC) and verifying their identities, including the beneficial owners, before establishing any business relationship or carrying out any occasional transaction involving an amount equal to or greater than the limits established by the law applicable to money laundering and terrorism financing.
Banks must ensure that all information collected during the customer identification process (KYC) is regularly updated to ensure effective management of the risks associated with customers.

Article 87
Duty to report suspicious transactions

Banks are obliged, in accordance with the law applicable to money laundering and terrorism financing, to immediately report to the competent authorities, namely the BCTL and the Financial Information Unit (FIU), any suspicious transaction or activity that may be related to money laundering or terrorism financing.
The report must be made through secure and appropriate channels, ensuring the confidentiality of the information transmitted.
Banks must keep a record of all suspicious transactions reported, which must be available for inspections and audits.

Article 88
Enhanced due diligence measures

In situations of higher risk, such as transactions involving politically exposed persons (Politically Exposed Persons - PEPs) or high-risk countries, financial institutions must apply enhanced due diligence measures.
These measures include carrying out additional checks on the origin of funds, the nature of the transactions and the identity of those involved, as well as obtaining approval from senior management before concluding such transactions.
Institutions must document all enhanced due diligence measures applied, keeping detailed records for possible audits or investigations.

Article 89
Record-keeping policy

Financial institutions must keep all records related to transactions and customer information for the minimum period established in the law applicable to money laundering and terrorism financing, from the date of the transaction or the closing of the account.
The records referred to in the preceding paragraph must include detailed information on the customer's identity, the transactions carried out and any suspicious activity reports, ensuring their availability for inspections and audits.

Article 90
Transaction monitoring and AML systems or tools

Financial institutions must adopt automated transaction monitoring systems, capable of identifying and generating alerts for suspicious activities in real time.
These systems must be an integral part of the daily operations of financial institutions, allowing the early detection of potentially unlawful behaviour and its rapid communication to the competent authorities.
Financial institutions must periodically review the effectiveness of their monitoring systems, adjusting them as necessary to ensure compliance with regulatory requirements.

Article 91
Coordination with supervisory authorities

Financial institutions must establish clear protocols for coordination and communication with supervisory authorities, especially in cases of money laundering investigation.
Coordination must be carried out effectively, ensuring that relevant information is shared in a timely and secure manner.
Financial institutions must cooperate fully with supervisory authorities, providing all information necessary for the investigation and prevention of unlawful activities.

Article 92
Sanctions and corrective measures

In the event of non-compliance with the provisions of this law, financial institutions will be subject to the sanctioning regime provided for in the law applicable to money laundering and terrorism financing, which may include fines, operational restrictions, suspension of licences or other penalties appropriate to the gravity of the infringement.
Sanctions must be applied proportionally and fairly, taking into account the nature and extent of the non-compliance.
Financial institutions must have internal mechanisms for the implementation of immediate corrective measures in the event of detection of non-compliances.

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TITLE II
PRUDENTIAL SUPERVISION

CHAPTER I
QUALITATIVE PRUDENTIAL REGIME

SECTION I
GOVERNANCE AND ORGANIZATION

Article 93
Governance systems

The management and supervisory bodies of banks define, supervise and are responsible, within the scope of their respective competences, for the application of governance systems that ensure their effective and prudent management, including the separation of functions within the organization and the prevention of conflicts of interest.
In defining governance systems, it is incumbent upon the management and supervisory bodies, within the scope of their respective functions:
a) To assume responsibility for the bank, approve and supervise the implementation of strategic objectives, the risk strategy and its internal governance; b) To ensure the integrity of the accounting and financial information systems, including financial and operational control and compliance with the legislation and regulations applicable to the bank; c) To supervise the disclosure process and the duties of information to the BCTL; d) To monitor and control the activity of top management.
Without prejudice to the other competences provided for by law, it is also incumbent upon the management and supervisory bodies of banks to define, approve and control the governance systems relating to:
a) The policy on services and products, in accordance with the bank's risk tolerance level; b) The organization of the bank for the purpose of designing and marketing deposits and credit products, including the qualifications, technical capacity and knowledge of its staff, resources and governance and monitoring procedures, taking into account the nature, scale and complexity of its activities; and c) The remuneration policy for workers who, in the service of the bank, have direct contact with customers in the context of marketing deposits and credit products, as well as for workers who, directly or indirectly, are involved in the management or supervision of those persons, in order to encourage responsible business conduct, fair treatment of customers and avoid conflicts of interest.
The management and supervisory bodies periodically monitor and evaluate the effectiveness of the bank's governance systems, the adequacy and execution of strategic objectives relating to the design and marketing of deposits and credit products, and the effectiveness of the governance and monitoring procedures applied, and must also, within the scope of their respective competences, take and propose appropriate measures to correct detected deficiencies.
It is incumbent, in particular, on the top management of banks, with the support of the risk management and compliance control functions:
a) To permanently monitor the conformity of the activity developed in the context of the design and marketing of deposits and credit products with the established governance and monitoring procedures; b) To periodically evaluate the adequacy of the governance and monitoring procedures for deposits and credit products, proposing to the management body the amendment of said procedures if they prove inadequate.
Without prejudice to the provisions of the preceding paragraphs, compliance control reports addressed to the management and supervisory bodies must include information on the deposits and credit products created and marketed by the bank and their respective marketing strategy, and must be made available to the BCTL upon its request.
The members of the management and supervisory bodies act with honesty, integrity and independence, to critically, effectively and proactively evaluate the decisions of top management, when necessary, and to effectively supervise and monitor the management decision-making process.

Article 94
Internal audit

To ensure the effectiveness and efficiency of the internal control system in achieving organizational objectives, banks must have an internal audit function.
Internal audit must be independent, permanent and effective, and it is incumbent upon it, in particular, to evaluate the effectiveness and sufficiency of internal policies, processes and controls, including risk management, compliance and corporate governance, and to ensure compliance with said policies and processes.
The internal audit function must observe the following requirements:
a) Have adequate resources, including duly qualified personnel with experience in evaluating the bank's activities;

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b) Ensure its functional independence, reporting directly to the Board of Directors or its audit committee, ensuring that top management responds to its recommendations; c) Be immediately informed of any significant changes in the bank's strategy, policies or risk management processes; d) Have unrestricted access to the records, processes and personnel necessary to perform its functions; e) Use an appropriate methodology to identify the institution's significant risks; f) Prepare and periodically review an annual audit plan based on a risk assessment; g) Prepare the internal audit report, which must be made available to the BCTL whenever requested; h) Have the authority to evaluate functions or activities outsourced by the institution.

SECTION II
RISK ASSESSMENT AND MANAGEMENT

Article 95
Risk treatment

The bank's management body is globally responsible for risk, and it is incumbent upon it to:
a) Approve and periodically review the strategies and policies relating to the assumption, management, control and reduction of the risks to which the bank is or may become subject, including those resulting from the macroeconomic situation in which it operates, taking into account the phase of the economic cycle; b) Allocate adequate resources to the management of the risks regulated in this law; c) Dedicate sufficient time to the analysis of risk issues; d) Participate actively in the valuation of assets and in the use of external risk ratings and internal models related to those risks.
For the purposes of the proper exercise of the functions referred to in the preceding paragraph, banks implement internal communication procedures with the management body.

Article 96
Risk management function

Banks establish a risk management function independent of operational functions and provided with adequate resources, responsible for:
a) Ensuring that all material risks of the bank are adequately identified, assessed and reported; b) Participating in the definition of the bank's risk strategy; c) Participating in decisions relating to the management of material risks.
The head of the risk management function exercises their functions independently and exclusively, and must belong to top management, unless the nature, level and complexity of the bank's activities do not justify it, in which case the function is performed by a senior officer of the bank, safeguarding the absence of conflicts of interest.
The head of the risk management function may report directly to the supervisory body and cannot be dismissed without its prior approval.

Article 97
Risk management committee

Banks must establish, regardless of their size, internal organization and the nature, scope and complexity of their activities, a risk management committee composed of members of the management body who do not perform executive functions and who have adequate knowledge, skills and experience to be able to fully understand and monitor the bank's risk strategy and risk appetite.
Without prejudice to the provisions of paragraph 1 of the preceding article, it is incumbent upon the risk management committee, in particular:
a) To advise the management body on the bank's overall current and future risk appetite and risk strategy; b) To assist the management body in supervising the implementation of the bank's risk strategy by top management; c) To establish and monitor the implementation of procedures for credit assessment, loan administration and asset and liability management, including those prescribed by the BCTL covering matters such as underwriting standards, approval of large credits and of all investments in shareholdings, collateral requirements or for the granting of credit, classification of doubtful assets and respective provisions, collection from defaulting borrowers and issuers, administration of the interest rate and market risk; d) To analyse whether the conditions of the products and services offered to customers take into account the bank's business model and risk strategy and to present to the management body a correction plan, when that analysis shows that said conditions do not adequately reflect the risks; e) To examine whether the incentives established in the bank's remuneration policy take into account risk, capital, liquidity and expectations regarding results, including the dates of revenues.

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The risk management committee has access to information on the bank's risk situation and, where necessary and appropriate, to the bank's risk management function and to external specialised advice, and it is responsible for determining the nature, quantity, format and frequency of the risk information it is to receive.

Article 98

Credit risk and counterparty risk

The process for approving, amending, extending or refinancing credit is established clearly and is based on sound and defined criteria.
Banks must have internal policies and procedures that allow them, without exclusive or systematic reliance on external credit ratings, to assess the credit risk of exposures to individual debtors, securities or securitisation positions as well as credit risk at portfolio level.
Where own funds requirements are based on a rating by a credit rating agency or on the fact that no rating is available for a given exposure, the bank is required to consider additional information relevant to assessing the allocation of internal capital.
Banks shall implement effective systems for the ongoing management and control of the various portfolios with credit risk and exposures, in particular to identify and manage credit problems, make the necessary value adjustments and constitute adequate provisions.
Banks shall ensure adequate diversification of their credit portfolios, taking into account the target markets and their overall credit strategy.
Banks shall observe the following requirements when laid down by BCTL regulation:

a) Requirements relating to the minimum aggregate amount of liquid resources or specific categories of liquid resources in relation to the value or change in value of assets (including guarantees and collateral received) or of specific categories of assets, or relating to the value, or change in value, of liabilities, or of specific categories of liabilities, with the proviso that banks shall be permitted to comply with the requirements relating to liquid resources by maintaining cash deposits with the BCTL in an equivalent amount;

b) Requirements relating to the maximum aggregate amount of real estate investments or specific categories of real estate investments;

c) Requirements relating to the classification and valuation of assets, as well as the constitution of provisions based on that classification and valuation, with respect to low-quality or non-performing loans, and the definition of the point from which income from non-performing loans may no longer be recognised in profit or loss, unless received in cash; and

d) Prohibitions, restrictions or conditions concerning:

i. Types or forms of credit granted and investments made;

ii. Correlation between maturities and interest on assets and liabilities (contingent or not); and

iii. Short positions in foreign currencies, metals or precious stones above a specified volume.

Article 99

Residual risk

Banks shall implement internal policies and procedures, defined in writing, that ensure control of residual risk where the recognised techniques adopted to reduce credit risk prove less effective than expected.

Article 100

Concentration risk

Banks shall ensure that concentration risk arising from exposures to each counterparty individually considered, including central counterparties, sets of interconnected counterparties and counterparties operating in the same economic sector or the same geographical region, or arising from the same activity or commodity, or from the application of credit risk mitigation techniques, in particular the risk associated with large indirect exposures, is addressed and controlled, namely by means of policies and procedures defined in writing.

Article 101

Securitisation risk

The risks arising from securitisation operations in relation to which banks are investors, originators or sponsors, including reputational risks, namely those emerging in the context of complex structures or products, shall be assessed and addressed in accordance with adequate policies and procedures, in order to ensure that the economic reality of the operations is fully taken into account in risk assessment and management decisions.
Banks that are originators of revolving securitisation operations, in respect of which an early repayment clause is established, shall have liquidity plans that provide for the repercussions of scheduled and early repayments under those operations.

Article 102

Market risk

Banks shall establish and implement policies and processes for identifying, assessing and managing all significant sources and effects of market risks.

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Banks shall adopt measures that guard against the risk of lack of liquidity of instruments where the maturity of a short position precedes that of the long position.
Banks must have internal capital adequate for significant market risks that are not subject to an own funds requirement.
Banks must also have internal capital adequate for market risks in order to:

a) When calculating own funds requirements for exposures and where they offset their positions in one or more equity securities that constitute a stock index with one or more positions in futures contracts on a stock index or another instrument derived from that index, cover the basis risk of losses resulting from the possible difference between the evolution of the value of that futures contract or that other derivative instrument and that of the equity securities that constitute that index;

b) Opposite positions in futures contracts on stock indices whose maturity or composition are not identical;

c) Cover the risk of loss existing between the date of the firm commitment and the following business day, in the case of firm underwriting of debt instruments and equity securities.

Article 103

Interest rate risk arising from activities not included in the trading book

Banks shall select and apply one of the following techniques to identify, assess, manage and reduce the risk resulting from a possible change in interest rates capable of affecting the economic value of equity or the net interest income of activities excluded from their trading book:

a) Internal systems;

b) Standard methodology; or

c) Simplified standard methodology.
Banks shall adopt systems to assess and monitor the risks resulting from possible changes in credit spreads that affect the economic value of equity or the net interest income of activities excluded from their trading book.
The BCTL may require that:

a) A bank use the standard methodology where the internal systems applied to assess the risks referred to in paragraph 1 are not adequate;

b) A small and non-complex bank use the standard methodology where it considers that the simplified standard methodology does not adequately take into account the interest rate risk arising from activities excluded from its trading book.

Article 104

Operational, technological and outsourcing risk

Banks shall adopt internal policies and procedures to assess and manage their operational risk, in accordance with the definition adopted by them, which take into account at least:

a) Model risk;

b) Risks resulting from recourse to outsourcing;

c) Technological, cybersecurity and information security risks;

d) Events with significant impact, even if of low frequency.
Banks shall implement contingency, business continuity and disaster recovery plans that ensure their ability to operate on a continuous basis and to contain losses in the event of a serious disruption to their activity.
Banks must have adequate systems for managing technological risk, cybersecurity, information security, business continuity, disaster recovery and control of external providers of critical services.
The outsourcing of essential or critical functions does not remove the bank's responsibility towards the BCTL, clients and other interested parties, and the bank must ensure adequate mechanisms for the selection, monitoring, control, auditing and replacement of external providers.
Operational, technological or cybersecurity incidents with relevant impact must be reported to the BCTL, under the terms defined by regulation.

Article 105

Liquidity risk

Banks must have robust strategies, policies, procedures and systems to identify, measure, manage and monitor liquidity risk with reference to a set of appropriate time horizons, including intraday, in order to ensure that they maintain adequate levels of liquidity reserves.
For the purposes of the preceding paragraph, the strategies, policies, procedures and systems must:

a) Be designed to fit the business areas, currencies, branches and entities and include adequate mechanisms for sharing the costs, benefits and risks relating to liquidity;

b) Be proportionate to the scale and complexity, risk profile,

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type of operation and risk tolerance, as defined by the bank's management body;

c) Reflect the importance of the bank.

Banks shall communicate the defined risk tolerance to all business areas considered relevant.
Banks must, taking into account the nature, scale and complexity of their activities, adopt a liquidity risk profile adequate for the proper functioning and soundness of their system.
In defining and implementing the strategies, policies, procedures and systems referred to in the preceding paragraphs, banks must, in particular:

a) Develop methodologies to identify, measure, manage and monitor their funding, which cover significant current and forecast cash flows in assets, liabilities, off-balance-sheet items, including contingent liabilities, and arising from them, and the potential impact of reputational risk;

b) Distinguish encumbered assets and unencumbered assets available at any time, especially in emergency situations, also ensuring the identification of the entity that holds the assets, the country in which the assets are registered or deposited and their availability, controlling how the assets can be mobilised in good time;

c) Consider the legal, regulatory and operational limitations relating to potential transfers of liquidity and unencumbered assets between entities;

d) Consider different liquidity risk mitigation instruments, including a system of limits and liquidity reserves, which allows responding to adverse conditions that may be identified;

e) Have an adequately diversified funding structure and access to funding sources, and these mechanisms must be reviewed periodically;

f) Consider, at least annually, alternative scenarios on the liquidity position and risk mitigation factors and examine the principles underlying funding decisions, and such alternative scenarios must include, in particular, off-balance-sheet items and contingent liabilities, including those of special purpose securitisation entities or other special purpose entities in relation to which the bank acts as sponsor or to which it provides significant liquidity support;

g) Consider the potential impact of idiosyncratic, market and combined alternative scenarios, taking into account various time horizons and various levels of adverse conditions;

h) Adjust their strategies, internal policies and liquidity risk limits, whenever necessary based on the analysis of the alternative scenarios provided for in subparagraphs f) and g).
Banks shall draw up liquidity contingency plans, which shall be submitted for approval by the management body.
Liquidity contingency plans must:

a) Define adequate strategies and appropriate execution measures to deal with possible liquidity deficits, including in relation to branches established abroad;

b) Consider the alternative scenarios provided for in subparagraphs g) and h) of paragraph 5;

c) Be tested, at least annually, and updated based on the results of the alternative scenarios provided for in subparagraphs g) and h) of paragraph 5.
The policies and procedures provided for in paragraphs 1 and 2 must be adjusted to the updates of the liquidity contingency plans that are carried out under the terms of subparagraph c) of the preceding paragraph.
Banks must take the necessary operational measures in advance to ensure that liquidity contingency plans can be immediately executed, namely:

a) Ownership of collateral assets immediately eligible for financing by the central bank;

b) If necessary, ownership of collateral assets in the currencies of a country in which the bank has exposures;

c) If necessary from an operational point of view, ownership of collateral assets in the territory of a country whose currency has an exposure.
It is for the BCTL, within the scope of monitoring banks' liquidity risk, to:

a) Verify the evolution of liquidity risk profiles, namely the design and volume of products, risk management, funding policies and funding concentrations;

b) Take the necessary measures, where it finds that the evolution of the liquidity risk profiles indicated in the preceding subparagraph may generate instability in a bank or systemic instability.

Article 106

Excessive leverage risk

Banks must have policies and procedures to identify, manage and control excessive leverage risk.

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Indicators of excessive leverage risk include the leverage ratio determined under the applicable regulation and the mismatch between assets and liabilities.
Banks shall treat excessive leverage risk prudently, considering its potential increases resulting from reductions in own funds and the ability to respond to adverse situations.

Article 107

Other risks

The BCTL may identify and define other relevant risks not covered in this Section, establishing additional requirements for their mitigation and control.

SECTION III

INTERNAL CAPITAL

Article 108

Internal capital adequacy self-assessment process

Without prejudice to the mandatory nature of the minimum capital, own funds and reserve requirements, under Articles 122 to 124, banks must define and execute sound, effective and complete strategies and processes to assess and maintain on a permanent basis the amounts, types and distribution of internal capital that they consider adequate to cover the nature and level of the risks to which they are or may become exposed.
Banks shall periodically review the strategies and processes in order to ensure their comprehensiveness and their proportionality in relation to the nature, level and complexity of their activities.

SECTION IV

CONTROL OF QUALIFYING HOLDINGS

Article 109

Prior notification of draft acquisitions of holdings

A natural or legal person that, directly or indirectly, intends to hold a qualifying holding in a bank must notify the BCTL of its project in advance.
Any acts involving an increase in a qualifying holding must also be notified to the BCTL in advance, whenever they may result, as the case may be, in a percentage that reaches or exceeds any of the thresholds of 10%, 20%, one third or 50% of the capital or voting rights in the participating bank, or where the latter becomes a subsidiary of the acquiring entity.
The notification provided for in the preceding paragraphs must be made whenever the initiative or set of initiatives planned by the person concerned may result in any of the situations indicated, even if the result is not assured in advance.
The BCTL shall establish, by regulation, the elements and information that must accompany the notification provided for in paragraphs 1 and 2.
If the notification made under this Article is not duly complete, the BCTL shall, within five business days from its receipt, inform the interested party, in writing, of the missing elements or information.

Article 110

Omission of due notification

Whenever it becomes aware of acts or facts in relation to which the notification provided for in the preceding Article has been omitted, or made incorrectly, the BCTL may, at any time and without prejudice to the application of other measures provided for by law, declare that the holding in question in the capital or voting rights of a bank is qualifying in nature.
The BCTL may also, at any time, declare that a holding in the capital or voting rights of a bank is qualifying in nature, whenever it becomes aware of acts or facts capable of altering the influence exercised by its holder in the management of the participating bank.
The declaration referred to in the preceding paragraph may be made on the initiative of any interested party, and in this case the BCTL's decision must be taken within 30 business days after receipt of the application.
The BCTL's decision must be duly reasoned, considering the risk, the consequences and other relevant aspects, and may also determine the cessation of the acts mentioned in the preceding paragraphs.

Article 111

Decision of the BCTL

The BCTL may oppose the draft acquisition of holdings whenever, in its assessment, the proposed acquirer of the qualifying holding does not meet conditions that ensure sound and prudent management of the bank or if the information provided by the proposed acquirer is incomplete.
In the assessment provided for in the preceding paragraph, the BCTL shall weigh, among other factors, the suitability of the proposed acquirer, its likely influence on the bank and the financial soundness of the project, in the light of the following criteria:

a) Suitability of the proposed acquirer, taking especially into account the provisions of Article 27 if it is a natural person;

b) Suitability, professional qualification, independence and availability of any member of the bank's management body, to be appointed as a result of the planned acquisition, under the terms of Articles 27 to 29;

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3. The BCTL may request from the proposed acquirer, in writing, additional elements and information, as well as carry out the verifications it considers necessary, up to the 50th business day of the period provided for in the following paragraph.
4. Without prejudice to the provisions of the following paragraph, the BCTL shall notify the proposed acquirer of its decision within 60 business days from the date on which the information provided for in paragraph 5 of Article 109 was communicated.
5. The request for additional elements or information made by the BCTL shall suspend, up to a maximum of 30 business days, the period for the decision between the date of the request and the date of receipt of the proposed acquirer's response.
6. If it decides to oppose the project, the BCTL:
a) Shall notify, within the period provided for in paragraph 4, the proposed acquirer, in writing, of its decision and the respective grounds; b) May disclose to the public the reasons underlying the opposition, on its own initiative or at the request of the proposed acquirer.
7. Without prejudice to the provisions of paragraph 5, the BCTL shall be deemed not to oppose the project if it does not pronounce itself within the period provided for in paragraph 4.
8. If it does not oppose the notified project, the BCTL may set a reasonable period for carrying out the projected operation, it being understood, in cases where it says nothing, that this is one year.
9. The conclusion of the legal acts by which the projected operation is effectively implemented must be communicated to the BCTL within 15 business days.

Article 112
Subsequent communication

The acts or facts that have resulted in the acquisition of a holding reaching at least 5% of the capital or voting rights of a bank must be communicated to the BCTL within 15 business days from the respective occurrence.
In the case provided for in the previous paragraph, the BCTL, if it considers that the acquired holding is a qualifying holding, shall notify the interested party thereof within 30 business days.

Article 113
Inhibition of voting rights

Without prejudice to other applicable sanctions and except as provided in the following paragraph, the BCTL may determine the inhibition of the exercise of voting rights comprising a qualifying holding, to the extent necessary and appropriate to prevent influence on management that was obtained through the act that resulted in the acquisition or increase of that holding, provided that any of the following situations occurs:
a) The interested party has not complied with the prior communication obligation provided for in Article 109; b) The interested party has acquired or increased a qualifying holding after having made the communication referred to in Article 112, but before the period provided for in paragraph 4 of Article 111 has elapsed; c) The interested party has acquired or increased a qualifying holding despite having been notified of the BCTL's decision to oppose.
In the situations referred to in subparagraph a) of the previous paragraph, where the missing communication is made before the inhibition of voting rights is determined, the provisions of Article 111 shall apply.
In the situations referred to in subparagraph a) of paragraph 1, where the communication is made after the inhibition decision, the effects thereof shall cease as soon as the BCTL notifies the interested party of the decision not to oppose or the situation provided for in paragraph 7 of Article 111 occurs.
In any of the cases provided for in the previous paragraphs, the BCTL may, alternatively, determine that the inhibition applies to a holding in the capital of an entity that holds, directly or indirectly, voting rights in the participated bank, if that measure is considered sufficient to ensure the conditions for its sound and prudent management and does not involve a serious restriction on the exercise of other economic activities.
The BCTL shall also determine the extent to which the inhibition covers the voting rights exercised by the participated bank in other banks with which it is in a relationship of control or dominance, direct or indirect.
Decisions taken under the previous paragraphs shall be notified to the interested party, under the general terms, and communicated to the management body of the participated bank and to the chairman of the respective shareholders' meeting, accompanied, as regards the latter, by the determination that he must act so as to prevent the exercise of the inhibited voting rights, in accordance with the provisions of the following paragraph.
The chairman of the general meeting to whom the decisions referred to in the previous paragraph are notified must, in the exercise of his duties, ensure that the inhibited voting rights are not, under any circumstances, exercised at the shareholders' meeting.
If, notwithstanding the provisions of the previous paragraph, it is found that voting rights subject to inhibition have been exercised, the resolution taken is voidable, unless it is proven that it would have been taken and would have been identical even if those rights had not been exercised.
The voidability may be invoked under the general terms, or also by the BCTL.
If the exercise of the voting rights covered by the inhibition was decisive for the election of the management or supervisory bodies, the BCTL must, pending the action for annulment of the respective resolution, refuse the respective registrations.

Article 114
Inhibition for supervening reasons
The BCTL, on the basis of relevant facts that come to its knowledge after the constitution or increase of a qualifying holding to which it has not opposed, may determine the inhibition of the exercise of the voting rights comprising the same, provided that there is justified fear that the influence exercised by its holder may harm the sound and prudent management of the participated bank, applying, with the necessary adaptations, the provisions of paragraphs 5 and 6 of the previous article.

Article 115
Reduction of the holding

A natural or legal person who intends to cease to hold a qualifying holding in a bank, or to reduce it in such a way that the percentage of voting rights or share capital held falls below 20%, one third or 50%, or in such a way that the bank ceases to be its subsidiary, must inform the BCTL in advance and communicate to it the new amount of its holding.
Whenever the holding is reduced to a level below 5% of the share capital or voting rights of the participated bank, the BCTL shall communicate to its holder, within 30 business days, whether it considers that the resulting holding still has a qualifying nature.
The situations provided for in this article shall be subject, with the necessary adaptations, to the provisions of Article 113.

Article 116
Duty of communication of banks

Banks shall communicate to the BCTL, as soon as they become aware of them, the changes referred to in Articles 109 and 115.
In April of each year, banks shall communicate to the BCTL the identity of the holders of qualifying holdings, direct and indirect, specifying the share capital and voting rights corresponding to each holding.

Article 117
Granting of credit to holders of qualifying holdings

The amount of credit granted, in any form or modality, including the provision of guarantees, to a person who directly or indirectly holds a qualifying holding in a bank and to companies that person directly or indirectly controls, or with which it is in a group relationship, may not exceed, at any time and in its entirety, 10% of the institution's own funds.
The total amount of credit granted to all holders of qualifying holdings and to the companies referred to in the previous paragraph may not exceed, at any time, 30% of the bank's own funds.
The operations referred to in the previous paragraphs depend on approval by a qualified majority of at least two thirds of the members of the management body and on a favourable opinion of the bank's supervisory body.
Paragraphs 2 and 3 of Article 70 shall apply, with the necessary adaptations, to the operations referred to in the previous paragraphs, the presumption provided for in paragraph 2 of Article 70 being rebuttable only in cases of kinship and affinity in the 1st degree or of spouses judicially separated as to persons and property.
The amounts of credit referred to in this article are always aggregated for the purposes of calculating the respective limits.
The amounts of credit granted, in any form or modality, including the provision of guarantees, to a person who directly or indirectly holds a qualifying holding in a bank and to the company that person directly or indirectly controls, and to entities participated by the bank, shall be itemised in the annual report of the bank in question.

Article 118
List of shareholders
Up to five days before the holding of the general meetings of banks, the list of shareholders, containing the indication of their holdings in the share capital, must be made available on the bank's official website.

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Article 119
Shareholder duty
Whenever the situation of a bank justifies it, the BCTL may recommend to the shareholders that they provide it with the appropriate financial support.

Article 120
Registration of shareholders' agreements

Shareholders' agreements between shareholders of banks relating to the exercise of voting rights are subject to registration with the BCTL, on pain of ineffectiveness.
Registration may be requested by any of the parties to the agreement.

CHAPTER II
QUANTITATIVE PRUDENTIAL REGIME
SECTION I
MINIMUM REQUIREMENTS

Article 121
General duty of prudence

Banks must be managed so as to ensure at all times adequate levels of liquidity and solvency.
Banks must observe the maximum limits, whenever stipulated by BCTL regulation:
a) The ratios and maximum limits of risk exposure in relation to their assets, risk-weighted assets and off-balance sheet items, as well as to the various categories of capital and reserves; b) The maximum aggregate amount of credit, expressed as a percentage of regulatory capital, that banks may commit or keep outstanding, directly or indirectly, with any natural person or group of interconnected natural persons; c) The maximum aggregate amount of credit, expressed as a percentage of the aggregate amount of all their credit, that banks may grant, directly or indirectly, to the 10 natural persons, or groups of interconnected natural persons, that represent the largest risk concentration in terms of credit transactions.
Banks must comply with the following requirements, whenever stipulated by BCTL regulation:
a) Requirements relating to the minimum aggregate amount of liquid resources or specific categories of liquid resources in relation to the value or variation in value of assets, including guarantees and collateral received, or of specific categories of assets, or in relation to the value or variation in value of liabilities or specific categories of liabilities, and banks may comply with the requirements relating to liquid resources by maintaining cash deposits with the BCTL, in an equivalent amount; b) Requirements relating to the maximum aggregate amount of real estate investments or specific categories of real estate investments; c) Requirements relating to the classification and valuation of assets and the constitution of provisions based on that classification and valuation, namely with regard to low-quality or non-performing credit, as well as the determination of the moment when income from non-performing loans should cease to be recorded as income, unless received in cash; d) Prohibitions, restrictions or conditions applicable:
i. To the types or forms of credit granted and investments made;
ii. To the correlation between maturities and interest rates of assets and liabilities, contingent or not;
iii. To short positions in foreign currencies, metals or precious stones above a specified volume.
Banks may not distribute capital if, in the opinion of the BCTL, the bank's capital, after such distribution, is less than the minimum regulatory capital.
Banks may not participate directly in industrial, commercial or service provision activities that are not related to financial activities.
Banks may not grant credit secured by their own participation securities or by the participation securities of other banks constituted in Timor-Leste.
Banks may not acquire their own participation securities without prior authorisation from the BCTL, and such authorisation shall be refused if the BCTL concludes that the bank's capital is less than the minimum regulatory capital.

Article 122
Capital requirements

The minimum amounts that banks must maintain as regulatory capital, as well as the minimum absolute amount of capital, shall be periodically stipulated by means of BCTL regulation.
Banks constituted by modification of the object of a company, by merger of two or more, or by demerger, must have, at the time of constitution, regulatory capital not less than the minimum established under the previous paragraph, and their own funds may also not be less than that minimum.

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Article 123
Own funds

Banks' own funds are classified into the following tiers:
a) Common Equity Tier 1 own funds comprise fully paid-up capital instruments and reserves, of a permanent nature, that do not contain contractual clauses permitting their repurchase, redemption or repayment by the bank, except with prior authorisation from the BCTL; b) Additional Tier 1 own funds include instruments that have characteristics similar to those of Common Equity Tier 1 own funds, but with a lower degree of permanence or subordination, which may provide for the deferral or cancellation of remuneration, provided they are duly authorised by the BCTL; c) Tier 2 own funds include instruments subordinated to the rights of ordinary creditors, and elements with a fixed maturity, which may be considered as own funds for a limited period, in accordance with BCTL regulations.
The BCTL shall also establish, by regulation, the minimum value and financial characteristics of the constituent elements of the own funds of banks and of the branches referred to in Article 47, so as to ensure that they have loss-absorbing capacity, taking into account going-concern and liquidation scenarios.
As to their quality, the constituent elements of own funds must be classified into different tiers, depending on their characteristics of permanence, degree of subordination, capacity and timeliness of loss absorption and, where applicable, possibility of deferral or cancellation of their remuneration.
Own funds may not become less than the amount of share capital required under Article 122.
If own funds decrease below the said amount, the BCTL may, whenever circumstances justify it, grant the bank a short but reasonable period to regularise the situation.
Own funds may be used to cover risks or losses that occur in banks, without prejudice to the duty to restore the minimum amounts.
The provisions of Article 34 of the Commercial Companies Law shall not apply to banks.

Article 124
Reserves

A fraction of not less than 10% of the net profits determined in each financial year by banks must be allocated to the formation of a legal reserve, up to a limit equal to the amount of the share capital or the sum of the free reserves constituted and retained earnings, if higher.
The BCTL may, by regulation, determine the constitution and application of additional reserves intended to strengthen the net situation or to cover losses of the bank or its own funds.

Article 125
Provisions
The BCTL may, by regulation, set minimum limits for provisions intended to cover credit risks or any other risks or charges of banks.

SECTION II
MAXIMUM LIMITS AND OTHER RESTRICTIONS

Article 126
Distribution of dividends and other remuneration

The distribution of dividends by banks, as well as the attribution of variable remuneration or other payments related to own funds, is subject to full compliance with the following requirements:
a) Maintenance of minimum levels of liquidity and solvency, as provided in Article 121; b) Compliance with the combined own funds reserve requirement, under Article 124; c) Guarantee that own funds are not reduced below the minimum levels established in Article 122 and in BCTL regulations; d) Compliance with the requirements relating to the constitution of legal reserves, under Article 124, and of any other additional reserves determined by the BCTL.
While the requirements provided for in the previous paragraph are not met, banks are prohibited from carrying out any of the following operations:
a) Payment of dividends in cash or any other form; b) Attribution of variable remuneration in the form of shares or other own funds instruments; c) Repurchase or acquisition of own shares or other instruments classified as own funds; d) Repayment of Tier 1 or Tier 2 own funds instruments.
Any distribution of profits or dividends may only occur after the constitution of the legal reserve, as stipulated in Article 124, and provided that the remaining own funds comply with the applicable regulatory requirements.
The BCTL may, by regulation, establish specific rules for the distribution of dividends, including the methodology for calculating the maximum distributable amount, so as to ensure compliance with prudential requirements and the financial balance of banks.

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Article 127
Limits for balance sheet items and operations
It is incumbent upon the BCTL to define, by regulation, the relationships to be observed between balance sheet items and to establish prudential limits on the carrying out of operations that banks are authorised to carry out, whether on an individual or consolidated basis, namely:
a) Relationship between own funds and total assets and off-balance sheet accounts, whether or not weighted by risk coefficients; b) Limits on firm underwriting of securities issues for indirect subscription or on guaranteeing the placement of issues of the same securities; c) Limits and forms of coverage of third-party resources and any other liabilities to third parties; d) Limits on risk concentration, in order to reduce the risk of losses harmful to the solvency of banks resulting from excessive exposure to a single client or a group of interconnected clients or any other form of exposure or group of exposures that results in an excessive concentration of risk.

Article 128
Relationship of banks' holdings with the capital of participated companies

Without prejudice to the provisions of paragraph 3, banks may not hold, directly or indirectly, in a company, for a period, continuous or interrupted, exceeding three years, a holding that confers on them more than 25% of the voting rights corresponding to the capital of the participated company.
Indirect holding means the holding of shares or other parts of capital by persons or under conditions that determine the equivalence of voting rights for the purposes of a qualifying holding.
The limit established in paragraph 1 does not apply to a bank's holdings in other banks or non-bank financial institutions.

Article 129
Acquisition of real estate

Banks may not, except with authorisation from the BCTL, acquire real estate that is not indispensable for their installation and operation or for the pursuit of their corporate object.
The BCTL shall establish, by regulation, the rules, namely accounting rules, applicable to the acquisition of real estate by banks.

Article 130
Fixed asset ratio and acquisition of equity securities The BCTL may define, by regulation, the limits on the value of banks' fixed assets, as well as on the total value of shares or other parts of capital of any companies not included in the said assets that banks may hold.

Article 131
Acquisitions in repayment of credit granted by the bank The limits provided for in Article 128 may be exceeded and the restriction contained in Article 129 surpassed, where the acquisitions are in repayment of credit granted by the bank itself, and the resulting situations must be regularised within two years, which, on justified grounds, may be extended by the BCTL, under the conditions it determines.

CHAPTER III
SUPERVISION
SECTION I
GENERAL PROVISION

Article 132
Supervision procedures

In the performance of its supervisory functions, it is incumbent upon the BCTL in particular to:
a) Monitor the activity of banks, namely to request a copy of the minutes of all meetings of their corporate bodies; b) Watch over compliance with the rules governing the activity of banks; c) Issue specific determinations addressed to natural or legal persons, namely to adopt a certain behaviour, cease a certain conduct or refrain from repeating it or to remedy irregularities detected; d) Issue recommendations; e) Sanction infractions.
The BCTL may require special audits to be carried out by an independent entity, designated by it, at the expense of the audited bank.

SECTION II
MONITORING AND OVERSIGHT

Article 133
Analysis and evaluation process

Taking into account the technical criteria provided for

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in the following article, the BCTL analyses the arrangements, strategies, processes and mechanisms applied by banks to comply with this law and assesses:
a) The risks to which banks are or may be exposed; b) The risks revealed by stress tests, taking into account the nature, level and complexity of the banks' activities.
2. On the basis of the analysis and assessment referred to in the previous paragraph, the BCTL decides whether the arrangements, strategies, processes and mechanisms applied by the banks and the own funds and liquidity they hold ensure sound management and coverage of their risks.
3. The BCTL shall determine, in accordance with the principle of proportionality, the frequency and intensity of the analysis and assessment referred to in paragraph 1, taking into account the size, systemic importance, nature, level and complexity of the activities of the bank concerned.
4. The analysis and assessment referred to in the previous paragraph shall be updated at least annually for banks covered by the activity plan referred to in Article 138.
5. The BCTL shall carry out the analysis and assessment referred to in paragraph 1 in accordance with the principle of proportionality and its criteria.
6. The BCTL may adapt the methodologies applied in its analysis and assessment to take into account banks with a similar risk profile, in particular resulting from similar business models or geographical locations of exposures.
7. The methodologies adapted under the previous paragraph:
a) May include risk-oriented benchmarks and quantitative indicators; b) Shall duly weigh the specific risks to which each bank may be exposed; and c) May not affect the specific measures imposed on the bank.
8. If, in the course of a process of analysis and assessment, in particular of the governance systems, business model or activities of a bank, the BCTL considers that there are reasonable grounds to suspect that, in relation to that bank, an operation of money laundering or terrorist financing has been or is being carried out or attempted, or that there is an increased risk of this occurring, it shall immediately notify other authorities or bodies responsible for supervising legislation on the prevention of money laundering and terrorist financing in relation to the bank.
9. In the event of a potential increased risk of money laundering or terrorist financing, the BCTL shall coordinate its position with the authorities or bodies responsible for supervising legislation on the prevention of money laundering and terrorist financing in relation to the bank.
10. For the purposes of paragraph 8 and the previous paragraph, the BCTL shall, if necessary, take the appropriate measures under this law.

Article 134
Technical criteria relating to analysis and assessment by the BCTL

In addition to credit, market and operational risks, the analysis and assessment carried out by the BCTL, in accordance with the provisions of the previous article, shall include at least the following:
a) The results of the stress test carried out by the banks based on the application of the applicable risk assessment model, defined in a regulation of the BCTL; b) The exposure to concentration risks and their management by the banks, under the applicable regulations; c) The soundness, adequacy and manner of application of the policies and procedures applied by the banks in relation to the management of the residual risk associated with the use of recognised credit risk mitigation techniques; d) The adequacy of the own funds held by a bank in relation to assets it has securitised, taking into account the economic content of the operation, including the degree of risk transfer achieved; e) The exposure to liquidity risk and its assessment and management by the banks, namely the development of alternative scenario analyses, the management of risk reduction factors, including the level, composition and quality of liquidity reserves, and the definition of effective contingency plans; f) The impact of diversification effects and the manner in which those effects are taken into account in the risk assessment system; g) The results of the stress tests carried out by banks that use an internal model to calculate own funds requirements for covering market risks; h) The geographical location of the bank's exposures; and i) The bank's business model.
For the purposes of paragraph 1(e), the BCTL shall carry out an assessment of the overall management of the banks' liquidity risk and promote the development of adequate internal methodologies, taking into account the role played by the banks in the financial markets and the potential impact of their decisions on the stability of the financial system.
The BCTL shall verify whether a bank has granted implicit support to a securitisation operation.
If it is found that a bank has granted implicit support more than once, the BCTL shall take appropriate measures reflecting the fact that expectations increase that it will grant support to its securitisation operations in the future, and thus a significant risk transfer is not ensured.
For the purposes of the decision to be made under paragraph 2 of the previous article, the BCTL shall consider whether the value adjustments made in respect of positions included in the trading book, under the applicable regulations on own funds adequacy for market risks, allow the bank to sell or hedge its positions in a short period without incurring significant losses under normal market conditions.
The analysis and assessment carried out by the BCTL shall cover the banks' exposure to excessive leverage risk reflected by excessive leverage indicators, including the leverage ratio determined under the applicable regulations.
The BCTL shall take into account the banks' business model when assessing the adequacy of their leverage ratios and their arrangements, strategies, processes and mechanisms applied to manage excessive leverage risk.
The analysis and assessment carried out by the BCTL shall cover the banks' governance system arrangements, their corporate culture and values and the ability of the members of the management body to perform their duties.
For the purposes of the previous paragraph, the BCTL shall have access at least to the agendas and any supporting documents relating to meetings of the management body and its committees, as well as to the results of the internal or external evaluation of the performance of the management body.
The analysis and assessment carried out by the BCTL shall cover the banks' exposure to interest rate risk arising from activities not included in the trading book.
Without prejudice to the technical criteria established for the analysis and assessment, other aspects related to good practices, prudential standards, market dynamics and international principles applicable to the banking sector shall also be considered.

Article 135
Stress tests

The BCTL shall carry out, at least annually, stress tests on banks to facilitate the process of analysis and assessment under the provisions of Article 133.
In compliance with the principles of transparency, confidentiality and financial stability, the results of the stress tests may be published.

Article 136
Sound and prudent management

If the conditions under which a bank carries on its activity do not comply with the rules of sound and prudent management, the BCTL may notify it to take, within the period set for that purpose, the necessary measures to restore or strengthen financial equilibrium, or to correct management methods.
Whenever it becomes aware of a proposed operation by a bank which, in its opinion, is likely to entail a breach or an aggravation of a breach of applicable prudential rules or to infringe the rules of sound and prudent management, the BCTL may notify that institution to refrain from carrying out such operation.

Article 137
Duty of abstention and recording of operations

Banks are prohibited from granting credit to entities domiciled in offshore jurisdictions considered non-cooperative or whose ultimate beneficiary is unknown.
The offshore jurisdictions considered non-cooperative for the purposes of the previous paragraph are defined by regulation of the BCTL.
Without prejudice to paragraph 1, institutions subject to the supervision of the BCTL, on the basis of their consolidated financial situation, shall record operations corresponding to payment services provided by all entities included in the prudential supervision perimeter that have as beneficiary a natural or legal person domiciled in any offshore jurisdiction, and report them to the BCTL, under the terms defined by it in a regulation.
The provisions of paragraph 3 shall also apply to any other entities authorised to provide payment services in national territory.

Article 138
Supervisory activity plan

The BCTL shall adopt, at least annually, a supervisory activity plan for banks, which shall take into account the analysis and assessment process provided for in Article 133 and shall include:
a) An indication of how it intends to perform its tasks and allocate its resources; b) The identification of banks that should be subject to enhanced supervision and the measures taken for that supervision under paragraph 3; c) A plan for inspections at the premises of banks, including their branches and subsidiaries established abroad.
The supervisory activity plan shall cover banks that:
a) Present results of their stress tests referred to in Article 134(1)(a) and Article 135, or results of the analysis and assessment process under Article 133, that indicate significant risks to their financial soundness or breaches of the provisions of this law; b) The BCTL considers necessary to include.
If considered appropriate under Article 134, the following measures shall in particular be taken:
a) Increase in the number or frequency of on-site inspections of the bank; b) Permanent presence of the BCTL at the bank; c) Communication of additional or more frequent information by the bank; d) Additional or more frequent review of the bank's operational, strategic or business plans; e) Thematic inspections to control specific risks of likely occurrence.

Article 139
Duty to report

Whenever a bank is, or there are founded reasons to consider that it may come to be, in any of the following situations, the management body and the supervisory body shall immediately report that fact to the BCTL:
a) a situation likely to materially compromise its solvency, liquidity or ability to meet its obligations; b) a situation of insolvency or serious risk of insolvency; c) non-compliance or serious risk of non-compliance with applicable prudential requirements.
The management and supervisory bodies of the bank shall also report to the BCTL the occurrence of any of the following situations, even if they consider that it may not have an impact on the bank's financial equilibrium:
a) Risk of breach of prudential rules and limits, namely minimum own funds adequacy levels; b) Abnormal decrease in deposit balances; c) Materially relevant depreciation of the bank's assets or materially relevant losses in other commitments of the bank, even without immediate recognition in the financial statements; d) Risk of inability of the bank to have liquid means to meet its obligations as they fall due; e) Financing difficulties to meet its liquid cash needs; f) Difficulties in the provision of funds by shareholders for the purpose of carrying out an increase in share capital, when this is necessary or convenient to comply with legal or regulatory requirements; g) Occurrence of legal or regulatory changes, in Timor-Leste or abroad, with relevant impact on the bank's activity; h) Occurrence of events with potential relevant negative impact on results or own funds, namely related to:
i. The inability of a counterparty to meet its financial commitments to the bank, including possible restrictions on the transfer of payments from abroad;
ii. Unfavourable movements in the market price of financial instruments valued at fair value, caused, in particular, by fluctuations in interest rates, exchange rates, share prices, credit spreads or commodity prices;
iii. Adverse movements in interest rates of banking book items, through mismatches of maturities or interest rate refixing periods, the absence of perfect correlation between rates received and paid on the different instruments or the existence of embedded options in financial instruments on the balance sheet or off-balance sheet items;
iv. Adverse movements in exchange rates of banking book items, caused by changes in exchange rates used in conversion to the functional currency or by changes in the bank's competitive position due to significant exchange rate variations;
v. Failures in the analysis, processing or settlement of operations, internal and external fraud or inoperability of infrastructures.
i) Adverse movements in liabilities with pensions and other post-employment benefits, as well as in the asset value of pension funds used to finance those liabilities, when associated with defined benefit plans; j) Existence of materially relevant contingencies of a tax or reputational nature, or resulting from the application of measures or sanctions by administrative or judicial authorities, in Timor-Leste or abroad.
The members of the management and supervisory bodies are individually bound to the reporting referred to in the previous paragraphs, and must do so themselves if the body to which they belong omits or defers it.
Without prejudice to other duties of reporting or participation established by law, the supervisory body or any member of the management or supervisory bodies, as well as holders of qualifying holdings, shall also immediately report to the BCTL any serious irregularity of which they become aware related to the administration, accounting organisation and internal supervision of the bank and which is likely to place it in a situation of financial imbalance.
The duty to report provided for in the previous paragraphs shall subsist after the cessation of the functions in question or of the holding of the qualifying holding, in relation to facts verified during the exercise of such functions or the holding of the respective participation.
Following the reports made, the BCTL may request, at any time, any information it considers necessary, which must be provided within the period set for that purpose.
Compliance with the reporting duties constitutes an exception to the duty of secrecy provided for in Article 65, if it involves disclosure of the facts or elements provided for in paragraph 1 of that article.
The BCTL may define, by regulation, criteria for the application of the provisions of paragraph 2.

Article 140
Duties of information

Banks shall submit to the BCTL the information necessary for assessing compliance with the provisions of this law and applicable regulations, namely for verifying:
a) Their degree of liquidity and solvency; b) The risks they incur, including the level of exposure to different types of financial instruments; c) The risk management and control practices to which they are or may become subject; d) The methodologies adopted in the valuation of their assets, in particular those not traded in highly liquid and transparent markets; e) Compliance with the legal and regulatory rules governing their activity; f) Their administrative organisation; g) The effectiveness of their internal controls; h) Their security and control processes in the IT domain; i) Permanent compliance with the conditions provided for in Article 13 and Article 19(1)(e).
The BCTL may regulate the provisions of the previous paragraph.
Banks shall provide the BCTL with access to their premises for inspection purposes, as well as to accounting documentation and any other elements that the BCTL considers relevant for verifying the aspects mentioned in paragraph 1.
The BCTL may extract full and certified copies and reproductions of all relevant documentation.
Entities not covered by the previous paragraphs and which hold qualifying holdings in the capital of banks are obliged to provide the BCTL with all elements or information that the BCTL considers relevant for the supervision of the banks in which they participate.
For a period of five years, banks shall keep available to the BCTL the relevant data on transactions relating to investment services and activities.
The BCTL may require banks to submit reports of work related to prudential supervision matters, carried out by a duly qualified entity accepted by the BCTL for that purpose.
The BCTL may also request from any person the information it needs for the exercise of its functions and, if necessary, summon that person and hear them in order to obtain that information.
Banks shall record all their operations and processes, namely those subject to the provisions of this law and applicable regulations, so that the BCTL may, at any time, verify compliance.
The BCTL may require banks to keep detailed records relating to financial contracts in which they intervene as a party or in any other capacity.
The BCTL may regulate the duration, content and manner of archiving of the records referred to in the previous paragraph.

Article 141
Unlicensed entities

Whenever there are founded suspicions that an unlicensed entity carries on or has carried on banking activity, the BCTL may require it to present the elements necessary to clarify the situation, as well as carry out inspections at the place where such activity is or has been indicatively carried out, or where it suspects that elements relevant to the knowledge of that activity may be found.
Without prejudice to the legitimacy attributed by law to other persons, the BCTL may request the dissolution and liquidation of a company or other legal person that, without being licensed, carries out operations reserved for banks.

Article 142
Seizure of documents and assets

In the course of the inspections referred to in the previous article, the BCTL may seize any documents or assets that constitute the object, instrument or product of an offence or that are shown to be necessary for the instruction of the respective proceedings.
The provisions of Article 258 shall apply to the seized assets.

Article 143
Cooperation and collaboration of other authorities

The BCTL shall exercise its supervisory functions in close collaboration with the competent national authorities and the supervisory authorities of the home countries of foreign banks operating in Timor-Leste.
In the performance of its duties, the BCTL may exchange information with competent national and foreign authorities in matters of supervision, ensuring compliance with confidentiality rules and applicable legislation.
The BCTL may request from the supervisory authorities of the countries where the head offices of foreign banks are located the information necessary for the authorisation and supervision of the activities of banks operating in Timor-Leste.
The police authorities shall provide the BCTL with the collaboration it requests within the scope of its supervisory duties.

PART VI
CORRECTIVE INTERVENTION, PROVISIONAL ADMINISTRATION, RESOLUTION AND LIQUIDATION TITLE I GENERAL PROVISIONS

Article 144
General principles

With a view to safeguarding the financial soundness of the bank, the interests of depositors or the stability of the financial system, the BCTL may adopt the measures provided for in this Part, as regulated under Article 282.
The application of the measures provided for in this Part is subject to the principles of adequacy and proportionality, taking into account the risk or degree of non-compliance by the bank with the legal and regulatory rules governing its activity, as well as the severity of their consequences on the financial soundness of the bank concerned, the interests of depositors or the stability of the financial system.

Article 145
Application of measures
In adopting the measures provided for in this Part, the BCTL is not bound to observe any order of precedence, and is empowered, in accordance with the requirements of each situation and the principles indicated in the previous article, to combine measures of a different nature, without prejudice, in any case, to the verification of their respective conditions of application.

TITLE II
CORRECTIVE INTERVENTION AND PROVISIONAL ADMINISTRATION
CHAPTER I
CORRECTIVE INTERVENTION

Article 146
Corrective intervention measures

Whenever a bank does not comply, or is at risk of not complying, with the legislation or regulations of its activity, the BCTL, taking into account the general principles set out in Article 144, may determine the application of the measures or actions necessary to resolve the situation, namely the following:
a) Imposition of additional own funds requirements higher than the requirements set in a regulation of the BCTL, under the provisions of Articles 150 and 153; b) Requirement that banks submit a recovery plan to restore compliance with supervisory requirements and set a deadline for its execution, including the requirement of improvements to the plan submitted, under the provisions of Articles 152 to 156; c) Imposition of specific liquidity requirements, including restrictions on maturity mismatches between assets and liabilities, under the provisions of Article 157; d) Submission of a restructuring plan by the bank concerned, under the provisions of Article 158;

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e) Designation of a supervisory committee or a single supervisor, under the terms of Article 159.

In the situations provided for in the preceding paragraph, and taking into account the same principles, the BCTL may also determine the application of the following measures or actions necessary to resolve the situation:

a) Preparation and submission, by the bank's management body, of an action programme that identifies and proposes scheduled solutions to comply with the legislation or regulation of the activity or to eliminate the risk of non-compliance;

b) Implementation, by the management body, of mechanisms or measures established in the recovery plan or the updating of that plan when the circumstances that motivated the corrective intervention are different from the assumptions provided for in the initial recovery plan and the implementation of mechanisms or measures provided for in the updated recovery plan, within a specific deadline, to comply with the legislation or regulation of the activity or to eliminate the risk of non-compliance;

c) Requirement to strengthen the systems, processes, procedures, arrangements, mechanisms and strategies of corporate governance, internal control and risk self-assessment;

d) Requirement that banks apply a specific policy for the constitution of provisions or for the treatment of assets in terms of own funds requirements;

e) Restriction or limitation of activities, operations or branch networks of banks or request divestment from activities that present excessive risks to their soundness;

f) Require the reduction of the risk inherent in the activities, products and systems of banks, including outsourced activities;

g) Require that banks limit variable remuneration as a percentage of net profits, when such remuneration is not consistent with the maintenance of a sound own funds base;

h) Require that banks use net profits to strengthen the own funds base;

i) Limit or prohibit payments of interest or dividends by a bank to shareholders or holders of additional own funds instruments if the prohibition does not constitute an event of default;

j) Impose additional or more frequent information reporting requirements, namely on own funds, liquidity and leverage;

k) Require additional disclosures;

l) Restrictions on the granting of credit and the application of funds in certain types of assets, in particular with regard to operations carried out with subsidiaries, with their parent company or with subsidiaries thereof, as well as with entities domiciled in offshore jurisdictions;

m) Restrictions on the receipt of deposits, depending on their modalities and remuneration;

n) Imposition of the constitution of special provisions;

o) Subjection of certain operations or certain acts to prior approval by the BCTL;

p) Submission by the bank of a plan for negotiating debt restructuring with its creditors, in accordance with the recovery plan, if applicable;

q) Conducting an audit of all or part of the bank's activity, by an independent entity designated by the BCTL, at the bank's expense;

r) Request, at any time, from the chairman of the general meeting to convene a general meeting with a specific agenda and proposed resolutions, or, in the event of non-compliance with that determination, the convening of the general meeting by the BCTL;

s) Changes in the legal or operational structures of the bank;

t) Changes in the functional structures of the bank, namely by eliminating or changing top management positions or by ceasing the assignment of their holders to that position;

u) Change in the bank's management strategy;

v) Dismissal and replacement of members of the management and supervisory bodies when, for any reason, the requirements of suitability, professional qualification, independence or availability provided for in Article 23 are no longer met.

For the purposes of assessing the risk provided for in the preceding paragraph, the fact that the bank fails to comply or there are objective elements that allow concluding that the bank will, in the short term, cease to comply with the legal or regulatory rules governing its activity is relevant, and the following situations are considered, among other relevant circumstances whose relevance the BCTL assesses in light of the general principles set out in Article 144:

a) Risk of non-compliance with the minimum regulatory own funds adequacy levels;

b) Difficulties in the liquidity situation that may jeopardize the regular fulfilment of the bank's obligations;

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c) The governance system or the management body of the bank have ceased to offer guarantees of sound and prudent management;

d) The accounting organization or the internal control system of the bank present serious deficiencies that do not allow a proper assessment of the bank's financial situation.

The holders of top management positions, or other positions, who have ceased their functions under the terms of paragraph 2(t) shall immediately provide all information, as well as provide the collaboration required of them by the BCTL or by the bank when the latter considers it necessary.

Article 147
Applicability to contractual obligations

The application of the measures or the exercise of powers provided for in this Chapter or the occurrence of any fact directly related to the application of those measures or the exercise of those powers does not, by itself, constitute grounds, within the scope of a contract to which the bank subject to the measure is a party, and to the extent that it continues to be performed, for:

a) Triggering the enforcement of guarantees;

b) Initiating insolvency proceedings;

c) The invocation or exercise of rights of early termination, resolution, denunciation, opposition to renewal, expiry or amendment;

d) The exercise of possession or powers of administration and disposal of assets or the enforcement of any guarantee over the assets of the bank subject to the measure or of a group entity;

e) Modifying, restricting or suspending its contractual rights, within the scope of a contract that provides for early termination or cross default clauses.

The provisions of paragraphs (a) and (b) of the preceding paragraph are equally applicable within the scope of contracts entered into by:

a) A subsidiary, whose obligations are guaranteed, performed or otherwise secured by the parent company or by a group entity;

b) A group entity, which include early termination or cross default clauses.

The rights referred to in paragraph 1 may be exercised, under the applicable legal and contractual terms, when they are not based on the application of the measures or the exercise of powers provided for in this Chapter or on the occurrence of a fact directly related to the application and exercise thereof.

Article 148
Subsidiaries referred to in Article 15

Before deciding on the application of any measure provided for in this Title to the subsidiaries referred to in Article 15 or, if not possible, immediately after the application, the BCTL must inform the competent authorities of the respective country of origin about the measures adopted, or to be adopted.

Article 149
Application of sanctions

The adoption of measures under this Chapter does not prevent the application of sanctions provided for by law in the event of an infringement.

SECTION I
ADDITIONAL OWN FUNDS

Article 150
Additional own funds requirement

The BCTL shall impose the additional own funds measure provided for in Article 146(1)(a) whenever it considers that:

a) The bank is exposed to risks or risk elements not covered, or insufficiently covered, under paragraphs 3 to 7 of this Article, by the own funds requirements imposed in terms of own funds requirements, large exposures and leverage and securitization, as provided for in the applicable regulation;

b) The bank does not comply with the requirements regarding internal control and capital provided for in Article 13(1)(h) to (k) and (2) and Article 108 of this law and it is unlikely that other supervisory measures will be sufficient to ensure that those requirements can be met within an adequate timeframe;

c) The adjustments to prudent valuation in respect of positions included in the trading portfolio, under the terms of Article 134(5), are considered insufficient for the bank to be able to sell or hedge its positions in a short period without incurring significant losses under normal market conditions;

d) The bank repeatedly fails to comply with the terms of the guidelines issued for the constitution or maintenance of an adequate level of additional own funds;

e) There are other specific situations of the bank that reasonably raise significant supervisory concerns.

The BCTL may only determine the constitution of additional own funds, under the terms provided for in paragraph 1(a), to cover the risks that the bank incurs on an individual basis due to its activity, including risks that reflect the impact of certain economic and market developments on the bank's risk profile.

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For the purposes of paragraph 1(a), risks or risk elements are not covered or are insufficiently covered by the minimum own funds requirements established in the applicable regulation when the amounts, types and distribution of capital considered adequate by the BCTL, taking into account its review of the self-assessment carried out by banks under Article 108(1), are higher than the own funds requirements established in that regulation.
For the purposes of the preceding paragraph, the BCTL assesses, taking into account the risk profile of each bank, the risks to which it is exposed, including:

a) The bank-specific risks or elements of those risks expressly excluded or not expressly covered by the own funds requirements established in the regulation referred to in paragraph 1(a);

b) The bank-specific risks or elements of those risks likely to be underestimated, despite compliance with the own funds requirements established in the regulation referred to in paragraph 1(a).

The provisions of paragraph (b) of the preceding paragraph do not apply if those risks or elements of those risks are subject to transitional or grandfathering provisions provided for in this law or applicable regulation.
For the purposes of paragraph 3, the capital considered adequate covers all risks or elements of risks identified as significant, in accordance with the assessment provided for in paragraph 4, which are not covered or are insufficiently covered by the own funds requirements referred to in paragraph 1(a).
The interest rate risk arising from positions not included in the trading portfolio may be considered significant, unless the BCTL's analysis and assessment concludes that the bank's management of the interest rate risk arising from activities not included in the trading portfolio is adequate and that the bank is not excessively exposed to interest rate risk arising from activities not included in the trading portfolio.
If additional own funds are required to cover risks, the BCTL determines that the level of additional own funds required corresponds to the difference between the capital considered adequate under paragraphs 3 to 7 and the own funds requirements provided for in the applicable regulation.
The BCTL's decision is reasoned, in writing, before each bank, explaining, at least and clearly, the overall assessment of the elements referred to in the preceding paragraphs, including a specific exposition of the reasons why the imposition of guidelines on additional own funds has ceased to be considered sufficient, in the case provided for in paragraph 1(e).

Article 151
Guidelines on additional own funds

In accordance with the strategies and self-assessment processes provided for in Article 108, banks maintain their internal capital at an adequate level of own funds that is sufficient to cover all risks to which they are exposed individually and to ensure the absorption of potential losses resulting from stress scenarios, including those identified in the context of supervisory stress tests.
The BCTL periodically reviews the level of internal capital established by each bank under the preceding paragraph, within the scope of the supervisory review and evaluation, including the results of stress tests, determining, for each bank, the overall level of own funds that it considers adequate.
The BCTL communicates to banks its guidelines on additional own funds corresponding to the own funds that, as the case may be, are necessary to achieve the overall level of own funds that the BCTL considers adequate under the preceding paragraph, and exceed the amount of own funds required under this law and the applicable regulation.
Guidelines on additional own funds:

a) Are specific to each bank; and

b) May only cover the risks covered by the additional own funds requirements to the extent that they cover aspects of those risks that are not covered by those requirements.

SECTION II
RECOVERY PLAN

Article 152
Recovery plan

The bank in respect of which the application of the corrective intervention measure provided for in Article 146(1)(b) has been determined shall prepare a recovery plan.
The bank's recovery plan is approved by the management body and submitted to the BCTL.
The recovery plan identifies the measures likely to be adopted to timely correct a situation in which a bank is in financial imbalance, or at risk of becoming so, namely when any of the circumstances justifying the application of corrective intervention measures occurs.
The recovery plan:

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a) Takes into account various adverse macroeconomic scenarios and severe financial stress, appropriate to the specific conditions of the bank, namely systemic events and specific stress situations of a given individualized legal person or groups;

b) May not assume access to extraordinary public financial support;

c) Without prejudice to the provisions of the preceding paragraph, includes, where applicable, an analysis of the form and timing in which the bank may request, under the conditions provided for in the plan, access to credit operations with the BCTL, and identifies the assets that may be provided as collateral for that purpose.

The content of the recovery plan does not bind the BCTL, nor does it confer on third parties or the bank any right to the execution of the measures provided for therein.
The bank may, by decision of its management body, notified to the BCTL in a timely manner:

a) Take measures in accordance with its recovery plan regardless of non-compliance with the relevant indicators;

b) Refrain from taking the measures provided for in the recovery plan if this proves inappropriate in light of the concrete circumstances.

Article 153
Content and elements of the recovery plan

The recovery plan contains, at least, the following elements:

a) Summary of its main elements, a strategic analysis and a summary of the bank's overall recovery capacity;

b) Summary of significant changes occurring in the bank since the submission of the previous recovery plan;

c) A communication and disclosure plan describing how the bank intends to manage possible negative reactions from financial markets;

d) Capital and liquidity strengthening measures necessary to ensure or restore the viability and financial situation of the bank;

e) Probable timetable for the implementation of each significant aspect of the plan;

f) Detailed description of any significant constraints to the timely and effective implementation of the plan, including consideration of the impact on the group, clients and other counterparties;

g) Identification of its critical functions;

h) Detailed description of the processes for determining the value and commercial viability of the bank's strategic business lines, operations and assets;

i) Detailed description of how recovery planning is integrated into its governance structure, as well as the policies and procedures for the preparation, approval and implementation of the recovery plan and the identification of the persons in the organization responsible for its preparation and implementation;

j) Mechanisms and measures to conserve or restore its own funds;

k) Mechanisms and measures to ensure that the bank has adequate access to contingency funding sources so as to ensure that it can continue to carry out its activities and meet its obligations as they fall due, namely potential sources of liquidity, an assessment of the assets available to be provided as collateral and an assessment of the possibility of transferring liquidity between group entities and business lines;

l) Mechanisms and measures to reduce risk and leverage;

m) Mechanisms and measures for liability restructuring;

n) Mechanisms and measures to restructure business lines;

o) Mechanisms and measures necessary to maintain continuous access to financial market infrastructures;

p) Mechanisms and measures necessary to maintain the continued operation of the bank's operational processes, including information technology infrastructures and services;

q) Preparatory mechanisms to facilitate the disposal of assets or business lines within a timeframe adequate for restoring financial soundness;

r) Other management measures or strategies to restore the bank's financial soundness, as well as the potential financial effects resulting from those measures or strategies;

s) Preparatory measures that the bank has adopted, or intends to adopt, to facilitate the implementation of the recovery plan, namely those necessary to enable the timely strengthening of the bank's own funds;

t) Framework of indicators relating to the bank's financial situation, of a qualitative and quantitative nature, which are susceptible to periodic verification, which highlights the aspects on which the measures referred to in the recovery plan may focus;

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u) Recovery options, methodologies and procedures adequate to ensure the timely execution of recovery measures.
2. The BCTL may establish, by regulation, additional elements for recovery plans.

Article 154
Review and updating of the recovery plan

The recovery plan is reviewed and, if necessary, updated by the bank:
a) At a frequency not exceeding one year; b) After verification of any event relating to the legal-corporate organization, operational structure, business model or financial situation of the bank, which may have a relevant impact on the execution of the plan; c) Whenever there is any change in the assumptions used for its preparation that may have a relevant impact on the execution of the plan; d) Whenever the BCTL requests it, on the grounds of paragraphs b) or c).
The BCTL may regulate the procedures relating to the submission, maintenance and review of these plans.

Article 155
Assessment of the recovery plan

The BCTL assesses the legal compliance of the recovery plan within 90 business days from its submission, as well as whether it is expected that:
a) The application of the proposed mechanisms can reasonably maintain or restore the viability and financial situation of the bank or the group to which it belongs, taking into account the preparatory or adopted measures by each institution; b) The plan and the specific options contemplated therein can be executed quickly and effectively in situations of financial stress, avoiding as much as possible significant adverse effects on the financial system, including scenarios that lead other banks to execute recovery plans simultaneously.
The BCTL consults foreign supervisory authorities in which significant branches are established, to the extent that this is relevant for those branches.
In assessing the recovery plan, the BCTL takes into account, in particular, the adequacy of the bank's capital and financing structure relative to the degree of complexity of its organizational structure and its risk profile.
The BCTL may determine, at any time, the provision of additional information that it considers relevant for the assessment of the recovery plan in question.
If it considers that the recovery plan contains significant deficiencies or significant impediments to its execution, the BCTL notifies the bank or the parent company of the group of this fact and, after hearing the bank, determines that it submit, within two months, extendable by one month with the approval of the BCTL, a revised plan demonstrating that these deficiencies or impediments are overcome.
If the BCTL considers that significant deficiencies or significant impediments to the execution of the recovery plan remain in the revised plan, the BCTL may determine that the bank introduce, within a reasonable period, specific changes to the plan that it considers necessary to ensure adequate compliance with the objective underlying its preparation.
The bank submits an amended recovery plan, within one month from the determination provided for in the previous paragraph, which contemplates the specific changes determined.
The period provided for in paragraph 1 is suspended while the additional information is not provided, under the terms of paragraph 4 and when the determinations of the BCTL provided for in paragraphs 5 and 6 are not complied with.

Article 156
Inadequacy of the recovery plan

If the bank does not submit a revised recovery plan or if the BCTL considers that it does not adequately correct the deficiencies or potential impediments to its execution and that it is not possible to correct them through specific changes to the recovery plan, the BCTL determines that the bank indicate, within a reasonable period, the changes it can introduce in its activity to correct the referred situations.
If the bank does not indicate the changes within the set period or if the BCTL understands that they are not adequate, the BCTL may determine, without prejudice to the competence of the bank's corporate bodies, the execution of the measures it considers necessary, adequate and proportional to their correction, taking into account the severity of the identified deficiencies or impediments and the impact of these measures on its activity, namely:
a) The reduction of the risk profile, including liquidity risk; b) Timely measures to strengthen own funds; c) The alteration of the financing strategy in order to strengthen the resilience of strategic business lines and critical functions; d) The revision of the business strategy, namely by altering the legal-corporate organization, the governance structure or the operational structure, or those of the group in which the bank is inserted;

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e) The legal separation, at the level of the group in which the bank is inserted, between financial activities and non-financial activities; f) The segregation of financial activities provided for in Articles 5 and 6, to the extent possible and reasonable; g) The restriction of activities, operations or branch networks; h) The reduction of the risk inherent to its activities, products and systems; i) The communication of additional information to the BCTL.
3. Without prejudice to the provisions of the previous paragraph, the BCTL may apply any corrective intervention measure provided for in Article 146.

SECTION III
SPECIFIC LIQUIDITY REQUIREMENTS

Article 157
Specific liquidity requirements

For the purposes of determining the adequate level of liquidity requirements based on the analysis and assessment carried out, the BCTL assesses the need to impose a specific liquidity requirement to capture the liquidity risks to which the bank is or may become exposed, considering:
a) Its business model; b) The provisions, processes and mechanisms applied by the bank; c) The results of the analysis and assessment carried out under the terms of Article 133.
The BCTL must consider the need to apply sanctions or other administrative measures, namely prudential requirements, whose level is generally related to the disparity between the bank's actual liquidity position and the liquidity and stable funding requirements established by applicable laws or regulations.

SECTION IV
RESTRUCTURING PLAN

Article 158
Restructuring plan

The restructuring plan provided for in paragraph d) of no. 1 of Article 146 must be submitted for approval by the BCTL, within the period set by it.
The BCTL may establish, at any time, the conditions it deems convenient for the acceptance of the restructuring plan, namely the increase of share capital, the reduction of share capital or the disposal of shareholdings or other assets of the bank.
If the conditions established by the BCTL, under the terms of the previous paragraph, are not approved by the shareholders or the management body of the bank, or if the restructuring plan approved by the BCTL is not complied with by the bank, the BCTL may determine the suspension of the bank's management body and appoint a provisional administration, or revoke the bank's authorization.

SECTION V
SUPERVISORY BOARD OR SOLE AUDITOR

Article 159
Supervisory board or sole auditor

The supervisory board appointed by the BCTL under the terms of paragraph e) of no. 1 of Article 146 is composed of a minimum of three members, one of whom must be an auditor, who presides, and the others must have a higher education degree adequate to the exercise of functions and knowledge in auditing or accounting.
In cases where the supervision of the bank is the responsibility of a sole auditor, the BCTL may, as an alternative to the provisions of the previous paragraph, appoint a sole auditor, who must be an auditor.
The supervisory board or the sole auditor are remunerated by the bank and have the powers and duties conferred by law and their respective statutes to the supervisory body, which is suspended for the period of activity of those.
The supervisory board or the sole auditor must keep the BCTL informed about their activity, namely through the preparation of reports with the frequency defined by it.
The supervisory board or the sole auditor exercise their functions for the period determined by the BCTL, up to a maximum of one year, extendable up to a maximum of two years.
The remuneration of the members of the supervisory board or the sole auditor is set by the BCTL.
The BCTL may, at any time, replace the members of the supervisory board or the sole auditor, as well as terminate their functions, if it considers there is a valid reason.
Without prejudice to other types of liability, the members of the supervisory board or the sole auditor are only liable to the shareholders and creditors of the bank for damages resulting from unlawful acts or omissions committed by them in the exercise of their functions with intent or gross negligence.
Legal entities or individuals suspended or replaced under the terms of the previous paragraphs must immediately provide all information, as well as provide the collaboration required by the BCTL or the bank, when the latter considers it necessary.

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CHAPTER II
PROVISIONAL ADMINISTRATION

Article 160
Resolution or liquidation regime
If it is verified that the corrective intervention measures applied did not allow the bank to recover, or if it is considered that they would be insufficient, the BCTL may alternatively:
a) Suspend or dismiss members of the management body, if the requirements provided for in no. 1 of Article 161 are met, and designate provisional members of the management body under the terms of Article 162; b) Revoke the license for the exercise of its activity, following the liquidation regime provided for in this regime.

Article 161
Suspension or dismissal of members of management bodies

The BCTL may suspend or dismiss members of the bank's management body when the corrective intervention measures provided for in Article 146 prove insufficient or there is a just fear of their insufficiency to overcome the situation of significant deterioration of the bank and its financial recovery, or if any of the following situations occur, which is susceptible to placing the financial balance or solvency of the bank at serious risk or constituting a threat to the stability of the financial system:
a) Detection of a serious or repeated violation of legal or regulatory rules governing the bank's activity, as well as its statutory rules; b) Verification of valid reasons to suspect the existence of serious irregularities in the management of the bank; c) Verification of valid reasons to suspect the inability of shareholders, members of the bank's management body to ensure sound and prudent management or to financially recover the bank; d) Verification of valid reasons to suspect the existence of other irregularities that place the interests of depositors and creditors at serious risk.
Members of the management body who have ceased functions under the terms of the previous paragraph must immediately provide all information, as well as provide the collaboration required by the BCTL or the bank, when the latter considers it relevant and necessary.
From the cessation of functions of the members of the management body provided for in no. 1, the right to compensation stipulated in contracts entered into with them or under the general terms of law does not emerge.

Article 162
Designation of provisional administrators

Whenever it considers that the suspension or dismissal of members of the management body is not sufficient to resolve any of the situations described in paragraphs a) to d) of no. 1 of the previous article, the BCTL may designate provisional administrators for the bank.
Without prejudice to other duties legally provided for or that may be determined by the BCTL under paragraph c) of no. 1 of Article 132, the provisional administrators have the duties to:
a) Keep the BCTL informed about the financial situation and the management of the bank during the designation period, namely through the preparation of reports with the frequency defined by it and at the end of the mandate; b) Observe the general guidelines and strategic objectives defined by the BCTL, with a view to performing their functions; c) Provide all information and collaboration required by the BCTL on any matters related to their activity and with the bank; d) Subject to prior approval by the BCTL the acts referred to in the following paragraph.
In addition to the powers conferred by law and the statutes, the following may be conferred on the provisional administrators designated by the BCTL, namely:
a) Veto the deliberations of the general meeting that may jeopardize the objectives of the measures applied or to be applied by the BCTL with a view to safeguarding the viability of the bank and financial stability; b) Veto the deliberations of the other corporate bodies of the bank; c) Revoke decisions previously adopted by the bank's management body; d) Convene the general meeting of the bank and determine the agenda, after prior approval by the BCTL; e) Promote the detailed assessment of the patrimonial and financial situation of the bank, in accordance with the assumptions defined by the BCTL; f) Present to the BCTL proposals for the financial recovery of the bank; g) Endeavor towards the immediate correction of any irregularities previously committed by the bank's corporate bodies or by any of their members; h) Adopt measures they deem convenient in the interest of depositors and the bank;

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i) Promote the agreement between shareholders and creditors of the bank regarding measures that allow the financial recovery of the bank, namely the renegotiation of debt conditions, the conversion of debt into share capital, the reduction of share capital to cover losses, the increase of share capital or the disposal of part of the activity to another bank authorized for its exercise; j) Manage all or some of the bank's strategic business lines; k) Determine the carrying out of financial and legal audits of the bank.
4. The BCTL may subject to its prior approval certain acts to be performed by the provisional administrators, as well as delimit some of the powers set out in the previous paragraph.
5. In designating provisional administrators, the BCTL takes into account the criteria of suitability, qualification, availability and independence, with the provisions of Articles 23 to 31 being correspondingly applicable.
6. The provisional administrators exercise their functions for the period determined by the BCTL, up to a maximum of one year, extendable on an exceptional basis for an equal period, by duly reasoned decision of the BCTL in case of persistence of the reasons that led to their designation.
7. Only the BCTL may, at any time, dismiss provisional administrators, or alter the duties and powers conferred on them, with the provisions of no. 3 of Article 161 being applicable with the necessary adaptations.
8. The remuneration of the provisional administrators is set by the BCTL and borne by the bank.
9. Without prejudice to other types of liability, the provisional administrators are only liable to the shareholders and creditors of the bank for damages resulting from unlawful acts or omissions committed by them in the exercise of their functions with intent or gross negligence.
10. The designation of provisional administrators does not depend on the prior determination of any other corrective intervention measures, nor does it prejudice their application.
11. With the designation of provisional administrators, the BCTL may also appoint a supervisory board or a sole auditor, with the provisions of Article 159 being applicable.
12. In the context of interim proceedings aimed at suspending deliberations taken by the bank's management body that has provisional administrators as members, it is presumed, for all legal purposes, that the loss resulting from the suspension is greater than that which may derive from the execution of the deliberation.
13. The BCTL publishes, on its website, the designation or extension of the functions of any provisional member of the management body, specifying the functions and powers attributed to them.

TITLE III
RESOLUTION OR LIQUIDATION

CHAPTER I
PURPOSES, GUIDING PRINCIPLES AND REQUIREMENTS

Article 163
Resolution purposes

The application of resolution measures and the exercise of powers provided for in this Chapter pursue the following purposes:
a) Ensure the continuity of the provision of essential financial services for the economy; b) Prevent the occurrence of serious consequences for financial stability, namely preventing contagion between entities, including to market infrastructures, and maintaining market discipline; c) Safeguard the interests of taxpayers and the public treasury, minimizing the recourse to extraordinary public financial support; d) Protect depositors whose deposits are guaranteed by the Deposit Guarantee Fund and investors whose claims are covered by the Investor Compensation System; e) Protect the funds and assets held by banks in the name and on behalf of their clients and the provision of related investment services.
It is up to the BCTL to determine the resolution measures that best allow achieving the purposes provided for in the previous paragraph, whose relevance must be assessed in light of the nature and circumstances of the specific case.

Article 164
Guiding principles

For the pursuit of the purposes of resolution, in the application of resolution measures and in the exercise of powers provided for in this Chapter:
a) The shareholders of the bank subject to resolution bear primarily the losses of the institution in question; b) The creditors of the bank subject to resolution bear subsequently, and under equitable conditions, the losses of the institution in question, in accordance with the ranking of their claims in case of insolvency; c) No shareholder or creditor of the bank subject to resolution may bear a loss greater than what they would bear if that institution had entered liquidation;

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2. The costs of applying resolution measures and the amount of financial support necessary for their application must be proportionate and adequate to the pursuit of the purposes of such measures, and the BCTL must seek to minimise that amount and avoid loss of value beyond what proves necessary.

Article 165
Resolution measures

The BCTL may apply the following resolution measures:
a) Partial or total sale of the business; b) Partial or total transfer of the business to bridge institutions; c) Segregation and partial or total transfer of the business to asset management vehicles; d) Bail-in.
The resolution measures provided for in the preceding paragraph may be applied if the following requirements are met:
a) The BCTL has determined, in its capacity as supervisory or resolution authority, that the bank is failing or likely to fail; b) It is not foreseeable that the bank's failure can be avoided within a reasonable timeframe through alternative private sector actions, the application of early intervention measures or the exercise of the powers to reduce or convert own funds instruments and eligible liabilities provided for in Article 169; c) The resolution measures are necessary and proportionate to the pursuit of one of the purposes of resolution; and d) The opening of liquidation of the bank, by virtue of the revocation of its licence to carry on business, does not pursue the purposes of resolution with the same effectiveness as the application of resolution measures.
For the purposes of paragraph (a) of the preceding paragraph, a bank is considered to be failing or likely to fail when one of the following circumstances occurs:
a) The bank ceases to comply with the requirements for maintaining its licence to carry on business or there are sound reasons to consider that, in the short term, the institution will cease to comply with them, making revocation of the licence possible, namely because it has presented or is likely to present losses capable of absorbing all or a significant part of its own funds; b) The bank's assets are lower than its liabilities or there are sound reasons to consider that they will be in the short term; c) The bank is unable to meet its obligations or there are sound reasons to consider that it may become unable to do so in the short term; d) Extraordinary public financial support is necessary, except where that support is intended to prevent or contain a serious disturbance of the economy and preserve financial stability.
The application of resolution measures does not depend on the prior application of early intervention measures nor does it prejudice their application at any time.
If the BCTL considers that the requirements provided for in paragraphs (a) and (b) of paragraph 2 are met, but the requirement provided for in paragraph (c) is not met, this constitutes grounds for revocation of the bank's licence.
In the case provided for in the preceding paragraph, the BCTL shall promote the revocation of the institution's licence, within an adequate timeframe, under the applicable legislation, followed by the dissolution and liquidation regime of the bank, after the decision to revoke the licence.

Article 166
Cessation of functions of the governing bodies and top management

When the BCTL applies a resolution measure, the members of the management and supervisory bodies of the bank subject to resolution and its statutory auditor or the firm responsible for issuing the statutory audit certification that is not part of the respective supervisory body shall cease their functions, except in cases where their total or partial retention, depending on the circumstances, is considered necessary to achieve the purposes provided for in paragraph 1 of Article 163.
In the case provided for in the preceding paragraph, the BCTL shall appoint for the bank subject to resolution new members of the management body, under the terms of the following article, a supervisory committee or sole supervisor, which shall be governed, with the necessary adaptations, by the provisions of Article 159, and a statutory auditor or firm of statutory auditors to perform such functions.
The BCTL may also determine the elimination or alteration of top management positions or the cessation of the assignment to that position of their holders and appoint new holders to perform such functions, except in cases where the total or partial retention, depending on the circumstances, of the exercise by them of their respective functions is considered necessary to achieve the purposes provided for in paragraph 1 of Article 163.
The members of the management and supervisory bodies and the holders of top management positions of the bank subject to resolution, as well as the statutory auditor or the firm of statutory auditors, who have

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5. Without prejudice to any other type of liability, the members of the management body, the supervisory committee or sole supervisor and the holders of top management positions, appointed under paragraphs 2 and 3, are only liable to the shareholders and creditors of the bank subject to resolution for damages resulting from unlawful acts or omissions committed by them in the exercise of their functions with intent or serious negligence.
6. From the cessation of functions of the members of the management and supervisory bodies provided for in paragraph 1, no right to compensation stipulated in the contract concluded with them or under the general terms of law arises.

Article 167
Administrators appointed by the BCTL

In appointing administrators, under the terms of paragraph 2 of the preceding article, the BCTL shall take into account criteria of suitability, qualification, availability and independence in the exercise of functions in the financial sector, with Articles 23 to 32 being correspondingly applicable.
The administrators have all the powers conferred by law and by the articles of association on the general meeting and the management bodies, and may only exercise them under the guidance of the BCTL.
The administrators must take all measures necessary for the pursuit of the purposes provided for in paragraph 1 of Article 163 and for the adequate execution of the resolution measures adopted in accordance with the BCTL's decisions, namely to resolve the modification of the shareholding structure of the bank subject to resolution, including the increase of its share capital or the sale of ownership of shares or other securities representing its share capital to persons or institutions with a sound financial and patrimonial situation and a clear organisational structure adequate for the development of its business.
The duty provided for in the preceding paragraph prevails, in case of conflict, over all other duties provided for in law or in the articles of association.
The BCTL may subject certain acts to be performed by the administrators to its prior approval, as well as limit their powers.
The administrators must submit reports to the BCTL on the economic and financial situation of the bank and on the acts performed in the exercise of their functions, at the frequency defined by the BCTL, as well as at the beginning and end of their mandate.
The administrators exercise their functions for the period determined by the BCTL, up to a maximum of one year, extendable, on an exceptional basis, for an equal period.
The BCTL may, at any time, replace any of the administrators or terminate their functions, if it considers there to be a justifiable reason.
From the cessation of functions of the members of the management body provided for in the preceding paragraph, no right to compensation stipulated in the contract concluded with them or under the general terms of law arises.
The BCTL shall publish, on its website, the appointment or extension of the functions of the administrators.
The remuneration of the administrators is set by the BCTL and borne by the bank subject to resolution.

Article 168
Valuation for resolution purposes

Before applying a resolution measure or exercising the powers provided for in Article 169, the BCTL shall appoint an independent entity, at the expense of the bank subject to resolution, to, within a period to be set by the former, fairly, prudently and realistically value the assets, liabilities and off-balance sheet items of the bank concerned.
The valuation provided for in the preceding paragraph has the following purposes:
a) To ensure that all losses of the bank concerned, including those arising from the valuation provided for in the preceding paragraph, are fully recognised in its accounts when resolution measures are applied or the powers provided for in Article 169 are exercised; b) To support the reasoning of the BCTL's decision regarding the following aspects, depending on the measure applied:
i. Verification of the conditions for applying resolution measures or for exercising the powers provided for in Article 169;
ii. Determination of the appropriate resolution measures to be applied to the bank;
iii. Extent of the extinction or dilution of the shareholdings of shareholders or holders of securities representing share capital, in the case of reduction or conversion of own funds instruments, under the terms of paragraph 2 of Article 170, as well as the extent of the reduction of the nominal value of claims arising from the holding of other own funds instruments or eligible liabilities or the conversion of those claims into share capital;
iv. Determination of the rights and obligations, which constitute assets, liabilities, off-balance sheet items and assets under management, to be transferred in the context of the application of resolution measures, as well as the value of any consideration to be paid to the bank subject to resolution or to the shareholders, or holders of other securities representing share capital, under the terms of paragraph 2 of Article 176 and paragraph 4 of Article 179;

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v. Determination of the conditions that are considered commercial conditions, for the purposes of paragraph 1 of Article 173;
vi. Extent of the reduction of the nominal value of claims included in the scope of the bail-in or the conversion of those claims into share capital, under the terms of Article 180.
3. The valuation provided for in paragraph 1 must be carried out using commonly accepted methodologies and must be based on prudent and transparent assumptions, which are as realistic as possible and adequately and detailedly substantiated, namely as regards default rates and the severity of losses, and must not assume any extraordinary public financial support, the granting by the BCTL of emergency liquidity or liquidity under non-conventional conditions as regards the provision of guarantees, maturities and interest rates.
4. The valuation provided for in paragraph 1 shall take into account that:
a) The BCTL and the Resolution Fund have the right to recover any reasonable expenses incurred by virtue of the application of resolution measures, under the terms of paragraph 4 of Article 171; b) The Resolution Fund has the right to charge interest or commissions in relation to loans or guarantees granted to the bank subject to resolution.
5. The valuation provided for in paragraph 1 must be accompanied by:
a) An updated balance sheet and a report on the financial situation of the bank; b) An analysis and estimate of the book value of the assets, which may be complemented, if necessary to substantiate the decisions referred to in subparagraphs iv and v of paragraph (b) of paragraph 2, by an analysis and estimate of the market value of the bank's assets and liabilities; c) A list of the bank's liabilities and off-balance sheet items, with an indication of the corresponding claims and their respective ranking.
6. The valuation provided for in paragraph 1 shall rank shareholders and creditors in accordance with the law and the terms and conditions of the respective instruments and contracts, and shall make an estimate of the foreseeable consequences for the shareholders and for each class of creditors if the bank were to enter liquidation, without prejudice to the valuation provided for in paragraph 14.
7. The valuation provided for in paragraph 1 is considered final when all the requirements provided for in the preceding paragraphs are met.
8. If, due to the urgency of the circumstances, it is not possible to carry out the independent valuation provided for in paragraph 1 or it is not possible to include the elements provided for in paragraphs 5 and 6, the BCTL shall carry out a provisional valuation of the assets, liabilities and off-balance sheet items of the bank, taking into account the requirements provided for in paragraphs 1, 5 and 6, and that valuation must include a duly justified item for possible additional losses, as well as, whenever possible and if applicable, be complemented by a sensitivity analysis that considers different levels of additional losses, with probabilities assigned to the different scenarios considered.
9. If the valuation provided for in paragraph 1 does not comply with all the requirements provided for in this article, it must be considered provisional until an independent entity carries out a definitive valuation that complies with those requirements.
10. The definitive valuation provided for in the final part of the preceding paragraph shall be carried out as soon as possible with the purpose of ensuring that losses are fully recognised in the accounts of the institution concerned and substantiating the decision to restore the nominal value of claims or to increase the value of the consideration to be paid under the terms of the following paragraph.
11. If the value of the bank's own funds or the value of the difference, if positive, between assets and liabilities transferred, determined in the context of the valuation referred to in the final part of paragraph 9, is higher than the estimate of that same value determined in the provisional valuation of the same institution, the BCTL may:
a) Increase the nominal value of claims that have been reduced in the context of the exercise of the powers provided for in Article 169 and the application of the measure provided for in Article 180; b) Determine the consideration to be paid by the bridge institution or by the asset management vehicle to the bank subject to resolution or to the shareholders or other holders of securities representing share capital, under the terms of paragraph 2 of Article 176 and paragraph 4 of Article 179.
12. Without prejudice to the provisions of paragraph 1, the BCTL may apply resolution measures or exercise the powers provided for in Article 169 based on the provisional valuation carried out under the terms of paragraph 8.
13. The valuations carried out under the terms of the preceding paragraphs form part of the decision to apply a resolution measure or to exercise the powers provided for in Article 169, and therefore cannot be independently challenged.
14. For the purposes of paragraph (c) of paragraph 1 of Article 164, immediately after the resolution measure takes effect, the BCTL shall appoint an independent entity, at the expense of the bank subject to resolution, to, within a reasonable period to be set by the former, assess whether, had the resolution measure not been applied and the bank subject to resolution entered liquidation at the time it was applied, the shareholders and creditors of the bank subject to resolution, as well as the Fund, in cases where the BCTL determines its intervention under the terms of

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a) The losses that the shareholders and creditors, as well as the Fund, would have borne if the bank subject to resolution had entered liquidation; b) The losses that the shareholders and creditors, as well as the Fund, actually bore as a result of the application of the resolution measure to the bank subject to resolution; and c) The difference between the losses referred to in paragraph (a) and the losses borne referred to in the preceding paragraph.
15. The valuation provided for in the preceding paragraph must assume that the resolution measure would not have been applied or produced effects and that the bank subject to resolution would enter liquidation at the time the resolution measure was applied, and must also not take into account, where applicable, the granting of extraordinary public financial support to the bank subject to resolution.
16. If the valuation provided for in paragraph 14 determines that the shareholders, creditors or the Fund bore a loss greater than they would have borne had the resolution measure not been applied and the bank subject to resolution entered liquidation at the time it was applied, they have the right to receive that difference from the Resolution Fund, under the terms of paragraph (f) of paragraph 1 of Article 183.
17. The valuation provided for in paragraph 1 or the definitive valuation provided for in the final part of paragraph 9 may be carried out by the same independent entity that carries out the valuation provided for in paragraph 14, separately or jointly.
18. The entity that carries out the valuations provided for in paragraph 1, in the final part of paragraph 9 and in paragraph 14 must be independent of the institution concerned, of the BCTL and of any public authority.
19. The provisions of the preceding paragraphs are equally applicable, with the necessary adaptations, to the exercise of the reduction or conversion powers provided for in Article 169 when exercised in isolation.

CHAPTER II
POWERS TO REDUCE OR CONVERT OWN FUNDS INSTRUMENTS AND ELIGIBLE LIABILITIES

Article 169
Powers to reduce or convert own funds instruments and eligible liabilities

The BCTL, in the exercise of its functions as resolution authority and for the purposes of reducing or eliminating a shortfall of own funds, with the application of a resolution measure, shall exercise the following powers:
a) Reduction, partial or total, of the share capital of a bank, by amortisation or by reduction of the nominal value of its shares or securities representing its share capital; b) Cancellation of the nominal value of all or part of the shares representing the share capital of a bank; c) Reduction, partial or total, of the nominal value of claims against a bank arising from the remaining own funds instruments and eligible liabilities; d) Conversion, partial or total, of claims against a bank arising from the remaining own funds instruments and eligible liabilities into share capital by issuing ordinary shares or securities representing the bank's share capital.
The BCTL shall exercise the powers to reduce or convert own funds instruments and eligible liabilities whenever any of the following requirements is met:
a) The BCTL, in the exercise of its functions as supervisory or resolution authority, has determined that the requirements for the application of resolution measures provided for in paragraph 2 of Article 165 are met and a resolution measure has not yet been applied; b) The BCTL has determined that the bank would no longer be viable if the powers provided for in the preceding paragraph were not exercised.
For the purposes of the preceding paragraph, a bank is considered to have ceased to be viable when the institution is failing or likely to fail and it is not foreseeable that the failure can be avoided through measures executed by the institution itself and the application of early intervention measures.
For the purposes of the preceding paragraph, a bank is considered to be failing or likely to fail when one of the circumstances provided for in paragraph 3 of Article 165 occurs.
The BCTL may also carry out the conversion provided for in paragraph (d) of paragraph 1 through the transfer of ownership of the shares or securities representing the bank's share capital to the creditors that are subject to the exercise of the conversion powers.
The BCTL may also convert claims arising from the bank's own funds instruments into ordinary shares.

Article 170
General procedure

The BCTL shall exercise the powers of reduction or conversion referred to in the preceding article in accordance with the ranking of claims in insolvency, and the nominal value of a class of claims may not be reduced, or a class of claims be converted into share capital,

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while those powers are not exercised in relation to the hierarchically lower classes of claims in accordance with that ranking.

In exercising the powers provided for in paragraph 1 of the preceding article, the BCTL shall ensure that, in relation to the shareholders or holders of securities representing the share capital of the bank, one of the following effects occurs:

a) In cases where the valuation carried out under the terms of article 168 concludes that the bank has negative own funds, the total or partial extinction of the shareholdings of the shareholders or holders of securities representing the share capital of the bank, or the total or partial transfer of ownership of the respective shares or securities representing the share capital to holders of the remaining own funds instruments or eligible liabilities of the bank in question who are subject to the exercise of the conversion powers;

b) In cases where the valuation carried out under the terms of article 168 concludes that the bank has positive own funds, the significant dilution of the shareholdings of the shareholders or holders of securities representing the share capital of the bank as a result of the conversion into capital of claims arising from other own funds instruments or eligible liabilities.

The provisions of the preceding paragraph also apply to the shareholders and holders of securities representing the share capital of the bank if their shares or securities representing the share capital have been previously issued or attributed by conversion of claims resulting from the holding of other own funds instruments, in accordance with the applicable contractual conditions, by virtue of the occurrence of an event prior or simultaneous to the determination that the bank meets the requirements for the application of resolution measures provided for in paragraph 2 of article 165.
The provisions of paragraph 2 also apply to the shareholders and holders of securities representing the share capital of the bank whose shares or securities representing the share capital result from the conversion of claims resulting from the holding of other own funds instruments into share capital through the issue of ordinary shares or securities representing the share capital of the bank.
In exercising the power provided for in subparagraph d) of paragraph 1 of the preceding article, the applicable conversion rate is determined by the BCTL, taking into account the purpose of, if necessary based on the result of the estimate provided for in paragraph 6 of article 168, adequately compensating the holders of own funds instruments or eligible liabilities affected.
The BCTL may determine different conversion rates for each category of claims arising from own funds instruments and eligible liabilities, and the conversion rate to be applied to hierarchically higher claims, in accordance with the ranking of claims in the event of insolvency, must be higher than the conversion rate to be applied to hierarchically lower claims.
The BCTL assesses the suitability of new shareholders who become holders of a qualifying holding in accordance with the provisions of article 111, with the necessary adaptations, and the following shall also apply:

a) The attribution of ownership of the shares or securities representing the share capital of the bank takes effect with the decision to exercise the powers provided for in paragraph 1 of the preceding article;

b) During the suitability assessment period, the voting rights resulting from the ownership of the shares or securities representing the share capital of the bank in question may only be exercised by the BCTL, which cannot be held liable for damages arising from the exercise of those rights, except when acting with intent or gross negligence;

c) After concluding its assessment, the BCTL notifies the new shareholders or holders of securities representing the share capital of the bank of its decision;

d) If the BCTL considers it demonstrated that the shareholder or holder of securities representing the share capital of the bank holding a qualifying holding meets conditions that ensure sound and prudent management of the bank, the voting rights resulting from the ownership of those shares or securities may be exercised by the respective shareholders or holders of the securities after receiving notification of the decision in question;

e) If the BCTL does not consider it demonstrated that the shareholder or holder of securities representing the share capital of the bank holding a qualifying holding meets conditions that ensure sound and prudent management of the bank, it shall set a period during which that shareholder or holder must proceed to dispose of their shares or securities, which takes into account the prevailing market conditions.

In the situation provided for in subparagraph e) of the preceding paragraph, the voting rights resulting from the ownership of those shares or securities representing the share capital of the bank may only be exercised by the BCTL under the terms of subparagraph b) of the same paragraph.
The exercise by the BCTL of the voting rights referred to in the preceding paragraph does not count for the purposes of applying the rules on attribution of voting rights, notification and disclosure of qualifying holdings and the duty to launch mandatory public offers or other similar obligations arising from securities legislation.
The reduction of the share capital or of the nominal value of claims arising from the remaining own funds instruments and eligible liabilities:

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a) Is definitive, without prejudice to the provisions of the following paragraph;

b) Does not entail the payment to their holders of any compensation other than that resulting from the conversion of those claims under the terms of subparagraph d) of paragraph 1 of the preceding article;

c) Terminates, vis-à-vis its holder, any obligation related to the own funds instruments or to the eligible liability in the amount by which the respective nominal value of that instrument or claim has been reduced.

If the exercise of the powers provided for in paragraph 1 of the preceding article is carried out based on the provisional valuation carried out under the terms of paragraph 8 of article 168 and the amount by which the nominal value of the claims resulting from the holding of own funds instruments or eligible liabilities is reduced proves to be greater than necessary in accordance with the results of the definitive valuation carried out under the terms of the final part of paragraph 9 of article 168, the BCTL may restore, to the extent necessary, the nominal value of those claims.
The issue of ordinary shares or securities representing the share capital by conversion of claims resulting from the holding of own funds instruments or eligible liabilities is carried out on the following terms:

a) The ordinary shares or securities representing the share capital are issued by the bank;

b) The ordinary shares or securities representing the share capital of the bank are issued before any issue of special shares or other securities representing share capital by the bank for the purposes of recapitalisation operations using public investment;

c) The ordinary shares or securities representing the share capital of the bank are issued and attributed immediately after the decision of the BCTL, without the need for any resolution of the general meeting.

CHAPTER III
RESOLUTION MEASURES

Article 171
General principles

The BCTL may apply any resolution measure individually or cumulatively, except the measure provided for in subparagraph c) of paragraph 1 of article 165, which may only be applied together with another resolution measure, simultaneously or at a later time.
If the BCTL applies the measures referred to in subparagraphs a) or b) of paragraph 1 of article 165 individually and transfers only part of the rights and obligations, which constitute assets, liabilities, off-balance sheet items and assets under management, it must revoke the licence of the bank subject to resolution within an adequate period, taking into account the provisions of article 189, and the liquidation regime provided for in the applicable law shall be followed.
If the application of a resolution measure results in losses to be borne by creditors or the conversion of their claims, the BCTL exercises the powers provided for in article 169, immediately before or together with the application of the resolution measure.
The BCTL and the Resolution Fund may recover the reasonable expenses incurred by virtue of the application of resolution measures, the exercise of resolution powers or the powers provided for in article 169, as follows:

a) As a deduction from consideration paid by a transferee, to which rights, obligations, shares or other securities representing the share capital of the bank subject to resolution were transferred, to the bank subject to resolution or, if applicable, to the holders of shares or other securities representing the share capital of the bank;

b) From the bank subject to resolution;

c) From the proceeds generated on the winding up of the activities of the bridge institution or the asset management vehicle.

For the purposes of the preceding paragraph, the BCTL and the Resolution Fund, as applicable, hold a claim against the bank subject to resolution, against the bridge institution, against the asset management vehicle or against the acquiring institution.

Article 172
Partial or total sale of the business

The BCTL may determine the partial or total sale of rights and obligations of a bank subject to resolution, which constitute assets, liabilities, off-balance sheet items and assets under management of the institution, and of the ownership of the shares or other securities representing its share capital.
The BCTL shall ensure, in terms appropriate to the speed imposed by the circumstances, the transparency of the process and the equitable treatment of interested parties.
For the purposes of paragraph 1, the BCTL shall promote the transfer to an acquirer of the rights and obligations and of the ownership of the shares or other securities representing the share capital of the bank subject to resolution, ensuring the transparency and accuracy of the information provided, taking into account the circumstances of the case and the need to maintain financial stability, promoting the absence of conflicts of interest and speed, not unduly discriminating against potential acquirers and maximising, as far as possible, the sale price of the rights and obligations or of the shares or other securities representing the share capital of the bank subject to resolution.
The provisions of the preceding paragraph do not prevent the BCTL from inviting certain potential acquirers to submit acquisition proposals.

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If necessary to ensure the pursuit of the purposes provided for in paragraph 1 of article 163, the BCTL may promote the sale of the rights and obligations and of the ownership of the shares or other securities representing the share capital of the bank subject to resolution without observing the provisions of paragraph 3.
The BCTL may sell different sets of rights and obligations or of shares or other securities representing the share capital of the bank subject to resolution to more than one acquirer.
Acquisition proposals for the rights and obligations of the bank subject to resolution may only be submitted by banks authorised to carry on the activity in question or by entities that have applied to the BCTL for a licence to carry on that activity, and the decision referred to in paragraph 1 shall be conditional upon the decision on the licence application.
In selecting the acquirer, the BCTL shall take into account the purposes provided for in paragraph 1 of article 163.
Potential acquirers must immediately be provided with conditions of access to relevant information on the financial and patrimonial situation of the bank subject to resolution, for the purposes of evaluating the rights, obligations and shares or securities representing the share capital of the bank subject to resolution, and the duty of secrecy provided for in article 65 shall not be enforceable against them, without prejudice to their own being subject to that secrecy in relation to the information in question.

Article 173
Application of the measure of partial or total sale of the business

The sale is carried out on commercial terms and takes into account the circumstances of the specific case, the valuation referred to in article 168 and the applicable principles, rules and legislation.
If the sale of the ownership of the shares or securities representing the share capital of the bank subject to resolution results in the acquisition or increase of a qualifying holding by the acquirer, the BCTL shall carry out the assessment referred to in article 111 in a timely manner and together with the decision referred to in paragraph 1 of the preceding article so as not to delay the sale and not to jeopardise the purposes provided for in paragraph 1 of article 163.
After the sale provided for in paragraph 1 of the preceding article, the BCTL may, at any time:

a) Sell other rights and obligations and the ownership of other shares or securities representing the share capital of the bank subject to resolution;

b) Return to the bank subject to resolution rights and obligations that had been sold to an acquirer, with the latter's authorisation, or return the ownership of shares or other securities representing the share capital of the bank subject to resolution to their respective holders at the time of the decision provided for in paragraph 1 of the preceding article, and the bank subject to resolution or those holders may not oppose that return, and, if necessary, the consideration fixed at the time of the sale shall be adjusted.

Without prejudice to the provisions of paragraph 7, no claims against the bank subject to resolution held by persons and entities that, in the two years prior to the date of application of the resolution measure, held a direct or indirect interest equal to or greater than 2% of the share capital of the bank, or were members of the management body of the bank, may be sold, unless it is demonstrated that they were not, by act or omission, at the origin of the bank's financial difficulties and did not contribute, by act or omission, to the worsening of that situation.
Without prejudice to the provisions of paragraph 4 of article 171, the proceeds of the sale shall revert to:

a) The shareholders or holders of other securities representing the share capital of the bank subject to resolution, if the sale was carried out through the sale of the ownership of the shares or securities representing its share capital;

b) The bank subject to resolution, if the sale was carried out through the sale of part or all of the rights and obligations.

The decision determining the sale provided for in paragraph 1 of the preceding article produces, by itself, the effect of transferring ownership of the rights and obligations transferred from the bank subject to resolution to the acquirer, and the latter is considered, for all legal and contractual purposes, as the successor in the rights and obligations sold.
Any partial sale of rights and obligations must not prejudice the full assignment of the contractual positions of the bank subject to resolution, with the transfer of the responsibilities associated with the transferred assets, namely in the case of financial collateral contracts, securitisation operations or other contracts containing set-off and novation clauses.
The decision determining the sale provided for in paragraph 1 of the preceding article takes effect regardless of any legal or contractual provision to the contrary, and is sufficient title for the fulfilment of any legal formality related to the sale.
The sale decision provided for in paragraph 1 of the preceding article does not depend on the consent of the shareholders or holders of other securities representing the share capital of the bank subject to resolution, of the parties to contracts related to the rights and obligations to be sold, or of any third parties, and may not constitute grounds for the exercise of rights of early termination, resolution, denunciation, opposition to renewal or amendment of conditions stipulated in the contracts in question.

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The acquirer, succeeding the bank subject to resolution, shall exercise the rights relating to participation in and access to payment, clearing and settlement systems, securities markets, investor compensation schemes and deposit guarantee schemes, as well as participation in and membership of other systems or associations of a public or private nature, necessary for the development of the transferred activity, and the exercise of those rights may not be denied on the grounds of the absence or insufficiency of a credit rating of the acquirer by a credit rating agency.
The exercise of the rights provided for in the preceding paragraph includes all services, functionalities and operations that the bank subject to resolution had at the time of application of the resolution measure provided for in paragraph 1 of the preceding article.
If the acquirer does not meet the criteria for participation in or membership of any of the systems referred to in paragraph 10, the respective rights shall be exercised by the acquirer during a period set by the BCTL, not exceeding 24 months, extendable upon application by the acquirer to the BCTL.
Without prejudice to the provisions of Chapter V of this Title, the shareholders and creditors of the bank subject to resolution, and other creditors whose rights and obligations are not sold, have no rights over the rights and obligations sold.
If the sale provided for in paragraph 1 of the preceding article results in a concentration operation under the applicable competition legislation, that operation may be carried out without having been the subject of a decision of non-opposition.

Article 174
Partial or total transfer of the business to bridge institutions

The BCTL may determine the partial or total transfer of rights and obligations of a bank, which constitute assets, liabilities, off-balance sheet items and assets under management, and the transfer of ownership of the shares or other securities representing its share capital to bridge institutions constituted for that purpose, with the aim of allowing their subsequent sale.
The BCTL may also determine the partial or total transfer of rights and obligations, including the transfer of ownership of shares or other securities representing the share capital of the bank.
The bridge institution is a legal person authorised to carry on the activities related to the transferred rights and obligations.
The bridge institution shall ensure the continuity of the provision of financial services inherent to the transferred activity, as well as the administration of the assets, liabilities, off-balance sheet items, assets under management and shares or other ownership instruments transferred under the terms of paragraphs 1 and 2, with a view to enhancing the value of the business developed, seeking to proceed with its sale, as soon as circumstances advise, on terms that maximise the value of the patrimony in question.
The transfer decision provided for in paragraphs 1 and 2 produces, by itself, the effect of transferring ownership of the rights and obligations of the bank subject to resolution to the bridge institution, and the latter is considered, for all legal and contractual purposes, as the successor in the transferred rights and obligations.
Any partial transfer of rights and obligations to the bridge institution must not prejudice the full assignment of the contractual positions of the bank subject to resolution, with the transfer of the responsibilities associated with the transferred assets, namely in the case of financial collateral contracts, securitisation operations or other contracts containing set-off and novation clauses.
The transfer decision provided for in paragraphs 1 and 2 takes effect regardless of any legal or contractual provision to the contrary, and is sufficient title for the fulfilment of any legal formality related to the transfer.
The transfer decision provided for in paragraphs 1 and 2 does not depend on the consent of the shareholders or holders of other securities representing the share capital of the bank, of the parties to contracts related to the rights and obligations to be transferred, or of any third parties, and may not constitute grounds for the exercise of rights of early termination, resolution, denunciation, opposition to renewal or amendment of conditions stipulated in the contracts in question.
Without prejudice to the provisions of Chapter V of this Title, the shareholders and creditors of the bank subject to resolution, and other third parties whose rights and obligations are not transferred, have no rights over the rights and obligations transferred to the bridge institution.
The Commercial Companies Law applies to bridge institutions, with the necessary adaptations to the objectives and nature of these institutions.
The bridge institution must comply, in the development of its activity, with management criteria that ensure the maintenance of low levels of risk.
The bridge institution, succeeding the bank subject to resolution, shall exercise the rights relating to participation in and access to payment, clearing and settlement systems, securities markets, investor compensation schemes and deposit guarantee schemes, as well as participation in and membership of other systems or associations of a public or private nature, necessary for the development of the transferred activity, and the exercise of those rights may not be denied on the grounds of the absence or insufficiency of a credit rating of the bridge institution by a credit rating agency.

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13. The exercise of the rights provided for in the previous paragraph includes all services, functionalities and operations that the bank subject to resolution had at the time of application of the resolution measure provided for in paragraph 1.
14. If the bridge institution does not meet the criteria for joining or participating in any of the systems referred to in paragraph 12, the respective rights shall be exercised by the bridge institution during a period set by the BCTL, not exceeding 24 months, extendable upon request by the bridge institution to the BCTL.

Article 175
Constitution of the bridge institution

The bridge institution is constituted by decision of the BCTL, which approves its articles of association, and the provisions of Chapter II of Title I of Part III shall not apply.
The bridge institution must comply with the rules applicable to banks.
The share capital of the bridge institution is subscribed and paid up in whole or in part by the Resolution Fund using its funds and, if applicable, through the exercise of the power provided for in paragraph 2(a) of Article 180, without prejudice to the BCTL's powers over the bridge institution.
Without prejudice to the provisions of the following paragraph, if necessary for the pursuit of the purposes provided for in paragraph 1 of Article 163, the BCTL may temporarily exempt the bridge institution, after the start of its activity, from compliance with the applicable prudential requirements.
The bridge institution may start its activity without prior compliance with the legal requirements related to commercial registration and other formal procedures provided for by law, without prejudice to subsequent compliance with them as soon as possible.
At the time of the transfer decision provided for in paragraph 1 of the previous article, the BCTL may appoint the members of the management and supervisory bodies of the bridge institution without the need for a proposal from the general meeting.
Without prejudice to other types of liability, the members of the management and supervisory bodies or the holders of top management positions of the bridge institution shall only be liable to the shareholders and creditors of the bank subject to resolution for damages resulting from unlawful acts or omissions committed by them in the exercise of their duties with intent or serious negligence.
The bridge institution has a maximum duration of two years from the date on which the last transfer to the bridge institution of rights, obligations, shares or instruments representing the share capital of the bank subject to resolution was carried out.
The period provided for in the previous paragraph may be extended by the BCTL for periods of one year, when:
a) There are well-founded reasons of public interest, namely the verification of risks to financial stability; b) There is a need to ensure the continuity of essential services; or c) The extension is necessary to allow or facilitate the merger of the bridge institution with another entity or the sale of rights and obligations.
The BCTL's decision to extend the period provided for in the previous paragraph shall be accompanied, whenever possible, by an assessment of the market conditions and prospects that justify that extension.
The BCTL shall develop, by notice, the rules applicable to bridge institutions.
The transfer decision provided for in paragraphs 1 and 2 of the previous article, as well as any decision to extend the period provided for in paragraph 9, shall be communicated to the competition authority, but given its transitional nature it does not constitute a concentration of undertakings for the purposes of the applicable competition legislation.

Article 176
Assets and financing of the bridge institution

The BCTL selects the rights, obligations, shares and other instruments representing the share capital of the bank subject to resolution to be transferred to the bridge institution at the time of its constitution.
Without prejudice to the provisions of paragraph 4 of Article 171, if any consideration is payable by the bridge institution as a result of the transfer determined by the BCTL under paragraphs 1 and 2 of Article 174, it shall revert to:
a) The shareholders or holders of other instruments representing the share capital of the bank subject to resolution, if the transfer to the bridge institution was carried out through the transfer to the bridge institution of ownership of shares or instruments representing the share capital of the bank subject to resolution, to the extent of the value, if positive, of the own funds of the institution subject to resolution at the time of the transfer provided for in paragraphs 1 and 2 of Article 174, determined within the scope of the valuation provided for in Article 168; or b) The bank subject to resolution, if the transfer to the bridge institution was carried out through the transfer of part or all of the rights and obligations of the bank subject to resolution to the bridge institution, to the extent of the difference, if positive, between the assets and liabilities of the institution subject to resolution transferred to the bridge institution, determined within the scope of the valuation provided for in Article 168.

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3. Without prejudice to the provisions of paragraph 6 of Article 174, no credit rights over the bank subject to resolution held by persons and entities that, in the two years prior to the date of application of the resolution measure, had a direct or indirect participation equal to or greater than 2% of the bank's share capital or had been members of the bank's management bodies may be transferred to the bridge institution, unless it is demonstrated that they were not, by action or omission, at the origin of the bank's financial difficulties and did not contribute, by action or omission, to the worsening of such situation.
4. After the transfer provided for in paragraphs 1 and 2 of Article 174, the BCTL may, at any time:
a) Transfer rights and obligations from the bridge institution to an asset management vehicle, constituted for that purpose, applying the provisions of Articles 178 and 179, when necessary to ensure the purposes provided for in paragraph 1 of Article 163 or to facilitate the cessation of the bridge institution's activity under the terms of paragraph 1 of the following article; b) Transfer other rights and obligations and ownership of shares or instruments representing the share capital of the bank subject to resolution to the bridge institution; c) Return to the bank subject to resolution rights and obligations that had been transferred to the bridge institution or return ownership of shares or instruments representing the share capital of the bank subject to resolution to their holders at the time of the resolution provided for in paragraph 1 of Article 175, and the bank subject to resolution or those holders may not oppose such return, provided that the conditions provided for in the following paragraph are met.
5. The transfer provided for in subparagraph c) of the previous paragraph may only be carried out when expressly provided for in the BCTL decision provided for in paragraphs 1 and 2 of Article 165, when the conditions for transfer of rights, obligations, shares and instruments representing the share capital of the bank subject to resolution provided for therein are not met or when those rights, obligations, shares and instruments representing the share capital of the bank subject to resolution do not fall within the criteria for transfer defined therein.
6. The BCTL determines the amount of financial support to be granted by the Resolution Fund, if necessary, for the creation and development of the bridge institution's activity, under the terms of Article 183 and taking into account the Fund's intervention, under the terms and conditions provided for in Article 233, within the scope of the application of the resolution measure provided for in paragraphs 1 and 2 of Article 174.
7. The total value of liabilities and off-balance sheet items to be transferred to the bridge institution shall not exceed the total value of assets transferred from the bank subject to resolution, plus, where applicable, funds from the Resolution Fund or the Fund, under the terms and conditions provided for in Articles 183 and 233.

Article 177
Cessation of the bridge institution's activity

The BCTL shall determine the cessation of the bridge institution's activity as soon as possible and, in any case, when it considers that the purposes provided for in paragraph 1 of Article 163 are ensured or in the following situations:
a) Upon the sale to a third party of all rights, obligations, shares or other instruments representing the share capital of the bank subject to resolution that have been transferred to the bridge institution, under the terms of paragraphs 3, 4 and 6; b) Upon the sale to a third party of all shares or other instruments representing the share capital of the bridge institution, under the terms of paragraphs 3, 4 and 6; c) Upon the merger of the bridge institution with another entity, without prejudice to the provisions of paragraph 8; d) Whenever the bridge institution ceases to comply with the requirements provided for in paragraphs 3 and 4 of Article 174 and paragraph 3 of Article 175; e) Upon the expiry of the period provided for in paragraph 10 of Article 175, in which case the bridge institution shall enter into liquidation; f) Whenever it considers that, having sold most of the rights and obligations transferred to the bridge institution, its maintenance is not justified, in which case it shall determine that it enters into liquidation.
If a bridge institution is used to transfer the rights and obligations of more than one bank subject to resolution, the liquidation referred to in subparagraphs e) and f) of paragraph 1 applies to the rights and obligations and not to the bridge institution.
Whenever it considers that the necessary conditions are met to sell partially or totally the rights, obligations, shares or other instruments representing the share capital of the bank subject to resolution that have been transferred to the bridge institution or for the sale of shares or other instruments representing the share capital of the bridge institution, the BCTL or the bridge institution, if authorized under the following paragraph, may, ensuring the transparency of the process and the equitable treatment of interested parties, promote their sale through the means considered most appropriate taking into account the commercial conditions existing at the time, the circumstances of the specific case and the applicable principles, rules and legislation.

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4. The sale by the bridge institution provided for in the previous paragraph, as well as its modality and conditions, depends on authorization from the BCTL.
5. Without prejudice to the provisions of paragraph 4 of Article 171, all revenues generated by the cessation of the bridge institution's activity shall revert to its shareholders.
6. After the sale of all rights, obligations, shares or other instruments representing the share capital of the bank subject to resolution transferred to the bridge institution and the allocation of the proceeds of the respective sale under the terms of the previous paragraph, the bridge institution shall be dissolved by the BCTL.
7. In cases of sale of all ownership of shares or other instruments representing the respective share capital and merger of the bridge institution with another entity, the application of the bridge institutions regime shall cease.
8. At the time of the merger referred to in subparagraph c) of paragraph 1, the Resolution Fund may not hold shares or other instruments representing the share capital of the bridge institution.

Article 178
Asset segregation

The BCTL may determine the transfer of rights and obligations of a bank or a bridge institution, which constitute assets, liabilities, off-balance sheet items and assets under management of the institution, to asset management vehicles constituted for that purpose, with the aim of maximizing their value with a view to subsequent sale or liquidation.
The BCTL may also determine the transfer of rights and obligations of the bank, with the same purpose provided for in the previous paragraph.
The asset management vehicle is a legal person created to receive and administer part or all of the rights and obligations of the bank subject to resolution or of a bridge institution.
The share capital of the asset management vehicle is subscribed and paid up in whole or in part by the Resolution Fund using its funds, without prejudice to the BCTL's powers over the asset management vehicle.
The asset management vehicle is constituted by decision of the BCTL, which approves its articles of association, and is not obliged to comply with the legal requirements that would otherwise be applicable to the management of the transferred rights and obligations.
The asset management vehicle may start its activity without prior compliance with the legal requirements related to commercial registration and other formal procedures provided for by law, without prejudice to subsequent compliance with them as soon as possible.
The BCTL decision provided for in paragraph 1 produces, by itself, the effect of transferring ownership of the rights and obligations of the bank subject to resolution or of the bridge institution to the asset management vehicle, which is considered, for all legal and contractual purposes, as the successor in the transferred rights and obligations.
The partial transfer of rights and obligations to the asset segregation vehicle shall not prejudice the full assignment of the contractual positions of the bank subject to resolution or of the bridge institution, with transfer of the responsibilities associated with the transferred asset elements, namely in the case of financial guarantee contracts, securitization operations or other contracts containing netting and novation clauses.
The transfer decision provided for in paragraph 1 produces effects regardless of any legal or contractual provision to the contrary, and is sufficient title for compliance with any legal formality related to the transfer.
The transfer decision provided for in paragraph 1 does not depend on the consent of the shareholders or holders of other instruments representing the share capital of the bank subject to resolution or of the bridge institution, of the parties to contracts related to the rights and obligations to be sold or of any third parties, and may not constitute grounds for the exercise of rights of early termination, resolution, denunciation, opposition to renewal or alteration of conditions stipulated in the contracts in question.
Without prejudice to the provisions of Chapter V of this Title, the shareholders and creditors of the bank subject to resolution or of the bridge institution, and other creditors whose rights and obligations are not transferred, have no rights over the transferred rights and obligations.
The Commercial Companies Code applies to asset management vehicles, with the necessary adaptations to the objectives and nature of these entities.
The BCTL is responsible, upon proposal of the general meeting of the asset management vehicle, for appointing and setting the remuneration of the members of its management and supervisory bodies, who must comply with all guidelines and recommendations transmitted by the BCTL, namely regarding the management, strategy and risk profile of the asset management vehicle.
At the time of the transfer decision provided for in paragraph 1, the BCTL may, as an alternative to the provisions of the previous paragraph, appoint the members of the management and supervisory bodies of the bridge institution without the need for a proposal from the general meeting.
Without prejudice to other types of liability, the members of the management and supervisory bodies or the holders of top management positions of the asset management vehicle shall only be liable to the shareholders and

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16. The asset management vehicle must comply, in the development of its activity, with management criteria that ensure the maintenance of low levels of risk.
17. The partial or total transfer of rights and obligations of a bank subject to resolution or of a bridge institution to asset management vehicles constituted for that purpose shall be communicated to the competition authority, but given its transitional nature it does not constitute a concentration of undertakings for the purposes of the applicable competition legislation.
18. The members of the management or supervisory bodies of the asset segregation vehicle, its employees, agents, representatives and other persons providing services to it on a permanent or occasional basis are subject to the duty of secrecy provided for in Article 65.

Article 179
Assets, financing and cessation of activity of the asset management vehicle

The BCTL selects the rights and obligations of the bank subject to resolution or of the bridge institution to be transferred to the asset management vehicle at the time of its constitution.
The rights and obligations of the bank subject to resolution or of the bridge institution may only be transferred to an asset management vehicle if one of the following situations occurs:
a) Their sale within the scope of a liquidation process has adverse effects on the financial markets; b) Their transfer is necessary to ensure the proper functioning of the bank subject to resolution or of the bridge institution; c) Their transfer is necessary to maximize the revenues resulting from their sale.
The BCTL determines the consideration to be paid for the transfer of rights and obligations to the asset management vehicle, which may have a nominal or negative value and must take into account the valuation referred to in Article 168 and the applicable principles, rules and legislation.
Without prejudice to the provisions of paragraph 4 of Article 171, if any consideration is payable by the asset management vehicle as a result of the transfer provided for in paragraph 1 of the previous article, it shall revert to the bank subject to resolution or to the bridge institution when the rights and obligations have been directly acquired from it, to the extent of the difference, if positive, between the assets and liabilities of the institution subject to resolution or of the bridge institution transferred to the asset management vehicle, determined within the scope of the valuation provided for in Article 168.
Without prejudice to the provisions of paragraph 8 of Article 178, no credit rights over the bank subject to resolution held by persons and entities that, in the two years prior to the date of application of the resolution measure, had a direct or indirect participation equal to or greater than 2% of the bank's share capital or had been members of the bank's management bodies may be transferred to the asset segregation vehicle, unless it is demonstrated that they were not, by action or omission, at the origin of the bank's financial difficulties and did not contribute, by action or omission, to the worsening of such situation.
After the transfer provided for in paragraph 1 of the previous article, the BCTL may, at any time:
a) Transfer other rights and obligations of the bank subject to resolution or of the bridge institution to asset management vehicles; b) Return to the bank subject to resolution or to the bridge institution rights and obligations that had been transferred to the asset management vehicle, adjusting, if necessary, the consideration set at the time of transfer, and the bank subject to resolution or the bridge institution may not oppose such return and provided that the conditions provided for in the following paragraph are met.
The transfer provided for in subparagraph b) of the previous paragraph may only be carried out when expressly provided for in the BCTL decision provided for in paragraph 1 of the previous article, when the conditions for transfer of rights, obligations, shares and instruments representing the share capital of the bank subject to resolution provided for therein are not met or when those rights, obligations, shares and instruments representing the share capital of the bank subject to resolution do not fall within the categories defined therein.
The BCTL determines the amount of financial support to be granted by the Resolution Fund, if necessary, for the creation and development of the asset management vehicle's activity, under the terms of Article 183 and taking into account the Fund's intervention, under the terms and conditions provided for in Article 232, within the scope of the application of the resolution measure provided for in paragraph 1 of the previous article.
The total value of liabilities and off-balance sheet items to be transferred to the asset management vehicle shall not exceed the total value of assets transferred from the bank subject to resolution or from the bridge institution, plus, where applicable, funds from the Resolution Fund or the Fund, under the terms and conditions referred to in the previous paragraph.
The provisions of Article 177 shall apply to the cessation of the asset management vehicle's activity, with the necessary adaptations.

Article 180
Internal recapitalization (bail in)

The BCTL may determine the application of the recapitali-

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internal action to strengthen a bank's own funds sufficiently to enable it to comply again with the requirements for maintaining its licence to carry on its business and to obtain funding autonomously and on sustainable terms in the financial markets, in cases where there is a reasonable prospect that the application of the measure, together with other relevant measures, will make it possible to achieve the purposes set out in Article 163(1) and restore the financial soundness and long-term viability of the bank, through the exercise of the following powers:

a) Reduction, in whole or in part, of the nominal value of claims of the bank under resolution that do not arise from the holding of own funds instruments and that are included within the scope of the internal recapitalization measure;

b) Increase of the capital of the bank under resolution by conversion, in whole or in part, of the claims included within the scope of the internal recapitalization of the bank under resolution through the issue of ordinary shares or instruments representing the share capital of the bank under resolution.

If the requirements set out in the preceding paragraph are not met, the BCTL may also:

a) Convert the eligible claims of the bank under resolution into share capital of the bridge institution through the issue of ordinary shares and reduce the nominal value of the eligible claims of the bank under resolution to be transferred to the bridge institution;

b) Reduce the nominal value of the eligible claims of the bank under resolution to be transferred under the terms of Articles 172 and 178.

If strictly necessary, the BCTL may change the type of company of the bank under resolution in order to apply the powers set out in the preceding paragraphs.
The application of the powers set out in paragraphs 1 and 2 is preceded by the exercise of the reduction or conversion powers set out in Article 169.
The BCTL selects the claims included within the scope of the internal recapitalization to which the powers set out in paragraphs 1 and 2 will be applied.
The powers set out in paragraphs 1 and 2 may not be applied to:

a) Deposits guaranteed by the Deposit Guarantee Fund, within the limit set out in Article 231;

b) Claims benefiting from security in rem;

c) Claims of the bank;

d) Claims with a maturity of less than seven business days;

e) Claims of workers in respect of wages, pension benefits or other fixed remuneration due, with the exception of the variable component of remuneration not regulated by collective labour agreements;

f) Claims of suppliers of goods and services considered strategic for the current operation of the bank, including IT services, public utility services and the leasing, repair and maintenance of premises;

g) Claims of the Deposit Guarantee Fund relating to the payment of contributions.

The provisions of paragraph (b) of the preceding paragraph do not prevent the BCTL from applying the powers set out in paragraphs 1 and 2 to claims benefiting from security in rem, in the amount exceeding that security.
Claims arising from the following are not considered claims included within the scope of the internal recapitalization:

a) The holding, by the bank, of assets or funds of clients on their behalf, including assets or funds of clients held on behalf of collective investment undertakings;

b) A fiduciary relationship between the bank, as fiduciary, and a third party, as beneficiary, where the third party is protected under the applicable legislation on civil law and insolvency matters.

The BCTL may exceptionally exclude, in whole or in part, from the application of the internal recapitalization measure certain claims or classes of claims included within the scope of the internal recapitalization where any of the following situations occurs:

a) It is not operationally possible to apply those powers in a timely manner;

b) The exclusion is strictly necessary and proportionate to ensure the continuity of the critical functions and strategic business lines of the bank under resolution, so as to ensure the maintenance of the institution's essential operations, services and transactions;

c) The exclusion is strictly necessary and proportionate to avoid serious disruption to the functioning of the financial markets, with an impact on the national economy, in particular with regard to deposits of natural persons and micro, small and medium-sized enterprises, in the part exceeding the limit set out in Article 231;

d) The application of the powers set out in paragraphs 1 and 2 to those claims would depreciate the assets of the bank under resolution to such an extent that the losses borne by the remaining creditors not excluded under the provisions of this paragraph or paragraph 6 would be greater than if those claims had been excluded from the application of those powers.

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For the purposes of the preceding paragraph, the BCTL:

a) Assesses whether the claims of entities that have not been identified as resolution entities and that belong to the same resolution group, in accordance with the applicable BCTL regulation, which are not excluded from the application of the internal recapitalization measure under the same paragraph, should be wholly or partially excluded from the application of that measure under the preceding paragraph, in order to ensure the effective application of the resolution strategy; and

b) Takes into account, for the purposes of Article 164(1)(a) and (b), the amount of claims included within the scope of the internal recapitalization that will remain in the bank after the exercise of that power, as well as the amount of financial resources available in the Resolution Fund.

If it decides to exclude from the application of the internal recapitalization measure certain claims or classes of claims included within the scope of the internal recapitalization and it is not possible to distribute the losses that would have been borne by those claims among the remaining creditors in accordance with Article 164(1)(c), the BCTL may instruct the Resolution Fund to provide the bank under resolution with the necessary financial support to:

a) Bear the losses that were not borne by those claims, taking into account Article 181(1)(a);

b) Acquire shares or other capital instruments of the bank under resolution or of the bridge institution, taking into account Article 181(1)(b).

The Resolution Fund may provide the financial support set out in the preceding paragraph only under the following conditions:

a) The holders of own funds instruments and of claims included within the scope of the internal recapitalization of the bank under resolution have borne the losses and contributed to the strengthening of own funds, through the exercise of the reduction or conversion powers set out in Article 169 and the application of the internal recapitalization measure, in an amount not less than 8% of the total liabilities, including own funds, of the bank, in accordance with the valuation carried out under Article 168;

b) The financial support to be provided by the Resolution Fund does not exceed 5% of the total liabilities, including own funds, of the bank.

The Resolution Fund may provide the financial support set out in paragraph 11 without complying with paragraph (a) of the preceding paragraph if the following situations are cumulatively verified:

a) The amount of losses borne by the holders of own funds instruments and of claims included within the scope of the internal recapitalization of the bank under resolution is not less than 20% of the total amount of risk positions;

b) The resources of the Resolution Fund resulting from the contributions set out in Articles 204 and 205 represent at least 3% of the deposits guaranteed by the Deposit Guarantee Fund, within the limit set out in Article 168, held with the institutions participating therein; and

c) The amount of the bank's assets is less than US$900,000,000 on a consolidated basis.

Exceptionally, the BCTL may seek to obtain alternative financial resources if the financial support provided by the Resolution Fund has reached the limit of 5% of total liabilities set out in paragraph 12(b) and all ordinary claims.

Article 181
Application and effects of the internal recapitalization measure

For the purposes of applying the powers set out in paragraphs 1 and 2 of the preceding Article, the BCTL determines, on an aggregate basis, based on the valuation set out in Article 168:

a) The amount of reduction of the nominal value of the claims included within the scope of the internal recapitalization to ensure that the own funds of the bank under resolution are equal to zero;

b) The amount of conversion of claims included within the scope of the internal recapitalization into share capital, through the issue of ordinary shares or instruments representing the share capital, to achieve a Common Equity Tier 1 capital ratio of the bank under resolution or of the bridge institution that enables it to maintain its licence to carry on its business for at least one year and to obtain funding autonomously and on sustainable terms in the financial markets.

The determination set out in paragraph (a) of the preceding paragraph takes into account the provisions of Article 176(7) and Article 178(10).
The BCTL applies the internal recapitalization measure in accordance with the ranking of claims in insolvency, and the nominal value of a class of claims may not be reduced, or a class of claims converted into share capital, until those powers have been exercised in relation to the classes of claims ranking lower in accordance with that ranking.
In applying the powers set out in paragraphs 1 and 2 of the preceding Article, the provisions of Article 170 apply, with the necessary adaptations.

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The powers set out in paragraphs 1 and 2 of the preceding Article may only be applied to a claim against the bank arising from a derivative financial instrument after its liquidation.
The BCTL may determine the maturity and respective liquidation of any derivative financial instrument with a view to applying the powers set out in paragraphs 1 and 2 of the preceding Article.
If the derivative financial instruments are covered by a netting agreement, the BCTL or the independent entity designated under Article 168 determines the claim resulting from the liquidation of those instruments in accordance with the clauses of the respective agreement.
The BCTL determines the value of claims arising from derivative financial instruments in accordance with:

a) Methodologies appropriate for determining the value of the categories of derivative financial instruments, in particular in cases where these instruments are covered by a netting agreement;

b) Principles for determining the relevant time at which the value of a position on derivative financial instruments should be established; and

c) Methodologies appropriate for comparing the loss of value that would result from the liquidation of the derivative financial instruments and the application of the powers set out in paragraphs 1 and 2 of the preceding Article to those instruments with the amount of losses that those instruments would suffer as a result of the application of the internal recapitalization measure.

After the application of the powers set out in paragraphs 1 and 2 of Article 180, the part of the claims included within the scope of the internal recapitalization that has been reduced under those powers is extinguished, and their payment or any other outstanding obligations related thereto cease to be enforceable.
The amount corresponding to the claim included within the scope of the internal recapitalization that has not been reduced under paragraphs 1 and 2 of Article 180 remains outstanding under the applicable contractual terms, without prejudice to any change in the amount of interest due and any other change in conditions that the BCTL may determine under Article 184(1)(j).

Article 182
Business reorganization plan

In the case of application of the powers set out in Article 180(1), the management body of the bank under resolution shall prepare and submit to the BCTL, within 30 business days from the application of the measure, a business reorganization plan including the following elements:

a) A detailed diagnosis of the factors, circumstances and problems that led the bank under resolution to the risk or situation of insolvency;

b) A description of the measures intended to restore the long-term viability of the bank under resolution or of part of its business within an appropriate timeframe, which may include:

i. The reorganization of its activities;

ii. Changes to its operating systems and internal infrastructures;

iii. The cessation of loss-making activities;

iv. The restructuring of existing activities that can be made competitive;

v. The disposal of assets or business lines.

c) The timetable for the implementation of those measures.

The business reorganization plan shall be based on realistic assumptions as to the economic and financial market conditions in which the bank will carry on its business and shall take into account, in particular, the current situation and future prospects of the financial markets under more optimistic and more pessimistic assumptions, including a combination of events that make it possible to identify the main vulnerabilities of the bank under resolution, which must be compared with appropriate sectoral benchmarks.
The BCTL shall approve the business reorganization plan within 30 business days from the date of receipt thereof, if it concludes that the measures provided for therein will make it possible to restore the long-term viability of the bank.
If the BCTL, under the preceding paragraph, considers that the business reorganization plan does not make it possible to restore the long-term viability of the bank, it shall notify the respective management body of the problems detected and require the submission, within 15 business days, of a new plan that addresses those problems.
The BCTL shall decide, within seven business days, whether the measures provided for in the new business reorganization plan make it possible to resolve the problems detected under the preceding paragraph.
The management body of the bank shall implement the approved business reorganization plan and submit to the BCTL, every 180 business days, a report on the progress achieved in its implementation.
The management body of the bank shall review the reorganization plan whenever the BCTL considers this necessary to achieve the long-term viability of the bank, following the provisions of paragraphs 5 and 6.

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Article 183
Financing of resolution measures

For the purposes of applying the resolution measures set out in Article 165(1), the BCTL may determine that the Resolution Fund, in compliance with the purposes set out in Article 163(1) and in accordance with the principles set out in Article 164(1), shall make available the necessary financial support for the following purposes:

a) To guarantee the assets or liabilities of the bank under resolution, of its subsidiaries, of a bridge institution or of an asset management vehicle;

b) To grant loans to the bank under resolution, to its subsidiaries, to a bridge institution or to an asset management vehicle;

c) To acquire assets of the bank under resolution;

d) To subscribe and pay up, in whole or in part, the share capital of a bridge institution and of an asset management vehicle;

e) To replace certain eligible claims or classes of eligible claims that have been excluded within the scope of the application of the internal recapitalization measure under Article 180(9);

f) To pay compensation to shareholders, creditors of the bank under resolution or the Deposit Guarantee Fund, under Article 168(16).

The resources of the Resolution Fund may also be used for the purposes referred to in the preceding paragraph in respect of the acquirer in the context of the resolution measure set out in Article 172.
Without prejudice to paragraph 1(e), the resources of the Resolution Fund may not be used in such a way as to recapitalize or directly bear the losses of the bank under resolution.
If the use of the Resolution Fund for the purposes of paragraphs 1 and 2 gives rise, indirectly, to the transfer of part of the losses of the bank under resolution to the Resolution Fund, the provisions of Article 180(11) to (13) shall apply.

CHAPTER IV
RESOLUTION POWERS

Article 184
Resolution powers

To the extent necessary to ensure the effectiveness of the application of a resolution measure, as well as to ensure the pursuit of the purposes set out in Article 163(1), the BCTL may exercise, in particular, the following resolution powers:

a) Temporarily exempt the bank under resolution from compliance with prudential rules for a maximum period of one year, extendable up to a maximum of two years;

b) Suspend, taking into account their impact on the functioning of the financial markets, payment or delivery obligations under the terms of a contract to which the bank under resolution is a party, from the moment of publication set out in Article 190(4)(a) until the end of the business day following that publication, with the payment and delivery obligations of the counterparties under that contract being suspended for the same period;

c) Restrict, taking into account their impact on the functioning of the financial markets, the ability of creditors benefiting from security in rem of the bank under resolution to enforce their security, from the moment of publication set out in Article 190(4)(a) until the end of the business day following that publication;

d) Suspend, taking into account their impact on the functioning of the financial markets, the rights of early termination, resolution, denunciation, opposition to renewal or change of conditions of a party in contracts entered into with the bank under resolution, between the moment of publication set out in Article 190(4)(a) and the end of the business day following that publication, provided that the payment and delivery obligations and the provision of security continue to be fulfilled;

e) Suspend, taking into account their impact on the functioning of the financial markets, the rights of early termination, resolution, denunciation, opposition to renewal or change of conditions of a party in contracts entered into with a subsidiary of the bank under resolution, between the moment of publication set out in Article 190(4)(a) and the end of the business day following that publication, provided that the payment and delivery obligations and the provision of security continue to be fulfilled, where:

i. The reorganization of its activities;

ii. The obligations provided for in that contract are guaranteed, fulfilled or otherwise secured by the bank under resolution;

iii. The rights of early termination, resolution, denunciation, opposition to renewal or change of conditions provided for in that contract are based on the financial situation or, in the case of contracts governed by foreign law, the entry into liquidation of the bank under resolution; and

iv. Rights, obligations, ownership of shares or other instruments representing the share capital of the bank under resolution have been transferred.

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resolution, all rights and obligations of the branch relating to that contract have been or may be transferred to and assumed by the transferee, or the BCTL otherwise provides adequate protection for the obligations provided for in the contract. f) Temporarily close branches and other facilities of the bank subject to resolution where transactions with the public take place, for a maximum period of one year, extendable up to a maximum of two years; g) Determine, at any time, that any persons and entities provide, within the reasonable period that it sets, all clarifications, information and documents, regardless of the nature of their medium, and carry out inspections of the establishments of a bank subject to resolution, examine the books on site and extract copies and transcripts of all relevant documentation; h) Exercise, directly or through persons appointed for that purpose by the BCTL, the rights and powers conferred on the holders of shares or other instruments representing the share capital and on the respective management body and administer or dispose of the assets and patrimony of the bank subject to resolution; i) Require a bank subject to resolution to issue new shares and other instruments representing the share capital; j) Modify:
i. The maturity date of debt instruments and other credits included within the scope of internal recapitalization issued by the bank subject to resolution;
ii. The amount or maturity date of interest due under the instruments and other credits included within the scope of internal recapitalization issued by the bank subject to resolution, namely through the temporary suspension of payments, with the exception of credits benefiting from security in rem provided for in paragraph 6 of Article 180;
k) Liquidate and extinguish financial contracts or derivative contracts for the purposes of applying paragraphs 5 to 8 of Article 181; l) Ensure, without prejudice to the provisions of Article 186 and the rights to compensation under the provisions of this Chapter, that a transfer of rights and obligations, which constitute assets, liabilities, off-balance sheet items and assets under management, and a transfer of ownership of shares or other instruments representing the share capital takes effect without any liability or charge on them; m) Extinguish rights to subscribe for or acquire new shares or other instruments representing the share capital; n) Set aside the application or modify the terms and conditions of a contract to which the bank subject to resolution is a party or transfer to a third party the contractual position of the transferee, to which rights, obligations, shares or other instruments representing the share capital of the bank subject to resolution have been transferred, without the need to obtain the consent of the other contracting party; o) Require the transferee to which rights, obligations, shares or other instruments representing the share capital of the bank subject to resolution have been transferred to provide it with all assistance, clarifications, information and documents, regardless of the nature of their medium, related to the transferred activity.
2. The exercise of resolution powers by the BCTL does not depend on the consent of the shareholders or holders of other instruments representing the share capital of the bank subject to resolution, of the parties to contracts related to its rights and obligations, or of any third parties, and cannot constitute grounds for the exercise of rights of early termination, resolution, denunciation, opposition to renewal or alteration of conditions stipulated in the contracts in question.
3. The exercise of resolution powers does not prejudice the exercise of the rights of the parties in contracts entered into with the bank subject to resolution on the basis of an act or omission by it prior to the transfer, or by the transferee to which rights, obligations, shares or other instruments representing the share capital of the bank subject to resolution have been transferred.

CHAPTER V
SAFEGUARDS
Article 185
Covered bonds and structured financing contracts

Without prejudice to the provisions of Article 184, in cases where the BCTL partially transfers the rights and obligations of a bank subject to resolution, a bridge institution or an asset management vehicle to another entity, or in cases where the BCTL exercises the powers provided for in paragraph 1(o) of Article 184, the BCTL may not:
a) Partially transfer the rights and obligations arising from covered bonds and structured financing contracts to which the bank subject to resolution is a party and which involve the constitution of collateral by a party to the contract or by a third party, including securitization and risk-hedging operations that are an integral part of the cover pool and that are secured by assets that fully cover, until the

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maturity of the obligations, the commitments arising therefrom and that are assigned by privilege to the repayment of capital and the payment of interest due in the event of default; b) Modify or extinguish the rights and obligations arising from the obligations and contracts mentioned in the preceding subparagraph.
2. When necessary to ensure the availability of deposits guaranteed by the Deposit Guarantee Fund, the BCTL may:
a) Transfer the deposits guaranteed by the Deposit Guarantee Fund that are an integral part of the obligations and contracts mentioned in paragraph 1(a) without transferring other rights and obligations arising therefrom; and b) Transfer, modify or extinguish the rights and obligations arising from the obligations and contracts mentioned in paragraph 1(a) without transferring the deposits guaranteed by the Deposit Guarantee Fund.

Article 186
Financial collateral contracts, netting agreements and netting and novation agreements (netting agreements)

Without prejudice to the provisions of Article 184, in cases where the BCTL partially transfers the rights and obligations of a bank subject to resolution, a bridge institution or an asset management vehicle to another entity, or in cases where the BCTL exercises the powers provided for in paragraph 1(o) of Article 184, the BCTL may not:
a) Partially transfer the rights and obligations arising from a financial collateral contract, a netting agreement or a netting and novation agreement (netting agreements); b) Modify or extinguish the rights and obligations arising from the contracts and agreements mentioned in the preceding subparagraph.
For the purposes of this Article, the provisions of paragraph 2 of Article 185 apply, with the necessary adaptations.

Article 187
Security in rem for obligations

Without prejudice to the provisions of Article 184, in cases where the BCTL partially transfers the rights and obligations of a bank subject to resolution, a bridge institution or an asset management vehicle to another entity, or in cases where the BCTL exercises the powers provided for in paragraph 1(o) of Article 184, the BCTL may not:
a) Transfer the assets given as collateral, unless the obligations in question and the rights conferred by the collateral are also transferred; b) Transfer secured obligations, unless the rights conferred by the collateral are also transferred; c) Transfer the rights conferred by the collateral, unless the obligation in question is also transferred; d) Modify or extinguish a contract under which collateral has been provided, where the effect of that modification or extinction is the extinction of that collateral.
The provisions of the preceding paragraph apply to contracts under which security in rem for obligations has been provided, regardless of whether such collateral covers specific assets or rights or constitutes floating charges or similar mechanisms.
For the purposes of this Article, the provisions of paragraph 2 of Article 185 apply, with the necessary adaptations.

Article 188
Payment, clearing and settlement systems
The application by the BCTL of any resolution measure may not prejudice the provisions of the law and regulations relating to the finality of settlement in payment and financial instrument settlement systems, and in particular may not:
a) Revoke a transfer order from the moment of irrevocability defined in the rules applicable to that system; b) Annul, alter or in any way affect the execution of a transfer order or a clearing operation carried out within the framework of a system; c) Prejudice the use of funds or financial instruments existing in the settlement account or a credit line related to the system, by constituting collateral, to satisfy the obligations of the bank subject to resolution; d) Affect the collateral constituted within the framework of a system or an interoperable system.

CHAPTER VI
OTHER PROVISIONS
Article 189
General duties of banks subject to resolution
In the context of the application of resolution measures or the exercise of resolution powers, the bank subject to resolution:
a) Provides all clarifications, information and documents, regardless of the nature of their medium, requested by the BCTL; b) Provides the transferee, to which rights, obligations, shares or other instruments

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representing the share capital of the bank subject to resolution have been transferred, with all assistance, clarifications, information and documents, regardless of the nature of their medium, related to the transferred activity; c) Makes available access to any operational services and infrastructures, including information systems and facilities, that are necessary to enable the transferee to effectively carry out the transferred activity, even if the bank subject to resolution is in liquidation; d) Provides, against remuneration set by the BCTL taking into account market conditions, the services that the transferee considers necessary for the regular development of the transferred activity.

Article 190
Notifications, communications and disclosure of measures

Whenever the requirements provided for in Article 165(2)(a) and (b) are met in relation to a bank, the BCTL immediately notifies the following authorities, as applicable:
a) The Deposit Guarantee Fund and other deposit guarantee systems in which the bank participates, to the extent necessary to enable their intervention, and provided that the latter guarantee an adequate level of confidentiality in the access to and processing of information; b) The Resolution Fund, if the bank is a participant in the Fund and to the extent necessary to enable its intervention.
The BCTL's decision to apply a resolution measure is notified, as soon as possible, to the following entities, if different and where applicable:
a) The bank subject to resolution; b) The supervisory authority of the branches of the bank subject to resolution; c) The Deposit Guarantee Fund and other deposit guarantee systems in which the bank subject to resolution participates; d) The Resolution Fund.
The notification provided for in the preceding paragraph includes a copy of the BCTL's decision to apply a resolution measure and indicates the start of its effects.
The BCTL publishes the decision to apply a resolution measure or a notice summarizing that decision and its effects, in particular the effects for the customers of the bank subject to resolution and, if applicable, the terms and period of the suspension or restriction provided for in Article 184, or, as the case may be, requests its disclosure by the following means:
a) On the BCTL's website; b) On the website of the bank subject to resolution.
The BCTL's decision to apply a resolution measure takes effect from the date of publication provided for in subparagraph (a) of the preceding paragraph.

CHAPTER VII
LIQUIDATION
Article 191
Extrajudicial liquidation by insolvency

If, after the application of any resolution measure, the BCTL considers that the purposes provided for in Article 163(1) are not ensured and verifies that the bank does not meet the requirements for maintaining the license to carry out its activity and will become insolvent in the next 90 business days, it may:
a) Revoke the license of the bank that has been subject to the measure in question; b) Initiate the extrajudicial liquidation process by insolvency; and c) Appoint the special administrator, in accordance with the following articles, following the liquidation regime provided for in this law.
After the application of any resolution measure, a voluntary liquidation may also be decided by the shareholders of the bank, and a liquidation request must be submitted for approval by the BCTL, in which case the BCTL will carry out the due investigations into the bank's operations, and may approve the voluntary liquidation and appoint a special administrator under the terms and for the purposes of this Chapter.
On the date of appointment of the special administrator, all obligations of the bank subject to extrajudicial liquidation by insolvency are considered due, and from that date the calculation of any remunerative interest ceases, and obligations not yet due are adjusted to their present value, by applying the discount rate as defined by the BCTL.
The extrajudicial liquidation by insolvency of a bank must be completed within one year from the appointment of the special administrator.

Article 192
Special administrator

The special administrator is the person appointed by the BCTL to ensure the performance of the acts provided for in this law, within the scope and for the purposes of extrajudicial liquidation by insolvency of the bank whose license has been revoked, under the terms of the preceding article.
The special administrator must be a fit and

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qualified person, with professional experience adequate for the exercise of the activity, and may be from the private sector or an employee of the BCTL.
3. The functions of the special administrator are remunerated, under terms to be defined by regulation of the BCTL, including incentives for the fulfillment of the objectives defined in Article 194, as well as penalties for non-fulfillment of those objectives.
4. The special administrator may be dismissed for just cause by the BCTL.

Article 193
Notification and registration of extrajudicial liquidation

The special administrator must, within two business days after its appointment, post a notice at all branches or agencies of the bank subject to liquidation, announcing the start of the extrajudicial liquidation process by insolvency under the terms of this law.
The notice referred to in the preceding paragraph must inform about the measures to which the bank is subject, and must mandatorily mention:
a) The date of the start of extrajudicial liquidation, for all legal purposes; b) The cessation of the bank's capacity to assume commitments of financial responsibility, of payment or transfer of assets of the bank or managed by it; c) The revocation of the banking license.
The special administrator must also publish the notice referred to in this article in one or more newspapers of general circulation.
The publication referred to in the preceding paragraph is periodic, and must occur at least once a week for four weeks.
The special administrator makes the necessary registrations with competent authorities, and forwards copies thereof to the BCTL within two business days after the notification, publication and registration.

Article 194
Powers and responsibilities of the special administrator

The special administrator, appointed under the terms of Article 192, assumes all powers previously attributed to the directors and shareholders of the bank subject to extrajudicial liquidation by insolvency, notwithstanding the revocation of its license, exercising the powers of management and disposal of the bank's assets and property, under the terms provided for in this Chapter, with a view to maximizing the satisfaction of the rights of depositors and other creditors.
The powers of the bank's directors are suspended during the period of extrajudicial liquidation, unless they are specifically mandated by the special administrator to perform certain functions within the scope of the liquidation process, in which case their respective positions and remuneration rights automatically cease.
The special administrator must adopt, at all times, all measures appropriate to the protection of the bank's assets and property, preventing their dissipation by theft, unlawful or improper conduct, and may, in particular:
a) Revoke authorizations previously granted to persons to assume financial responsibilities on behalf of the bank; b) Issue new authorizations, when strictly necessary, to a restricted number of employees of recognized trustworthiness; and c) Notify interested third parties regarding the measures adopted.
The special administrator enjoys unrestricted access and full control over all facilities, documents, records and other assets of the bank, including holdings or assets held by its subsidiaries.
Without prejudice to the powers provided for in this Chapter, the special administrator benefits from the same rights, guarantees and privileges conferred on the bank's directors or employees, and is equally subject to the obligations, responsibilities, sanctions or limitations legally applicable to them.
After its appointment, the special administrator immediately promotes the preparation of a new balance sheet of the bank, based on the estimated liquidation values of the assets, deducted from the bank's obligations, in reverse order of payment priority, under the terms of Article 196.
After 15 days following its appointment, the special administrator may make available amounts considered adequate for withdrawal by depositors or for payment to other creditors, and must observe the principles of equal treatment among creditors and the provisions of Article 196(3)(d), namely ensuring that, before the general distribution or the assumption of obligations by another institution, creditors not covered by that subparagraph do not receive an amount greater than 50% of the value of their recognized claims, as determined by the special administrator.
Within a maximum period of 30 days after its appointment, the special administrator proceeds with the full inventory of the bank's assets and other property, sending a copy of the respective report to the BCTL, which will make it available for public consultation.
In the context of the exercise of its functions, the special administrator

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a) Continue operations, with the exception of taking deposits and granting credit to non-clients; b) Interrupt, suspend or close any operations of the bank; c) Borrow without security or, if this is not viable, encumber the bank's assets as security; d) Suspend or limit the performance of any obligations of the bank; e) Hire or dismiss directors, employees or consultants; f) Promote, directly or indirectly, the sale of the bank or its assets; and g) Carry out any legal acts necessary for the management of the liquidation, including entering into contracts and initiating or defending legal actions in its own name or on behalf of the bank.
10. The incorporation of the bank into another entity, as well as the sale of the majority of its assets, depends on prior written authorization from the BCTL.
11. The bank's assets that have not been sold by the conclusion of the extrajudicial liquidation are acquired by the Resolution Fund, upon valuation carried out by an independent entity, or donated to one or more legally recognized charitable institutions, which pursue purposes of promoting public health or training, and which have expressed interest in receiving them.
12. The bank's creditors shall not have the right to reversion, nor may they claim ownership or possession of the assets referred to in the previous number.
13. The special administrator may request the support of police authorities to access the bank's premises or its records and other assets, including through the use of force in accordance with the law, without requiring a judicial warrant for this purpose, without prejudice to situations in which the Constitution or the law require judicial authorization or order.
Article 195
Annulment of transfers prior to extrajudicial liquidation

The special administrator may bring a legal action to annul transactions carried out by the bank based on falsified or fraudulent documents, which have caused harm to creditors, provided that such transactions occurred within the five years prior to its appointment under Article 192.
The special administrator may also bring a legal action to annul acts that affect the bank's assets or to recover transfers to third parties carried out by the bank, namely:
a) Transfers for no consideration in favour of directors, significant shareholders or persons especially related to them, provided that such transactions occurred within the five years prior to its appointment; b) Transfers for no consideration in favour of third parties, provided that such transactions occurred within the three years prior to its appointment; c) Transactions carried out within the three years prior to its appointment, in which the consideration provided by the bank was manifestly greater than that received.
The annulment actions referred to in the previous numbers must be brought within a maximum period of one year after the date of appointment of the special administrator.
Without prejudice to the provisions of paragraph 2, the following may not be annulled:
a) Payments or transfers made by the bank in the normal course of its business; b) Payments or transfers made, within the periods provided above, as part of an exchange for a reasonably equivalent value; or c) Payments or transfers followed by the granting, by the beneficiary, of new unsecured loans to the bank, provided that such loans have not been repaid by the date of appointment of the special administrator.
The beneficiary of a transfer annulled under subparagraph c) of paragraph 2 must return to the special administrator the property or asset transferred or, if the property no longer exists, its value at the date of its transfer by the bank; however, the beneficiary who has returned to the special administrator the value of the property or asset transferred by the bank acquires a claim against the bank in the corresponding amount, provided that, at the date, it had paid the bank a reasonably equivalent consideration and accepted the transfer in good faith, without the intention of harming, delaying or defrauding the depositors or other creditors of the bank.
The special administrator may only recover the property or assets, or the respective amounts, that have been transferred by the bank to a subsequent transferee (second transferee), when the amount paid does not correspond to the fair value due by it, and the subsequent transferee had, or could reasonably be expected to have, knowledge that the initial transfer was susceptible to annulment under this article.
The special administrator may request, from a public registry

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8. Any person who, after the registration of the notice referred to in the previous number, acquires property rights, security interests or participation over the property in question, is subject to the bank's rights to recover it.
Article 196
Ranking and payment of claims
1. Without prejudice to the provisions of this article, the procedures relating to the verification and ranking of claims, the liquidation of the bank's assets and the return of property belonging to clients shall be defined in a BCTL regulation, and the sale of assets must be carried out transparently and in accordance with market practices, through one or more methods of auction or negotiation.
2. In the context of the liquidation of the bank's assets, previously recognized secured claims shall be paid up to the limit of the proceeds obtained from the realization of the security, or, alternatively, the security shall be returned to the respective creditor.
3. The proceeds from the liquidation of the bank's assets shall be allocated to the payment of other recognized claims, in accordance with the following order of priority:
a) Necessary and reasonable expenses incurred by the special administrator and the BCTL, including professional fees and other costs borne by the BCTL, under Articles 191 to 198; b) Labour claims, due up to the date of appointment of the special administrator, up to the limit of six monthly minimum wages per employee; c) Claims of the State relating to taxes and mandatory contributions due up to the date of closure of the liquidation, provided they are timely claimed; d) Bank deposits of each depositor, up to the limit corresponding to 10 average monthly wages, calculated in accordance with applicable regulations, and without prejudice to the protection conferred by the Deposit Guarantee Fund; e) The amount that ceased to be paid on deposits, under subparagraph d); f) Subordinated claims, under applicable legislation; g) Claims of shareholders.
4. When the available amount is not sufficient to fully satisfy all claims of a certain category, payment shall be made pro rata among the respective holders.
5. After full satisfaction of claims duly claimed within the period set in a BCTL regulation, any unclaimed claims may be paid, if available assets remain.
6. Once payment to all creditors is completed, any remainder from the liquidation shall be distributed to the shareholders, in accordance with their respective rights and shareholdings in the bank's share capital.
Article 197
Reports and closure of liquidation
1. The special administrator shall submit to the BCTL, on a monthly basis, reports on the progress of the liquidation process, which must include:
a) Updated financial statements of the bank; b) Statement of sources and applications of funds; c) Information regarding the progress of efforts to sell the bank or its assets; and d) Projections regarding the payment of the bank's obligations.
2. Once the distribution of the proceeds from the liquidation of the bank's assets is completed, under the previous article, the special administrator shall submit to the BCTL a final report, which must include:
a) The statement of revenues and expenses incurred during the liquidation period; b) The statement of sources and applications of funds; and c) Any other information relevant to the conclusion of the liquidation process.
3. After approval of the final report by the BCTL, the special administrator shall promote the registration of the closure of the liquidation with the competent entity, and from that moment its functions shall cease, as well as the BCTL's intervention in the context of the extrajudicial liquidation process of the bank.
Article 198
Complementary provisions
1. The remuneration of professionals appointed to represent or advise the special administrator or the BCTL in the context of a liquidation process may not exceed the remuneration habitually paid by banks to employees or agents providing equivalent services, although the BCTL may exceptionally authorize the payment of higher remuneration, provided it considers such measure indispensable to ensure the hiring of the necessary professionals.
2. The BCTL may authorize the granting of indemnities to the special administrator and its agents for acts performed in the exercise of their functions, under the terms it considers appropriate.

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3. It is prohibited for the landlord of the bank's premises, as well as for public utility companies or other providers of essential services – including the supply of electricity, gas, water or telecommunications services – to suspend, refuse or alter the supply of such services due to the commencement of the liquidation process or the non-payment of invoices prior to it, with the caveat that, upon request of the landlord or the service provider, the bank may be required to constitute a security deposit with another bank, as a condition for the continuity of the supply of services during the liquidation process, provided that the amount of the deposit required does not exceed the cost of services supplied to the bank in the month immediately preceding the date of commencement of the liquidation.
4. All claims or complaints arising from the insolvency or extrajudicial liquidation of a bank, or related thereto, filed against the special administrator or the BCTL, shall be examined and decided in accordance with applicable legislation, with final effect.
5. No appeal is admissible against acts performed by the special administrator or the BCTL in the context of the liquidation process, except in the case of challenge to the appointment of the special administrator by shareholders of the bank holding, at the date of appointment, a minimum participation of 10% of the share capital, with voting rights.
6. Any legal action related to the insolvency or extrajudicial liquidation of a bank, brought against a director of the bank, against the special administrator or against the BCTL, falls within the jurisdiction of the judicial courts of Timor-Leste.
PART VII
RESOLUTION FUND
Article 199
Nature of the Resolution Fund
1. The Resolution Fund, hereinafter referred to as the Fund, is a legal person under public law, endowed with administrative and financial autonomy and its own assets.
2. The Fund has its seat in Dili and operates alongside the BCTL.
3. The Fund is governed by this law and applicable regulations.
Article 200
Purpose of the Resolution Fund
The Fund's purpose is to provide financial support for the application of resolution measures adopted by the BCTL, under the provisions of Article 184, and to perform all other functions conferred on it by law in the context of the execution of such measures.
Article 201
Participating institutions
The following participate mandatorily in the Fund:
a) Banks headquartered in Timor-Leste; b) Branches in Timor-Leste of banks headquartered abroad, unless they contribute to an identical or similar entity, as evidenced by documentation to be submitted to the BCTL.
Article 202
Directive committee of the Resolution Fund
1. The Resolution Fund is managed by a directive committee, whose composition and appointment are defined by the BCTL.
2. Decisions of the directive committee are taken by majority vote of the members present at meetings, with the president having a casting vote.
3. The Fund is bound by the signature of two members of the directive committee.
4. The members of the directive committee serve for terms of three years, renewable up to a maximum of four terms, and may accumulate their functions with any other public or private functions, provided they are authorized to do so in the appointment act.
5. The exercise of the functions provided for in this article is unpaid.
6. Other entities whose presence is considered necessary may participate in the meetings of the directive committee, without voting rights, upon convocation by the president.
7. The Fund also has an advisory council to support the directive committee, with consultancy and advisory functions for that body.
8. The advisory council is composed of representatives of the participating institutions in the Fund provided for in the previous article.
9. The exercise of the functions of the members of the advisory council is unpaid.
10. The organization and operation of the advisory council are set out in a BCTL regulation.
Article 203
Financial resources of the Resolution Fund
1. The Fund has the following resources:
a) Revenues from the contribution on the banking sector; b) Initial contributions from participating institutions; c) Periodic contributions from participating institutions;

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2. The Fund's financial resources must have as a minimum level the amount corresponding to 1% of the value resulting from the sum of the amount of deposits guaranteed by the Fund, within the limit provided for in Article 231, of all banks licensed in Timor-Leste.
3. If, after reaching the minimum level provided for in the previous number, the Fund's financial resources become less than two thirds of that minimum level, the BCTL shall set the amount of periodic contributions so as to reach the said minimum level within a period of six years.
4. The Fund may borrow or obtain other forms of support from participating institutions, financial institutions or third parties if the contributions collected under the following article and Article 205 are not sufficient to fulfil its obligations and to cover losses, costs or other expenses arising from the use of financing mechanisms and the contributions provided for in Article 206 are not immediately accessible or are not sufficient.
5. The loans provided for in subparagraph d) of paragraph 1 may not be granted by the BCTL.
6. The Fund, whenever it requests a loan and whenever it decides to grant a loan, agrees the interest rate, repayment period and other conditions thereof with the other resolution financing mechanisms involved.
7. Loans granted by the Fund under the provisions of the previous number are treated as an asset of the Fund and may be counted towards its minimum level.
8. Resources from the contributions referred to in subparagraphs b) and c) of paragraph 1 may only be used for the purposes provided for in paragraph 1 of Article 183, to repay loans contracted by the Fund for those purposes or to grant loans to other financing mechanisms under the provisions of paragraph 6.
Article 204
Initial contributions from banks
1. Within 30 business days from the registration of the commencement of their activity, participating institutions shall pay to the Fund an initial contribution whose value is set by BCTL notice, upon a proposal from the directive committee of the Fund.
2. The initial contribution is based on the amount of accounting own funds existing at the time of their constitution.
3. Institutions resulting from merger, demerger or transformation operations of participants in the Fund and bridge institutions are exempt from the initial contribution.
Article 205
Periodic contributions from participating institutions
1. Participating institutions shall pay to the Fund periodic contributions to be set by the BCTL under applicable legislation.
2. The value of the periodic contribution of each participating institution is proportional to the amount of that institution's liabilities, excluding own funds, deducted from deposits guaranteed by the Fund, within the limit provided for in Article 231, in relation to those values calculated for the set of participating institutions.
3. The value of the periodic contribution is adjusted in proportion to the risk profile of the participating institution and takes into account the phase of the economic cycle and the potential impact of pro-cyclical contributions on the institution's financial situation.
4. The BCTL, upon a proposal from the Fund, shall set a contribution rate applicable to the base of incidence provided for in paragraph 2 that allows reaching the minimum level established in paragraph 2 of Article 203 and that makes it possible to reach the amount that the BCTL considers adequate at each moment to ensure that the Fund is able to fulfil its obligations and purposes.
5. Up to the limit of 30% of periodic contributions, participating institutions may be exempted from making the respective payment within the due period provided they assume an irrevocable payment commitment to the Fund, guaranteed by a financial pledge in favour of the Fund over low-risk assets at its free disposal and not encumbered by third-party rights, at any time the Fund requests, of part or all of the amount of the contribution that has not been paid in cash.
6. The value of irrevocable payment commitments referred to in the previous number may not exceed 30% of the total amount of financial resources available at each moment in the Fund.
Article 206
Complementary financial resources of the Resolution Fund
1. If the Fund's resources prove insufficient to fulfil its obligations, the BCTL may determine, by regulation, that participating institutions make special contributions, defining the amounts, instalments, deadlines and other terms of such contributions, in accordance with the provisions of the following numbers.
2. Special contributions are apportioned among the participating

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3. The provisions of paragraph 8 of Article 203 apply to the special contributions defined in this article.
4. The BCTL may suspend, partially or totally, for a period not exceeding 180 business days, extendable at the request of the institution concerned, the obligation to pay special contributions by a participating institution, if such payment compromises the liquidity or solvency of that institution.
5. In the cases provided for in the previous number, as soon as the payment of the special contribution does not compromise the liquidity or solvency of the participating institution whose obligation was suspended, the BCTL shall determine the end of that suspension and require that the suspended special contributions be paid immediately.
Article 207
Exceptional financial support from the State
1. To the resources provided for in the previous article there may also be added, exceptionally, the provision of financial support from the State to the Fund, namely in the form of loans or the provision of guarantees.
2. Without prejudice to the provisions of the previous number, the State has no obligation to provide exceptional financial support to the Fund, nor any responsibility for financing the application of resolution measures.
Article 208
Other financing mechanisms
By BCTL regulation it may be determined that participating institutions provide guarantees, personal or real, necessary to enable loans to be contracted by the Fund.
Article 209
Availability of resources
1. The Fund shall make available the resources determined by the BCTL for the purposes of applying resolution measures.
2. The resources made available under the provisions of the previous number that are not used for the realization of the share capital of the bridge institution confer on the Fund a claim against the bank subject to resolution, against the bridge institution, against the asset management vehicle or against the acquiring institution, as the case may be, in the amount corresponding to those resources.
Article 210
Application of resources of the Resolution Fund The Fund shall apply the available resources in financial operations, through an investment plan agreed with the BCTL.
Article 211
Expenses
The following constitute expenses of the Fund:
a) Amounts payable in the context of financial support for the application of resolution measures by the BCTL; b) Administrative and operational expenses arising from the application of resolution measures.
Article 212
Services of the Resolution Fund
The BCTL shall ensure the technical and administrative services indispensable for the proper functioning of the fund.
Article 213
Financial year of the Resolution Fund
The financial years of the Fund correspond to the calendar year.
Article 214
Chart of accounts of the Resolution Fund
The Fund's chart of accounts shall be organized in such a way as to allow clear identification of its asset structure and its operation and to record all operations carried out.
Article 215
Supervision of the Resolution Fund
The Audit Council of the BCTL shall monitor the activity of the Fund, ensure compliance with laws and regulations and issue an opinion on the annual accounts.
Article 216
Report and accounts of the Resolution Fund
By 31 March of each year, the Fund shall present to the BCTL for approval the report and accounts referring to 31 December of the previous year.
Article 217
Regulation of the Resolution Fund
The BCTL shall approve, by regulation and upon a proposal from the directive committee, the rules necessary for the operation and activity of the Fund.
PART VIII
DEPOSIT GUARANTEE FUND
Article 218
Nature of the Deposit Guarantee Fund
1. The Deposit Guarantee Fund, hereinafter referred to as the Fund, is a fund without legal personality, to which the regime of extended financial autonomy applies.
2. The Fund has its seat in Dili and operates alongside the BCTL.

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3. The Fund is governed by this regime and by applicable regulations.
Article 219
Purpose
1. The Fund's objective is to guarantee the reimbursement of deposits held in participating banks.
2. For the purposes of this title, deposits include funds represented by deposit certificates issued by banks, but not those represented by other debt securities issued by the same institution, nor liabilities arising from own acceptances or promissory notes in circulation.
Article 220
Participating institutions
1. The following are mandatory participants in the Fund:
a) Banks headquartered in Timor-Leste licensed to receive deposits, including branches in Timor-Leste of banks headquartered abroad; b) Branches in Timor-Leste of banks headquartered abroad, in respect of deposits collected in Timor-Leste, unless those deposits are covered by a guarantee system of the country of origin on terms that BCTL considers equivalent to those provided by the Fund, particularly regarding the scope of coverage and the guarantee limit, and without prejudice to existing bilateral agreements on the matter.
2. The Deposit Guarantee Fund cooperates with other bodies or institutions performing functions analogous to its own in the field of deposit guarantee, particularly regarding the guarantee of deposits collected in Timor-Leste by branches of banks headquartered in other States or collected in other States by branches of banks headquartered in Timor-Leste.
3. If a bank ceases to be a participant in the Fund, it must, within 30 business days from the moment of cessation of participation, inform its depositors of that fact.
Article 221
Duty to inform
1. Banks that collect deposits in Timor-Leste must provide the public, in an easily understandable manner, with all relevant information regarding the guarantee systems benefiting the deposits they receive, namely their identification and provisions, as well as their amounts, scope of coverage and maximum reimbursement period.
2. Banks must likewise inform their depositors whenever deposits are excluded from the guarantee.
3. The information must be available at branches, in a well-identified and directly accessible location, and must be provided to depositors before entering into the deposit contract.
4. The information referred to in paragraph 1 is made available in one of the official languages, whenever the client falls within the concept of consumer provided for in consumer protection legislation.
5. Depositors must confirm receipt of the information provided in compliance with paragraph 1, by completing the information form to be made available by BCTL.
6. Banks must confirm to depositors that the contracted deposits are deposits guaranteed by the Fund by including in account statements a reference to the information form referred to in the previous paragraph, and that form must be provided to the depositor at least once a year.
7. Advertising carried out by banks for their deposits may only include, with regard to the information referred to in paragraphs 1 and 2, a factual reference to the fact that the Fund guarantees them and to its operation, and may not, in particular, refer to unlimited coverage of deposits.
8. At the request of the interested party, the entities referred to in paragraph 1 must provide information on the conditions on which reimbursement under the deposit guarantee depends and on the formalities necessary to obtain it.
9. Banks must communicate to BCTL the terms and conditions of deposits collected from the public that fall within the scope of coverage of the Fund.
10. BCTL shall define, by regulation, the elements, manner and frequency of the communication provided for in the previous paragraph.
11. In the event of a merger, conversion of branches into subsidiaries or similar operations, the banks concerned must notify their depositors of that operation at least 30 business days before the date on which the operation takes effect, unless BCTL authorizes a shorter period for reasons of commercial secrecy or financial stability.
12. In the situation provided for in the previous paragraph, depositors of the banks concerned have a period of 90 business days, counted from the notification referred to in the previous paragraph, to redeem or transfer to another bank, without any penalty, the amount of their deposits guaranteed by the Fund, including all accrued interest and acquired benefits, that as a result of that operation exceeds the limit provided for in paragraph 1 of Article 231.
13. If a depositor uses homebanking services, the information that must be provided under this article may be communicated electronically, unless the depositor requests that it be communicated on paper.

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14. Branches whose deposits are covered by a deposit guarantee system of the country of origin on terms that BCTL considers equivalent to those provided by the Fund shall provide their depositors with the information referred to in paragraph 1, in an official language, or in the language agreed between the depositor and the bank at the time of opening the deposit account.
Article 222
Directive committee
1. The Deposit Guarantee Fund is managed by a directive committee, whose composition and appointment are defined by BCTL, including, mandatorily, a member appointed by the participating banks.
2. Decisions of the directive committee are taken by majority vote of the members present at meetings, with the president having a casting vote.
3. The Fund is bound by the signature of two members of the directive committee.
4. Members of the directive committee serve renewable three-year terms and may combine their functions with any other public or private functions, provided they are authorized to do so in the appointment act.
5. Other entities whose presence is considered necessary may participate in meetings of the directive committee, without voting rights, upon convocation by the president.
6. Members of the directive committee are entitled to an attendance fee for each meeting, the amount of which shall be equivalent to the amount established for non-executive positions in large financial institutions, to be set by the board of directors, upon a proposal from the Governor of BCTL.
Article 223
Services
BCTL shall ensure the technical and administrative services necessary for the proper functioning of the Fund.
Article 224
Financial resources
1. The Fund has the following resources:
a) Initial contributions from participating banks; b) Periodic contributions from participating banks; c) Income from the investment of resources; d) Donations; e) Any other income, earnings or amounts arising from its activity or assigned to it by law or contract, including the proceeds of fines applied to banks.
2. The Fund's financial resources must have as a minimum level the amount corresponding to 0.8% of the value of deposits guaranteed by the Fund, within the limit provided for in Article 231, of all participating banks.
3. If, after the minimum level provided for in the previous paragraph is reached, the Fund's financial resources fall below two thirds of that minimum level, BCTL shall set the amount of periodic contributions so as to reach that minimum level.
Article 225
Initial contributions
1. Within 30 business days from registration of the commencement of their activity, participating banks shall deliver to the Fund an initial contribution the amount of which shall be set by BCTL, upon a proposal from the Fund.
2. Banks resulting from merger, demerger or transformation operations of participants in the Fund and transition entities are exempt from the initial contribution.
Article 226
Periodic contributions
1. Participating banks shall deliver to the Fund, by the last day of April, a periodic contribution.
2. The amount of each bank's periodic contribution is defined based on the average value of monthly deposit balances of the previous year guaranteed by the Fund, within the limit provided for in Article 231, and on the bank's risk profile.
3. BCTL shall set, after hearing the Fund and the participating banks, the concrete method for calculating periodic contributions.
4. Up to a limit of 75% of periodic contributions, participating banks may be exempted from making the respective payment within the period established in paragraph 1, provided they assume an irrevocable payment commitment to the Fund, guaranteed by a financial pledge in favor of the Fund over low-risk assets available to it and not encumbered by third-party rights, at any time the Fund requests it, of part or all of the amount of the contribution not paid in cash.
Article 227
Complementary financial resources
1. Whenever the Fund's resources prove insufficient to meet its obligations, the following financing means may be used:
a) Special contributions from banks; b) Amounts from loans.
2. The resources provided for in the previous paragraph may further be supplemented by:

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3. BCTL shall determine, by regulation, the amounts, installments, periods and other terms of the special contributions referred to in subparagraph a) of paragraph 1.
4. The total amount of a bank's special contributions may not exceed, in each financial year of the Fund, three times the amount of its annual contribution.
5. BCTL may suspend, partially or totally, for a period not exceeding 180 business days, extendable at the request of the bank concerned, the obligation to pay special contributions by a participating bank, if that payment materially compromises the liquidity or solvency situation of that institution.
6. In the cases provided for in the previous paragraph, as soon as payment of the special contribution no longer materially compromises the liquidity or solvency situation of the participating bank whose obligation was suspended, BCTL shall determine the end of that suspension and require that the suspended special contributions be paid immediately.
Article 228
Application of resources
The Fund shall invest available resources in low-risk financial operations and in a sufficiently diversified manner, through an investment plan agreed with BCTL.
Article 229
Guaranteed deposits
The Fund guarantees, up to the limits provided for in Article 231, the reimbursement of:
a) Deposits held in Timor-Leste; b) Deposits held in Timor-Leste with branches referred to in subparagraph b) of paragraph 1 of Article 220.
Article 230
Deposits excluded from the guarantee
The following are excluded from the reimbursement guarantee:
a) Deposits held in the name and on behalf of financial institutions, including investment funds, pension funds and other collective investment bodies, national and foreign public administrative sector entities and supranational or international bodies; b) Deposits arising from operations in respect of which a final criminal conviction has been handed down for the practice of money laundering acts; c) Deposits held by persons and entities that, in the bank concerned or in other companies of the same group or holding a controlling interest over it, have held a qualifying holding in the share capital or have been members of its management and supervisory bodies, accountants in service or external auditors; d) Deposits held by spouses, relatives or relatives by affinity in the first degree of the depositors referred to in the previous subparagraph or by persons acting on their behalf; e) Deposits held by companies of the same group or holding a controlling interest in the institution; f) Deposits for which the depositor, individually, unjustifiably obtained from the bank concerned rates or other financial concessions that contributed to worsening its financial situation.
Article 231
Guarantee limits
1. The Fund guarantees reimbursement, per bank, of the total amount of cash balances of each deposit holder, up to the limit of US$ 100,000.
2. For the purposes of paragraph 1, the balances existing on the date on which the unavailability of deposits occurs shall be considered.
3. The amount referred to in paragraph 1 is determined in accordance with the following criteria:
a) The set of deposit accounts held by the interested party at the bank concerned shall be considered, regardless of their type; b) Accrued but unpaid interest on deposits shall be included in deposit balances, counted up to the date referred to in paragraph 2; c) Deposit balances expressed in foreign currency shall be converted into US dollars, at the exchange rate of the same date and published by BCTL; d) In the absence of a provision to the contrary, the balances of collective, joint or joint and several accounts shall be presumed to belong in equal parts to the holders; e) If the account holder is not the holder of the right to the deposited amounts and the latter has been, or can be, identified before the unavailability of deposits occurs, the guarantee covers the holder of the right; f) If the right has several holders, the part attributable to each of them, under the rule in subparagraph d), is guaranteed up to the limit provided for in paragraph 1; g) Deposits in an account to which several persons have access as members of an association or of a special committee lacking legal personality are aggregated as if they had been made by a single depositor and do not count for the purposes of calculating the limit provided for in paragraph 1 applicable to each of those persons.
Article 232
Effectuation of reimbursement
1. Reimbursement must take place within a maximum period of six months from the date on which the unavailability of deposits occurs and does not depend on the submission of a request by depositors to the Fund for that purpose; two extensions may be requested by the Fund from BCTL and authorized by it, each not exceeding three months.
2. Without prejudice to the limitation period established by law, the expiry of the period provided for in the previous paragraph does not prejudice depositors' right to claim from the Fund the amount owed to them by it.
3. If the holder of the account or of the right to the deposited amounts has been accused of the practice of money laundering or terrorist financing acts, the Fund shall suspend reimbursement of what is owed to them until the final judgment becomes final.
4. Deposits are considered unavailable when:
a) The depository institution, for reasons directly related to its financial situation, has not effected the respective reimbursement under the applicable legal and contractual conditions and BCTL has verified, within a maximum period of 30 business days after becoming aware of that occurrence, that the institution does not show that it is able to return the deposits at that moment nor has prospects of doing so in the coming days; b) BCTL makes public the decision by which it revokes the license of the depository institution, if such publication occurs before the verification in the previous subparagraph.
5. The depository institution is obliged to provide the Fund with a complete list of depositors' claims, as well as all other information the Fund needs to satisfy its commitments, and the Fund shall analyze the institution's accounting and collect at its premises any other relevant information elements.
6. The Fund is subrogated to the rights of depositors to the extent of the reimbursements it has made.
Article 233
Intervention in the context of the execution of resolution measures
1. When resolution measures are applied to a bank, BCTL may determine that the Fund intervene in the context of the execution of the resolution measures up to the maximum limit:
a) Of the amount by which claims for deposits guaranteed by the Fund, within the limit provided for in Article 231, would have been reduced to bear the institution's losses, in the context of the application of the bail-in measure, if those deposits had not been excluded from the application of that measure under the provisions of subparagraph a) of paragraph 6 of Article 180 and had been reduced to the same extent as the nominal value of claims with the same level of subordination was reduced in accordance with the ranking of claims in the event of insolvency; or b) Of the amount of losses that depositors holding deposits guaranteed by the Fund, within the limit provided for in Article 231, would have borne as a result of the application of resolution measures, with the exception of the bail-in measure, in the case where those losses are proportional to those borne by the remaining creditors with the same level of subordination in accordance with the ranking of claims in the event of insolvency.
2. Without prejudice to the previous paragraph, the Fund's intervention in the context of the execution of resolution measures may not cause its financial resources to be reduced to an amount equal to or less than half of its minimum level.
3. Intervention under paragraph 1 confers on the Fund a claim against the participating institution subject to the resolution measure, in the amount corresponding to that intervention.
4. If deposits guaranteed by the Fund, within the limit provided for in Article 231, held with a bank subject to resolution are transferred to another entity in the context of the application of the sale of business measure or the transfer of business to a bridge institution measure, the holders of the deposits concerned have no claim against the Fund in respect of the part of their deposits with the bank subject to resolution that is not transferred, provided that the amount of funds transferred is equal to or greater than the limit provided for in Article 231.
Article 234
Financial years and chart of accounts
1. The Fund's financial years correspond to the calendar year.
2. The Fund's chart of accounts shall be organized so as to allow clear identification of its asset structure and its operation and to record all operations carried out.
Article 235
Supervision and audit
The Fund's activities are monitored by BCTL and its annual accounts are subject to audit and opinion by an independent auditor appointed by BCTL.

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Article 236
Report and accounts
By 31 March of each year, the Fund shall submit to BCTL for approval the report and accounts referring to 31 December of the previous year, accompanied by the opinion of the independent auditor.
Article 237
Regulation
BCTL shall approve, upon a proposal from the directive committee, the regulations governing the Fund's activity.
PART IX
SANCTIONS
TITLE I
CRIMINAL PROVISIONS
Article 238
Unlawful activity of receiving deposits and other repayable funds Whoever carries out an activity consisting of receiving from the public, on their own account or on behalf of others, deposits or other repayable funds, without the necessary authorization for this and without any of the situations provided for in Article 8 being verified, is punished with imprisonment of up to three years.
Article 239
Unlawful financial activity
Whoever carries out financial activities, under the provisions of Article 6, without the necessary license is punished with imprisonment of up to two years.
Article 240
Obstruction of the exercise of functions of the special administrator Whoever, with intent, prevents or hinders the special administrator's access to the premises, documents, records or other assets of the bank, or obstructs the exercise of control over them by the special administrator, is punished with imprisonment of one to five years or with a daily fine of US$ 1,000 to US$ 5,000 for each day the conduct continues, or with both. TITLE II ADMINISTRATIVE OFFENCES
CHAPTER I
GENERAL PROVISIONS
Article 241
Application in space
The provisions of this Chapter apply, regardless of the nationality of the agent, to the following acts that constitute offences under Timorese law:
a) Acts committed in national territory; b) Acts committed in foreign territory by financial institutions headquartered in Timor-Leste and operating there through branches or in the provision of services, as well as by individuals who, in relation to such entities, fall within any of the situations provided for in paragraph 1 of Article 243, or hold shareholdings in them; c) Acts committed on board Timorese ships or aircraft, unless otherwise provided by treaty or convention.
Article 242
Liability for administrative offences
1. Individuals and legal persons, even if irregularly constituted, as well as associations without legal personality, may be held liable, jointly or not, for the commission of the administrative offences provided for in this law.
2. Anyone who, by action or omission, causally contributes to their occurrence is punishable as perpetrator of the administrative offences provided for in this law.
Article 243
Liability of legal persons
1. Legal persons and equivalent entities referred to in the previous article are liable for administrative offences committed by the holders of their respective management, administration, direction or leadership positions, in the exercise of their functions, as well as for administrative offences committed by mandataries, representatives or employees of the legal person in acts carried out in the name and interest of the latter.
2. The liability of the legal person is excluded when the agent acts against express orders or instructions of the latter.
3. The invalidity or legal ineffectiveness of the acts on which the relationship between the individual agent and the legal person is based does not prevent the latter's liability.
Article 244
Liability of individuals
1. The liability of legal persons and equivalent entities does not exclude the individual liability of their agents.
2. The fact that the legal type of the offence requires certain personal elements and these are only verified in the legal person, the equivalent entity or one of the agents involved does not prevent the individual liability of the agents who represent others, nor does the fact that, where the agent is required to commit the act in their own interest, the agent acted in the interest of the represented person.
3. The liability of the holders of management or direction positions of legal persons and equivalent entities may be especially mitigated when, cumulatively, they are not directly responsible for the portfolio or area where the offence was committed

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Article 245
Attempt and negligence

Attempt and negligence are always punishable.
In the case of a negligent offence and of attempt, the maximum limit of the fine provided for the offence is reduced by half.

Article 246
Grading of the sanction

The determination of the measure of the fine and of the ancillary sanctions is made according to the concrete unlawfulness of the act, the fault of the agent and the requirements of prevention, also taking into account the individual or collective nature of the agent.
In determining the concrete unlawfulness of the act, the fault of the agent and the requirements of prevention, account is taken, among others, of the following circumstances:
a) Danger or damage caused to the financial system or to the national economy; b) Occasional or repeated nature of the offence; c) Degree of participation of the defendant in the commission of the offence; d) Intensity of the intent or negligence; e) Existence of a benefit, or intention to obtain it, for oneself or for another; f) Existence of losses caused to third parties by the offence and their importance when determinable; g) Duration of the offence; h) If the administrative offence consists in the omission of the practice of an act due, the time elapsed since the date on which the act should have been practised.
As regards natural persons, in determining the concrete unlawfulness of the act, the fault of the agent and the requirements of prevention, account is also taken of the following circumstances:
a) Level of responsibilities, scope of functions and sphere of action in the legal person concerned; b) Special duty not to commit the offence.
In determining the applicable sanction, account is also taken of:
a) The economic situation of the defendant; b) The previous conduct of the defendant; c) The existence of acts of concealment tending to hinder the discovery of the offence; d) The existence of acts of the agent intended, on his own initiative, to repair the damage or obviate the dangers caused by the offence; e) The level of cooperation of the defendant.
The fine must, whenever possible, exceed the economic benefit that the defendant or the person whom he intended to benefit have obtained from the practice of the offence.

Article 247
Injunctions and compliance with the violated duty

Whenever the offence results from the omission of a duty, the application of the sanction and the payment of the fine do not exempt the offender from complying with it, if this is still possible.
The BCTL may subject the offender to the injunction to comply with the duty in question, to cease the unlawful conduct and to avoid its consequences.
If the injunctions referred to in the previous paragraph are not complied with within the period set by the BCTL, the offender incurs the sanction provided for very serious administrative offences.

Article 248
Concurrence of offences

Whenever a person must answer simultaneously as a crime and as an administrative offence for the practice of the same facts, the processing of the administrative offences for which the BCTL is competent and the respective decision always fall to this authority.
Whenever a person must answer only as a crime, even if the facts are also punishable as an administrative offence, the criminal judge may apply the ancillary sanctions provided for the administrative offence in question.

Article 249
Limitation

The proceedings for the administrative offences provided for in this regime are time-barred after five years.
In cases where there has been concealment of the facts that are the object of the administrative offence proceedings, the limitation period only runs from the knowledge, on the part of the BCTL, of those facts.
The limitation period for sanctions is five years counting from the day on which the decision that determined their application becomes final or res judicata.
Without prejudice to other causes of suspension or interruption of the limitation period, the limitation period of the administrative offence proceedings is suspended from the notification of the order that proceeds to the preliminary examination of the appeal of the decision applying a sanction until the notification of the final decision of the appeal.

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5. In the case of serious administrative offences, the suspension provided for in the previous paragraph may not exceed 30 months.
6. In the case of very serious administrative offences, the suspension provided for in paragraph 4 may not exceed five years.

Article 250
Decision not to institute proceedings

Without prejudice to the exercise of other administrative powers, the BCTL may inform financial institutions about the possibility of correcting irregularities of minor concrete gravity, or of the causes that gave rise to those irregularities, within a period and conditions to be set for that purpose, including, if it so understands, the specific measures to be adopted, whenever the following requirements are cumulatively met:
a) The legally protected interests are not seriously and irreversibly harmed; b) The injury to protected rights or interests has ceased; c) The damage eventually caused by that injury is reparable; d) The correction of the irregularities or their causes adequately achieves the legal objectives or reasonably prevents the risk of future non-compliance; and e) The purposes of prevention, general or special, are not called into question by the non-application of sanctions.
Financial institutions shall inform the BCTL, within the established period, about the measures concretely adopted to correct the identified irregularities and the effective date of their remediation.
The BCTL may determine the non-institution of administrative offence proceedings when it considers the provisions of the previous paragraphs to be verified.
The BCTL shall annually publish a summary of the typology of irregularities and grounds for the decisions not to institute proceedings referred to in the previous paragraph.

CHAPTER II
OFFENCES IN PARTICULAR

Article 251
Serious administrative offences
Are serious administrative offences, punishable with a fine of US$750 to US$50,000, or of US$1,500 to US$250,000 for each day of offence, depending on whether it is a natural person or a legal person, the following offences:
a) The exercise of activity in disregard of the rules relating to registration with the BCTL; b) The violation of the rules relating to the subscription or realisation of share capital, as regards the period, amount and form of representation; c) The infringement of the rules on the use of firm names and denominations contained in Article 9; d) The non-observance of prudential ratios and limits determined by law or regulation; e) The omission, within the legal periods, of mandatory publications; f) The non-observance of accounting rules and procedures determined by law or regulation, provided that such conduct does not cause serious harm to the determination of the patrimonial and financial situation of the entity concerned; g) The violation of rules and duties of conduct provided for in this law or in complementary diplomas that refer to its sanctioning regime, as well as the non-compliance with the specific determinations issued by the BCTL to ensure their compliance; h) The violation of the duties of information and assistance provided for in Article 62; i) The omission of information and communications due to the BCTL, within the established periods, and the provision of incomplete information; j) The violations of the imperative precepts of this law and specific legislation governing the activity of financial institutions, not provided for in the previous paragraphs and in the following article, as well as of the regulations issued in compliance with or for the execution of the said precepts.

Article 252
Very serious administrative offences

Are very serious administrative offences, punishable with a fine of US$1,500 to US$150,000, or of US$3,000 to US$750,000 for each day of offence, depending on whether it is a natural person or a legal person, the following offences:
a) The unauthorised practice, by any individuals or entities, of operations reserved for financial institutions; b) The exercise, by financial institutions, of activities not included in their legal object, as well as the carrying out of unauthorised operations or operations especially forbidden to them; c) The fraudulent realisation of share capital; d) The carrying out of statutory amendments provided for in Articles 39 and 40, when not preceded by authorisation from the BCTL; e) The exercise of any positions or functions in a financial institution, in violation of legal prohibitions or in defiance of express opposition from the BCTL;

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information and collaboration to which they are obliged, under the terms of the provisions of paragraph 4 of Article 146, paragraph 9 of Article 159 or paragraph 2 of Article 162, the members of the management and supervisory bodies, the sole auditor, the holders of top management positions, the statutory auditor or the suspended or replaced audit firm; x) The omission of communications due to the competent authorities in matters of acquisition, disposal and holding of qualifying holdings provided for in Articles 109 to 120; y) The acquisition of a qualifying holding despite the opposition of the competent authority, in violation of Articles 109 and 115; z) The omission of implementation of governance systems and governance mechanisms, in violation of Article 93; aa) The permission for one or more persons who fail to comply with the provisions of Articles 23, 28 and 32 to become or continue to be members of the management or supervisory bodies; bb) The non-compliance with the duties to be observed in the scope of internal organisation, risk assessment and management contained in Articles 95 to 107; cc) The non-compliance with the duties to be observed in the design and marketing of products and services; dd) The non-compliance with the rules relating to remuneration practices and policies contained in this law, as well as the omission of mandatory disclosures relating to them; ee) The non-compliance with the requirements of own funds and eligible credits.
2. In the case of a legal person, the maximum limit of the abstractly applicable fine is raised to the amount corresponding to 10% of the total net annual turnover of the financial year prior to the date of the condemnatory decision, including gross income constituted by interest and equivalent income, income

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3. If the legal person is a subsidiary, the gross income considered is the gross income resulting from the consolidated accounts of the parent company in the previous financial year.

Article 253
Aggravation of the fine
Without prejudice to the provisions of paragraph 1(a) of the following article, if twice the economic benefit obtained by the offender is determinable and exceeds the maximum limit of the applicable fine, this is raised to that value.

Article 254
Ancillary sanctions

In addition to the fines provided for in Articles 251 and 252, the following ancillary sanctions may be applied to those responsible for any offence:
a) Loss of the economic benefit withdrawn from the offence; b) Loss of the object of the offence and of objects belonging to the agent related to the practice of the offence; c) Publication of the final or res judicata decision; d) If the defendant is a natural person, the inhibition of the exercise of corporate positions and functions of administration, management, direction or leadership in any entities subject to the supervision of the BCTL, for a period of six months to three years, in the cases of Article 251, or of one to 10 years, in the cases of Article 252; e) Suspension of the exercise of the voting right attributed to the holders of social participations in any entities subject to the supervision of the BCTL, for a period of one to 10 years.
The publication referred to in paragraph 1(c) is carried out, in full or by extract, at the expense of the offender, in a place suitable for the fulfilment of the purposes of protecting clients and the financial system, namely in a national, regional or local newspaper, depending on what, in the case, appears most appropriate.

CHAPTER III
PROCEEDINGS

Article 255
Competence

The competence for the processing of the administrative offences provided for in this law and for the application of the respective sanctions belongs to the BCTL.
It is incumbent upon the BCTL to institute, instruct and decide the administrative offence proceedings relating to the offences provided for in this law.
The proceedings may be instituted ex officio, following a supervisory action, participation, denunciation or communication from another public authority.
The decision of the administrative offence proceedings falls to the board of directors of the BCTL.
The BCTL may order the preventive suspension of functions of the members of corporate bodies or of the employees of the entity concerned, whenever this proves necessary for the instruction of the proceedings or for the safeguarding of the interests, whether of the mentioned entity or of its clients and creditors.
In the course of the inquiry or instruction, the BCTL may request from the police entities and from any other public services or authorities all the collaboration or assistance necessary for the realisation of the purposes of the proceedings.
Whenever the facts ascertained may constitute a crime, the BCTL communicates them to the Public Prosecution Service, sending the relevant elements at its disposal, without prejudice to the continuation of the administrative offence proceedings when legally admissible.

Article 256
Suspension of proceedings

Whenever the offence constitutes a remediable irregularity, does not significantly harm nor put in proximate and serious danger the rights of depositors, investors, shareholders or other interested parties and does not cause important harm to the financial system or to the national economy, the board of directors of the BCTL may suspend the proceedings, notifying the offender to, within the period it sets, remedy the irregularity in which he incurred.
The lack of remediation within the set period determines the continuation of the proceedings.

Article 257
Secrecy of justice

The administrative offence proceedings are subject to secrecy of justice until an administrative decision is handed down.
From the moment he is notified to exercise his right of defence, the defendant may:
a) Attend the procedural acts that take place and that concern him; b) Consult the case file and obtain copies, extracts and certificates of any parts thereof.
The exceptions provided for in the Code of Criminal Procedure for the regime of secrecy of justice apply to the administrative offence proceedings, with the necessary adaptations.

Article 258
Collection of elements

Whenever necessary for the inquiry or instruction of the

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2. House searches and seizures are subject to a judicial warrant.
3. Any persons and entities have the duty to provide the BCTL with all clarifications and information, as well as to deliver all documents, regardless of the nature of their medium, objects and elements, to the extent that they prove necessary for the instruction of the proceedings within its competence.
4. In the case of a search in a lawyer's office, of statutory auditors or in a medical office, it is decreed and carried out, under penalty of nullity, by a judge, under the terms of specific legislation.
5. With the exception of the situations provided for in Article 140, searches and seizures carried out on entities not subject to the supervision of the BCTL are subject to authorisation from the competent judicial authority.
6. Whenever, in the course of a search, equipment or information media are seized that are susceptible of containing information that does not relate only to clients, operations or information of an accounting and prudential nature of the institution, they are presented to the competent judicial authority which authorises or orders by order that a search of the relevant elements be carried out in a computer system, making a copy or printout of that data, on a separate medium, which is attached to the proceedings.
7. In the course of inspections of entities subject to the supervision of the BCTL, these are obliged to provide it with unrestricted access to their systems and files, including computerised ones, where information relating to clients or operations, information of an accounting, prudential or other relevant nature within the scope of the BCTL's competences is stored, as well as to allow copies and transcriptions of that information to be extracted.

Article 259
Provisional measures

Whenever it proves necessary for the effective instruction of the administrative offence proceedings or for the safeguarding of the financial system or of the interests of depositors, investors and other creditors, the BCTL may:
a) Determine the imposition of conditions on the exercise of the activity by the defendant, namely compliance with special duties of information or certain technical rules, or determine the requirement of a request for prior authorisation from the BCTL for the practice of certain acts; b) Determine the preventive suspension of the exercise of a certain activity, function or position by the defendant; c) Determine the preventive closure, in whole or in part, of an establishment where unlawful activity is carried out.
The adoption of any of the measures referred to in the previous paragraph must respect the principles of necessity, adequacy and proportionality, being preceded by a hearing of the defendant, except if this puts at risk the objective or effectiveness of the measure.
The provisional measures adopted under the terms of this article are immediately enforceable and only cease with the judicial decision that definitively revokes them, with the beginning of compliance with an ancillary sanction of equivalent effect to the provisional measure decreed or with their express revocation by decision of the BCTL.
Whenever, under the terms of paragraph 1(b), the preventive suspension of the exercise of the activity, function or position by the defendant is determined and the latter is condemned, in the same proceedings, to an ancillary sanction consisting in the inhibition of the exercise of the same activities, functions or positions, the duration of the preventive suspension is deducted in the compliance with the ancillary sanction.
Appeals always lie against the decisions of the BCTL taken under this article, with immediate, separate and merely devolutive effect.

Article 260
Form of communications and notifications

Communications are made by letter, electronic mail or any other means of telecommunication.
Communications which, under the terms of the law, must take the form of notification, are made by letter addressed to the notifiee or, when it exists, to the respective defence counsel, or personally, if necessary through the police authorities.
The notification of the procedural act that formally imputes to the defendant the practice of an administrative offence, as well as of the decision that applies a fine, ancillary sanction or any provisional measure, is addressed to the defendant and, when it exists, to the respective defence counsel.
Whenever, in the situations referred to in the previous paragraph, the defendant is not found, the notification is made by announcement published in one of the newspapers of the locality of his registered office, permanent establishment or last known residence in the country or, in the case of there being no newspaper there or the defendant not having a registered office, permanent establishment or residence in the country, in one of the newspapers of national scope.
Whenever the defendant refuses to receive the notification, the agent certifies that refusal, and the act is valid as notification.

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Article 261
Right to a hearing and defence

No fine or ancillary sanction may be applied without the defendant first being notified of the statement of unlawfulness and being granted the possibility of exercising the right of defence.
For the purposes of the preceding paragraph, the formal imputation of the offence is carried out through a statement of unlawfulness, under the terms set out in Article 264.
From the notification of the statement of unlawfulness, the defendant may be assisted by a lawyer or defence counsel and consult the case file, without prejudice to the protection of confidential information, banking secrecy, supervisory secrecy and the stability of the financial system.

Article 262
Duties of witnesses and experts

Witnesses and experts who do not appear on the day, at the time and place designated for the procedural step, and who do not justify their absence on that day or within the following five working days, or who, having appeared, unjustifiably refuse to testify or to perform their respective function, may be sanctioned by the BCTL with the application of a pecuniary sanction.
Payment is made within 10 working days from notification, failing which coercive collection shall be carried out.
Whenever it is necessary to take statements from any procedural participant, the BCTL may make an audio or audiovisual recording of them.
In the cases referred to in the preceding paragraph, there shall be no transcription, and the BCTL must, without prejudice to the provisions regarding judicial secrecy, deliver, within a maximum of two working days, a copy to any procedural subject who requests it.
In the event of judicial challenge to the BCTL's decision and where it is essential for the proper decision of the case, the court, by reasoned order, may request the BCTL to transcribe all or part of the recorded evidence under the preceding paragraphs.

Article 263
Archiving of the case file

Once sufficient evidence has been gathered that the offence did not occur, that the agent did not commit it on any basis, or that the proceedings are legally inadmissible, the case file is archived.
The case file is also archived if it was not possible to obtain sufficient evidence of the occurrence of the administrative offence or of who its agents were.
The proceedings may only be reopened if new evidence emerges that invalidates the grounds invoked in the archiving decision.
The archiving decision is communicated to the agent when it is subsequent to the notification of the procedural document formally imputing the commission of an administrative offence or, if earlier, when the agent has already had some involvement in the proceedings.

Article 264
Imputation of administrative offences, defence and production of evidence

Once sufficient evidence has been gathered of the occurrence of the administrative offence and of who its agents were, the BCTL notifies the defendant and, where one exists, their defence counsel, of the statement of unlawfulness provided for in Article 261, so that, if they wish, they may submit a written defence and offer or request means of evidence.
The statement of unlawfulness contains the identification of the defendant, the description of the facts imputed, including, where known, the time, place and manner of their commission, the indication of the rules violated, the sanctions abstractly applicable and the means of evidence contained in the proceedings.
The defendant has a period of 30 working days to submit a written defence, attach documents, request evidentiary steps and comment on all matters relevant to the decision.
In cases of special complexity, the period referred to in the preceding paragraph may be extended by the BCTL, upon a reasoned request by the defendant, for an adequate period, not exceeding 30 working days.
The defendant may not name more than three witnesses per offence, nor more than twelve in total, and must distinguish those who are to testify only as to their economic situation or as to their conduct before or after the facts, which may not exceed two in number.
The limits provided for in the preceding paragraph may be exceeded upon a duly reasoned request by the defendant, where this proves essential to the discovery of the truth, namely by reason of the special complexity of the proceedings.
The BCTL may reject, by reasoned decision, requested evidentiary steps that are manifestly impertinent, unnecessary, dilatory or incompatible with the nature of the proceedings.
The BCTL communicates to the defendant or their defence counsel, where one exists, the additional evidentiary steps that it carries out on its own initiative after the submission of the defence, granting them a reasonable period to comment on them, if they wish.
Failure to submit a defence does not prevent the proceedings from continuing or a final decision being issued, without prejudice to the BCTL's duty to establish all facts relevant to the proper decision of the case.

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Article 265
Decision
Once the investigation is concluded, the case file is presented to the entity responsible for issuing the decision, accompanied by an opinion on the offences that should be considered proven and the sanctions applicable to them.

Article 266
Default
Failure of the defendant to appear does not prevent the proceedings, at any stage, from following their course and a final decision being issued.

Article 267
Requirements of a decision applying a sanction

A decision applying a sanction contains:
(a) The identification of the defendants;
(b) The description of the facts imputed;
(c) The indication of the elements of evidence on which the decision was based; (d) The indication of the legal rules violated and the sanctioning rules; (e) The indication of the sanction or sanctions applied, with an indication of the elements that contributed to their determination; (f) The order to pay costs and the indication of the person or persons obliged to pay them.
The notification of the decision contains:
(a) A warning that the fine and, where applicable, the costs, must be paid within 10 working days after the decision becomes final or res judicata, failing which coercive collection shall be carried out; (b) The indication of the terms under which the conviction may be judicially challenged and become enforceable; (c) The indication that, in the event of judicial challenge, the court may decide by way of a hearing or, if the appellant and the BCTL do not object, by simple order; (d) The indication that the principle prohibiting reformatio in pejus does not apply.

Article 268
Suspension of the execution of the sanction

The board of directors of the BCTL may suspend, in whole or in part, the execution of the sanction, whenever it concludes that in this way the purposes of prevention are still achieved in an adequate and sufficient manner.
The suspension may be made subject to compliance with certain obligations, namely those considered necessary for the regularisation of illegal situations, the repair of damage or the prevention of dangers.
The period of suspension of the sanction is set between two and five years, its start counting from the date on which the conviction decision becomes final or res judicata.
The suspension does not cover costs.
Once the suspension period has elapsed without the defendant having committed any criminal or administrative offence within the BCTL's competence, nor having breached the obligations imposed on them, the sanction whose execution had been suspended is deemed extinguished, and otherwise its execution shall proceed, provided it is verified that the purposes of the suspension have been achieved.

Article 269
Costs

In the event of conviction, costs are owed by the defendant.
Where there are several defendants, the costs are shared among all of them in equal parts, only the amount relating to the defendants who are convicted being owed.
The costs are intended to cover the expenses incurred in the proceedings, namely with notifications and communications, recording media and copies or certificates of the proceedings.

Article 270
Revenue from fines

The amount of the fines reverts entirely to the BCTL, except in the cases provided for in the following paragraph.
The amount of the fines in which banks are convicted reverts entirely to the Deposit Guarantee Fund, regardless of the stage at which the conviction decision becomes final or res judicata.

Article 271
Liability for payment

Legal persons, even if irregularly constituted, and associations without legal personality are jointly and severally liable for the payment of the fine and costs in which their directors, employees or representatives are convicted for the commission of administrative offences punishable under the terms of this statute.
The holders of the management bodies of legal persons, even if irregularly constituted, and of associations without legal personality, who, being able to do so, did not oppose the commission of the offence, are individually and subsidiarily liable for the payment of the fine and costs in which those are convicted, even if at the date of conviction they have been dissolved or entered into liquidation.

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Article 272
Summary proceedings

Whenever the nature of the administrative offence, the intensity of the fault and the other circumstances justify it, the BCTL may, before formally imputing to the defendant the commission of any administrative offence and on the basis of the indicated facts, notify the defendant of the decision to apply a reduced sanction, under the terms and conditions set out in the following paragraphs.
The applicable sanction is a reprimand, or a fine whose concrete measure does not exceed five times the minimum limit provided for the administrative offence or, where there are several offences, a single fine that does not exceed twenty times the highest minimum limit of the administrative offences in concurrence, and in any case the adoption of a certain conduct may also be determined, as well as the application of the ancillary sanction of publication of the decision.
The decision provided for in paragraph 1 contains the identification of the defendant, the summary description of the facts imputed, the mention of the rules violated and the sanctioning rules and the reprimand or the indication of the fine or ancillary sanction concretely applied or, where applicable, of the conduct determined and the period for its adoption, as well as the indication of the elements that contributed to the determination of the sanction.
The notification of the decision must inform of the provisions of paragraph 7 and be accompanied by a model declaration of acceptance of the decision and, where the sanction applied is a fine, also by a payment slip.
Upon receipt of the notification, the defendant has a period of 10 working days to send to the BCTL:
(a) Where the sanction applied is a reprimand, a written declaration of acceptance; (b) Where the sanction applied is a fine, a written declaration of acceptance or proof of payment thereof.
If the defendant accepts the decision or makes payment of the fine applied and, where applicable, adopts the conduct determined, the BCTL's decision becomes final, as a conviction decision, and the same facts may not be assessed again as an administrative offence.
The decision issued becomes ineffective and the administrative offence proceedings continue in the common form, with the BCTL being responsible for carrying out the other investigative steps it considers appropriate and, where applicable, formally imputing to the defendant the commission of any administrative offence, without being limited by the content of that decision, if the defendant:
(a) Refuses the decision;
(b) Does not comment on it within the established period, unless, having been applied a fine, it has been paid within the indicated period; (c) Does not adopt the conduct determined for them; (d) Requests any complementary step.
Decisions issued in summary proceedings are not subject to appeal.
In summary proceedings there is no payment of costs.

Article 273
Disclosure of the decision

Once the period for judicial challenge has elapsed, the decision convicting the agent of the commission of one or more very serious administrative offences is disclosed on the BCTL's website, in full or by extract including at least the identity of the convicted natural or legal person and information on the type and nature of the offence, even if it has been judicially challenged, in which case express mention of this fact shall be made.
The judicial decision confirming, altering or revoking the conviction decision of the BCTL or of the court of first instance is mandatorily disclosed under the terms of the preceding paragraph.
The BCTL may disclose on an anonymous basis, defer disclosure or not disclose if:
(a) It is demonstrated, following a mandatory prior assessment, that the disclosure of the identity of the convicted natural or legal person is disproportionate in relation to the gravity of the offence in question; (b) The disclosure may jeopardise the stability of the financial markets or compromise an ongoing investigation; (c) The disclosure may, as far as can be determined, cause concrete damage to the agent manifestly disproportionate in relation to the gravity of the offence in question.
Where it is foreseen that the circumstances provided for in the preceding paragraph may cease within a reasonable period, the disclosure of the identity of the convicted natural or legal person may be postponed during that period.
The information disclosed under the preceding paragraphs remains available on the BCTL's website for five years counted from the date on which the decision becomes final or res judicata, unless an ancillary sanction of longer duration has been applied, in which case the information remains until the end of compliance with the sanction, and may not be indexed by internet search engines.

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Regardless of res judicata, judicial decisions relating to the crime of unlawful activity of receiving deposits and other repayable funds are disclosed by the BCTL under the terms of the preceding paragraphs.

CHAPTER IV
APPEAL

Article 274
Judicial challenge

The period for lodging an appeal against the decision that has applied a sanction is 15 working days from the defendant's knowledge thereof, and the respective petition must be submitted to the BCTL.
Upon receipt of the petition for judicial challenge, the BCTL may, within 15 working days, revoke the challenged decision, notifying the defendant thereof.
If it does not fully revoke the challenged decision, the BCTL forwards, within the same period, the case file to the competent court, and may attach arguments, elements or information it considers relevant, as well as offer means of evidence.
Where there are several defendants, the period referred to in the preceding paragraphs is counted from the end of the period that ends last.

Article 275
Effect of the appeal
The appeal challenging decisions issued by the BCTL has suspensive effect only if the appellant provides security, within 20 working days, in the amount of half of the fine applied, unless they demonstrate, within the same period, that they cannot provide it, in whole or in part, due to insufficient means.

Article 276
Competent court
The Judicial Court of First Instance, as well as the subsequent courts with jurisdiction in administrative and competition matters, are the judicial bodies competent to hear the appeal, review and execution of decisions or any other measures legally susceptible to challenge taken by the BCTL in administrative offence proceedings.

Article 277
Judicial decision

The judge may decide by order when they do not consider a trial hearing necessary and the appellant and the BCTL do not object to that form of decision.
If there is a trial hearing, the court decides on the basis of the evidence produced at the hearing, as well as the evidence produced in the administrative phase of the administrative offence proceedings.
The principle prohibiting reformatio in pejus is not applicable to administrative offence proceedings brought and decided under the terms of this regime.

Article 278
Intervention of the BCTL in the contentious phase

The BCTL may always participate, through a representative, in the trial hearing.
The BCTL may, until the close of the hearing, revoke the challenged sanctioning decision that applied a sanction.
The BCTL has standing to appeal decisions issued in the challenge proceedings that admit appeal.

Article 279
Periods
Unless otherwise provided, the periods provided for in this law are continuous.

CHAPTER V
SUBSIDIARY LAW

Article 280
Application of the general regime
The general rules of administrative procedure and of the general regime of administrative offences apply subsidiarily to the administrative offences provided for in this Title, in everything that does not contradict its provisions and, in their absence, the Penal Code and the Code of Criminal Procedure.

PART X
FINAL AND TRANSITIONAL PROVISIONS

Article 281
Challenge of BCTL decisions

Decisions of the BCTL taken within the scope of this law are susceptible to judicial challenge by their addressees or by anyone demonstrating to be directly affected in their rights or legally protected interests, by way of contentious appeal, under the terms of the organic law of the BCTL and the applicable procedural legislation.
The period for lodging a contentious appeal against BCTL decisions issued in the exercise of its functions of regulation and supervision of the financial system is 30 working days after knowledge thereof, unless otherwise provided by special legal provision.
The lodging of a contentious appeal against the decisions referred to in the preceding paragraphs does not suspend their effectiveness nor prevent their execution.
Interim measures having the effect, directly or indirectly, of suspending, preventing or paralysing the execution of BCTL decisions relating to measures of revocation of licence, resolution or extrajudicial liquidation are not admissible.

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With regard to the other BCTL decisions taken in the exercise of its functions of regulation and prudential supervision, it is presumed, until proof to the contrary, that the suspension of effectiveness causes serious harm to the public interest, namely where it may affect the stability of or confidence in the financial system, the protection of depositors, investors or other creditors, or the effectiveness of prudential supervision.
In cases where the decisions referred to in the preceding paragraphs result in damage to third parties, the personal civil liability of their authors may only be enforced by way of an action for recourse by the BCTL and if the gravity of the agent's conduct justifies it, unless the same constitutes a crime.

Article 282
Regulatory power

In addition to the cases specially provided for in this law, the BCTL issues all regulations necessary and appropriate for the implementation of this regime and other legislation relating to the regulation and supervision of the financial system, namely to promote financial stability, financial inclusion and financial literacy, the protection of financial consumers, integrity, transparency, innovation and the development of the financial system.
The BCTL's regulations are not subject to the regulatory procedure provided for in paragraph 2 of Article 24 of Decree-Law No. 16/2021, of 15 September, which approves the General Bases of the Organisation of Public Administration.

Article 283
Previous BCTL regulations

The entry into force of this regime does not affect the validity of regulations previously issued by the BCTL, which remain valid and effective to the extent that they do not contradict this Law.
Without prejudice to the provisions of paragraph 2 of Article 288, within one year after the entry into force of this regime, the BCTL shall revoke, replace or amend the regulations referred to in the preceding paragraph, whenever this proves necessary to ensure full compliance with this regime.
The BCTL may issue guidelines relating to the application and compliance with the provisions set out in Articles 152 to 156 of this law.

Article 284
Previous licences and authorisations

Licences, authorisations, registrations and other acts issued by the BCTL under previously applicable legislation remain valid and effective after the entry into force of this law, without the need for immediate renewal or replacement, without prejudice to their adaptation to the new regime.
The entities holding the licences, authorisations, registrations and other acts referred to in the preceding paragraph are subject, from the entry into force of this law, to the provisions arising therefrom, and must adapt to the new legal and regulatory requirements within the periods provided for therein or, in their absence, within the periods set by the BCTL under the terms of the law.
The maintenance of the validity of licences, authorisations and other acts previously issued does not prejudice the BCTL's powers to determine their amendment, replacement, revocation or expiry, under the terms of this law.
Branches of banks headquartered abroad already authorised to carry on activity in Timor-Leste at the date of entry into force of this law may demonstrate compliance with the requirement provided for in paragraph 2 of Article 49 by means of resources or liquid assets maintained and allocated to their respective local operation at the branch itself in Timor-Leste.

Article 285
Repeal provision
UNTAET Regulation No. 2000/8, of 25 February 2000, on banking licensing and supervision, is repealed.

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Article 286
Final provisions
For the purposes of this law, the amounts referred to in United States of America dollars (US$) remain equivalent, regardless of any change in the exchange rate or monetary regime, under the terms of the applicable exchange rate.

Article 287
Index
An index of matters containing the systematic units into which it is divided and the articles that make them up, with their respective headings, is annexed to this law.

Article 288
Entry into force and production of effects

This law enters into force one year after its publication.
The provisions of the preceding paragraph do not apply to the articles and rules concerning development financial institutions, which enter into force on the day following their publication.
This law is immediately applicable to administrative procedures ongoing at the time of its entry into force.

Approved on 14 July 2026.

The President of the National Parliament
Maria Fernanda Lay

Promulgated on 10 August 2026

Let it be published.

The President of the Republic,
José Ramos Horta

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INDEX

(referred to in Article 287)

PART I — GENERAL PROVISIONS

Article 1 — Object
Article 2 — Definitions

PART II — GENERAL STRUCTURE OF THE FINANCIAL SYSTEM

Article 3 — Financial system
Article 4 — Central Bank of Timor-Leste
Article 5 — Financial institutions
Article 6 — Financial activities
Article 7 — Banking activity
Article 8 — Pursuit of activity and the principle of exclusivity
Article 9 — Firm, name, brand and logo

PART III — BANKS

TITLE I — BANKS HEADQUARTERED IN TIMOR-LESTE

CHAPTER I — PERMITTED ACTIVITIES

Article 10 — Minimum capital
Article 11 — Banks with an unrestricted licence
Article 12 — Banks with a restricted licence

CHAPTER II — LICENSING

Article 13 — Conditions for granting the licence
Article 14 — Examination of the licence application
Article 15 — Prior consultation with foreign authorities
Article 16 — Preliminary decision and definitive licence
Article 17 — Scope of the licence and fees
Article 18 — Continuous compliance with licence conditions
Article 19 — Grounds for refusal
Article 20 — Expiry of the licence
Article 21 — Revocation of the licence
Article 22 — Form of revocation

CHAPTER III — FITNESS OF THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES AND OF HOLDERS OF ESSENTIAL FUNCTIONS

Article 23 — General provision
Article 24 — Assessment by banks
Article 25 — Assessment and authorisation by the BCTL
Article 26 — Refusal and revocation of authorisation
Article 27 — Suitability
Article 28 — Professional qualification
Article 29 — Independence
Article 30 — Supervening lack of fitness
Article 31 — Provisional suspension from duties
Article 32 — Accumulation of offices
Article 33 — Holders of essential functions

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CHAPTER IV — REGISTRATION

Article 34 — Subjection to registration
Article 35 — Elements subject to registration
Article 36 — Registration of the members of the management and supervisory bodies
Article 37 — Deadlines, supplementary information, certificates and publicity of the registration
Article 38 — Refusal of registration

CHAPTER V — AMENDMENTS TO THE ARTICLES OF ASSOCIATION, DISSOLUTION AND ACTS SUBJECT TO AUTHORISATION BY THE BCTL

Article 39 — General provision
Article 40 — Merger and division
Article 41 — Voluntary dissolution
Article 42 — Acts subject to authorisation by the BCTL

TITLE II — ACTIVITY ABROAD OF BANKS HEADQUARTERED IN TIMOR-LESTE

Article 43 — Establishment of branches abroad
Article 44 — Incorporation of subsidiaries abroad
Article 45 — Qualifying holdings in companies headquartered abroad

TITLE III — SUBSIDIARIES, BRANCHES AND REPRESENTATIVE OFFICES IN TIMOR-LESTE OF BANKS HEADQUARTERED ABROAD

CHAPTER I — SUBSIDIARIES

Article 46 — Principle of equivalence

CHAPTER II — BRANCHES

Article 47 — Licensing
Article 48 — Expiry and revocation
Article 49 — Allocated capital
Article 50 — Liability for debts
Article 51 — Accounting and bookkeeping
Article 52 — Regime

CHAPTER III — REPRESENTATIVE OFFICES

Article 53 — Registration
Article 54 — Scope of activity
Article 55 — Management

PART IV — OTHER FINANCIAL INSTITUTIONS

Article 56 — Regime applicable to investment banks and non-bank financial institutions
Article 57 — Regime applicable to development financial institutions

PART V — SUPERVISION

TITLE I — CONDUCT SUPERVISION

CHAPTER I — RULES OF CONDUCT

Article 58 — Technical competence
Article 59 — General duties
Article 60 — Standard of diligence
Article 61 — Regulation

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CHAPTER II — RELATIONS WITH CLIENTS

Article 62 — Duty of information and assistance
Article 63 — Client complaints
Article 64 — Codes of conduct

CHAPTER III — PROFESSIONAL SECRECY

Article 65 — Duty of secrecy
Article 66 — Exceptions to the duty of secrecy
Article 67 — Duty of secrecy of bodies and officials of the BCTL
Article 68 — Cooperation with other entities
Article 69 — Breach of the duty of secrecy

CHAPTER IV — CONFLICTS OF INTEREST

Article 70 — Granting of credit to members of the corporate bodies
Article 71 — Duty of registration and information
Article 72 — Other operations
Article 73 — Mechanisms and preventive measures
Article 74 — Remuneration and incentives for staff

CHAPTER V — ADVERTISING AND PROTECTION OF COMPETITION

Article 75 — Advertising
Article 76 — Prohibited advertising content
Article 77 — Agreements, practices and operations harmful to competition

CHAPTER VI — INTERNAL PROCEDURES

Article 78 — Records and filing
Article 79 — Design of deposits and credit products
Article 80 — Marketing of deposits and credit products
Article 81 — Intervention by the BCTL

CHAPTER VII — ACCOUNTING AND AUDIT

Article 82 — Accounts and publications
Article 83 — External auditor
Article 84 — Reports and supervision

CHAPTER VIII — PREVENTION OF MONEY LAUNDERING AND TERRORISM FINANCING

Article 85 — Internal control and compliance control functions
Article 86 — Customer identification policy
Article 87 — Duty to report suspicious transactions
Article 88 — Enhanced due diligence measures
Article 89 — Record-keeping policy
Article 90 — Transaction monitoring and AML systems or tools
Article 91 — Coordination with supervisory authorities
Article 92 — Sanctions and corrective measures

TITLE II — PRUDENTIAL SUPERVISION

CHAPTER I — QUALITATIVE PRUDENTIAL REGIME

SECTION I — GOVERNANCE AND ORGANISATION

Article 93 — Governance systems
Article 94 — Internal audit

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SECTION II — RISK ASSESSMENT AND MANAGEMENT

Article 95 — Treatment of risks
Article 96 — Risk management function
Article 97 — Risk management committee
Article 98 — Credit risk and counterparty risk
Article 99 — Residual risk
Article 100 — Concentration risk
Article 101 — Securitisation risk
Article 102 — Market risk
Article 103 — Interest rate risk arising from activities not included in the trading book
Article 104 — Operational, technological and outsourcing risk
Article 105 — Liquidity risk
Article 106 — Excessive leverage risk
Article 107 — Other risks

SECTION III — INTERNAL CAPITAL

Article 108 — Process of self-assessment of internal capital adequacy

SECTION IV — CONTROL OF QUALIFYING HOLDINGS

Article 109 — Prior notification of projects to acquire holdings
Article 110 — Omission of due notification
Article 111 — Decision of the BCTL
Article 112 — Subsequent notification
Article 113 — Suspension of voting rights
Article 114 — Suspension for supervening reasons
Article 115 — Reduction of the holding
Article 116 — Duty of notification of banks
Article 117 — Granting of credit to holders of qualifying holdings
Article 118 — List of shareholders
Article 119 — Duty of the shareholder
Article 120 — Registration of shareholders' agreements

CHAPTER II — QUANTITATIVE PRUDENTIAL REGIME

SECTION I — MINIMUM REQUIREMENTS

Article 121 — General duty of prudence
Article 122 — Capital requirements
Article 123 — Own funds
Article 124 — Reserves
Article 125 — Provisions

SECTION II — MAXIMUM LIMITS AND OTHER RESTRICTIONS

Article 126 — Distribution of dividends and other remuneration
Article 127 — Limits for balance sheet items and operations
Article 128 — Ratio of banks' holdings to the capital of investee companies
Article 129 — Acquisition of real estate
Article 130 — Fixed asset ratio and acquisition of equity securities
Article 131 — Acquisitions in repayment of credit granted by the bank

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CHAPTER III — SUPERVISION

SECTION I — GENERAL PROVISION

Article 132 — Supervision procedures

SECTION II — MONITORING AND OVERSIGHT

Article 133 — Review and evaluation process
Article 134 — Technical criteria relating to review and evaluation by the BCTL
Article 135 — Stress tests
Article 136 — Sound and prudent management
Article 137 — Duty of abstention and registration of operations
Article 138 — Supervision activity plan
Article 139 — Duty of communication
Article 140 — Duties of information
Article 141 — Unlicensed entities
Article 142 — Seizure of documents and assets
Article 143 — Cooperation and collaboration of other authorities

PART VI — CORRECTIVE INTERVENTION, PROVISIONAL ADMINISTRATION, RESOLUTION AND LIQUIDATION

TITLE I — GENERAL PROVISIONS

Article 144 — General principles
Article 145 — Application of the measures

TITLE II — CORRECTIVE INTERVENTION AND PROVISIONAL ADMINISTRATION

CHAPTER I — CORRECTIVE INTERVENTION

Article 146 — Corrective intervention measures
Article 147 — Applicability to contractual obligations
Article 148 — Subsidiaries referred to in Article 15
Article 149 — Application of sanctions

SECTION I — ADDITIONAL OWN FUNDS

Article 150 — Additional own funds requirement
Article 151 — Guidelines on additional own funds

SECTION II — RECOVERY PLAN

Article 152 — Recovery plan
Article 153 — Content and elements of the recovery plan
Article 154 — Review and updating of the recovery plan
Article 155 — Assessment of the recovery plan
Article 156 — Inadequacy of the recovery plan

SECTION III — SPECIFIC LIQUIDITY REQUIREMENTS

Article 157 — Specific liquidity requirements

SECTION IV — RESTRUCTURING PLAN

Article 158 — Restructuring plan

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SECTION V — SUPERVISORY COMMITTEE OR SOLE SUPERVISOR

Article 159 — Supervisory committee or sole supervisor

CHAPTER II — PROVISIONAL ADMINISTRATION

Article 160 — Resolution or liquidation regime
Article 161 — Suspension or dismissal of the members of the management bodies
Article 162 — Appointment of provisional administrators

TITLE III — RESOLUTION OR LIQUIDATION

CHAPTER I — PURPOSES, GUIDING PRINCIPLES AND REQUIREMENTS

Article 163 — Purposes of resolution
Article 164 — Guiding principles
Article 165 — Resolution measures
Article 166 — Cessation of duties of the corporate bodies and senior management
Article 167 — Administrators appointed by the BCTL
Article 168 — Valuation for resolution purposes

CHAPTER II — POWERS OF REDUCTION OR CONVERSION OF OWN FUNDS INSTRUMENTS AND ELIGIBLE LIABILITIES

Article 169 — Powers of reduction or conversion of own funds instruments and eligible liabilities
Article 170 — General procedure

CHAPTER III — RESOLUTION MEASURES

Article 171 — General principles
Article 172 — Partial or total sale of the business
Article 173 — Application of the measure of partial or total sale of the business
Article 174 — Partial or total transfer of the business to bridge institutions
Article 175 — Establishment of the bridge institution
Article 176 — Assets and financing of the bridge institution
Article 177 — Cessation of the activity of the bridge institution
Article 178 — Segregation of assets
Article 179 — Assets, financing and cessation of activity of the asset management vehicle
Article 180 — Internal recapitalisation (bail-in)
Article 181 — Application and effects of the internal recapitalisation measure
Article 182 — Business reorganisation plan
Article 183 — Financing of resolution measures

CHAPTER IV — RESOLUTION POWERS

Article 184 — Resolution powers

CHAPTER V — SAFEGUARDS

Article 185 — Covered obligations and structured financing contracts
Article 186 — Financial collateral contracts, set-off arrangements and netting agreements
Article 187 — Security interests over obligations
Article 188 — Payment, clearing and settlement systems

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CHAPTER VI — OTHER PROVISIONS

Article 189 — General duties of banks subject to resolution
Article 190 — Notifications, communications and disclosure of the measures

CHAPTER VII — LIQUIDATION

Article 191 — Extrajudicial liquidation due to insolvency
Article 192 — Special administrator
Article 193 — Notification and registration of the extrajudicial liquidation
Article 194 — Powers and responsibilities of the special administrator
Article 195 — Avoidance of transfers prior to the extrajudicial liquidation
Article 196 — Ranking and payment of claims
Article 197 — Reports and closure of the liquidation
Article 198 — Supplementary provisions

PART VII — RESOLUTION FUND

Article 199 — Nature of the Resolution Fund
Article 200 — Object of the Resolution Fund
Article 201 — Participating institutions
Article 202 — Steering committee of the Resolution Fund
Article 203 — Financial resources of the Resolution Fund
Article 204 — Initial contributions of banks
Article 205 — Periodic contributions of the participating institutions
Article 206 — Complementary financial resources of the Resolution Fund
Article 207 — Exceptional financial support from the State
Article 208 — Other financing mechanisms
Article 209 — Provision of resources
Article 210 — Application of resources of the Resolution Fund
Article 211 — Expenses
Article 212 — Services of the Resolution Fund
Article 213 — Financial year of the Resolution Fund
Article 214 — Chart of accounts of the Resolution Fund
Article 215 — Supervision of the Resolution Fund
Article 216 — Report and accounts of the Resolution Fund
Article 217 — Regulation of the Resolution Fund

PART VIII — DEPOSIT GUARANTEE FUND

Article 218 — Nature of the Deposit Guarantee Fund
Article 219 — Object
Article 220 — Participating institutions
Article 221 — Duty of information
Article 222 — Steering committee
Article 223 — Services
Article 224 — Financial resources
Article 225 — Initial contributions
Article 226 — Periodic contributions
Article 227 — Complementary financial resources
Article 228 — Application of resources
Article 229 — Guaranteed deposits
Article 230 — Deposits excluded from the guarantee
Article 231 — Limits of the guarantee

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Article 232 — Effectuation of reimbursement
Article 233 — Intervention in the context of the execution of resolution measures
Article 234 — Financial years and chart of accounts
Article 235 — Supervision and audit
Article 236 — Report and accounts
Article 237 — Regulation

PART IX — SANCTIONS

TITLE I — CRIMINAL PROVISIONS

Article 238 — Unlawful activity of receiving deposits and other repayable funds
Article 239 — Unlawful financial activity
Article 240 — Obstruction of the exercise of the functions of the special administrator

TITLE II — ADMINISTRATIVE OFFENCES

CHAPTER I — GENERAL PROVISIONS

Article 241 — Application in space
Article 242 — Liability for administrative offences
Article 243 — Liability of legal persons
Article 244 — Liability of natural persons
Article 245 — Attempt and negligence
Article 246 — Grading of the sanction
Article 247 — Injunctions and performance of the breached duty
Article 248 — Concurrent offences
Article 249 — Limitation period
Article 250 — Decision not to initiate proceedings

CHAPTER II — OFFENCES IN PARTICULAR

Article 251 — Serious administrative offences
Article 252 — Very serious administrative offences
Article 253 — Aggravation of the fine
Article 254 — Ancillary sanctions

CHAPTER III — PROCEEDINGS

Article 255 — Competence
Article 256 — Suspension of the proceedings
Article 257 — Secrecy of justice
Article 258 — Collection of evidence
Article 259 — Interim measures
Article 260 — Form of communications and notifications
Article 261 — Right to be heard and to defend
Article 262 — Duties of witnesses and experts
Article 263 — Archiving of the case file
Article 264 — Imputation of administrative offences, defence and production of evidence
Article 265 — Decision
Article 266 — Default
Article 267 — Requirements of the decision imposing a sanction
Article 268 — Suspension of the execution of the sanction
Article 269 — Costs
Article 270 — Revenue from fines

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Article 271 — Liability for payment
Article 272 — Summary proceedings
Article 273 — Disclosure of the decision

CHAPTER IV — APPEAL

Article 274 — Judicial challenge
Article 275 — Effect of the appeal
Article 276 — Competent court
Article 277 — Judicial decision
Article 278 — Intervention of the BCTL in the contentious phase
Article 279 — Deadlines

CHAPTER V — SUBSIDIARY LAW

Article 280 — Application of the general regime

PART X — FINAL AND TRANSITIONAL PROVISIONS

Article 281 — Challenge of decisions of the BCTL
Article 282 — Regulatory power
Article 283 — Previous

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CONTENTS

LAW NO. 10/2026

GENERAL REGIME OF THE FINANCIAL SYSTEM AND BANKING ACTIVITY

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PART I

GENERAL PROVISIONS

Article 1

Article 2

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PART II

GENERAL STRUCTURE OF THE FINANCIAL SYSTEM

Article 3

Article 4

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Article 98

Credit risk and counterparty risk

Article 99

Residual risk

Article 100

Concentration risk

Article 101

Securitisation risk

Article 102

Market risk

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Article 103

Interest rate risk arising from activities not included in the trading book

Article 104

Operational, technological and outsourcing risk

Article 105

Liquidity risk

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Article 106

Excessive leverage risk

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Article 107

Other risks

SECTION III

INTERNAL CAPITAL

Article 108

Internal capital adequacy self-assessment process

SECTION IV

CONTROL OF QUALIFYING HOLDINGS

Article 109

Prior notification of draft acquisitions of holdings

Article 110

Omission of due notification

Article 111

Decision of the BCTL

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INDEX

PART I — GENERAL PROVISIONS

PART II — GENERAL STRUCTURE OF THE FINANCIAL SYSTEM

PART III — BANKS

TITLE I — BANKS HEADQUARTERED IN TIMOR-LESTE

CHAPTER I — PERMITTED ACTIVITIES

CHAPTER II — LICENSING

CHAPTER III — FITNESS OF THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES AND OF HOLDERS OF ESSENTIAL FUNCTIONS

CHAPTER IV — REGISTRATION

CHAPTER V — AMENDMENTS TO THE ARTICLES OF ASSOCIATION, DISSOLUTION AND ACTS SUBJECT TO AUTHORISATION BY THE BCTL

TITLE II — ACTIVITY ABROAD OF BANKS HEADQUARTERED IN TIMOR-LESTE

TITLE III — SUBSIDIARIES, BRANCHES AND REPRESENTATIVE OFFICES IN TIMOR-LESTE OF BANKS HEADQUARTERED ABROAD

CHAPTER I — SUBSIDIARIES

CHAPTER II — BRANCHES

CHAPTER III — REPRESENTATIVE OFFICES

PART IV — OTHER FINANCIAL INSTITUTIONS

PART V — SUPERVISION

TITLE I — CONDUCT SUPERVISION

CHAPTER I — RULES OF CONDUCT

CHAPTER II — RELATIONS WITH CLIENTS

CHAPTER III — PROFESSIONAL SECRECY

CHAPTER IV — CONFLICTS OF INTEREST

CHAPTER V — ADVERTISING AND PROTECTION OF COMPETITION

CHAPTER VI — INTERNAL PROCEDURES

CHAPTER VII — ACCOUNTING AND AUDIT

CHAPTER VIII — PREVENTION OF MONEY LAUNDERING AND TERRORISM FINANCING

TITLE II — PRUDENTIAL SUPERVISION

CHAPTER I — QUALITATIVE PRUDENTIAL REGIME