Instruction No. 21 on Corporate Governance in Credit Institutions

INSTRUCTION N° 21 ON CORPORATE GOVERNANCE IN CREDIT INSTITUTIONS

The Central Bank of the Congo

Having regard to Law 005/2002 of May 7, 2002, relating to the constitution, organization, and functioning of the Central Bank of the Congo, particularly Article 6;

Having regard to Law No. 003/2002 of February 2, 2002, relating to the activity and supervision of Credit Institutions, particularly Articles 12, 14, 25, 29, 36, 51, and 52;

Establishes good practices regarding corporate governance in credit institutions.

TITLE I: GENERAL PRINCIPLES AND DEFINITIONS

Article 1 The establishments subject to this Instruction are:

• banks;
• specialized financial institutions;
• financial companies;
• savings banks.

Article 2 Corporate governance refers to the relationships between its shareholders, its board of directors, senior management, and other stakeholders. Corporate governance determines the structure by which the objectives of a company are defined, as well as the means to achieve them and ensure monitoring of the results obtained.

Good corporate governance must encourage the board of directors and the management of the company to pursue objectives consistent with the interests of the company and its shareholders, and facilitate effective monitoring of the results obtained, by encouraging efficient use of the company's resources.

Article 3 For the application of this Instruction, the following terms shall be understood as: (i) General Meeting: a meeting and decision-making body of the holders or owners of a fraction of the capital of the subject establishment or of the social endowment or the element of social patrimony standing in lieu thereof. (ii) Board of Directors: a body charged, on behalf of the shareholders, with supervising the situation and management of the subject establishment. (iii) Senior Management or Management Committee: a body charged with the day-to-day management of the subject establishment, which corresponds in the Congolese banking law to the management committee. (iv) Executive or Active Director: a member of the Board of Directors exercising functions simultaneously within the executive body of the subject establishment. (v) Non-Executive or Passive Director: a member of the Board of Directors not exercising any function within the executive body of the subject establishment. (vi) Independent Director: a member of the Board of Directors who has no relationship of any nature whatsoever with the subject establishment or the group to which this establishment belongs that could compromise the exercise of his freedom of judgment. He must be exclusively a Non-Executive or Passive Director. (vii) Politically Exposed Person: a person holding important public or political functions, such as Head of State or Government, political figures, high-ranking officials of the administration, justice, or army, heads of public enterprises or political parties.

TITLE II. ROLES OF BODIES

Article 4 Subject establishments, to guarantee their sustainability, must equip themselves with deliberating, administrative, or management, and control bodies.

Chapter I. GENERAL MEETING

Article 5 The general meeting is the gathering of capital contributors, shareholders, or partners authorized to participate therein, convened and held according to statutory provisions.

Shareholders or partners are legal or natural persons who hold a share of the social capital. They must be regularly and sufficiently informed of the activity, financial situation, and management of the establishment through regular and detailed reports. They must meet periodically in general meeting to make decisions on the life of the company.

Article 6 The Central Bank of the Congo may refuse entry of a significant shareholder into the shareholding if it considers that the latter does not present the required qualities with regard to the need to guarantee sound and prudential management of the establishment.

Chapter II. BOARD OF DIRECTORS

Article 7 The board of directors is the collegial body that represents all capital contributors and is obliged to act under all circumstances in the interest of the subject establishment.

Directors, designated by the general meeting, are collectively responsible before said meeting.

The board of directors must be composed of directors possessing different types of expertise in the banking or financial field and in the field of corporate governance.

Every subject establishment must put in place a formalized and transparent procedure for the selection and appointment of directors.

The designation of directors is subject to the assessment and prior agreement of the Central Bank of the Congo, according to the provisions provided by regulation.

Article 8 The board of directors operates in association, but also in total independence from the management of the subject establishment.

Directors must have the capacity and the will to ask questions and demand accountability from the management of the subject establishment.

Article 9 The composition and organization of the work of the board of directors must be appropriate to the structure of the shareholding, and to the size and nature of the activities of the subject establishment.

In order to ensure the independence of the board of directors, its composition must include executive and non-executive directors, including at least two (2) independent directors in the latter category.

Article 10 Independent directors must not belong to the board of directors for too long a period of time, and in any case, no more than two (2) terms of three (3) years each.

To prevent conflicts of interest, independent directors must not:

• be employees or agents of the subject establishment, or of a company in the group to which the subject establishment belongs;
• be corporate officers of a company in which the subject establishment holds a directorship mandate;
• be clients or suppliers of the subject establishment;
• have a family link with a corporate officer of the subject establishment;
• have been auditors or statutory auditors of the subject establishment during the last five years.

Article 11 The board of directors must not participate in the day-to-day management of the subject establishment. On the other hand, it must receive enough information to judge the quality of management.

Article 12 The board of directors has among its missions notably to:

• define the strategy of the credit institution;
• approve corporate values, codes of conduct, and ethics values communicated to the entire credit institution;
• propose to the general meeting the designation of competent independent directors;
• designate corporate officers;
• select and evaluate members of the senior management or management committee and ensure that this body exercises appropriate supervision by conforming to the policy it has defined;
• control management and ensure the quality of information provided to shareholders and the market;
• define and enforce a clear hierarchy of responsibilities at all levels of the subject establishment;
• ensure the independence of risk management, compliance, ethics, and internal audit functions;
• supervise the evaluation of risk management, internal control mechanisms, financial information, compliance, and ethics;
• ensure that external auditors respect applicable professional practice codes and standards;
• act through specialized committees, such as the audit committee or the risk management committee;
• approve the remuneration of senior management members and key personnel, in conformity with corporate culture, objectives, and long-term strategy as well as the control structure of the subject establishment;
• monitor compliance with regulations, ethics, rules of conduct, and codes of ethics.

Article 13 The board of directors must:

• have a charter approved by all directors in full;
• meet regularly according to a predefined calendar and predetermined agenda or whenever the interest of the bank obliges;
• produce written minutes of its meetings;
• have these minutes formally reviewed, approved, and kept in the permanent files of the subject establishment.

Article 14 The board of directors must ensure the quality of information on the structure of the shareholding and the objectives of the subject establishment.

The board of directors must ensure the prevention of conflicts of interest and the implementation of procedures for the management of conflicts of interest.

The board of directors must ensure the implementation of a code of ethics and business conduct and ensure its follow-up.

The board of directors must ensure the implementation of mechanisms allowing personnel to alert the deliberating and executive bodies on anomalies or deviations observed.

Article 15 When the subject establishment has constituted a Management Committee, the functions of the Chairman of the Board of Directors and the Management Committee must be assigned to different persons, namely a passive director and an active director, in order to ensure adequate separation of functions of these two bodies.

CHAPTER III. SPECIALIZED COMMITTEES

Article 16 The board of directors is assisted in its control function by specialized committees.

The specialized committees of the board of directors must:

• have a charter approved by the board of directors in full;
• meet regularly according to a predefined calendar and predetermined agenda or whenever the interest of the company requires;
• produce written minutes of committee meetings;
• have these minutes formally reviewed, approved, and kept in the permanent files of the subject establishment.

The delegation by the board of directors of certain responsibilities to a specialized committee cannot in any way lead to the limitation of its responsibilities or those of the directors.

Article 17 Without prejudice to regulatory provisions taken by the Central Bank of the Congo regarding internal control, the board of directors is assisted in its control function by specialized committees, notably the audit committee.

Article 18 The audit committee must, notably:

• comprise only directors who do not have management responsibilities (Non-Executive or Passive) in the bank or financial establishment;
• comprise directors having the most skills and knowledge in financial and banking matters (recognized expertise in accounting and financial management);
• ensure the adequacy of the internal control system to the activities of the bank;
• supervise and control the internal control function;
• examine the activity reports of internal audit;
• ensure complete coverage of the activities of the subject establishment by internal and external audits;
• supervise the examination and approval of financial statements made public by the subject establishment.

The audit committee has within its prerogatives the power to recommend to the board of directors the recruitment or dismissal of external auditors and supervise the relations of external auditors with the subject establishment.

To ensure its independence vis-à-vis the management of the subject establishment, the head of internal audit must report directly to the board of directors or the audit committee.

CHAPTER IV. MANAGEMENT COMMITTEE OR SENIOR MANAGEMENT

Article 19 The distribution of responsibilities between the board of directors and the management committee or senior management of the subject establishment must be clearly defined in order to guarantee the balance of powers and thus avoid the concentration of decision-making power.

The board of directors defines the distribution of attributions between its President and the senior management or management committee of the subject establishment.

The management committee, or senior management, is responsible for the day-to-day management of the bank or subject establishment and for adequate information of the board of directors.

The management committee, or senior management, is responsible for the supervision of managers of different lines of activity of the bank or subject establishment.

The management committee or senior management must be composed of at least two (2) persons in a position allowing them to exercise effective reciprocal control.

Members of the management committee, or senior management, must have the necessary skills to manage activities placed under their responsibility and must exercise appropriate control over key personnel in the lines of activity placed under their responsibility.

TITLE III. PREVENTION AND MANAGEMENT OF CONFLICTS OF INTEREST

Article 20 The subject establishment must take adequate measures for the prevention of conflicts of interest and put in place procedures for the management of conflicts of interest.

The subject establishment must define a policy and put in place procedures to identify and prevent conflicts of interest.

The subject establishment must inform stakeholders and the market about the general nature and sources of potential conflicts of interest that may arise in its activities and about the policy followed for the identification, prevention, and management of conflicts of interest.

Article 21 In the event that situations carrying conflicts of interest appear in the relations of the subject establishment with its shareholders, its directors, its personnel, its clients, the subject establishment must manage them in a manner that causes no prejudice to other stakeholders nor to itself, and document using appropriate information the manner in which conflicts of interest were managed.

TITLE IV. GROUP DIMENSION

Article 22 In the exercise of their responsibilities, the administrative and management bodies of the parent company establish general policies at the group level as well as the governance structure enabling it to be equipped with an integrated and harmonized steering mechanism.

To this effect, their attributions must neither exclude nor limit those of the administrative and management bodies of Congolese subsidiaries.

Consequently, the administrative and management bodies of Congolese subsidiaries must fully retain their responsibilities, notably those related to preserving the financial solidity of their establishments, strategic choices contributing to the protection of depositors' interests, risk management, and compliance with legal and regulatory requirements.

Furthermore, the presence of control and audit functions at the group level does not exempt those operating at the level of Congolese subsidiaries from their responsibilities.

TITLE V. MISCELLANEOUS PROVISIONS

Article 23 Decisions of the Central Bank of the Congo taken in application of this Instruction are notified to the concerned subject establishments.

Article 24 Subject establishments must communicate to the Central Bank of the Congo, upon the implementation of this Instruction, a governance memorandum whose model is in the annex, as well as all significant modifications that occur during the life of the company.

Article 25

Subject establishments are required to ensure strict observance of the provisions of this Instruction by their shareholders and directors, notably by requesting all useful justifications from them.

Non-compliance by subject establishments with the provisions of this Instruction exposes offenders to sanctions provided for by legal and regulatory provisions in this matter.

Article 26

This Instruction enters into force on July 31, 2010.

Done in Kinshasa, on J-C. MASANGU MULONGO Governor