Instruction No. 51 Fixing Rules on Transactions by Credit Institutions and Financial Companies with Related Parties

BANQUE CENTRALE DU CONGO

THE GOVERNOR

INSTRUCTION NO. 51 FIXING THE RULES RELATING TO TRANSACTIONS BY CREDIT INSTITUTIONS AND FINANCIAL COMPANIES WITH RELATED PARTIES

The Central Bank of Congo,

Having regard to the Organic Law No. 18/027 of December 13, 2018, on the organization and functioning of the Central Bank of Congo, particularly Articles 10, 11, and 25;

Having regard to Law No. 22/069 of December 27, 2022, on the activity and control of Credit Institutions, particularly Articles 48 and 167;

Having regard to Law No. 11/020 of September 15, 2011, fixing the rules applicable to the microfinance activity in the Democratic Republic of the Congo, particularly Title II;

Having regard to Law No. 15/003 of February 12, 2015, on leasing;

Enacts the following provisions:

TITLE I: GENERAL PROVISIONS

CHAPTER I: OBJECT AND SCOPE OF APPLICATION

Article 1:

This Instruction aims to determine the criteria for identifying related parties to the credit institutions and financial companies referred to in Article 2 below, as well as to fix the rules applicable to transactions that these entities conduct with such parties.

Article 2:

This Instruction applies to the following credit institutions and financial companies, referred to as "subject institutions":

• banks;
• microfinance companies;
• Savings Banks;
• leasing companies;
• investment banks;
• development banks;
• microcredit companies.

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Article 3:

For the purposes of this Instruction, the following definitions apply:

• related party: any person who has the ability to exercise, directly or indirectly, control or significant influence over decisions relating to the financing or operation of another;

• shareholder, partner, or member: a natural or legal person holding one or more shares or partnership interests in the capital of a credit institution or financial company;

• deliberative body: the emanation of the general meeting of shareholders or partners that determines the strategic direction of the institution, ensures the monitoring of its implementation, and reports to said shareholders/partners. The deliberative body is the Board of Directors in joint-stock companies or the collegiate body in companies constituted under another form, charged with overseeing the overall good administration of the institution;

• executive body: the body responsible, on behalf of the deliberative body, for the day-to-day management of the institution's activities as well as the effective steering of the implementation of the strategic objectives and risk policy set by the deliberative body. It corresponds to the General Management, the Management Committee, or the Direction Committee, and consists of at least two members, namely the General Director and the Deputy General Director;

• transaction: exposures and claims appearing on and off the balance sheet, service contracts, purchases and sales of assets, construction contracts, leasing contracts, derivatives transactions, and loans.

Article 4:

The following are considered related parties:

1. subsidiaries of the subject institution or affiliated companies and any party (including its subsidiaries, affiliated companies, and special purpose vehicles) over which the subject institution exercises control or which exercises control over it. This includes in particular:

• legal persons in which the subject institution holds participations;

• non-banking natural or legal persons linked to the bank by cross-guarantee contracts or business contracts, namely subcontracting or franchise agreements;

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BANQUE CENTRALE DU CONGO

2. shareholders or partners and their representatives, members of the deliberative body and their representatives, members of the executive body, senior management, their direct or indirect interests, their close relatives -ascendants and descendants in the first degree- as well as the corresponding persons in the entities cited in point 1;

3. persons linked to the related parties listed in points 1 and 2.

Article 5:

The following are considered linked persons:

• natural or legal persons who have capital links such that one of them exercises, directly or indirectly, exclusive or joint control power, significant influence over the others, or are subject to common de facto direction;

• natural or legal persons who are linked in such a way that the financial difficulties encountered by one or some of them would necessarily lead to serious financial difficulties for the other or all others.

Article 6:

The Central Bank of Congo reserves, with regard to its prerogatives, the right to qualify any other person as a related party based on the nature of the relationship linking them to the subject institution.

TITLE II: TRANSACTIONS WITH RELATED PARTIES

Article 7:

Transactions by the subject institution with related parties must not be subject to more favorable conditions than corresponding transactions with non-related parties.

Article 8:

Transactions with related parties and their cancellation must be submitted for prior approval by the Board of Directors of the subject institution. Members of the Board of Directors with conflicts of interest must be excluded from the approval process.

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Article 9:

Transactions with related parties must be brought to the attention of the statutory auditors of the subject institutions. A special part of their report must be devoted to assessing the compliance of these operations with the provisions of this Instruction and the policies and procedures provided for in Article 10.

Article 10:

Subject institutions must have policies and procedures enabling them to:

• formalize the approval of all transactions with related parties;
• identify exposures to these persons, monitor them, and report periodically to the deliberative body and the Central Bank of Congo.

These policies and procedures must be developed by the executive body and approved by the deliberative body.

Reports on these transactions with related parties must be made by the executive body to the deliberative body at least once a year.

TITLE III: GRANTING, MANAGEMENT, AND SUPERVISION OF CREDITS TO RELATED PARTIES

Article 11:

Disbursement or signature credits to related parties must comply with the internal procedures applicable to the entire customer base and must be granted under the same market conditions as other credits of the same nature to customers, particularly regarding the examination of the credit application, the guarantees required, the credit risk assessment, the maturity, the applied rate, commissions, other required fees, and contractual provisions.

Staff members of the subject institution, including senior management, may benefit from preferential conditions that are part of their overall remuneration, provided that this applies equally to all staff.

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Article 12:

Subject institutions must take the necessary measures to avoid conflicts of interest in the context of the processes for granting, restructuring, writing off, managing, and supervising credits to related parties, particularly by excluding the participation of interested persons.

These measures must be formalized in the policies and procedures provided for in Article 10 of this Instruction.

Article 13:

The amount of disbursement or signature credits granted to related parties may not exceed 20% of the regulatory capital of the subject institution. The portion of said credits in favor of related parties exceeding 20% of regulatory capital must be deducted from Tier 1 or Category 1 capital or their equivalent.

This cap does not apply to subsidiaries and participations of the institutions referred to in Article 2 that are Credit Institutions.

Article 14:

Subject institutions are required to request prior authorization from the Central Bank of Congo for the write-off or abandonment of their credits to related parties.

Article 15:

Subject institutions are required to declare monthly to the Central Bank of Congo/Direction responsible for the supervision of financial intermediaries the credits granted to related parties in accordance with the reporting model defined in the BSA application of the Central Bank of Congo.

Article 16:

Subject institutions must implement an internal rating system for its counterparties, including related parties, based on a risk-based approach using a set of relevant analysis criteria for credit risk assessment.

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TITLE V: SANCTIONS

Article 17:

The Central Bank of Congo reserves the right, in addition to the deductibility from Tier 1 or Category 1 capital of the portion exceeding 20% of regulatory capital provided for in Article 13 in case of exceeding this threshold, to impose sanctions on both subject institutions and their management.

Article 18:

Failure to comply with the other provisions of this Instruction exposes subject institutions to financial or administrative sanctions provided for by legal and regulatory texts.

TITLE VI: MISCELLANEOUS AND FINAL PROVISIONS

Article 19:

This Instruction enters into force on July 5, 2023, and repeals all prior provisions contrary to it.

Done in Kinshasa, on MAY 16, 2023

MALANGU KABEDI MBUYI Governor

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