Law No. 15/99 Regulating the Establishment and Exercise of Activities of Credit Institutions and Financial Companies

Monday, November 1, 1999 I SERIES – Number 43 BULLETIN OF THE REPUBLIC OFFICIAL PUBLICATION OF THE REPUBLIC OF MOZAMBIQUE 4th SUPPLEMENT TABLE OF CONTENTS Assembly of the Republic Law No. 15/99: Regulates the establishment and exercise of the activity of credit institutions and Financial Companies

ASSEMBLY OF THE REPUBLIC Law No. 15/99 Of November 1

The dynamic functioning of the financial system, characterized by the constant emergence of new products and institutions, recommends the revision of the legislation currently applicable to credit institutions, credit auxiliaries, and non-monetary financial intermediation entities.

In addition to introducing a new classification of institutions taking into account their object, it is urgent to adopt certain measures aimed at better disciplining their activity, in order to guarantee adequate management of the funds entrusted to them, thus offering greater security to users of the financial system.

In these terms, under the provisions of paragraph 1 of Article 135 of the Constitution, the Assembly of the Republic determines:

CHAPTER I General Provisions

ARTICLE 1 (Object of the Law) This Law regulates the establishment and exercise of the activity of credit institutions and financial companies.

I SERIES – Number 43

ARTICLE 2 (Definitions) For the purposes of this Law, the following are understood by: a) Credit Institutions: companies whose activity consists of receiving deposits or other refundable funds from the public, in order to apply them for their own account by granting credit; b) Financial Companies: companies that are not credit institutions and whose main activity consists of exercising one or more of the activities referred to in letters b) to g) of paragraph 1 of Article 4 of this Law.

2. Also for the purposes of this Law, the following are understood by: a) Branch: Establishment, in the country, of a credit institution or financial company with headquarters in Mozambique, or supplementary establishment of a branch, in the country. Of a credit institution or financial company with headquarters abroad, lacking legal personality and which carries out, directly, in whole or in part, operations inherent to the activity of the company; b) Authorization: Act emanating from the competent authorities that confers the right to exercise the activity of a credit institution or a financial company; c) Exchange Houses: Financial companies whose main object is the purchase and sale of foreign currency and traveler's checks, and which may also carry out other exchange operations as established by law; d) Credit: Act by which an entity, acting for consideration, places or promises to place funds at the disposal of another entity against the promise that it will return them on the due date, or incurs, in the interest of the same, an obligation by signature; e) Credit Cooperatives: credit institutions constituted in the form of cooperative societies, whose activity is developed exclusively for the benefit of their members; f) Deposit: contract by which an entity receives funds from another, having the right to dispose of them for its business and assuming the responsibility to return an equivalent amount, with or without interest, within the agreed period or at the request of the depositor; g) Subsidiary: a legal entity with respect to which another legal entity, designated as the parent company, is in a relationship of control, considering that the subsidiary of a subsidiary is also a subsidiary of the parent company from which both depend; h) Qualified Participation: holding in a company, directly or indirectly, a percentage not less than 10% of the capital or voting rights. The following are considered equivalent to the voting rights of the participant: i) Rights held by entities controlled by it or which are in a group relationship with it; ii) Rights held by the spouse not judicially separated or by minor descendants; iii) Rights held by other entities, in their own name or on behalf of others, but for the account of the participant or the persons mentioned above. iv) Rights inherent to shares of which the participant holds the usufruct. i) Relationship of control: relationship that occurs between a natural or legal person and a company, when the person in question is in one of the following situations: i) Holds, directly or indirectly, the majority of voting rights of the participant or the rights of any other company that is in a group relationship with it; ii) Is a partner of the company and controls alone, by virtue of an agreement concluded with other partners of this, the majority of voting rights; iii) Holds a participation not less than 20% of the capital of the company, provided that it effectively exercises a dominant influence over it or both are under single direction; iv) Is a partner of the company and has the right to appoint or dismiss more than half of the members of the administrative or supervisory body; v) Can exercise a dominant influence over the company by virtue of its contract or statutes; j) Group relationship: relationship that occurs between two or more natural or legal persons that constitute a single entity from the point of view of assumed risk, being linked in such a way that, in the event that one of them encounters financial problems, the other or all others will probably have difficulties in fulfilling their obligations. Except for public companies or of another nature controlled by the State, it is considered that this group relationship exists, namely, when: i) There is a relationship of control of one over the other or over others; ii) There are common shareholders or associates, who exercise influence on the companies in question; iii) There are common administrators; iv) There is direct commercial interdependence that cannot be replaced in the short term; k) Group Purchasing Administrative Companies: financial companies whose exclusive objective is the administration of group purchasing. Group purchasing is understood as the system of acquisition of goods or services by which a determined set of persons designated as participants, constitutes a common fund, through the periodic delivery of monetary payments, with a view to the acquisition, by each participant, of those goods or services over a previously established period of time. l) Brokerage Companies: financial companies whose main object is the exercise of the activity of stock exchange intermediation, through the receipt of orders from investors for the transaction of securities and their execution, and which may, within the scope of the securities market, carry out other activities permitted to them by law; m) Venture Capital Companies: financial companies whose object is the support and promotion of investment in companies, through temporary participation in their share capital. n) Factoring Companies: credit institutions whose exclusive object is the exercise of the factoring activity or financial assignment, the contract by which one of the parties (factor) acquires, from the other (adherent), short-term credits, derived from the sale of products or the provision of services to a third person (debtor). o) Investment Companies: credit institutions whose main object is the granting of credit and the provision of related services, under the terms permitted to them by law; p) Financial Leasing Companies: credit institutions whose exclusive object is the exercise of financial leasing activity. Financial leasing is understood as the contract by which one of the parties (lessor) undertakes, for consideration, to cede to the other (lessee) the temporary enjoyment of a thing, movable or immovable, acquired or constructed at the indication of the lessee and which the latter may purchase, after the agreed period, for a determined or determinable price through simple application of the criteria fixed in the contract. q) Brokerage Financial Companies: financial companies whose main object is the exercise of stock exchange intermediation activity, whether through the receipt of orders from investors for the transaction of securities and their execution, or through the carrying out of purchase and sale operations of securities for their own account, and which may carry out other activities, within the scope of the securities market, permitted to them by law; r) Asset Management Companies: financial companies whose exclusive object is the exercise of the activity of administration of sets of assets belonging to third parties; s) Investment Fund Management Companies: financial companies whose exclusive object is the administration, on behalf of participants, of one or more investment funds. Investment funds are understood as the set of values resulting from investments of capital received from the public and represented by participation units; t) Branch: Main establishment, in Mozambique, of a credit institution or financial company with headquarters abroad, or main establishment, abroad, of a credit institution or financial company with headquarters in Mozambique, lacking legal personality and which carries out directly, in whole or in part, operations inherent to the activity of the company.

ARTICLE 3 (Species of Credit Institutions) Credit institutions are: a) banks; b) financial leasing companies; c) credit cooperatives; d) factoring companies; e) investment companies; f) other companies that, corresponding to the definition of letter a) of paragraph 1 of Article 2, are so qualified by specific legal instrument.

ARTICLE 4 (Activity of Credit Institutions)

1. Banks may exercise the following activities: a) reception from the public of deposits or other refundable funds; b) credit operations, including granting guarantees and other commitments, except financial leasing and factoring; c) payment operations; d) issuance and management of payment instruments, such as credit cards, traveler's checks, and letters of credit; e) transactions, for own or third-party account, on money, financial, and exchange market instruments; f) participation in issuances and placements of securities and provision of related services; g) consulting, custody, administration, and management of securities portfolios; h) operations on precious metals, under the terms established by exchange legislation; i) taking participations in the capital of companies; j) marketing of insurance contracts; k) rental of safes and storage of valuables; l) corporate consulting on capital structure, corporate strategy, and related issues. m) Other analogous operations that the law does not prohibit them from performing.
2. The other credit institutions may only carry out the operations permitted to them by the specific legal instruments governing their activity.

ARTICLE 5 (Species of Financial Companies) Financial companies are: a) brokerage financial companies; b) brokerage companies; c) investment fund management companies; d) asset management companies; e) venture capital companies; f) group purchasing administrative companies; g) exchange houses; h) other companies that, corresponding to the definition of letter b) of paragraph 1 of Article 2, are so qualified by specific instrument. 2. For the purposes of this law, insurers and pension fund management companies are not considered financial companies.

ARTICLE 6 (Activities of Financial Companies) Financial companies may only carry out the operations permitted to them by the specific legal instruments governing their respective activity.

ARTICLE 7 (Principle of Exclusivity)

1. Only credit institutions may exercise the activity of receiving from the public deposits or other refundable funds.
2. Only credit institutions and financial companies may exercise, on a professional basis, the activities referred to in letters b) to g) of paragraph 1 of Article 4.
3. The provisions of paragraph 1 do not prevent the following entities from receiving refundable funds from the public, under the applicable legal, regulatory, or statutory provisions: a) The State and local authorities; b) Public funds and institutes endowed with legal personality and administrative and financial autonomy; c) Insurers, with respect to capitalization operations.
4. The provisions of paragraph 2 of this article do not prevent the following entities from carrying out the activity of granting credit: a) the persons referred to in letter b) of the previous number; b) natural persons and other legal entities not provided for in the previous numbers, under the terms approved by the Council of Ministers;

ARTICLE 8 (Refundable funds received from the public and granting of credit)

1. For the purposes of this law, funds obtained through the issuance of bonds, under the terms of the Commercial Code, are not considered as refundable funds received from the public.
2. For the purposes of this law, the following are not considered as granting of credit: a) advances and other forms of loans and advances between a company and its respective partners. b) Loans granted by companies to their workers within the scope of their personnel policy; c) Deferrals or advance payments agreed between parties in contracts for the acquisition of goods or services; d) Treasury operations, when legally permitted, between companies that are in a relationship of control or group; e) The issuance of vouchers or cards for payment of goods and services supplied by the issuing company.

ARTICLE 9 (Eligible Entities) The following entities are eligible to exercise the activities referred to in this Law: a) credit institutions and financial companies with headquarters in Mozambique; b) Branches in Mozambique, of credit institutions and financial companies with headquarters abroad.

ARTICLE 10 (Truth of Firm Names or Denominations)

1. Only credit institutions and financial companies may include in their firm name or denomination, or use in the exercise of their activity, expressions that arise from the activity of credit institutions or financial companies, namely “bank”, “banker”, “of credit”, “of deposits”, “financial leasing”, “leasing” and “factoring”.
2. The aforementioned expressions are always used in such a way as not to mislead the public regarding the scope of operations that the entity in question may perform.

CHAPTER II (Credit institutions and financial companies with headquarters in Mozambique)

SECTION I General Principles

ARTICLE 11 (General Requirements)

1. Credit institutions with headquarters in Mozambique must satisfy the following requirements: a) correspond to one of the species provided for in Mozambican law; b) adopt the form of a public limited company (sociedade anónima); c) have as their exclusive objective the exercise of the activity legally permitted under Article 4. d) Have share capital not less than the legal minimum. e) Have share capital represented obligatorily by registered or bearer shares.
2. In addition to the requirements provided for in letters a) and d) of the previous number, financial companies with headquarters in Mozambique must have as their main object one or more of the activities referred to in letters b) to g) of paragraph 1 of Article 4 or another provided for in special law.
3. At the date of constitution, the share capital of credit institutions and financial companies must be entirely subscribed and paid in an amount not less than the legal minimum.
4. The capital of the same entities must be fully paid within 6 months from the date of constitution or the date of subscription, in the case of a capital increase.

ARTICLE 12 (Composition of the Administrative Body) The administrative body of credit institutions and financial companies that, by legal imposition, acquire the form of public limited companies, must be constituted by a minimum of three members, with powers of effective direction of the institution's activity.

SECTION II Authorization Process

ARTICLE 13 (Authorization of Constitution) The constitution of credit institutions and financial companies depends on authorization to be granted, on a case-by-case basis, by the Minister of Planning and Finance, after hearing the Bank of Mozambique.

ARTICLE 14 (Processing of the Application)

1. The application must be submitted to the Bank of Mozambique and processed with the following elements: a) characterization of the type of institution to be constituted and a reasoned exposition on the adequacy of the shareholder structure to its stability; b) draft statutes; c) activity program, geographical implantation, organizational structure, and human, technical, and material means to be used; d) provisional accounts for each of the first three years of activity. e) Identification of founding shareholders, with specification of the capital subscribed by each. f) Declaration of commitment that at the time of constitution and as a condition, it is demonstrated that the amount of share capital required by law is deposited in a credit institution operating in the country.
2. The following information regarding founding shareholders who are legal entities holding qualified participations in the institution to be constituted must also be presented: a) statutes and list of members of the administrative body; b) balance sheet and income statements for the last three years; c) list of partners of the participating legal entity who hold qualified participations in it; d) list of companies in whose capital the participating legal entity holds qualified participations, as well as an illustrative exposition of the group structure to which it belongs.
3. The Bank of Mozambique may request complementary information from applicants and carry out investigations it deems necessary.

ARTICLE 15 (Decision)

1. The decision on the application must be taken within ninety days from the receipt of the application or, if applicable, of complementary information, and must be notified in writing to the applicants.
2. The application is rejected whenever: a) it is not processed with all the required information and documents; b) its processing suffers from inaccuracy and falsities. c) The institution does not comply with the requirements of paragraphs 1 and 2 of Article 11; d) The institution does not have sufficient technical means and financial resources for the type and volume of operations it intends to carry out.

ARTICLE 16 (Lapse of Authorization)

1. The authorization lapses if the applicants expressly renounce it, if the institution is not constituted within 3 months from the date of authorization, or if it does not start activity within 12 months.
2. In exceptional circumstances, upon request duly justified by the institution, the Bank of Mozambique may, once only, extend by another 6 months the period for starting activity.
3. The authorization also lapses if the institution is dissolved, without prejudice to the practice of acts necessary for its respective liquidation.

ARTICLE 17 (Revocation of Authorization)

1. The authorization of a credit institution or financial company may be revoked on the following grounds, in addition to others legally provided: a) if it was obtained by means of false declarations or other illicit expedients, regardless of the criminal sanctions applicable to the case; b) if any of the requirements established in Article 11 cease to be verified; c) if its activity does not correspond to the authorized statutory object; d) if it ceases its activity for a period exceeding 6 months; e) if it violates the laws and regulations governing its activity or does not observe the determinations of the Bank of Mozambique, in a manner that puts at risk the interests of depositors and other creditors or the normal conditions of functioning of the money, financial, or exchange markets.
2. The revocation of the authorization implies the dissolution and liquidation of the credit institution or financial company.

ARTICLE 18 (Competence and Form of Revocation)

1. The revocation of the authorization is the competence of the Minister of Planning and Finance, after hearing the Bank of Mozambique.
2. The decision of revocation must be reasoned and notified to the credit institution or financial company in question.

SECTION III Administration and Supervision

ARTICLE 19 (Propriety of Members of Administrative and Supervisory Bodies)

1. Only persons whose propriety guarantees sound and prudent management, with a view in particular to the safety of the funds entrusted to them, may be members of the administrative and supervisory bodies of a credit institution or a financial company.
2. Among other relevant circumstances, a lack of propriety is indicated by the fact that the person has been: a) declared, by national or foreign judgment, bankrupt or insolvent or responsible for the bankruptcy or insolvency of the company controlled by it or of which it was administrator, director, or manager; b) Convicted in the country or abroad, for crimes of fraudulent bankruptcy, negligent bankruptcy, forgery, theft, robbery, fraud, extortion, breach of trust, usury, exchange fraud, and issuance of checks without provision, drug trafficking, money laundering, and other crimes of an economic nature. c) Administrator, director, or manager of a company, in the country or abroad, whose bankruptcy or insolvency was prevented, suspended, or avoided by remedial measures or other preventive or suspensive means, provided that the competent authorities recognize their responsibility for that situation. d) Convicted, in the country or abroad, for practicing infractions to the legal or regulatory rules governing the activity of credit institutions and financial companies, the insurance activity, and the securities market, when the gravity or recurrence of these infractions justifies it.

ARTICLE 20 (Professional Experience)

1. Members of the administrative bodies of a credit institution or a financial company must possess adequate experience for the performance of these functions.
2. Adequate experience is presumed when the person in question has previously exercised functions in the financial domain or possesses recognized competence in economic or legal matters and management.
3. The verification of the fulfillment of the adequate experience requirement may be subject to a prior consultation process.

ARTICLE 21 (Lack of Requirements of Members of Administrative and Supervisory Bodies)

1. If for any reason the legal or statutory requirements for the normal functioning of the administrative or supervisory body of a credit institution or a financial company cease to be met, the Bank of Mozambique sets a deadline for the composition of the body in question to be altered.
2. If the situation is not regularized within the set deadline, the authorization may be revoked under the terms of Article 17.

ARTICLE 22 (Accumulation of Positions or Functions)

1. Members of the administrative bodies of credit institutions and financial companies may not, cumulatively, exercise management positions or perform any functions in other credit institutions and financial companies...