Law No. 2020-011 on Banking Law

LAW No. 2020-011 on Banking Law
The National Assembly and the Senate have adopted in their respective sessions, dated July 2, 2020.
The President of the Republic,
Having regard to the Constitution,
Having regard to Decision No. 12-HCC/D3 of August 31, 2020 by the High Constitutional Court, Enacts the law whose text follows:

TITLE I. PRELIMINARY PROVISIONS
CHAPTER 1. OBJECT AND SCOPE OF APPLICATION
Object
Article 1 - This law aims to set the conditions for the exercise of banking services, and the supervision modalities for banking service providers.

Entities subject to the law
Article 2 - This law applies to banking service providers operating within the territory of the Republic of Madagascar.
Banking service providers are considered to be Credit Institutions, abbreviated as "CIs", and other banking service providers.
CIs designate all legal entities that carry out, as their regular profession, one or more banking services provided for in Articles 5 to 13 of this law.
Other banking service providers designate all legal entities authorized, as their regular profession, to carry out one or more banking services under the conditions set forth in Articles 23 to 26 of this law.

Entities not subject to the law
Article 3 - The following entities are not subject to this law:

the Public Treasury;
Banky Foiben’i Madagasikara, abbreviated as BFM;
international financial institutions and public aid and cooperation organizations authorized to carry out a credit operation defined by Article 7 of this law, pursuant to treaties, agreements, or conventions to which the Republic of Madagascar has adhered, as well as any fund, instrument, or entity responsible for managing such fund or instrument, where these institutions or organizations are donors or shareholders;
non-profit organizations that, within the framework of their mission and for social reasons, grant preferential loans from their own resources to certain of their nationals;
organizations that, exclusively as an ancillary activity to their construction or service provider activities, grant deferred payment of the price for housing acquired or subscribed by individuals;
companies that grant their employees, for social reasons, salary advances or exceptional loans;
companies that, in the exercise of their professional activities, grant payment delays or advances to their contractors, such as credit sales;
companies that conduct treasury operations with entities belonging to the same group defined by Article 4 of this law.

CHAPTER 2. DEFINITIONS
Article 4 - For the purposes of this law, the following terms are understood as:

Independent Administrator: any member of the Board of Directors who is not a shareholder and has no relationship, of any nature whatsoever, with the CI or entities within its group, capable of compromising their freedom of judgment or leading them into a conflict of interest;
Representation Office: any office of a CI whose headquarters are located abroad, not possessing legal personality, authorized to exclusively conduct information and representation activities within Madagascar;
Transaction Account: any demand account opened with banking service providers, allowing the holder to perform deposits, withdrawals, money transfers, and any payment operation;
Cybersecurity: any device to prevent, manage, and mitigate risks related to any illegal act punished by regulations on cybercrime prevention;
Business Group: a set of companies composed of a parent company, its subsidiaries, entities, and natural persons linked to it according to criteria defined by CSBF instruction;
Banking Group: a set of enterprises directly or indirectly held by a parent company or holding company that manages and directs the group, in which:
- a CI is either the parent company or one of the entities within the group;
- and the enterprises within the group have links such as common management, commercial or financial interdependence, or the difficulties of one necessarily affect the others;
Financial Inclusion: any access to adapted and proximate financial products and services, including savings, credit, insurance, and payment, offered by sustainable institutions and used by all population segments;
Financial Infrastructure: the set of legal, institutional, and technical frameworks established for the needs of the financial sector, in which banking service providers participate as participants, declarants, or users;
Banking Mobility: the ability for any person, holder, agent, or guardian of a transaction account, to change CIs;
Systemic Risk: any risk of propagation of the effects of a CI's failure or bankruptcy on the stability of the financial system or on the social plan;
Financial Stability: a situation represented by a solid financial system, capable of fully performing its key functions and resisting potential internal and external shocks;
Person related to the credit institution: a natural or legal person, or group of linked persons, meeting one or more of the following criteria:
a. member of the Board of Directors and committees created by the Board, including persons representing corporate members of said Board, executives of the institution as defined by this law, senior managers responsible for risk management, compliance, and audit functions; b. shareholder holding a direct or indirect participation in the institution within the limit set by CSBF instruction;
c. member of the Board of Directors of an entity meeting the criteria defined in point b);
d. spouse, family members in direct line up to the second degree and their respective spouses, or in collateral line up to the third degree of a person referred to in points a), b), and c); e. company in which a person referred to in points a), b), and c) is a member of the Board of Directors, and affiliated companies; f. political party in which a person referred to in points a), b), c), or d) is registered as a leading member or founding member of said political party; g. company in which a person referred to in points a), b), and c) holds, directly or indirectly, shares or voting rights within the limit set by CSBF instruction; h. company that the CI controls directly or indirectly, alone or with other natural or legal persons, within the limit set by CSBF instruction.

TITLE II. BANKING SERVICES
CHAPTER 1. BANKING OPERATIONS
Section 1. General Provisions
Article 5 - Banking operations include the reception of public funds, credit operations, and the provision to the public or management of payment means.
Authorized banking operations vary depending on CI categories defined in Articles 15 to 22 of this law.

Section 2. Reception of Public Funds
Article 6 - Public funds received are considered as funds collected from a third party, with the right to dispose of them for their own account, but subject to restitution.
The following are not considered public funds received:

funds received or left in account by general partners or limited partners of a partnership company, shareholders or directors holding at least five percent (5%) of the share capital, administrators, members of the management and supervisory boards or managers, as well as funds from participatory loans provided for in Article 10 of this law;
funds that a company receives from its employees, provided their amount does not exceed ten percent (10%) of its equity. For the assessment of this threshold, funds received from employees under specific legislative provisions are not taken into account;
deposits or all sums allocated as security for the repayment of credits with a CI.

Section 3. Credit Operations
General Provisions
Article 7 - A credit operation constitutes any act by which a person, acting for valuable consideration, provides or promises to provide funds to a person, or assumes, in that person's interest, an obligation by signature such as a guarantee, suretyship, or collateral.
CIs that have provided a guarantee, suretyship, or collateral have full right and in all cases, recourse against their client, co-obligors, and persons who have acted as guarantors. CIs are subrogated in the rights of creditors for payments they have made. Credit leasing, factoring, and participatory credit are assimilated to credit operations. In addition to provisions set by this law, these operations may be subject to specific legislation taken after the opinion of the Banking and Financial Supervision Commission, abbreviated as CSBF, established by Article 34 of this law.

Leasing/Financial Lease
Article 8 - Financial leasing is an operation by which the CI, as lessor, pursuant to a contract, purchases any asset at the request of its client, the lessee, with a view to leasing it for a fixed duration, in exchange for periodic rent payments by the latter.
Upon expiration of the contract, the lessee may:

return the asset to the lessor;
acquire the asset for the residual value fixed in the contract, which takes into account payments made as rent;
request renewal of the contract.
CIs conduct financial leasing operations in accordance with regulations on financial leasing.

Factoring
Article 9 - Factoring is an operation by which the CI, called the factor, in exchange for commissions, may:

settle with its client the amount of valid commercial claims held by the latter on its own debtors, pursuant to a professional assignment of claims;
act as guarantor or surety for its client regarding a professional pledge.
Factoring is governed by a subrogation agreement, which may include the provision by the factor of various management services to its client.
The factor has no recourse against its client in case of debtor default.

Participatory Credit (Crowdfunding)
Article 10 - Participatory credit consists of connecting any person seeking a loan with any person willing to lend money, according to the following modalities:

the CI collects funds which are deposited in a blocked bank account;
the CI, in exchange for commissions, makes the collected funds available to borrowers as loans or assumes obligations by signature such as guarantees, suretyship, or collateral;
the CI ensures, on behalf of borrowers, repayment to lenders of the loan amount and agreed interest.

Article 11 - Notwithstanding specific regulations on participatory credit, the CSBF sets by instruction the particular conditions for exercising this activity.

Section 4. Provision to the Public or Management of Payment Means
Article 12 - The provision to the public or management of payment means is the operation by which the CI circulates any payment mean or instrument, regardless of the medium or technical process used, allowing any person to withdraw, deposit, transfer money, and perform any payment.
CIs comply with regulations governing payment means and those related to electronic money and electronic money institutions.

CHAPTER 2. CONNEXE OPERATIONS
Article 13 - CIs are authorized to perform connexe operations related to their activities, such as:

safe deposit box rental;
foreign exchange operations; operations on gold and precious metals;
equity participation in existing or newly created companies;
advisory and assistance services regarding asset or financial management, financial engineering, and generally all services designed to facilitate business creation or development;
any operation on financial instruments;
distribution of insurance products in accordance with insurance regulations;
advisory, training, and financial education services;
subject to compliance with applicable regulations for the aforementioned professions or activities.

TITLE III. BANKING SERVICE PROVIDERS
CHAPTER 1. CREDIT INSTITUTIONS
Section 1. General Provisions
Article 14 - Credit Institutions are classified into banks, financial institutions, and microfinance institutions.
Authorized banking services vary according to the CI category.

Section 2. Categories of Credit Institutions
Banks
Article 15 - Banks comprise two categories: properly speaking banks and development banks.

Article 16 - Properly speaking banks are authorized to perform all banking services, including banking operations and connexe operations.
They are licensed in two sub-categories, according to criteria set by CSBF instruction. These criteria are essentially based on the importance of risk and its impact on financial stability.

Article 17 - Development banks carry out credit operations as their main activity. They are not authorized to collect public funds. They generally act within the framework of a permanent mission of public interest. They essentially finance structural projects initiated under the implementation of the Government's general policy, particularly focused on economic and social sectors.
Connexe operations authorized to them are provided under conditions set by CSBF instruction.

Financial Institutions
Article 18 - Financial institutions may carry out one or more banking services.
Authorized operations are fixed in their licensing decision. Financial institutions are licensed as savings institutions, specialized credit institutions, or business institutions.

Article 19 - Savings institutions may receive public funds. They are not authorized to conduct credit operations. They are enabled to perform connexe operations, including in particular all operations on financial instruments.

Article 20 - Specialized Credit Institutions may carry out one or more banking services.
They are particularly specialized in credit operations, including operations assimilated to credit defined in Articles 7 to 10 of this law, and the provision to the public or management of payment means defined in Article 12. They are not enabled to receive public funds, except as an ancillary activity directly correlated to their operations in the form of guarantee deposits or provisions for a specific operation.

Article 21 - Business institutions are authorized to carry out, as their main activity, equity participation operations in existing or newly created companies. They may also conduct credit operations as well as connexe operations linked to their activities. They are not enabled to receive public funds.

Microfinance Institutions
Article 22 - Microfinance Institutions, abbreviated as MFIs, carry out microfinance activities in accordance with applicable regulations.
They may perform connexe operations, particularly foreign exchange operations upon prior authorization from the CSBF. They conduct these operations in compliance with banking, foreign exchange regulations, and conditions set by CSBF instruction.

CHAPTER 2. OTHER BANKING SERVICE PROVIDERS
Section 1. General Provisions
Article 23 - Other banking service providers carry out, for their own account, one or more of the banking operations, including or not connexe operations provided in Articles 5 to 13 of this law. They are licensed and exercise their activities pursuant to specific regulations applicable to them.

Article 24 - Without prejudice to specific provisions set by CSBF instructions, the provisions of this law apply to other banking service providers, except those concerning preventive measures, recovery, and resolution.

Article 25 - The CSBF updates and publishes on the BFM website a list of other banking service providers.

Section 2. Categories of Other Banking Service Providers
Article 26 - Other banking service providers are licensed, or must obtain their license, according to applicable regulations, as:

electronic money institutions;
foreign exchange bureaus;
or any entity meeting the definition given in Article 23 of this law.

TITLE IV. CONDITIONS FOR THE EXERCISE OF BANKING SERVICES
CHAPTER 1. APPROVAL
Section 1. Application for Approval
Article 27 - The exercise of banking services defined by Articles 5 to 13 of this law is subject to obtaining prior approval from the CSBF.
They are licensed and exercise their activities pursuant to specific regulations applicable to them.
The approval application essentially includes the presentation of:

the promoter;
prospective shareholders and executives;
business plan including, among others, envisaged operations, accompanied by financial projections over a five-year period;
technical and financial means provided;
preventive recovery plan, as referred to in Article 52 of this law.
Furthermore, the approval application must justify the existence within the CI to be created of an internal control and risk management system meeting applicable regulatory requirements, as well as a reliable and efficient information and management system. Any promoter pays the application fees for approval, the amount and payment modalities of which are fixed by order of the Minister in charge of Finance, upon proposal from the CSBF. The fees are non-refundable, regardless of the outcome of the approval application. The CSBF determines by instruction the approval conditions, procedures for processing approval applications, according to CI categories.

Section 2. Approval Decision
Article 28 - The CSBF grants approval when the conditions required by this law and its implementing texts are met.
The approval decision is notified to the promoter; it specifies the CI's name, category, and banking services for which it is authorized.
CSBF decisions regarding refusal and withdrawal of approval are subject to appeal before the competent administrative court.

Section 3. Suspensive Conditions
Article 29 - The CSBF sets in the approval decision one or more suspensive conditions to be fulfilled within a determined period, before the actual commencement of banking services by the CI.

Section 4. Refusal of Approval Application
Article 30 - Any refusal of approval is reasoned. It is pronounced notably when:

the origin of financial resources is justified, in accordance with anti-money laundering and counter-terrorist financing regulations;
the shareholding structure lacks transparency;
the financial situation of shareholders does not guarantee their ability to provide additional financial support to the CI;
governance and control structures do not comply with requirements set by this law and its implementing texts;
the business plan guarantees the viability, solidity, and sustainability of the institution, or preliminary financial statements are prepared on unjustified or unrealistic parameters;
the CI does not present clear policies and strategies regarding risk management;
the information and management system meets CSBF control requirements;
the preventive recovery plan provided in Article 52 of this law is included in the file;
the anti-money laundering and counter-terrorist financing mechanism complies with applicable regulatory requirements;
the approval file contains gaps or inconsistencies preventing the CSBF from ruling.

Section 5. Publication of the Approval Decision
Article 31 - The CSBF publishes the approval decision on the BFM website, updates and publishes the list of licensed CIs. To this end, it assigns each licensed CI an registration number, after the lifting of suspensive conditions provided by Article 29.
CIs publish the approval decision at their expense in at least two (2) legal announcement newspapers and display a copy of said decision at the institution's headquarters.
This list and its updates are published on the BFM website and in the Official Journal.

Article 32 - CIs indicate in all acts, documents, commercial correspondence, and various publications, the reference of the approval decision, the category in which they operate, and the registration number provided by Article 31 above.

CHAPTER 2. WITHDRAWAL OF APPROVAL
Article 33 - The CSBF withdraws the approval of a CI in one of the following cases:

on its own initiative when the CI:
- has not commenced activity within six (6) months from the lifting of suspensive conditions;
- has ceased activity for a period of six (6) months regardless of the reasons;
- is unable to recover its situation, despite recovery measures referred to in Title VII of this law;
- finds itself in difficulty and its dissolution does not entail a systemic risk defined in Article 4;
at the request of the CI when:
- its Extraordinary General Assembly has decided early dissolution;
- a shareholder makes the request, in case of non-compliance with obligations by one or more shareholders or disagreement between them preventing normal CI operation.
  The CSBF notifies the CI of the duly reasoned withdrawal decision and publishes it on the BFM website. The concerned CI publishes the decision at its expense in at least two (2) legal announcement newspapers. Upon withdrawal of approval, the CI immediately ceases its activities and enters liquidation, in accordance with Articles 201 to 227 of this law.