Notice No. 3/2014 of October 17 – Regarding the Application to Conflicts of Interest (Articles 9 and Following)

II Series — No. 38 "Official Gazette" of the Republic of Cape Verde — March 14, 2019 461 res, excluding members of the governing bodies, is equal to or greater than six and the operational profits in the last financial year are equal to or greater than 50,000,000.00 (fifty million Cape Verdean escudos).
3. The remuneration committee is responsible for formulating informed and independent opinions on the remuneration policy and practices, and on the incentives created for risk, capital, and liquidity management purposes.
4. The remuneration committee is responsible for adopting decisions regarding remuneration and the determination of remuneratory benefits due to each executive.
5. In carrying out its activities, the remuneration committee must observe the long-term interests of shareholders, investors, and other stakeholders in the financial institution, as well as the public interest.

Article 7.º
Duty of Disclosure on the Website
Financial institutions must disclose their remuneration policy on their website, and it must include information demonstrating compliance with the provisions of the preceding articles.

Article 8.º
Entry into Force
This Notice enters into force on July 1, 2019.
Office of the Governor and Councils of the Bank of Cape Verde, in Praia, on March 8, 2019. — The Governor, João António Pinto Serra –––— Notice No. 3/2019 Amendment to Notice 3/2014 of October 17 Behavioral Supervision This Notice aims to amend and develop the provisions of Notice No. 3/2014 of October 17 regarding Codes of Conduct and the Conflict of Interest Prevention and Management Policy of Financial Institutions. Through amendments to the aforementioned regulation, it is intended to establish the general parameters that Codes of Conduct adopted by financial institutions or representative associations thereof must comply with. It is recalled that, under Article 68 of Law No. 62/VIII/2014 of April 23, the Financial Institutions Activities Act (LAIF), financial institutions must adopt Codes of Conduct regulating various aspects of their relationships with clients. Furthermore, paragraph 2 of the aforementioned article provides that Codes of Conduct adopted by institutions must be disclosed to clients, initially on each financial institution's website. Regarding the innovations introduced by this Notice concerning the Conflict of Interest Policy, it is recalled that paragraph 1 of Article 80 of LAIF obliges financial institutions to adopt and maintain updated a policy on the prevention and management of conflicts of interest, prepared according to terms defined by the Bank of Cape Verde. The subject matter of conflicts of interest has been addressed in other parts of the Cape Verdean legal system, within the regulation of various topics, namely: (i) in protecting legitimate confidence in financial institutions' relationships with their clients; (ii) in the conflict mediation procedure by the Bank of Cape Verde; (iii) in duties imposed on members of the Board of Directors in exercising their functions, as well as (iv) in restrictions on the admissibility of holding multiple offices by the same, and further (v) in limitations imposed on transactions between related parties with executives or shareholders of financial institutions. In consonance with other points in the financial system where conflicts of interest are regulated, this Notice establishes the terms to be observed by financial institutions in drafting, adopting, and applying a Conflict of Interest Prevention and Management Policy (hereinafter referred to as the "Policy"), in order to enable the identification of actual and potential conflicts of interest that may arise within the financial activities performed, as well as to prevent or minimize the risk of their occurrence. To this end, this Notice considers the Board of Directors of the financial institution as the competent body for approving and reviewing the Policy, due to its essential function in managing institutional activities and, consequently, its decision-making supremacy on corporate governance matters. The Policy must be put in writing so that it can be consulted by interested parties upon request, and its record
maintained. For their part, the following are considered essential minimum requirements to be included in the Policy as deemed necessary to ensure sound and prudent management of the financial institution, namely: (i) identification of circumstances that may constitute conflict of interest situations, in order to alert all employees and members of the governing bodies regarding circumstances sensitive to conflicts of interest; (ii) description of procedures to be adopted in managing such situations, ensuring rigor and transparency in handling all matters that may influence professional diligence and the duty of loyalty owed to employees and governing body members; (iii) specification of mandatory validation rules for all transactions between related parties by the Supervisory Board, as it is the body responsible for verifying compliance with corporate governance law, ensuring such operations are conducted under full competition; and, of equal importance, (iv) indication of measures to be adopted in case of non-compliance with the Policy, to sanction such non-compliance and consequently discourage any behavior inconsistent with sound and prudent management. In drafting the Policy, it is also important to reinforce obligations falling on governing body members, particularly the duty to promptly inform their respective body or committee of facts that may constitute or cause a conflict between their interests and the social interest, in order to collaborate with the financial institution on sound management and fulfill their duty of loyalty in exercising their functions. Furthermore, the Policy must include procedures ensuring that a conflicted member does not interfere in the decision-making process regarding the conflict of interest related to them, guaranteeing impartial corporate governance focused solely on safeguarding institutional interests. It is also relevant to note that effective compliance with the Policy must be continuously supervised, a function assigned to the governing body responsible for exercising supervisory functions over governance and legal compliance, the Supervisory Board. Furthermore, it is incumbent to ensure that the Policy is adequate to the institution's size and organizational structure, as well as the scope and complexity of financial activities developed, and must be reviewed and updated whenever the Board of Directors considers it no longer adequate to the characteristics of the financial institution in question. Finally, it is worth noting that these rules are supplemented by recommendations contained in the Corporate Governance Code for Financial Institutions. For the above reasons, the Bank of Cape Verde, exercising the competence conferred by paragraph c) of paragraph 1 of Article 42 of its Organic Law, approved by Law No. 10/VI/2002 of July 15, and also by paragraph 1 of Article 17 of Law No. 61/VIII/2014 of April 23, the Financial System Basic Law (LBSF), as well as by paragraph 3 of Article 68, paragraph 1
of Article 80, and Article 102, all of LAIF, also dated April 23, approves the following Notice:

Article 1.º
(Amendments to Notice No. 3/2014 of October 17) Articles 8 and 10 of Notice No. 3/2014 of October 17 are amended, which shall henceforth read as follows:

Article 8.º
(Basis of Codes of Conduct)

1. The Codes of Conduct mandatorily adopted by financial institutions must fulfill the following objectives:
   a) Ensure that the financial institution has a specialized customer service function, responsible for permanent handling of client complaints, their analysis and assessment; b) Ensure that the financial institution has a customer ombudsman, who benefits from an autonomous and functionally independent status vis-à-vis the financial institution, operating as a second instance through re-evaluation of client complaints that have received an unfavorable outcome; c) Ensure that statistical information on complaints is periodically reported to the institution's governing body.
2. Financial institutions whose number of employees, excluding members of the governing bodies, is less than six and operational profits in the last financial year are less than 50,000,000.00 (fifty million Cape Verdean escudos) are exempt from complying with paragraph b) of the preceding section.
3. The Codes of Conduct mandatorily adopted by financial institutions must, at least, prescribe rules in the following domains:
   a) General objectives and principles; b) Conduct standards in client relations, namely regarding:
   i. Financing contracts;
   ii. Conflicts of interest, independence and impartiality;
   iii. Loyalty and cooperation;
   iv. Information duties;
   v. Professional secrecy, personal data protection and insider information;
   vi. Information provided in the context of financial services;
   vii. Advertising directed to clients;
   viii. Processing and statistical control of complaints;
   ix. Maximum response time for complaints.

Article 10.º
(Conflict of Interest Policy)

1. The Board of Directors of financial institutions subject to the supervision of the Bank of Cape Verde and legally authorized to exercise financial activities must draft, approve and periodically review a Conflict of Interest Prevention and Management Policy.
2. The Board of Directors must approve such a Policy, the content of which is subject to the provisions of this Notice.
3. The aforementioned Conflict of Interest Prevention and Management Policy must be adopted with the aim to:
   a) Identify organizational areas and situations most likely to originate conflicts of interest capable of prejudicing the financial institution's and its clients' interests; b) Prevent and mitigate identified conflicts of interest, as well as manage and record them if preventive measures prove insufficient; c) Ensure compliance with the rules in this Notice and applicable legislation regarding conflicts of interest and professional duties imposed on the financial institution and its personnel; d) Ensure that the institution's activities are pursued in accordance with rigorous ethical and deontological principles; e) Contribute to establishing an institutional image of rigor and competence.
4. Financial institutions must ensure that all their employees are aware of the approved conflict of interest policy.

Article 2.º
(Addition to Notice No. 3/2014 of October 17)
Articles 8-A, 8-B, 10-A, 10-B, 10-C, 10-D, 10-E, 10-F and 10-G are added to Notice No. 3/2014 of October 17, with the following wording:

Article 8.º-A
(Supervision)
Supervision of compliance with Codes of Conduct adopted under this Notice is the responsibility of the internal audit and/or compliance functions of the respective financial institutions.

Article 8.º-B
(Disclosure)

1. The Codes of Conduct adopted by financial institutions are disclosed on their websites.
2. Prior to the disclosure referred to in the preceding paragraph, the Code of Conduct must be submitted to the Bank of Cape Verde for assessment and validation of its compliance with this Notice and applicable legislation.
3. The Code of Conduct is considered approved if the Bank of Cape Verde does not raise objections to its content within 30 days.

Article 10.º-A
(Form)
The Conflict of Interest Prevention and Management Policy must be put in writing.

Article 10.º-B
(Minimum Content)

1. The Policy must contain, at minimum, the following elements:
   a) Identification of circumstances constituting or potentially originating conflicts of interest; b) Specification of procedures to be followed and measures to be taken by governing bodies for effective, transparent and equitable prevention and management of potential conflict situations; c) Definition of mandatory validation rules, carried out by the Supervisory Board, for transactions involving related parties with executives and shareholders; d) Implementation of information access and treatment measures, aimed at limiting the possibility of conflicts of interest arising from improper use of information, in accordance with Article 10-C; e) Indication of measures to be adopted in case of non-compliance with the Policy, including its qualification as a disciplinary offense.
2. The elements indicated in the preceding paragraph must be described to ensure the Policy's adequacy to the financial institution's size and organizational structure, as well as its scope and complexity of developed financial activities.

Article 10.º-C
(Confidentiality Duties / Information Security)

1. The access and treatment measures aimed at limiting the possibility of conflicts of interest arising from improper use of information, provided in the Conflict of Interest Prevention and Management Policy, must comply with the following rules:
   a) When the financial institution provides services resulting in knowledge of insider information, a list of persons who had access to such information must be prepared; b) All non-public documentation must be stored in a locked and restricted-access location; c) Financial institution employees should only have access to information concerning clients or operations as necessary for performing their respective functions; d) All documents that are not necessary must be immediately disposed of and destroyed, preventing third parties from accessing or improperly using them; e) All financial institution employees have a duty to maintain confidentiality regarding all information accessed in the exercise of their functions, regardless of its source, and are obliged not to disclose such information to third parties or use it for purposes other than the normal exercise of their respective functions.
2. For the purposes of paragraph a) of section 1 of this article, insider information is understood as all information that cumulatively:
   a) Relates directly or indirectly to financial institutions or securities issued by them; b) Has a precise nature; c) Has not been made public; d) If made public, would be capable of significantly influencing the price of such securities or related underlying or derivative instruments.

Article 10.º-D
(Duty to Disclose Conflicts of Interest)
The Policy must impose the obligation for governing body members and corporate committees to promptly inform their respective body or committee of facts that may constitute or cause a conflict between their interests and the financial institution's social interest.

Article 10.º-E
(Disqualification from Voting and Participation in Decision-Making) In case of a conflict of interest before a decision-making process in any governing body or corporate committee, the Policy must include procedures ensuring that the conflicted member does not interfere in the decision-making process, without prejudice to the duty to provide information and clarifications requested by the body, committee or their respective members.

Article 10.º-F
(Body Responsible for Supervision of Compliance) Continuous and permanent supervision of the effective compliance with the Policy is within the competence of the institution's Supervisory Board.

Article 10.º-G
(Renewal Regime)
7. The Policy must be reviewed whenever deemed inadequate to the institution's size and organizational structure and/or scope and complexity of developed financial activities.
8. The assessment of the Policy's adequacy and its review are within the competence of the institution's Board of Directors.

Article 3.º
(Republication)
Notice No. 3/2014 of October 17, with the amendments hereby introduced, is republished in an annex to this Notice.

Article 4.º
(Entry into Force)
This Notice enters into force on July 1, 2019.
Office of the Governor and Councils of the Bank of Cape Verde, in Praia, on March 8, 2019. — The Governor, João António Pinto Serra
Annex
Republication of Notice No. 3/2014 of October 17 (referenced in Article 3) Notice No. 3/2014 of October 17 Behavioral Supervision Following the international financial crisis, it became clear that uninformed actions by bank customers can jeopardize financial stability, accentuating market functioning failures. In this sense, it was felt necessary to regulate and supervise the conduct of financial institutions in retail banking product and service commercialization, and their information duties towards clients. It was understood that adequate conduct by financial institutions towards their clients and conscious decisions by bank customers in acquiring products and services are fundamental factors to ensure efficient functioning and stability of financial markets. In this context, the Bank of Cape Verde updated Notice No. 5/94 of March 7 regarding pricing, and revoked Notice No. 2/99 of May 3 regarding information to be provided by institutions to clientele, through Notice No. 1/2013 of April 12, which established rules for financial institutions to observe in disclosing pricing, defining information and assistance duties towards clients that fall on institutions and determining which banking services are free. On the other hand, through Notice No. 3/2013 of July 4, 2013, the regime applicable to information regarding interest rates and other credit operation costs to be provided to clients by financial institutions was established. The Financial Institutions Activities Act (Law No. 62/VIII/2014 of April 23) regulates for the first time the procedures and mechanisms of behavioral supervision. It is important, however, to develop the rules provided therein. Thus, this Notice establishes the conduct rules that financial institutions must respect, as well as procedures and deadlines regarding assessment of client complaints by the Bank of Cape Verde. Regarding complaint regulation, consideration was given to Circular Letter No. 02/2013/BCV/GAP, as well as generally to Decree-Law No. 19/2008 of June 9 regarding the complaints book. On the other hand, rules on codes of conduct regulating various aspects of financial institutions' relationships with their clients are provided. Finally, the matter concerning conflicts of interest was developed, regulating, notably, the terms of conflict of interest policies to be approved by financial institutions, as well as rules governing credit grants to members of the administration and supervisory bodies of financial institutions. In exercising its supervisory and regulatory powers, notably those conferred by Articles 61, 67, paragraph 3, 68, 79, paragraph 5, 80, paragraphs 1 and 2 of Law No. 62/VIII/2014 of April 23, the following Notice is approved:

Chapter I
GENERAL PROVISIONS
Article 1.º
(Object)

1. This Notice establishes the rules and procedures to be observed by financial institutions in their relations with clients.
2. Rules on conflicts of interest are also provided, namely the terms under which policies on prevention and management of conflicts of interest must be drafted by financial institutions.

Article 2.º
(Conduct Rules)
Financial institutions must, in relations with clients, observe the following conduct rules:
a) Act in relations with clients, as well as with other institutions, with diligence, neutrality, loyalty, discretion and conscientious respect for entrusted interests; b) Act with the diligence of a careful and orderly manager; c) Respect client rights, namely the possibility to choose and switch products or services, as well as financial institutions; d) Obtain from the client all relevant and necessary information to assess their capacity to fulfill obligations related to requested products and services; e) Inform in writing clearly and understandably the rates, commissions and other charges levied on authorized active and passive operations; f) Ensure that clients' personal data, as well as those related to their operations, are not used for other purposes, except for fulfilling client instructions and Bank of Cape Verde regulations or when any legal provision expressly limits the duty of secrecy; g) Enable access to adequate and functional complaint mechanisms for resolving problems diligently; h) Possess resources, procedures, systems and controls necessary to ensure compliance with this and other current regulations; i) Maintain a complaints book on their premises, as legally required.

Chapter II
CLIENT COMPLAINTS
Article 3.º
(Submission of Complaints)

1. Written complaints submitted directly to the Bank of Cape Verde may be made using the complaint form d.