Notice No. 7/GBM/2019 of 27 May – Revokes Paragraph 3 of Article 8 of Notice No. 5/GBM/2018 of 6 June on Prudential Limits to Risk Concentration

REPUBLIC GAZETTE OFFICIAL PUBLICATION OF THE REPUBLIC OF MOZAMBIQUE SUMMARY N O T I C E The matter to be published in the «Boletim da República» must be submitted as a duly authenticated copy, one for each subject, containing, in addition to the necessary indications for this purpose, the following endorsement, signed and authenticated:
For publication in the «Boletim da República».
IMPRENSA NACIONAL DE MOÇAMBIQUE, E. P.
Bank of Mozambique:
Notice No. 6/GBM/2019:
Concerning the Prudential Ratios and Limits of Investment Funds.
Notice No. 7/GBM/2019:
Revokes paragraph 3 of Article 8 of Notice No. 5/GBM/2018 of 6 June on Prudential Limits to Risk Concentration.
Monday, 27 May 2019 SERIES I — Number 101
BANK OF MOZAMBIQUE
Notice No. 6/GBM/2019 of 27 May
With the approval of Decree No. 54/99 of 8 September, amended by Decree No. 36/2005 of 29 August, which regulates the establishment and operation of investment funds, powers were conferred upon the Bank of Mozambique to regulate, by Notice, the rules governing the composition of fund assets, limits on investments in securities issued by the same entity, limits on investments in other investment funds, rules for calculating participation units, and standards regarding risk coverage. On the other hand, the development stage of the national financial market and the growth potential of the securities market are other key factors that make it appropriate to establish prudential ratios and limits for investment funds. Thus, using the powers conferred by Article 27 of Decree No. 54/99 of 8 September, which regulates the establishment and operation of investment funds, and by Article 64 of Law No. 15/99 of 1 November – Law on Credit Institutions and Financial Companies, updated by Law No. 9/2004 of 21 July, the Bank of Mozambique determines:
CHAPTER I
General Provisions
ARTICLE 1
Subject Matter
This Notice establishes the prudential ratios and limits applicable to investment funds and to the management companies of investment funds.
ARTICLE 2
Scope of Application
This Notice applies to the management companies of investment funds and to banks authorized to manage closed-end investment funds.
ARTICLE 3
Definitions
For the purposes of this Notice, the following shall be considered:
a) “Correlated entities”, natural or legal persons related to the investment fund management company, in accordance with International Financial Reporting Standards; b) “Autonomous fractions”, part of a building that belongs exclusively to the co-owner, as defined in Decree No. 17/2013 of 26 April, which approves the Regulation of the Legal Regime of Condominiums; c) “Investment funds”, pools of assets belonging to a plurality of persons designated as participants, resulting from capital investments made by them; d) “Open-end investment funds”, funds whose participation units are of variable number; e) “Closed-end investment funds”, funds whose participation units are of fixed number; f) “Real estate investment funds”, funds whose participation units are real estate assets; g) “Securities investment funds”, funds whose participation units are securities; h) “Money market instruments”, transferable financial instruments, normally traded on the money market, liquid, and whose value can be determined precisely at any time, with a maturity of up to one year, namely Treasury Bills, Deposit Certificates, Commercial Paper; i) “Participation units”, shares of the funds' assets, of equal characteristics, without nominal value;

2030 SERIES I — NUMBER 101 j) “Net asset value of the investment fund”, the net amount that an investment fund management company can realize from the sale of participation units, in accordance with International Financial Reporting Standards; k) “Real estate assets”, properties registered in the land registry as part of an investment fund, as well as holdings exceeding 50% of the capital of companies whose shares are listed on a stock exchange and are exclusively dedicated to the acquisition, sale, leasing, and operation of real estate; l) “Securities”, shares, bonds, government funds, participation units in investment funds, and any other assets, regardless of their nature or form of representation, even if merely book-entry, legally issued by any entities, public or private, in homogeneous sets that confer identical rights to their holders, and that are legally susceptible to negotiation on an organized market, as established by Decree-Law No. 4/2009 of 24 July, which approves the Securities Market Code.
CHAPTER II
Prudential Ratios and Limits of Investment Funds
ARTICLE 4
Assets of Investment Funds

1. The assets of a real estate investment fund may consist of real estate, holdings in real estate companies, and liquidity, without prejudice to the provisions of paragraph 3 of this article.
2. Real estate may form part of the assets of a real estate investment fund under ownership or surface rights, and must be free of encumbrances or charges that excessively hinder their alienation, namely assets subject to real guarantees, attachment, or precautionary proceedings.
3. Real estate held by real estate investment funds corresponds to urban, rural, or mixed properties, or autonomous fractions, participation units in real estate investment funds, and other comparable assets that may form part of the assets of a real estate investment fund.
4. The assets of a securities investment fund consist of securities, namely shares, bonds, government funds, and liquidity.
5. For the purposes of this article, liquidity is considered to be cash, bank deposits, deposit certificates, and securities issued by the State with a residual maturity of less than twelve months.
   ARTICLE 5
   Rules for the Composition of Fund Assets
6. The composition of the assets of open-end real estate investment funds shall observe the following rules:
   a) The value of a real estate property and other comparable assets may not represent more than 70% of the total assets of the investment fund; b) The development of construction projects may not represent, in total, more than 40% of the total assets of the fund; c) The value of real estate leased to a single entity or a set of correlated entities may not exceed 30% of the total assets of the real estate investment fund; d) Holdings in real estate companies may not represent more than 50% of the total assets of the real estate investment fund.
7. The following rules shall apply to closed-end real estate investment funds:
   a) The value of a real estate property may not represent more than 80% of the total assets of the fund; b) The development of construction projects may not represent, in total, more than 50% of the total assets of the fund; c) The value of real estate leased to a single entity or a set of correlated entities may not exceed 40% of the total assets of the real estate investment fund; d) Holdings in real estate companies may not represent more than 50% of the total assets of the real estate investment fund.
8. For securities investment funds, at least 60% of the portfolio must consist of securities admitted to quotation on the Mozambique Stock Exchange.
   ARTICLE 6
   Limits on Investments in Securities Issued by the Same Entity
9. Securities investment funds may not invest more than 25% of their net asset value in securities and money market instruments issued by the same entity.
10. The provision in the preceding paragraph does not apply to investments in securities and money market instruments issued by the State, for which the limit is raised to 35%.
11. Real estate investment funds may not invest more than 40% of their net asset value in securities issued by the same entity.
12. Securities and real estate investment funds may not acquire the entirety of securities issued by a single issuer.
    ARTICLE 7
    Limits on Investments in Other Investment Funds
13. Securities investment funds may not invest more than 20% of their net asset value in participation units of a single securities investment fund.
14. Securities investment funds may not invest, in total, more than 30% of their net asset value in participation units of securities investment funds.
15. Real estate investment funds may not invest more than 40% of their net asset value in participation units of a single real estate investment fund.
16. Real estate investment funds may not invest, in total, more than 50% of their net asset value in participation units of real estate investment funds.
    ARTICLE 8
    Rules to be Followed in Calculating and Disclosing the Value of Participation Units
17. The value of participation units is determined by dividing the net asset value of the investment fund by the number of participation units in circulation.

27 MAY 2019 2031
2. The value of participation units of investment funds shall be calculated and disclosed on all business days.
3. The provision in the preceding paragraph does not apply to the disclosure of the value of participation units of closed-end securities investment funds, which shall be carried out monthly, with reference to the last day of the previous month.
4. The value of participation units shall be disclosed at all sales locations.
5. The assets of real estate investment funds must be valued according to the fair value criterion.
ARTICLE 9
Standards Regarding Risk Coverage

1. Investment fund management companies must develop a detailed risk management program, adjusted to the size and complexity of their activities.
2. Risk management programs must be reviewed at least annually and must include, at a minimum, capital, market, remuneration, and liquidity risks.
3. Risk management entails the processes of identification, measurement, control, and monitoring.
4. Investment fund management companies are subject to compliance with the limits applicable to investment funds during the portfolio management process.
5. Investment fund management companies must hold sufficient own funds to cover potential risks arising from professional civil liability, on grounds of negligence.
   ARTICLE 10
   Composition of Own Funds of Investment Fund Management Companies Own funds consist of positive and negative elements, as defined in Articles 11 and 12 of this Regulation.
   ARTICLE 11
   Positive Elements of Own Funds
   The following are considered positive elements of own funds:
   a) Paid-up capital; b) Legal, statutory, and other reserves formed by undistributed profits; c) Issue premiums; d) Positive results carried forward from previous years; e) Positive results of the last financial year; f) Provisional positive results of the current financial year; g) Released portion of preferred shares.
   ARTICLE 12
   Negative Elements of Own Funds
   The following are considered negative elements of own funds:
   a) Treasury shares; b) Intangible assets; c) Negative results carried forward from previous years; d) Negative results of the last financial year; e) Provisional negative results of the current financial year; f) Negative results of other financial years; g) Negative revaluation reserves; h) Positive revaluation differences; i) Negative actuarial deviations; j) Excesses beyond the limits referred to in Articles 5, 6, and 7.
   ARTICLE 13
   Core and Supplementary Own Funds
6. The amount corresponding to the sum of the elements indicated in letters a) to f) of Article 11, minus the sum of the elements indicated in letters a) to i) of Article 12, constitutes core own funds.
7. The amount corresponding to the sum of the elements indicated in letter g) of Article 11, minus the sum of the elements indicated in letter j) of Article 12, constitutes supplementary own funds.
   ARTICLE 14
   Maximum Limit for Supplementary Own Funds
   Supplementary own funds must not exceed the value of core own funds.
   ARTICLE 15
   Other Limits for Own Funds
8. Core own funds must correspond to at least 80% of total own funds.
9. Elements of supplementary own funds must not exceed the equivalent of 20% of total own funds.
   ARTICLE 16
   Calculation of Own Funds
10. Total own funds are determined by the sum of core own funds and supplementary own funds.
11. Own funds must not be lower than the minimum share capital.
    ARTICLE 17
    Elements to be Deducted from Own Funds
    The amount of value adjustments that safeguard risks incurred in the management of securities and real estate investment fund operations must be deducted, to the extent that these are not safeguarded in the institution's accounts, whenever the requirements established by the Bank of Mozambique for the recognition of significant transfers of risks inherent to the activities of investment fund management companies are not met.
    CHAPTER III
    Final and Transitional Provisions
    ARTICLE 18
    Sanctioning Regime
    Violation of the provisions of this Notice constitutes an offense punishable under the Law on Credit Institutions and Financial Companies and other applicable legislation.
    ARTICLE 19
    Clarifications
    Doubts arising in the interpretation and application of this Notice must be submitted to the Regulation and Licensing Department.
    ARTICLE 20
    Entry into Force
    This Notice enters into force on the date of its publication.
    Maputo, 22 April 2019. — The Governor, Rogério Lucas Zandamela.

2032 SERIES I — NUMBER 101
Notice No. 7/GBM/2019 of 27 May
In order to harmonize the regime for deducting excesses of prudential limits to risk concentration introduced by Notice No. 5/GBM/2018 of 6 June, with the provisions in letter c) of paragraph 4 of Article 8 of Notice No. 8/GBM/2017 of 2 June, which approves the Regulation on Own Funds of Credit Institutions, the Bank of Mozambique, using the competence conferred by Article 64 of Law No. 15/99 of 1 November, as amended by Law No. 9/2004 of 21 July – Law on Credit Institutions and Financial Companies, determines:
ARTICLE 1
Subject Matter
This Notice aims to revoke paragraph 3 of Article 8 of Notice No. 5/GBM/2018 of 6 June, which approves prudential limits to risk concentration.
ARTICLE 2
Repealing Provision
Paragraph 3 of Article 8 of Notice No. 05/GBM/2018 of 6 June, which approves prudential limits to risk concentration, is hereby repealed.
ARTICLE 3
Clarifications
Doubts regarding the interpretation and application of this Notice must be submitted to the Prudential Supervision Department of the Bank of Mozambique.
ARTICLE 4
Entry into Force
This Notice enters into force on the date of its publication.
Maputo, 22 April 2019. – The Governor, Rogério Lucas Zandamela.
Price — 20.00 MT
NATIONAL PRESS OF MOZAMBIQUE, E.P.