Procedure for Conducting Inspections of Credit Financial Organizations, Summarizing and Providing Results

"Registered" "Approved"
Ministry of Justice by the Resolution of the Board of the Republic of Tajikistan National Bank of Tajikistan No. 192 "b" dated "27" March 2014. No. 13 "Registered" "Approved" amendments and additions amendments and additions Ministry of Justice by the Resolution of the Board of the Republic of Tajikistan National Bank of Tajikistan No. 192 "c" dated "4" August 2020. No. 92 PROCEDURE FOR CONDUCTING INSPECTIONS OF CREDIT FINANCIAL ORGANIZATIONS, SUMMARIZING AND PROVIDING ITS RESULTS The Procedure for conducting inspections of credit financial organizations, summarizing and providing its results (hereinafter - the Procedure) is developed in accordance with Part 7 of Article 47 of the Law of the Republic of Tajikistan "On the National Bank of Tajikistan" and
Part 7 of Article 58 of the Law of the Republic of Tajikistan "On Islamic Banking
Activity" establishes the procedure for conducting inspections of credit financial organizations, summarizing and providing its results.
CHAPTER 1. GENERAL PROVISIONS

1. Inspections of credit financial organizations, including their branches and
   structural subdivisions, are conducted by the National Bank of Tajikistan to carry out banking regulation and supervision functions.
2. This Procedure applies to the following credit financial
   organizations:

• banks and Islamic banks;
• subsidiary bank of a credit financial organization outside the Republic
  of Tajikistan;
• non-bank credit organizations and Islamic non-bank credit
  organizations;
• microfinance organizations and Islamic microfinance organizations;
• branches (Islamic banking window) and other structural subdivisions
  of credit financial organizations (banking service centers, mobile units, etc.) (hereinafter - structural subdivisions);
• representative offices of credit financial organizations in the Republic
  of Tajikistan;
• branches and representative offices of a credit financial organization outside the
  Republic of Tajikistan;
• branches and representative offices of foreign banks and foreign Islamic
  banks in the Republic of Tajikistan.

3. Inspections of credit financial organizations are conducted from the perspective of risk-based supervision and Islamic financing principles, with frequency determined taking into account the following factors:

• financial condition;
• risk exposure;
• assessment of risk management systems and internal control organization;
• reliability of accounting and reporting;
• results of previous inspections.

4. The main goal of the National Bank of Tajikistan conducting inspections
   of credit financial organizations is an on-site assessment of the overall financial condition, or specific areas of their activity, including an assessment of compliance with the banking legislation of the Republic of Tajikistan and regulatory legal acts of the National Bank of Tajikistan, reliability of accounting and reporting, determination of the size of risks, assets, liabilities, assessment of asset quality, capital size and adequacy, risk management system and internal control organization, financial condition and activity prospects, as well as identifying actions and attempts threatening the interests of depositors and creditors. With respect to Islamic credit organizations, an inspection for compliance with Islamic financing principles will also be conducted.
5. The inspection of a credit financial organization conducted by the National
   Bank of Tajikistan does not perform the tasks of inspections conducted by auditing organizations, and documentary audits carried out in accordance with the legislation of the Republic of Tajikistan for collecting evidence for criminal and other cases.
6. Inspections of credit financial organizations, including banks/Islamic
   banks and non-bank financial organizations/Islamic non-bank credit organizations, are conducted no less than once a year, and inspections of representative offices of credit financial organizations and microfinance organizations/Islamic microfinance organizations are conducted no less than once every two years by authorized representatives (employees) of the National Bank of Tajikistan (hereinafter – authorized representatives). Inspections of Islamic banking windows of credit organizations are conducted no less than once every two years.
7. The inspection of a credit financial organization covers a specific period
   of activity, which cannot exceed five calendar years of activity preceding the year of the inspection.
8. Inspections of credit financial organizations are conducted based on a plan
   for comprehensive inspection. The inspection plan is compiled each quarter by the structural subdivision for banking supervision of the National Bank of Tajikistan and its territorial departments and approved by their heads.
9. Unscheduled (thematic) inspections of credit financial organizations
   are carried out by order of the Chairman of the National Bank of Tajikistan or his deputy, overseeing the structural subdivision for banking supervision and

foreign exchange regulation, as well as by order of the manager (head) of the territorial department of the National Bank of Tajikistan.
10. The inspection plan primarily includes credit financial
organizations regarding which data has been received about their unstable financial position or violations of rules in their activity.
11. The composition of authorized representatives includes employees of the structural subdivision for banking supervision of the National Bank of Tajikistan and
specialists attracted for these purposes from other structural subdivisions and territorial departments.
12. The inspection of a credit financial organization is conducted based on
a document confirming the authority of the authorized representatives to conduct the inspection (hereinafter – the Order).
13. The Order defines the personal composition of the authorized
representatives, indicating the head and members of the inspection group.
14. The Order is prepared in two copies in accordance with Appendix No. 1.
15. In case of changes in the personal composition of the inspection group, an
addendum to the Order is prepared, which is an integral part of the Order and in accordance with Appendix No. 2 is prepared in two copies.
16. The following officials of the National Bank of Tajikistan
(hereinafter - official) have the right to sign the Order:

• Chairman of the National Bank of Tajikistan, Deputy Chairman
  of the National Bank of Tajikistan, overseeing the structural subdivision for banking supervision, and persons replacing them;
• head of the territorial department of the National Bank of Tajikistan and
  person replacing him.

17. The supervisor (specialist of the structural subdivision for banking supervision
    jointly with the relevant subdivisions) of the inspected credit financial organization before the start of the inspection must prepare the following information;

• unified consolidated financial report;
• report on the analysis of financial activity;
• deficiencies during the year;
• deficiencies in vulnerable areas, etc.

18. The inspection of a credit financial organization begins at the moment
    of presentation by the head of the inspection group of the Order (hereinafter – date of start of inspection).
19. The inspection of a credit financial organization is completed after the transfer of the inspection act of the credit financial organization for familiarization based on the acceptance-transfer protocol (hereinafter – date of completion of inspection).
20. The term of inspection of a credit financial organization depending on the number
    of branches, structural subdivisions, volume of its assets and liabilities may be set up to 50 calendar days. In justified cases, the term of inspection may be extended by up to 10 calendar days.
21. Inspection conducted at the request of a credit financial organization
    is conducted on various issues, for the period and within terms agreed upon with

the credit financial organization.
22. The National Bank of Tajikistan has no right to conduct more than one inspection on
the same issues for the same period of activity of a credit financial organization, except in cases where such inspection is conducted:

• in connection with reorganization or liquidation of a credit financial organization;
• by decision of the Board of the National Bank of Tajikistan. Such a decision
  of the Board of the National Bank of Tajikistan may be adopted in the order of control over the activity of the territorial department of the National Bank of Tajikistan that conducted the inspection, or based on the request of the corresponding structural subdivision of the National Bank of Tajikistan for the purpose of assessing the financial condition, quality of assets and liabilities of the credit financial organization. For the specified purposes, the request of the structural subdivision of the National Bank of Tajikistan must contain indications of identified signs of unstable financial condition of the credit financial organization or non-compliance with Islamic financing principles if these signs created a real threat to the interests of its depositors, creditors, and holders of investment accounts.

23. Assessment of the financial condition, quality of assets and liabilities of a credit
    financial organization must be identified in accordance with methodologies established by regulatory legal acts of the National Bank of Tajikistan.
24. In case of conducting a repeated inspection of a credit financial organization, in
    the Order, the inspected period and issues subject to inspection are indicated.
25. An official based on the report of the head of the inspection group
    may decide to suspend or terminate the inspection of a credit financial organization in the presence of the following circumstances:
    a) grounds for suspension:

• threats to the life and health of the head and members of the inspection group;
• resistance to conducting the inspection of the credit financial
  organization;
• other cases preventing the conduct of the inspection.
  b) grounds for termination:
• revocation of the license of the credit financial organization for conducting
  banking operations;
• appointment of a temporary administration to manage the credit financial
  organization;
• threat to the legitimate interests of depositors and creditors of the credit financial
  organization and the stability of the banking system of the Republic of Tajikistan. In case of adopting a decision to terminate the inspection of a credit financial organization by an official who signed the Order, the results of its inspection are documented in accordance with this Procedure.

26. Notification of suspension of inspection of a credit financial organization,
    prepared in accordance with Appendix No. 3, is sent to the head of the credit financial organization, and the results of its inspection are documented in accordance with Chapter 8 of this Procedure.

27. An official who adopted a decision to suspend the inspection, upon
    elimination of cases serving as grounds for its suspension, adopts a decision on resumption of the inspection of the credit financial organization.

28. Upon resumption of the inspection of a credit financial organization, in case
    of necessity, an addendum to the Order is made and documented in accordance with
    Appendix No. 2.

29. The results of the inspection of a credit financial organization include
    information necessary for the National Bank of Tajikistan to carry out its banking regulation and supervision functions, obtained during the inspection in addition to the reporting data submitted to the National Bank of Tajikistan, serving as the basis for assessments and conclusions of the National Bank of Tajikistan on the overall condition, or on specific areas of activity, as well as other supervisory information on identified facts and circumstances of its activity, capable of necessitating the application of measures provided for by the Law of the Republic of Tajikistan "On the National Bank of Tajikistan", including:

• unreliable information about the financial condition and property status
  of the credit financial organization due to violation of the established order of keeping accounting records and distortion of accounting, statistical and financial reporting;
• facts (events) of non-compliance by the credit financial organization with laws,
  regulatory legal acts and directives of the National Bank of Tajikistan, non-submission of information, submission of incomplete or unreliable information;
• circumstances of the activity of the credit financial organization, actions
  (inaction) of its employees or management bodies, which are not violations of the legislation of the Republic of Tajikistan, regulatory legal acts of the National Bank of Tajikistan, but negatively affect or are capable of having a negative influence on the financial condition, on assumed risks or creating prerequisites for the emergence of violations and additional risks.
  CHAPTER 2. RIGHTS, DUTIES AND LIABILITY OF
  AUTHORIZED REPRESENTATIVES OF THE NATIONAL BANK OF TAJIKISTAN

30. Authorized representatives forming the inspection group (hereinafter -
    head and members of the inspection group) are guided by the Laws of the Republic of Tajikistan "On the National Bank of Tajikistan", "On Banking Activity", "On Islamic Banking Activity", "On Microfinance Organizations", "On Counteracting the Legalization (Money Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of Proliferation of Weapons of Mass Destruction", other laws of RT, this Procedure, and other regulatory legal acts of the National Bank of Tajikistan. The composition of the inspection group does not include persons who are shareholders (participants) of the credit financial organization or members of their families (spouses, children, brothers and sisters, parents, stepfathers and

stepmothers, stepsons and stepdaughters) working in managerial positions of the credit financial organization.
31. The head and members of the inspection group ensure the preservation and return
of property, documents obtained from the credit financial organization (except copies of documents (information) obtained in accordance with the provisions of this Procedure).
32. The duties of organizing interaction of the inspection group on all
issues of conducting the inspection are imposed on the following persons:

• head of the inspection group;
• executive bodies (Board, Chairman) of the credit financial
  organization, Deputy Chairmen, members of the Board, heads of branches and their representative offices, their deputies and heads of the Islamic banking window;
• responsible employees of the inspected structural subdivisions of the credit financial
  organization in case of conducting an inspection of its representative offices or structural subdivisions;
• head of the appointed temporary administration to manage the credit financial
  organization.

33. The head of the inspection group is authorized to agree with the official
    to decide on the possibility of familiarizing the head of the temporary administration before the date of completion of the inspection with the inspection acts and other materials of the inspection necessary for the temporary administration to execute the tasks and functions assigned to it.
34. The head of the inspection group sets the time of daily stay
    of the inspection group in the buildings and other official premises of the credit financial organization during the term of the inspection taking into account the operating mode in them and is responsible for its execution.
35. In case of necessity, for members of the inspection group, a stay time
    can be set, different from the operating mode in the inspected credit financial organization, by agreement with the head.
36. The head and members of the inspection group have the right:
    a) to freely enter the official premises of the inspected credit financial organization, including those occupied by the information-computing center, or any other subdivision carrying out collection, processing and storage of information resources, as well as subdivisions carrying out operations with cash and other valuables, and if necessary, accompanied by specially assigned employees of the credit financial organization or employees of other organizations carrying out on the basis of contracts control over compliance with the access regime or security of the credit financial organization. b) to use technical means, including computers, electronic information carriers and other electronic information carriers, calculators, copying machines, scanners, telephones (including official telephone, which is necessary for conducting the inspection and organizing the work of the inspection group), to bring into official premises and remove from them organizational- technical means belonging to the National Bank of Tajikistan. c) to request and receive from the head, employees as well as from shareholders (participants), clients and correspondents of the credit financial organization all necessary to achieve the goals of the inspection documents (information) for the inspected period, including:

• to request from shareholders (participants), clients and their correspondents
  documents (information) necessary to establish actual circumstances, in particular to confirm data contained in documents;
• organizational-administrative documentation, instructions, regulations,
  regulations, rules and other internal documents of the credit financial organization;
• materials of the internal control or internal audit service of the credit
  financial organization, including reports, conclusions of the internal control or internal audit service, and the results of their consideration;
• documents of analytical and synthetic accounting of the credit financial
  organization, including for operations, accounts and deposits of individuals, legal entities and citizens carrying out entrepreneurial activity without forming a legal entity, accepted primary documents and accounting registers, book of registration of opened and closed personal accounts;
• financial, statistical and operational reporting of the credit financial
  organization;
• explanatory notes, certificates, written explanations of the head
  of the credit financial organization and its employees;
• audit opinions on the financial reporting of the credit financial
  organization;
• acts and materials of inspections of the credit financial organization conducted by
  the National Bank of Tajikistan and law enforcement agencies, including within the framework of checking compliance with the legislation of the Republic of Tajikistan;
• concluded contracts of the credit financial organization, written
  confirmation and resolution of the Committee on Islamic Financial Services;
• documents confirming the compliance of the credit financial organization's foreign exchange operations with the legislation of the Republic
  of Tajikistan, including foreign exchange control documents;
• documents on the execution by the credit financial organization of the requirements
  of legislation on counteracting the legalization (money laundering) of proceeds from crime, financing of terrorism and financing of proliferation of weapons of mass destruction; d) to make copies of documents of the credit financial organization; e) if necessary, require the provision of copies of documents of the credit financial organization, which must be stitched, certified by signatures of the head and chief accountant, persons replacing them, and with the seal of the credit financial organization. f) to gain access to documentation on used automated banking and information systems, as well as written explanations on issues

related to their development, implementation, standardization and operation; g) to require presentation and familiarization with the functioning and resources of automated banking and information systems. h) to gain access to automated banking and information systems of the credit financial organization in view and selection mode of necessary information, as well as to receive electronic copies of documents and copies of other records (on own information carriers), including registers of accounting records stored in databases of automated banking and information systems, autonomous computer systems, individual computers, as well as decryption of these records.
37. Documents (information) of the credit financial organization necessary
for conducting the inspection are provided to members of the inspection group based on an application for the provision of documents (information) within the specified term.
38. The head and members of the inspection group are obliged:

• not to disclose information classified by laws as state, banking,
  commercial and other confidential nature, as well as to ensure preservation and return of documents and files obtained from the credit financial organization;
• after the end of the inspection, return the obtained technical equipment;
• in accordance with the legislation of the Republic of Tajikistan and regulatory legal acts
  reflect in the act a real assessment of the inspected credit financial organization.
  CHAPTER 3. DUTIES OF THE CREDIT FINANCIAL ORGANIZATION

39. The credit financial organization is obliged to assist the head and
    members of the inspection group in conducting the inspection.
40. The head of the inspected credit financial organization, no later than
    the working day following the date of start of the inspection, is obliged:

• to determine officials and employees of the credit financial organization
  who must interact with members of the inspection group (hereinafter – responsible employees), their competence and responsibility to ensure access to documents (information) necessary for conducting the inspection, to automated banking and information systems, provision of documents (information), as well as to ensure other conditions necessary for conducting the inspection;
• to notify in writing the head of the inspection group about the responsible
  employees.

41. The head and employees of the inspected credit financial organization
    are obliged:

• to ensure unrestricted access to buildings and other official premises
  from the date of start of the inspection to the date of completion of the inspection upon presentation by the head and members of the inspection group of an ID card issued by the National Bank of Tajikistan or its territorial department (another document, confirming that the specified persons are employees of the National Bank of Tajikistan), to the head, employees of the inspected credit financial organization or employees of another organization carrying out on the basis of contracts control over compliance with the access regime or its security;
• to create for the head and members of the inspection group necessary working
  conditions in an official premise, isolated from employees of the credit financial organization and outsiders, guarded and equipped with necessary furniture, fireproof cabinets for storing documents, computers with software agreed with the head of the inspection group, organizational-technical means;
• to ensure access of the head and members of the inspection group to documents
  (information) necessary for conducting the inspection, access to automated banking and information systems in view and selection mode of necessary information, as well as obtaining on paper and electronic carriers copies of documents (information), including those stored in automated banking and information systems, as established by this Procedure.

42. The credit financial organization is obliged in full volume and timely
    to fulfill applications for provision to the head and members of the inspection group documents (information) necessary for conducting the inspection, within terms established in the application.
43. The presence of information containing state, banking, commercial,
    service and other secrets in documents necessary for conducting the inspection cannot serve as a ground for refusal to provide them to the inspection group.
44. Sw