Regulation (NAP) - Transactions with Related Parties of Financial Institutions

Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO RD 09 PROPONENTE(S) P.S.B.S. ENTRADA EM VIGOR 06/08/2007 DATA DA EMISSAO 06/08/2007 N° DOC 05/2007 FL. 1/4 Subject: Transactions with Related Parties of Financial Institutions The Central Bank of São Tomé and Príncipe, exercising the powers established by Articles 38(d) and Article 8(d) and (f) of its Organic Law, and taking into account the provisions of Articles 35 to 38 of the Financial Institutions Law, Considering the need to regulate transactions with related parties of financial institutions, determines:
Article 1
Transactions with Related Parties

1. Banks authorized to operate in São Tomé and Príncipe, including those authorized under Decree-Law 62/95, must ensure that every transaction with related parties is conducted under market conditions, prohibiting the granting of favors or privileges, such as:
   a) the execution of a transaction that due to its nature, purpose, characteristics, or risk, the institution would not conduct with other clients; b) the charging of interest, commissions, and other charges, or acceptance of guarantees, at a value lower than what would be required from other clients.
   Article 2
   Definition
2. The following are considered related parties to the financial institution for the purposes of this regulation:
   a) the administrators, thus considered members of the Board of Directors and managers; b) members of the Supervisory Board; c) companies exercising management control in the financial institution, as well as their principal shareholders and administrators; d) the spouse and relatives or in-laws up to the third degree of a member of the Board of Directors or Supervisory Board, manager, administrator, or shareholder of the management controlling company; e) companies in which any of the persons mentioned in points a) to d) hold, directly or indirectly, a participation equal to or greater than ten percent of the share capital; f) the principal shareholders of the financial institution and companies controlled by them directly or indirectly. Noted: Revocation Data:

Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO RD 09 PROPONENTE(S) P.S.B.S. ENTRADA EM VIGOR 06/08/2007 DATA DA EMISSAO 06/08/2007 N° DOC 05/2007 FL. 2/4
2. A principal shareholder is considered the holder of ten percent or more of the capital of the financial institution or the referred companies.
3. Public or mixed financial institutions are also considered related parties to the public law entity and the administrators that control it, as well as any legal person, including administrators.
4. An entity considered a related party, in the manner defined in this article, to any of the persons or entities linked to the financial institution, shall also be considered as part of the same group and necessarily included among the related parties to the financial institution.
Article 3
Formulation of a Policy

1. The Board of Directors of financial institutions authorized to operate in São Tomé and Príncipe is obliged to establish, in writing, a policy on transactions with related parties, including credit granting and deposit acceptance, and ensure the implementation of this policy by its respective Management.
2. Each financial institution shall establish the necessary procedures to monitor compliance with this policy.
3. The Board of Directors shall review its policy at least annually, which shall as a minimum:
   a) prohibit the institution from granting preferential treatment to related parties as defined in this regulation, such as accepting deposits or granting loans at more favorable rates, waiving commissions, covering losses in financial transactions; b) impose mandatory limits on credit operations with related parties that must not exceed the minimum limits set by this regulation; c) require that credits to related parties be fully secured; d) prohibit the alteration of credit granting criteria, charging procedures, or any other procedure or credit administration policy to accommodate transactions with related parties; e) require compliance with paragraphs 1 and 2 of Article 38 of the Financial Institutions Law and this regulation. Noted: Revocation Data:

CODIGO I RD 09 Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE PROPONENTE(S) P.S.B.S. ENTRADA EM VIGOR 06/08/2007 DATA DA EMISSAO 06/08/2007 N° DOC 05/2007 FL. 3/4
4. Transactions with related parties shall be made solely by decision of the Board of Directors, upon opinion from the person responsible for managing the institution's credit portfolio, who must be informed regarding the existing relationship and the nature of the operation, the financial status and income of the applicant, as well as regarding the credit risk assessment made by the institution.
5. Any member of the Board of Directors interested in the operation, or who has marital relations, kinship, affinity, or partnership with a related party, is prohibited from participating in the meeting during the deliberation on the operation.
6. The Board of Directors' approval shall be recorded in minutes, detailing all terms and conditions of the operation and recording that participating members agreed that the operation is conducted in the best interests of the institution and under the same conditions as it would be with an unaffiliated third party.
7. Each financial institution must maintain a record with the identification of all related parties, as defined in this regulation, and keep a list of all operations conducted with these persons.
Article 4
Limits

1. The maximum credit risk value that an institution may assume with a related party is limited to 15% (fifteen percent) of qualified own funds, as defined by Instruction 2.1 of October 27, 1992, of this Central Bank.
2. For the purposes of this regulation, credit risk is understood as the amount of credits granted, participations and acquired securities, credit substitutes such as guarantees, acceptances and letters of credit, and other contingent liabilities, deducted from order deposits linked to operations and guarantees provided by the Government of São Tomé and Príncipe.
3. In the case of guarantees provided by the Government, they shall have as their sole condition for execution the failure to fulfill obligations by the debtor, shall be explicit in all their requirements, and may be executed without the debtor or any other person being able to question the financial institution's rights.
4. The maximum aggregate credit risk value that an institution may hold in relation to related parties is limited to 50% of basic own funds, as defined in point 3 item 4) of the aforementioned Instruction 2.1/92.
   Noted: Revocation Data:

Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO ► RD 09 PROPONENTE(S) P.S.B. S. ENTRADA EM VIGOR 06/08/2007 DATA DA EMISSAO 06/08/2007 N° DOC 05/2007 FL. 4/4
Article 5
Restrictions
Financial institutions are prohibited from granting credits to related parties, regardless of the limits established in this regulation, if:
a) the Board of Directors does not approve the policy mentioned in Articles 37 and 38 of Law 9/92, combined with Article 1 of Regulation No. 10 of BCSTP; and b) the institution does not have the list of related parties mentioned in point 1 of Article 36 of Law 9/92, updated at most six months prior to the date of the operation.
Article 6
Information to the Central Bank

1. Financial institutions must submit to the Central Bank of São Tomé and Príncipe, at the end of each quarter, a list of all operations conducted with related parties, in the manner established by the Central Bank.
2. The submission of this information shall be made to the Banking Supervision Directorate by the 20th day of the month following the reference quarter.
   Article 7
   Sanctions
   Violation of the provisions of this Regulation implies the application of sanctions provided for in NAP No. 3/2007, published in D/R No. 1/2007.
   Article 8
   Validity
   This Regulation enters into force immediately.
   Noted: Revocation Data: