Regulation No. 2008-04 - Update I to the Regulation on Savings Collection and Banking Activity

THE GENERAL DIRECTOR
OF THE CENTRAL BANK OF THE REPUBLIC OF SAN MARINO

HAVING REGARD TO Law No. 92 of 17 June 2008 and its implementing Delegated Decrees, which introduced new provisions on the prevention and combating of money laundering and terrorist financing;

HAVING REGARD TO Regulation No. 2008-02 issued by the Central Bank on the preparation of the annual financial statements of banks;

HAVING REGARD TO the interpretative guidelines already expressed in Recommendation No. 2007-01 and in the replies to questions received pursuant to Article VIII.II.5 of Regulation No. 2007-07;

HAVING REGARD TO the feedback recorded during the first period of application of the new rules on correctness, diligence, and transparency in customer relations introduced by Part X of Regulation No. 2007-07;

HAVING REGARD TO Article 38, paragraphs 3, 4, and 5 of Law No. 165 of 17 November 2005, concerning the general principles and criteria for the exercise of supervisory functions, and in particular regulatory functions;

HAVING REGARD TO the Statute of the Central Bank of the Republic of San Marino approved by Law No. 96 of 29 June 2005, and in particular Article 30, paragraph 3 of the said Statute, pursuant to which acts of the Central Bank on supervisory matters, deliberated by the Supervisory Coordination, are issued by the General Director;

HAVING REGARD TO the deliberations of the Supervisory Coordination and the Board of Directors by which the text of the amending Regulation to Regulation No. 2007-07 on savings collection and banking activity was approved, aimed at updating the existing regulation in relation to subsequent changes in the reference regulatory framework, incorporating certain operational feedback, and consolidating the text with interpretations already expressed;

HEREBY ISSUES the attached Regulation No. 2008-04, which enters into force on 1 January 2009.

San Marino, 19 December 2008

SIGNED: THE GENERAL DIRECTOR
Luca Papi

REGULATION
ON THE COLLECTION OF SAVINGS
AND BANKING ACTIVITY
UPDATE NO. I year 2008 / number 04

Central Bank of the Republic of San Marino
Regulation No. 2008-04: Update I of Regulation No. 2007-07

Article 1 – Amendments to Regulation No. 2007-07 on savings collection and banking activity.

1. In Article I.I.2, paragraph 1, the definitions set out in points 9, 15, 25, 26, 30, 44, 46, 47, 53, 71 are replaced as follows:

9. “head of the executive structure”: General Director or, in the absence thereof, an administrator with delegated authority to perform the functions of General Director;

15. “long-term contracts”: contracts whose direct legal effects extend over time, with or without predetermined deadlines (e.g., current account, savings deposit, credit facility, mortgage, subscription of deposit certificates and bonds issued by the bank, repurchase agreements with obligation to repurchase);

25. “ultimate beneficial owners”: natural persons qualifying as “beneficial owners” pursuant to Article 1, paragraph 1, letter r) of Law No. 92 of 17 June 2008;

26. “corporate officers”: natural persons holding the offices of director, auditor, or general manager;

30. “banking group”: a group, pursuant to Article 53 of the LISF, whose total assets are represented, to an extent of not less than 50%, by the total of the balance sheet assets of banks and companies controlled by them, provided they fall within the definition of financial undertakings;

44. “available capital margin”: the difference between the supervisory capital and the total of weighted assets, calculated in accordance with Part VII, Title III, and multiplied by the minimum solvency coefficient referred to in Article VII.III.9;

46. “repurchase agreement with obligation to repurchase”: the spot sale of financial instruments owned by the bank (“spot seller”) to the client (“spot buyer”) with a simultaneous forward sale, not exceeding 12 months, at a predetermined price, of the same instruments for the same nominal amount, carried out between the client (“forward seller”) and the bank (“forward buyer”). The obligation to repay the funds raised, which constitute the funding, is independent of any subsequent event regarding the value or negotiability of the financial instruments subject to the operation;

47. “outsourcer”: legal persons to whom the bank outsources corporate functions or material activities integrated within the typical production processes of a banking company;

53. “provision of services without a branch”: the exercise of reserved activities by a foreign bank in San Marino, or by a San Marinese bank abroad, through temporary organization, or through distance communication techniques, or through intermediaries or independent agents;

71. “persons connected to a related party”:
1. companies controlled by a related party;
2. companies in which related parties perform functions of administration, direction, or control, excluding those in which the bank holds a share where there is an overlap of corporate officers in the interest of and upon designation by the bank itself;

2. Article II.III.4, paragraph 2, is replaced by the following:

2. The passbook may be “registered” or “bearer”, within the terms and limits fixed by current anti-money laundering legislation, or “order”, when the right to dispose of it belongs to the holder who appears as such based on a continuous series of transfers made at the bank where the funds are deposited, registered by the same after identification of the interested parties, in compliance with current anti-money laundering legislation.

3. Article II.III.6, paragraph 1, is replaced by the following:

1. Banks may issue deposit certificates without amount limits, except for those referred to in Article VII.III.10.

4. Article II.III.6, paragraph 4, is replaced by the following:

4. For dematerialized deposit certificates, the minimum content mentioned above must be stated in the form, signed by the CLIENT as a request for issuance, and a copy signed by bank staff with the necessary powers must be delivered to the same. For paper deposit certificates, compliance with the transparency and correctness rules set out in this paragraph may be considered a substitute for the obligations under the previous paragraph only in the case of registered certificates; in bearer certificates, the minimum content obligations remain.

5. Article II.III.6, paragraph 6, is replaced by the following:

6. Dematerialization is permitted on condition that all monetary flows related to the operation (debit for subscription, credits for repayment, and any coupon payments) are settled on a current account registered in the name of the depositor;

6. Article II.III.7, paragraph 3, is replaced by the following:

3. Banks may issue bonds without amount limits, except for those referred to in Article VII.III.10, without the need for prior authorization under Article 31, paragraph 3 of the COMPANIES LAW, save for the authorization to publish the prospectus related to the solicitation of investment.

7. Article II.III.7, paragraph 8, is replaced by the following:

8. Dematerialization is permitted on condition that:
a) the bonds are registered; b) the issuer ensures through its information-accounting systems the necessary registrations regarding the bonds and data relating to subscribers, as well as those relating to the establishment or transfer of rights pertaining to the bonds; c) the Issuing Regulations provide that the circulation of the bonds may occur only through the issuer; d) the investor, simultaneously with subscription, requests their insertion into the securities dossier held in custody and administration in their own name with the issuer or with other San Marinese subjects authorized to provide INVESTMENT SERVICES; e) the issuer undertakes to make the bond title available to the investor in paper form in accordance with the minimum content obligations specified above, upon their simple request and within a term not exceeding thirty days; f) the CLIENT’s right under letter e) is expressly indicated in the Issuing Regulations and, where required, in the Information Prospectus.

8. Article II.III.8 is added the following paragraph:

4. Checks issued by banks in favor of a beneficiary subject, upon request and after the requesting CLIENT has provided funds, do not fall under the discipline of this article as they are credit instruments issued for use as circular checks, therefore not for the purpose of collecting savings but for the provision of payment services.

9. Article II.IV.1, paragraph 2, is replaced by the following:

2. Compliance with the rules established in this Title exempts authorized subjects other than banks from the authorization for issuance under Article 31, paragraph 3 of the COMPANIES LAW, save for what is provided for management companies by Article 38 of the Regulation on collective investment services and save for the authorization to publish the prospectus related to the solicitation of investment.

10. To Part II, Title IV, the following article is added:

Article II.IV.4 - Conditions for dematerialization

1. Authorized subjects other than banks may issue dematerialized bonds in compliance with what is provided in paragraphs 7 and 8 of Article II.III.7.

11. In Article III.III.1, paragraph 2, letters b) and e) are replaced as follows:
b) shares representing the share capital must be registered and have a nominal unit value equal to one euro or multiples thereof; e) the control over the company’s operations and its bodies must be entrusted to a Board of Statutory Auditors composed of three or five auditors, one of whom serves as Chairman, and without alternate auditors;

12. Article III.III.4, paragraph 2, is replaced by the following:

2. Contributions other than in cash are not permitted.

13. Article IV.II.2, paragraph 1, is replaced by the following:

1. The possession of the requirements referred to in the previous article is proven through the production of the following documents:
a) general criminal record certificate; b) certificate of pending charges; c) civil certificate or certificate of no bankruptcy.

14. Article IV.II.2, paragraph 2, is replaced by the following:

2. Subjects resident in the Republic of San Marino may resort to self-certification using exclusively the model attached to this Regulation under letter A. Subjects resident abroad must certify the possession of the requirements of honorability through the certificates used for this purpose in their country of residence, which must be substantially equivalent to those referred to in the first paragraph, as provided by Article 1, paragraph 2 of the COMPANIES LAW.

15. Article IV.II.2, paragraph 3, is replaced by the following:

3. To the certificates referred to in the first paragraph, in order to verify the territorial competence of the public authorities that issued them, a copy of a VALID IDENTITY DOCUMENT is added.

16. Article IV.II.2, paragraph 4, is replaced by the following:

4. The certificates referred to in the first paragraph may also result from a single cumulative document.

17. The first paragraph 1 of Article IV.II.6 is repealed, so that the second assumes the numbering 1.

18. Article IV.III.2, paragraph 1, is replaced by the following:

1. The documentation required for the purpose of verifying the existence of the requirements of honorability, professionalism, and independence on the part of CORPORATE OFFICERS must be presented by the interested parties to the Board of Directors of the bank within ten days from the date of acceptance of the appointment.

19. Article IV.III.4, paragraph 1, is replaced by the following:

1. After completing the verification activities referred to in the previous article, the Board of Directors, with the abstention of the interested parties, must adopt its own resolution for each of the CORPORATE OFFICERS appointed, fully stating the verifications carried out, the certifications examined, and expressing its own evaluation on the probative adequacy of the documentation.

20. Article IV.III.5, paragraph 1, is replaced by the following:

1. A certified copy of the resolutions adopted by the Board of Directors in definitive form for each of the CORPORATE OFFICERS, together with the updated certificate of validity and a copy of the curricula, must be transmitted to the CENTRAL BANK within thirty days from the date of registration of the appointments in the Companies Register, in the manner provided for in Article III.II.6.

21. Article V.II.2, paragraph 1, is replaced by the following:

1. The possession of the requirements referred to in the previous article is proven directly by the interested party or by the REQUESTING SUBJECT through the production of the following documents:
a) general criminal record certificate; b) certificate of pending charges; c) civil certificate or certificate of no bankruptcy.

22. Article V.II.2, paragraph 2, is replaced by the following:

2. To the certificates referred to in the first paragraph, in order to verify the territorial competence of the public authorities that issued them, a copy of a VALID IDENTITY DOCUMENT is added.

23. Article V.II.2, paragraph 3, is replaced by the following:

3. The certificates referred to in the first paragraph may also result from a single cumulative document.

24. Article VI.II.5, paragraph 1, is replaced by the following:

1. With reference to the content of the notes to the financial statements, the formats of the balance sheet and income statement, and the valuation and preparation criteria, reference is made to the Regulation on the preparation of the annual financial statements of banks.

25. Article VI.II.5, paragraph 2, is replaced by the following:

2. By specific measure, the CENTRAL BANK may also regulate the matters referred to in Article 33, paragraph 2 of the LISF, the methods for keeping accounting records, and the adoption of IAS.

26. Article VII.II.4, paragraph 2, is replaced by the following:

2. Subordinated liabilities and hybrid capitalization instruments, held towards FINANCIAL UNDERTAKINGS, are deducted from the bank’s supervisory capital if included in the supervisory capital of the issuers.

27. Article VII.II.4, paragraph 4, is replaced by the following:

4. From the sum of “basic capital” and “supplementary capital”, in addition to what is reported in the first two paragraphs of this article, the assets that consist in the direct or indirect assumption, or through controlled FINANCIAL UNDERTAKINGS, of risk positions towards the SHAREHOLDERS of the bank and/or towards persons connected to them on a legal and/or economic basis pursuant to Article I.I.2, point 31, including, in any case, legal persons or interposed subjects who are shareholders of the bank, within the limits of the contributions attributable to them, and using the same weighting factors adopted for the calculation of the solvency coefficient, are deducted.

28. In Article VII.III.6, paragraph 3, letter g) is:

g) values (other than shares, innovative capital instruments, subordinated loans, and hybrid capitalization instruments) issued by banks and FINANCIAL UNDERTAKINGS referred to in Article VII.III.4 of zone “A”.

29. Article VII.IV.1, paragraph 3, is replaced by the following:

3. The overall exposure, referred to in the first paragraph, also includes risk assets deriving to the bank from the management of its own financial portfolio, except for those falling within the portfolio intended for trading.

30. Article VII.VI.1, paragraph 1, is replaced by the following:

1. The sum of investments by banks in durable fixed assets (movable and immovable) and in shareholdings, net of those already deducted pursuant to Article VII.II.4, must not exceed the amount of supervisory capital.

31. Article VII.VI.2, paragraph 1, is replaced by the following:

1. Banks must constantly maintain the global amount of MEDIUM-LONG TERM FINANCING, excluding mortgages secured by a lien on residential real estate and those referred to in Article X.I.3, paragraph 7, letter d), within the maximum limit represented by the sum of the following factors:
a) supervisory capital net of investments referred to in the previous article; b) 80% of DIRECT MEDIUM-LONG TERM COLLECTION, without granting the CLIENT the right to early repayment; c) 30% of the remaining DIRECT COLLECTION.

32. Article VII.IX.7 is added the following paragraph:

3. Except in the case of outsourcing of COMPLIANCE CONTROLS, the “appointed manager” imposed by legal provisions on the prevention and combating of money laundering and terrorist financing may coincide with the head of the compliance officer structure, as provided for in letter b) of the first paragraph.

33. Article VII.IX.11, paragraph 4, is replaced by the following:

4. The documentation must allow for the assessment of the consistency between the amount, technical form, and financed activity; it must also allow for the identification of the characteristics and quality of the borrower, also in light of the complex of relationships maintained with them. Consequently, in order to adequately verify and evaluate the borrower’s belonging to a GROUP OF CONNECTED CLIENTS, as also provided for in the subsequent paragraph 8, in the case of borrowers other than natural persons, even if FINANCIAL UNDERTAKINGS, it is necessary for them to issue a written declaration to the bank containing the details of the ULTIMATE BENEFICIAL OWNERS, using the specific form attached to this Regulation under letter D.

34. Article VII.IX.16, paragraph 3, is replaced by the following:

3. With reference to the area referred to in paragraph 1, letter g), the condition under letter a) may not apply if the OUTSOURCER possesses suitable and documented requirements of professionalism and independence, assessed as such by the CENTRAL BANK in the authorization measure. The outsourcing of COMPLIANCE CONTROLS does not exempt the bank from the obligation, arising from legislation on the prevention and combating of money laundering and terrorist financing, to appoint internally the “appointed manager”, possessing the prescribed legal requirements.

35. Article VII.IX.16 is added the following paragraph:

4. With reference to the reserved activities referred to in paragraph 1, letter c), when they concern the provision of investment services, the condition referred to in letter a) may not apply if the existence of the outsourcing relationship is made known to the client on a contractual basis and expressly authorized by the same, in compliance with the specific regulation on INVESTMENT SERVICES to which reference is made.

36. Article VIII.II.2, paragraph 1, is replaced by the following:

1. In addition to the documents to be transmitted periodically, pursuant to the previous article, and those to be transmitted as needed to accompany the communications or authorization requests provided for by this Regulation, banks must send to the CENTRAL BANK a certified and complete copy of every minutes of the shareholders’ meeting, even when it does not contain resolutions subject to communication or authorization obligations, as well as the certificate of validity, when the meeting resolutions have determined the update of the data reported therein.

37. Article VIII.II.2 is added the following paragraph:

2. The term for sending what is provided for in the previous paragraph is ten days from the date of conclusion of the legal process of perfecting the act, i.e., from the last, in chronological order, of those for celebration, registration, deposit, and inscription in the Companies Register.

38. Article VIII.III.1, paragraph 2, is replaced by the following:

2. Those who, on behalf of the CENTRAL BANK, go to the offices or BRANCHES of a bank for the purpose of conducting inspections, must exhibit:
a) a letter of assignment addressed to the inspected bank, signed by the General Director of the CENTRAL BANK and containing the indication of the assigned subjects; b) a VALID IDENTITY DOCUMENT or another equivalent identification document issued by the CENTRAL BANK.

39. Article IX.III.1 is added the following paragraph:

2. Pending the regulation referred to in the previous paragraph, in compliance with the general limits set by Article 53 of the LISF, all companies for which both of the following conditions are met are considered included in the perimeter of the BANKING GROUP:
a) subject to the control of the GROUP HEAD pursuant to Article 2 of the LISF; b) carrying out reserved activities or otherwise connected, instrumental, or accessory to those carried out by the GROUP HEAD, pursuant to Article II.II.4.

40. Article X.II.2, paragraph 2, is replaced by the following:

2. ADVERTISEMENTS relating to financing operations, in which the bank declares the interest rate or other figures concerning the cost of credit, must also explicitly state the APR or EAR - calculated according to current supervisory provisions for anti-usury purposes - except for the sole cases where the technical form of the financing is such as not to allow the calculation, in a preventive and abstract manner, of the aforementioned effective rates.

41. Article X.III.7, paragraph 4, is replaced by the following:

4. The appendix mentioned above must provide that the settlement in current account of interest debits to the CLIENT, fifteen calendar days after the end of the settlement period, can no longer occur with a value date prior to the date of accounting of the debit.

42. Article X.IV.1, paragraph 2, is replaced by the following:

2. An original copy of the contract, or a certified copy if concluded by public deed or authenticated private writing, must be transmitted to the CLIENT at the time of its signature, or of its registration in the case of a public deed.