Regulation No. 2017-06 - Miscellany of Targeted Revisions to Current Supervisory Provisions

THE DEPUTY GENERAL MANAGER
OF THE CENTRAL BANK OF THE REPUBLIC OF SAN MARINO

HAVING REGARD to Law No. 165 of 17 November 2005 (Law on banking, financial and insurance undertakings and services), and in particular Article 39, which grants the Central Bank of the Republic of San Marino the power to issue measures containing binding and general provisions;

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, according to which acts of the Central Bank regarding supervision, deliberated by the Supervisory Coordination, are issued by the General Manager, and Article 14, paragraph 5, which regulates the case of absence or impediment of the General Manager;

CONSIDERING the opportunity to consolidate at the regulatory level the guidelines and pronouncements already expressed by the Supervisory Coordination, as well as to introduce explanatory or extension norms, also in response to requests from the "system";

CONSIDERING the need to harmonize the analogous disciplines contained in the various sector regulations;

CONSIDERING the need to update certain supervisory provisions due to subsequent changes in the reference regulatory framework;

HAVING REGARD to the resolutions of the Supervisory Coordination and the Board of Directors by which the text of Regulation No. 2017-06, named "Miscellany of Targeted Revisions to Current Supervisory Provisions," was approved;

ISSUES

the attached Regulation No. 2017-06 which enters into force on 30 September 2017.

San Marino, 28 September 2017
Signed: THE DEPUTY GENERAL MANAGER
Dr. Daniele Bernardi

MISCELLANY
OF TARGETED REVISIONS
TO CURRENT SUPERVISORY PROVISIONS year 2017 / number 06

Article 1 – Requirement of honorability

1. At the articles:

• IV.II.1, paragraph 1, letter a) of Regulations nos. 2007-07, 2011-03 and 2014-04;
• 24, paragraph 1, letter a) of Regulation No. 2008-01;
• 21, paragraph 1, letter a) of Regulation No. 2006-03;
• 7, paragraph 1, letter a), of Regulation No. 2007-02;
  the words "to custodial penalties" are deleted.

Article 2 – Reports pursuant to art. 68 of LISF

1. Paragraph 2 of Article 4 of Regulation No. 2007-01 is replaced as follows:
   "2. If the reporting subject possesses documentation proving the facts subject to the report, a copy thereof must be attached to the report itself. In any case, for the report to be receivable, it must include as an attachment a copy of the correspondence previously held with the Complaints Office, if present at the reported subject, also to prove the remedy previously attempted but without satisfactory outcome."

Article 3 – Register of authorized subjects

1. Paragraph 3 of Article 8 of Regulation No. 2006-01 is replaced as follows:
   "3. Concurrently with the deletion referred to in paragraph 1, and until the deregistration of the company, THE CENTRAL BANK will record the subject in the separate section of the REGISTER named 'List of Deleted Subjects', indicating with reference to the deletion date:
   a) the company name; b) the registered office; c) the economic operator code; d) the registration number in the REGISTER OF COMPANIES; e) the registration number in the REGISTER; f) the date of registration in the REGISTER; g) the authorized reserved activities; h) the date of deletion from the REGISTER; i) the cause of deletion among the 5 described in paragraph 1. In cases of deletion due to administrative compulsory liquidation, THE CENTRAL BANK will provide an indication, in the same separate section, of the updated composition of the procedure bodies and their domicile, with related contact details."

Article 4 – Method for determining contributions to the Deposit Guarantee Fund

1. At paragraph 5.3 of Circular No. 2017-01, the clarification "that" the credit asset "includes credits towards customers and towards banks" is inserted.
2. At paragraph 5.4 of Circular No. 2017-01, the numerator LD7g is replaced by the numerator PL7g defined as "7-day liquidity position updated to the last available supervisory report on the date of 31 July;".
3. At paragraph 5.5 of Circular No. 2017-01, the definition of TA is replaced as follows:
   "TA = total assets resulting from the average of the last two annual financial statements."
4. In Circular No. 2017-01, the words "covered deposits" are replaced by "protected deposits".
5. At paragraph 3, paragraph 2, the deadline of "31 May" is modified to "31 August" while that of paragraph 3.1, paragraph 1, is modified from "30 April" to "31 July".

Article 5 – Immobilizations for credit recovery

1. At Article VII.VIII.1 of Regulations nos. 2007-07 and 2011-03, paragraph 1 is replaced as follows:
   "1. The [bank/FINANCIAL COMPANY] that intends to acquire for its own account shareholdings exceeding 10% and/or multiples in the capital of companies, San Marinese or foreign, must request authorization from THE CENTRAL BANK, except in cases where the acquisition derives from the best protection of its own and pre-existing credit rights."
2. At Articles VII.VII.2 and VII.VIII.4 of Regulations nos. 2007-07 and 2011-03, the first sentence of paragraph 1 is replaced as follows:
   "1. [Banks/FINANCIAL COMPANIES] are allowed to exceed the general limit referred to in Article VII.VI.1 only in cases where the acquisition [of the real estate/the shareholding] is due to the best protection of its own and pre-existing credit rights, i.e., deriving from the enforcement of guarantees or settlement agreements extinguishing the credit, regardless of its previous qualification among doubtful credits, provided it is connected to the debtor's default."

Article 6 – Definition of bank branch

1. Definition no. 88 of Regulation No. 2007-07 is replaced as follows:
   "88. 'branch': a bank establishment primarily dedicated to direct relations with the public. As a permanent operational point, even if not operating continuously, which directly carries out with the public, in whole or in part, the bank's activity, the definition of branch includes counters with particular operational characteristics (e.g., seasonal or occasional) while it does not include:

a) home banking equipment as well as automatic teller machines (ATM and POS) at which bank staff is not present; b) administrative offices even when clients have access to them; c) temporary operational points at fairs, markets, exhibitions and occasional events."

Article 7 – Re-registration of fiduciary shareholdings

1. At the articles:

• V.III.2 of Regulations nos. 2007-07, 2011-03 and 2014-04;
• 20 of Regulation No. 2008-01;
• 17 of Regulation No. 2006-03;
  the following final paragraph is added:
  "[5./6.] Prior authorization is not required for operations of mere re-registration to the same settlors of shareholdings already held fiduciarily with the authorization of the Central Bank, subject to the obligation to communicate."

2. At Articles V.IV.1, paragraph 1, of Regulations nos. 2007-07, 2011-03 and 2014-04, the following letter is added:
   "c) the re-registration of shareholdings previously held in a fiduciary manner."
3. At the end of paragraphs no. 2 of the articles:

• 23 of Regulation No. 2008-01;
• 20 of Regulation No. 2006-03;
  the following sentence is added:
  "The same communication obligations also apply to operations of re-registration of shareholdings previously held in a fiduciary manner."

Article 8 – Authorization deadlines for statutory modifications

1. At paragraph 2 of Article 14 of Regulation 2006-03, the term of "fifteen days" is modified to "thirty days".

Article 9 – Alignment of accounting/prudential provisions

1. Paragraph 3 of Article VII.II.3 of Regulations nos. 2007-07 and 2011-03 and paragraph 4 of Article 41 of Regulation No. 2006-03 assume the following wording:

"3. With reference to the deductions of net capital losses on securities, the implicit capital gains and capital losses in the immobilized portfolio are offset taking into account any hedging contracts on immobilized securities. If the overall balance resulting from the offset is positive, no deduction from supervisory capital is required. If the overall balance is negative, 50% of the capital loss must be deducted from the computation of supervisory capital. For the purposes of this paragraph, implicit capital gains and capital losses are not computable when concerning San Marinese government securities forming part of the immobilized portfolio."
2. Paragraph 1 of Article IV.II.3 of Regulation No. 2016-02 is replaced as follows:
"1. In this item, in addition to bonds and certificates of deposit, own negotiated acceptances, bills in circulation as well as atypical securities referred to in art. II.III.8 of Regulation No. 2007-07 appear, under the sub-item 'other financial instruments'."
3. Paragraph 6 of Article V.I.1 of Regulation No. 2016-02 is replaced as follows:
"6. In the tables reporting detailed indications of the components of single items, the same, if not explicitly stated in the table, are indicated up to the coverage of 80% of the total of the item, grouping under the indication 'others' the remaining undetailed quota."
4. Letter d), of paragraph 1, of Article V.II.8 of Regulation No. 2016-02 is replaced as follows:
"d) the proposal for the allocation of profits or for covering losses or, if applicable, the allocation of profits or the covering of losses;"
5. Paragraph 2, of Article X.I.1 of Regulation No. 2016-02 is replaced as follows:
"2. The provisions of this Regulation regarding the consolidated financial statements apply from the first financial year following that of the entry into force of the relevant implementing Circular."
6. Paragraph 2, of Article X.I.2 of Regulation No. 2016-02 is replaced as follows:
"2. Without prejudice to what is provided in the previous paragraph 1, from the financial statements and periodic supervisory reports with a reference date of 31 December 2017, the following provisions are deemed repealed:

• Regulation No. 2008-02;
• Regulation No. 2007-05;
• Uniform Letter No. 31/F;
• BCSM circular letter prot. no. 12/9610;
• BCSM circular letter prot. no. 13/298;
• BCSM circular letter prot. no. 14/1384."

7. Points 90 and 100 of the Balance Sheet – Assets of Annex A of Regulation No. 2016-02 are replaced as follows:

"90. Intangible fixed assets * a) Financial leasing

• of which assets under construction
  b) Assets awaiting financial leasing for lease resolution
• of which for lessee default
  c) Assets available for credit recovery
• of which assets available for credit extinction through settlement agreement
  d) Goodwill e) Setup costs f) Other intangible fixed assets

100. Tangible fixed assets *
     a) Financial leasing

• of which assets under construction
  b) Assets awaiting financial leasing for lease resolution
• of which for lessee default
  c) Assets available for credit recovery
• of which assets available for credit extinction through settlement agreement
  d) Land and buildings e) Other tangible fixed assets"

8. Letters a) of points 10 and 20 of Annex A of Regulation No. 2016-02, are replaced as follows:
   "a) on credits towards credit institutions."

Article 10 – Contribution to the Transit Guarantee Fund

1. Paragraph 1 of Article 4 of Regulation No. 2013-03 is replaced as follows:
   "1. All TRANSIT BANKS are required to participate in the FUND. The amount of the individual contribution is determined by THE CENTRAL BANK in proportion to the savings collection of each TRANSIT BANK, with a minimum quota of 25,000 euros remaining unchanged. For the determination of the savings collection, as derived from the accounting situations sent by the TRANSIT BANKS to THE CENTRAL BANK based on the reporting models in force at the time, reference is made to art. I.I.2, paragraph 1, point 62, of BCSM Regulation No. 2007-07."

Article 11 – Deadlines for publication of the summary of the annual report "separate internal management"

1. At the end of paragraph 6 of Article 88 of Regulation No. 2008-01, the following sentence is added "by 31 March of each year".

Article 12 – Inspection procedures on insurance intermediaries and financial promoters

1. After Article 22 of Regulation No. 2007-02, the following article is inserted:
   "Article 22-bis – Inspection inquiries on INTERMEDIARIES.

2. THE CENTRAL BANK exercises the powers of investigation referred to in Article 42 of LISF using its own inspectors or external auditors appointed for this purpose pursuant to Article 42, paragraph 3 of LISF.

3. The inspections aim to ascertain that the INTERMEDIATION activity responds to criteria of sound and prudent management and is carried out in observance of the provisions regulating the exercise of the activity. In this framework, the inspection inquiry evaluates the technical and organizational situation of the INTERMEDIARY and verifies the correctness of the information provided to THE CENTRAL BANK.
   The inquiries may concern the overall situation of the INTERMEDIATION activity ('wide spectrum') or the compliance with specific regulations applicable to the activity ('targeted') as well as the responsiveness of any corrective actions taken by the INTERMEDIARY ('follow up').

4. Those who go to the offices of the INTERMEDIARY on behalf of THE CENTRAL BANK, for the purpose of conducting inquiries, must present:
   a) an appointment letter addressed to the inspected INTERMEDIARY, signed by the General Manager of the Central Bank of the Republic of San Marino and containing the details of the appointed subjects; b) a valid identification document.

5. During the inquiries, THE CENTRAL BANK may access the entire information asset of the INTERMEDIARY, without any exclusion and under the regime of inapplicability of the obligation of secrecy, in accordance with what is provided by Article 36, paragraph 5, letter b) of LISF.

6. The exercise of the powers of investigation provided for in Article 42, paragraph 2 of LISF towards subjects to whom the INTERMEDIARY has outsourced business functions presupposes the initiation of inquiries towards the INTERMEDIARY and occurs by virtue of the same appointment letter mentioned above.

7. The managers of the intermediation activity, the staff and collaborators and, if appointed, the chief executive officer, the general manager, of the inspected INTERMEDIARY are required to provide maximum cooperation in the completion of the inquiries and, in particular, must provide with timeliness and completeness the information and documents that the appointed subjects deem to acquire. The managers of the intermediation activity must also take action to ensure that the information and documents requested by the inquiry appointees and in possession of other involved subjects, including collaborators, are made available promptly.

8. At the conclusion of the inquiries, an 'inspection report' is drawn up containing the detailed description of the facts and acts found, which were not in line with the criteria of correct management or with the regulations governing the exercise of the activity.

9. THE CENTRAL BANK notifies the inspection report to the INTERMEDIARY within sixty days following the closure of the inquiries. The term may be interrupted if the need arises to acquire new information elements.

10. Within thirty days from the notification of the inspection report, the INTERMEDIARY concerned must inform THE CENTRAL BANK of its considerations regarding what emerged from the inspection, as well as the measures already implemented and those under study to eliminate the anomalies and shortcomings ascertained.

11. The discipline regarding the procedure for imposing administrative sanctions in case of violations found during the inspection inquiry remains unchanged."

12. After Article 24 of Regulation No. 2014-01, the following article is inserted:
    "Article 24-bis – Inspection inquiries on FINANCIAL PROMOTERS.

13. THE CENTRAL BANK exercises the powers of investigation referred to in Article 42 of LISF using its own inspectors or external auditors appointed for this purpose pursuant to Article 42, paragraph 3 of LISF.

14. The inspections aim to ascertain that the OFF-SITE OFFERING activity responds to criteria of sound and prudent management and is carried out in observance of the provisions regulating the exercise of the activity. In this framework, the inspection inquiry evaluates the technical and organizational situation of the FINANCIAL PROMOTER and verifies the correctness of the information provided to THE CENTRAL BANK.
    The inquiries may concern the overall situation of the OFF-SITE OFFERING activity ('wide spectrum') or the compliance with specific regulations applicable to the activity ('targeted') as well as the responsiveness of any corrective actions taken by the FINANCIAL PROMOTER ('follow up').

15. Those who go to the offices of the FINANCIAL PROMOTER on behalf of THE CENTRAL BANK, for the purpose of conducting inquiries, must present:
    a) an appointment letter addressed to the inspected FINANCIAL PROMOTER, signed by the General Manager of the Central Bank of the Republic of San Marino and containing the details of the appointed subjects; b) a valid identification document.

16. During the inquiries, THE CENTRAL BANK may access the entire information asset of the FINANCIAL PROMOTER, without any exclusion and under the regime of inapplicability of the obligation of secrecy, in accordance with what is provided by Article 36, paragraph 5, letter b) of LISF.

17. The exercise of the powers of investigation provided for in Article 42, paragraph 2 of LISF towards subjects to whom the FINANCIAL PROMOTER has outsourced business functions presupposes the initiation of inquiries towards the FINANCIAL PROMOTER and occurs by virtue of the same appointment letter mentioned above.

18. The inspected FINANCIAL PROMOTER is required to provide maximum cooperation in the completion of the inquiries and, in particular, must provide with timeliness and completeness the information and documents that the appointed subjects deem to acquire. The FINANCIAL PROMOTER must also take action to ensure that the information and documents requested by the inquiry appointees and in possession of other involved subjects are made available promptly.

19. At the conclusion of the inquiries, an 'inspection report' is drawn up containing the detailed description of the facts and acts found, which were not in line with the criteria of correct management or with the regulations governing the exercise of the activity.

20. THE CENTRAL BANK notifies the inspection report to the FINANCIAL PROMOTER within sixty days following the closure of the inquiries. The term may be interrupted if the need arises to acquire new information elements.

21. Within thirty days from the notification of the inspection report, the FINANCIAL PROMOTER concerned must inform THE CENTRAL BANK of its considerations regarding what emerged from the inspection, as well as the measures already implemented and those under study to eliminate the anomalies and shortcomings ascertained.

22. The discipline regarding the procedure for imposing administrative sanctions in case of violations found during the inspection inquiry remains unchanged."

Article 13 – Ex officio deletion from the public register of financial promoters

1. At paragraph 1 of Article 18 of Regulation No. 2014-01, the following letter is inserted:
   "e) deletion from the Register referred to in Article 11 of LISF of the AUTHORIZED SUBJECT exercising the OFF-SITE OFFERING."

Article 14 – Final and transitional provisions

1. This Regulation enters into force on 30 September 2017, so that the modifications:

• referred to in Article 1, will take effect from appointments and acquisitions of shareholdings subsequent to the aforementioned date;

• referred to in Article 2, will take effect from reports received by the Central Bank after the aforementioned date;

• referred to in Article 3, will take effect with the update of the Register of Authorized Subjects within 60 days from the entry into force of this Regulation;

• referred to in Article 4, will take effect from the first contribution year (2018) following the entry into force of this Regulation;

• referred to in Article 5, will take effect from the first contribution year (2018) following the entry into force of this Regulation;

• referred to in Article 6, will take effect with the update of the Register of Authorized Subjects within 30 days from the entry into force of this Regulation;

• referred to in Article 7, will take effect from the re-registration of shareholdings subsequent to the entry into force of this Regulation;

• referred to in Article 8, will take effect on authorization applications received by the Central Bank after the aforementioned date;

• referred to in Article 9, will take effect on subsequent financial statements and supervisory reports with a deadline subsequent to the aforementioned date;

• referred to in Article 10, will take effect from contributions subsequent to the entry into force of this Regulation;

• referred to in Article 11, will take effect from the 2017 annual report, to be published in summary by March 2018;

• referred to in Article 12, will take effect from