Regulation No. 2018-01 - Miscellany of Targeted Review Interventions to Current Supervisory Provisions

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

HAVING REGARD TO Law 17 November 2005, No. 165 (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 29 June 2005, No. 96 and in particular Article 30, paragraph 3, pursuant to which acts of the Central Bank in matters of supervision, deliberated by the Supervisory Coordination, are issued by the General Director;

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 sectoral 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. 2018-01, named "Miscellany of Targeted Review Interventions to Current Supervisory Provisions", was approved;

ISSUES

the attached Regulation No. 2018-01 which enters into force on 31 March 2018.

San Marino, 28 March 2018

Signed: THE GENERAL DIRECTOR
Avv. Roberto Moretti

MISCELLANY
OF TARGETED REVIEW INTERVENTIONS
TO CURRENT SUPERVISORY PROVISIONS

year 2018 / number 01

Central Bank of the Republic of San Marino
Regulation No. 2018-01 - Miscellany of Targeted Review Interventions to Current Supervisory Provisions 1

Article 1 – Delivery of inspection report

1. The four paragraphs forming Article VIII.III.2 of Regulations Nos. 2007-07, 2011-03 and 2014-04, Article 116 of Regulation No. 2008-01 and Article 71 of Regulation No. 2006-03, similarly titled "inspection report", are replaced as follows:

"1. The "inspection report", drawn up at the conclusion of the investigations and intended for [the bank/the financial company/the institute/the insurance company/the asset management company] as the inspected subject, contains a detailed description of the facts and corporate acts found that were not in line with the criteria of sound management or with the regulations governing the exercise of the activity.

2. The closure of the investigations is communicated by the CENTRAL BANK to the inspected subject by letter signed by a member of the Supervisory Coordination. The inspection report is notified within sixty days following the date of closure of the investigations, to the CORPORATE OFFICERS of the inspected subject and, for the parts within their competence only, to the statutory auditors [and actuaries appointed] of the same inspected subject or to the Commissioner appointed by the CENTRAL BANK and to the members of the dissolved bodies, in cases where the investigations have led to the adoption of a measure pursuant to Part II, Title II, Chapters I or II of the LISF.

3. Within thirty days from the notification of the inspection report, the inspected subject, as well as the statutory auditors [and appointed actuaries], must communicate their considerations to the CENTRAL BANK regarding what emerged from the inspection, as well as the interventions already implemented and those planned to eliminate the anomalies and deficiencies found. Within the subsequent thirty days from the transmission of such considerations, the CENTRAL BANK will communicate to the inspected subject and to other interested parties its conclusive evaluations regarding the considerations received (objections, justifications, remediation, etc.) on the inspection findings contained in the report.

4. The discipline relating to the separate procedure for imposing administrative sanctions in case of sanctionable violations found during the inspection investigation remains unaffected."

Article 2 – Professionalism requirement

1. Paragraph 2 of Article IV.II.3 of Regulations Nos. 2007-07, 2011-03 and 2014-04 is replaced as follows:

"2. For the purposes of letter a), bankruptcy proceedings, extraordinary proceedings or equivalent foreign procedures are relevant only if initiated during the period in which the subject held, for at least one year, positions of administration, direction or control in the company or in the year following the cessation of such positions. For the purposes of letter b), professional activities are understood to be those exercised in the regime of "self-employment", as well as those carried out within the framework of an employment relationship subordinate to sector companies, or in other forms of stable and proven collaboration and consultancy to companies, public bodies or public administrations, provided that in matters related to those identified in the aforementioned letter b) and for a period not less than the minimum provided."

2. Paragraph 1 of Article 29 of Regulation No. 2008-01 is replaced as follows:

"1. The members of the board of directors of an INSURANCE COMPANY must have acquired a total experience of no less than three years in one of the activities described below:
a) administration, direction or control activities in INSURANCE COMPANIES, banks, asset management companies or foreign companies carrying out equivalent activities; b) university teaching, self-employed professional or employment activities or in other forms of stable and proven collaboration and consultancy to companies, public bodies or public administrations, provided that in matters related to the insurance, banking, financial sector or otherwise functional to the activity of the INSURANCE COMPANY."

3. The following paragraph is added to Article 29 of Regulation No. 2008-01:

"4. For the purposes of the previous paragraph 1 letter a), administration, direction or control activities acquired at companies subject to extraordinary proceedings pursuant to Part II, Title II, Chapters I and II of the LISF or to equivalent foreign procedures are not taken into account, if initiated during the period in which the subject held, for at least one year, the respective positions or in the year following their cessation."

4. Paragraph 2 of Article 26 of Regulation No. 2006-03 is replaced as follows:

"2. The remaining members of the board of directors must have acquired a total experience of at least three years through the exercise of one or more of the following activities:
a) administration, direction or control activities at companies; b) university teaching, self-employed professional or employment activities or in other forms of stable and proven collaboration and consultancy to companies, public bodies or public administrations, provided that in matters related to the credit, financial, securities, insurance sector."

5. The following paragraph is added to Article 26 of Regulation No. 2006-03:

"5. For the purposes of the previous paragraph 2 letter a), administration, direction or control activities acquired at companies subject to bankruptcy proceedings or extraordinary proceedings pursuant to Part II, Title II, Chapters I and II of the LISF or to equivalent foreign procedures are not taken into account, if initiated during the period in which the subject held, for at least one year, the respective positions or in the year following their cessation."

Article 3 – Self-declarations

1. Any reference to "self-certification" inserted within the current supervisory provisions and/or in the standardized models attached to them, is replaced by "self-declaration".

Article 4 – Banking and financial investment relationships opened telematically

1. Paragraph 1 of Article X.V.1 of Regulation No. 2007-07 is replaced as follows:

"1. Banks are allowed to conclude contracts with customers by using DISTANCE COMMUNICATION TECHNIQUES, for the telematic opening of banking and financial investment relationships, as well as related ancillary services, under and in compliance with the conditions already provided by Article 2 bis of Decree Law 21 January 2016 No. 4 as well as by secondary regulation delegated to the CENTRAL BANK, where applicable."

2. Paragraph 1 of Article X.V.2 of Regulation No. 2007-07 is replaced as follows:

"1. Banks may use DISTANCE COMMUNICATION TECHNIQUES in relationships with customers for the execution of operations and the provision of services provided that:
a) within the framework of contracts already concluded in writing or telematically pursuant to Article 2 bis of Decree Law 21 January 2016 No. 4; b) equipped with organizational and IT systems suitable to guarantee, according to sector best practices, an adequate level of CUSTOMER confidentiality and operational security, also in terms of compliance with current provisions on prevention and combating money laundering and terrorist financing."

Article 5 – List of high-risk countries

1. As a result of what is provided by Article 26 and Article 97 of Decree Law 11 December 2017 No. 139, in every current supervisory provision:

• the "positive" requirement referring to inclusion in the list of Equivalent Countries pursuant to the repealed fifth paragraph of Article 95 of Law No. 92/2008 is replaced by the "negative" requirement referring to inclusion in the list of High-Risk Countries, also deliberated by the State Congress, pursuant to the third paragraph of the new Article 16-undecies of the same Law No. 92/2008;
• the "negative" requirement referring to inclusion among "Non-Cooperative Countries or Territories" (formerly NCCT) is replaced by the requirement, also "negative", referring to inclusion in the list of High-Risk Countries, pursuant to Article 16-undecies of Law No. 92/2008.

Article 6 – Insurance intermediation

1. Regulation No. 2007-02 is modified as follows:

• in Article 1, paragraph 1, letter dd), the words "or permanent establishment" are deleted;
• in Article 2, paragraph 2, the words "via branch" are deleted;
• in Article 4, paragraph 1 is rephrased as follows:

"1. The register of insurance and reinsurance intermediaries is established, in which resident natural persons in the Republic of San Marino, legal entities having their registered and operational seat in the Republic of San Marino, and the managers of the intermediation activity referred to in the following Article 9, paragraph 4, may be registered, subject to verification of the requirements indicated in this Regulation."

• Article 5 is rephrased as follows:

"Article 5 – Content of the register.

1. The register is divided into the following Sections:
   a) Section A – Natural persons and sole proprietorships; b) Section B – Legal entities other than financial undertakings; c) Section C – Financial undertakings.
   The register sections also indicate non-operational intermediaries and suspended intermediaries. Registration in one of the register sections does not allow the intermediary carrying out economic activity, and in the case of legal entities, the legal representative, all directors, and the general manager if appointed, to be simultaneously registered in other Sections if aimed at carrying out economic activity.
2. For each subject registered in Section A, the following are indicated:
   a) registration number; b) date of registration; c) surname and name, or name of the sole proprietorship; d) place and date of birth of the natural person or of the owner of the sole proprietorship; e) manner of carrying out the intermediation activity; f) economic operator code, if carrying out economic activity; g) indication of the position of manager of the intermediation activity, if operating for a company registered in the register; h) address of the head office and any secondary offices; i) name of the insurance companies on whose behalf the intermediation activity is carried out, or with which the mediator or broker has collaboration agreements, if carrying out economic activity; l) any measures adopted by the CENTRAL BANK.
3. For each subject registered in Section B, the following are indicated:
   a) registration number; b) date of registration; c) name or corporate name of the legal entity; d) type of intermediation activity exercised, i.e., insurance and/or reinsurance; e) manner of carrying out the intermediation activity; f) details of the managers of the intermediation activity and registration number in the register; g) details of the legal representative and, if appointed, the managing director and the general manager; h) economic operator code; i) address of the head office and any secondary offices; l) name of the insurance companies on whose behalf the intermediation activity is carried out, or with which the mediator or broker has collaboration agreements; m) any measures adopted by the CENTRAL BANK.
4. For subjects registered in Section C, the following are indicated:
   a) registration number; b) date of registration; c) name or corporate name; d) registration number in the register of authorized subjects kept by the CENTRAL BANK pursuant to Article 11 of the LISF, where further information can be found; e) details of the managers of the intermediation activity and registration number in the register; f) name of the insurance companies on whose behalf the intermediation activity is carried out; g) any measures adopted by the CENTRAL BANK.
5. The intermediary registered in the register is not allowed to simultaneously carry out activities as an insurance agent and as an insurance mediator or broker. An insurance agent registered in the register may carry out activities as a collaborator of another agent registered. An insurance mediator or broker registered may conclude collaboration agreements also with foreign insurance intermediaries not registered provided that:
   a) acting on direct instruction of the client; b) collecting premiums in the manner provided in Article 17, paragraph 3; c) obtaining a certificate of no objection to operate, also through the foreign intermediary, from the insurance companies assuming the risk.";

• in Article 8, paragraph 2 is rephrased as follows:

"2. As an alternative to the requirements referred to in the previous paragraph, a suitable professionalism requirement is considered to have obtained the authorization to exercise intermediation in a Member State of the European Union, based on national legislation implementing Directive 2002/92/EC.";

• in Article 10-ter, paragraph 1 is rephrased as follows:

"1. The natural persons registered in the register, the employees and collaborators of the intermediary periodically update their professional knowledge. The update is carried out biennially, starting from 1 January of the year following that of registration in the register or, for the employees and collaborators of the intermediary, from that of the start of the activity. To this end, they participate in courses of duration not less than 60 hours in the biennium, held in classrooms or through videoconferencing, webinar, e-learning methods. In each calendar year, at least a minimum of 15 hours of overall update is carried out, of which at least 7 hours in classroom.";

• in Article 12, paragraph 2 is rephrased as follows:

"2. In the case provided for in letter b), natural persons are annotated in the register as suspended intermediaries. In the cases provided for in letters c), d) and e) of the previous paragraph, the suspension remains until the intermediary has provided to fill the vacant positions with subjects for whom the CENTRAL BANK has verified the possession of the requirements provided in Articles 7 and 8; however, if the intermediary does not provide within six months from the beginning of the suspension, the CENTRAL BANK orders immediate ex officio cancellation. In the case provided for in letter f), g) and h) of the previous paragraph, the suspension remains until the authorizations or licenses and the exercise of the activity have been reactivated. In the case provided for in letter a), the measure of the CENTRAL BANK specifies the duration of the suspension, not exceeding six months; if after such term the intermediary has not provided for the resolution of the violations or the payment of the imposed sanctions, the CENTRAL BANK orders immediate ex officio cancellation.";

• in Article 15, paragraph 1, letter i), the word "operational" is deleted;
• the word "company" is replaced, in the singular, by "legal entity" and, in the plural, by "legal entities" in order to make the potential scope of application of the provisions more inclusive.

Article 7 – Threshold rates

1. Paragraph 1 of Article 19 of Regulation No. 2014-02 is replaced as follows:

"1. The CENTRAL BANK, in implementation of Article 207 of the Penal Code, publishes quarterly, in the manner provided in Article 8, the threshold rates, beyond which the agreed interest rates must always be considered usurious; therefore, the interest exceeding the threshold rates in force at the time of signing the financing contract or at the time of any subsequent modifications agreed between the parties cannot be claimed, and if collected must be returned."

Article 8 – Balance sheet of authorized subjects

1. Paragraph 4 of Article IV.V.5 of Regulation No. 2016-02 is replaced as follows:

"4. In the sub-item "Financial Leasing" of items 90 and 100 of the balance sheet, the amount of the residual credit in principal terms towards the lessees and the residual credit in principal terms relating to assets awaiting first lease are reflected.
In the sub-item "Assets awaiting financial lease for lease resolution" of items 90 and 100 of the balance sheet, the residual credit in principal terms relating to assets arising from resolved contracts is reflected instead, the amount of which, expressed net of VALUE ADJUSTMENTS for deterioration of creditworthiness, is further detailed to distinguish the component attributable to situations of resolution for lessee default. Past due rents (and not yet collected) are posted, depending on the category of belonging of the debtor, within items 30 "Credits towards credit institutions" or 40 "Credits towards customers" and then reclassified in the note integration table, together with their relative residual credit values, depending on the nature (in good standing or not) of the exposure."

Article 9 – Information obligations regarding corporate balance sheet

1. In the introductory part of tables 4.4 and 4.5, of Par. 8.1, Annex B, Chapter 8 of Circular No. 2017-03, the phrase "(including leasing credits)" is inserted respectively after the words "in the amount of gross exposures" and "in the amount of overall value adjustments on cash credits".

2. The introductory part of table 6.1, of Par. 8.1, Annex B, Chapter 8 of Circular No. 2017-03 is replaced as follows:

"Table 6.1: Participations and Participations in group companies Information is provided for each company in which the REPORTING SUBJECT holds a participation regardless of the percentage of interest held.
For each of the participating companies, the name and legal form, the registered seat, the amount of net equity, the activity carried out, the amount of share capital, the amount of profit or loss of the last closed financial year, the percentage share of capital held, the value attributed in the balance sheet to the participation, the fair value, the share of net equity, the difference between the share of net equity and the value attributed in the balance sheet to the participation are indicated. If the value attributed in the balance sheet to the participation is greater than the share of net equity, such excess value is subject to comment at the foot of the table. The provision of Article V.I.1, paragraph 6 does not apply to the compilation of this table. The net equity of the participating company is calculated including also the profit allocated to reserves or deducting the loss. At the foot of the table, indicate in which companies the REPORTING SUBJECT is an unlimitedly liable partner."

3. The tabular schema of table 21.3, Par. 8.4, Annex B, Chapter 8 of Circular No. 2017-03 is replaced as follows:

31.12.t 31.12.t-1 a) Public administrations b) Financial companies:

• Monetary financial institutions
• Investment funds other than money market funds
• Other financial institutions
• Insurance companies
• Pension funds

c) Non-financial companies

• of which subjects deleted from the Register of Authorized Subjects
• Industry
• Construction
• Services
• Other non-financial companies

d) Households and non-profit institutions serving households

• Consumer and producer households
• Non-profit institutions serving households

e) Others

4. In paragraph 1 and paragraph 4 of paragraph 5.2 of Circular No. 2017-03, every reference to "CREDIT INSTITUTIONS" and to "FINANCIAL COMPANIES" is replaced by "REPORTING SUBJECTS".

5. Tables 3.2 and 4.3, of Par. 8.1, Annex B, Chapter 8 of Circular No. 2017-03 are aligned, assuming the introductory text and the tabular schema reported below:

"Indicate the situation of cash credits, including credits arising from financial leasing operations in place at the REFERENCE DATE of the balance sheet, as specified below:
Overall value adjustments: represent for each category of credits indicated in the table, the set of accounting write-downs carried out, over the years, on the credits themselves both analytically (i.e., on single credit positions) and on a lump-sum basis on homogeneous sets of credits and for country risk. With regard to credits for contracts deriving from leasing operations, value adjustments, in the presence of a dete"