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Appendix to Resolution No. 2017-P-12/25-4-(RLA) of the National Bank of the Kyrgyz Republic Board as of June 15, 2017 |
REGULATION
on Enforcement Actions Applied to Banks and Some Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic
1. General Provisions
The purpose of this Regulation is to establish the procedure for applying the enforcement actions to commercial banks, including those carrying out operations in accordance with the Principles of Islamic Banking and Finance, to the banks that have an “Islamic window”, to the specialized financial and credit organizations/institutions, “Financial Company of Credit Unions” OJSC (hereinafter - banks) by the National Bank of the Kyrgyz Republic (hereinafter - the National Bank).
This Regulation shall also apply to the State Development Bank of the Kyrgyz Republic with the account of the specifics provided by the Law of the Kyrgyz Republic “On the State Development Bank of the Kyrgyz Republic”.
The purpose of the National Bank’s application of enforcement actions against banks is prompt early response, correcting and problem solving to maintain the resilience and stability of banks and banking system, combating the legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities, to suppress monopolistic activity in the banking services market, protection of depositors’ interests, rights of consumers of banking services and other creditors. To this end, the National Bank has the right to apply enforcement actions in the cases when the bank conducts risky activities that may lead to the occurrence of risks related to banking activities with a view to taking corrective measures based on future assessments.
Enforcement actions shall be applied by the National Bank independently on the grounds and in the manner provided for by the legislation of the Kyrgyz Republic and this Regulation. The National Bank can apply enforcement actions both in a sequential order and selectively, depending on the nature, type of violation committed and the financial condition of the bank. The National Bank shall independently determine the appropriateness, type and order of application of the enforcement actions to banks.
Violations of banking activity in the Kyrgyz Republic are considered to be the actions (inaction) of banks, their shareholders and officials contrary to the legislation of the Kyrgyz Republic, including the Laws of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, Banks and Banking Activities”, “On Combating the Legalization (Laundering) of Criminal Proceeds and Financing of Terrorist or Extremist Activities”, “On the Protection of Bank Deposits” and regulatory legal acts of the National Bank.
Chapter 2. General Provisions on Enforcement Actions
1. The enforcement actions include:
1) order;
2) fine;
3) requirement;
4) increasing economic standards and requirements;
5) restrictions or prohibitions;
6) removal or dismissal of officials, change of management bodies;
7) introduction of a special regime;
8) revocation of a license.
2. The decision on the application of a particular enforcement action to the bank shall be made taking into account:
1) the classification of the bank on sufficiency (adequacy) of capital, given in Appendix 3 to this Regulation;
2) the following factors:
- the nature of violation and its impact on the bank’s activities;
- the frequency and duration of the violation;
- threats to the financial condition of the bank;
- the size of the bank’s losses as a result of the violations committed;
- awareness of the bank’s officials about the violation;
- the ability of the bank’s officials to solve emerging problems;
- the fact of intentionality of the violation committed, as well as the lack/availability of personal interest (moral, material) of affiliates and other bank-related parties in the violation committed;
- the significance of problems in operational activity and the internal control system;
- compliance with internal procedures and policies approved by the Board of Directors and/or the Bank Board;
- cases of applying any enforcement action to the bank for an infringement previously;
- recognition of the availability and significance of the problems encountered by the bank’s officials;
- compliance with the requirements/principles of corporate governance;
- effective interaction with the banking supervisory authority;
- performance of the recommendation and/or requirements of the National Bank by the bank’s officials or shareholders;
- the nature, frequency and/or volume of the operation(s) falling under the violation of the legislation on combating the legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities.
3. The enforcement action can be applied by the National Bank not later than 12 (twelve) months from the date, on which the violation was detected.
4. The National Bank shall have the right to provide for the possibility of the bank to take voluntary obligations to eliminate the shortcomings in its activities.
5. The National Bank shall have the right to send a written warning to the bank. A written warning is not an enforcement action of the National Bank, and is sent to inform the bank that there are significant risks and/or a threat of violation of certain rules and regulations, as well as provisions of the legislation and/or regulatory legal acts, including combating the legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities or engagement in the activities that threaten its stability and reliability, and to prevent further appropriate enforcement actions to it, when necessary. A written warning shall be sent under the signature of the head of the structural unit or the Deputy Chairman/member of the National Bank Board managing the supervisory unit.
Chapter 3. Recognition of Activities, Actions (Inaction) of the Bank Related to Unhealthy and Unsafe Banking Practices
6. The bank’s activities, actions (inaction) of its officials creating a real threat and/or a high probability of losses or damage to the depositors of the bank, its other creditors, shareholders, or the banking system, are considered unhealthy and unsafe banking practices.
7. The National Bank shall determine unhealthy and unsafe banking practices in each individual case based on the assessment of:
- the factors and circumstances that accompany it;
- a potential threat to the depositors’ funds, the stability of the bank and/or the banking system as a whole.
8. The availability of one or more indicators of the bank’s activities, actions (inaction), which may relate to unhealthy and unsafe banking practices, are listed in Appendix 1 to this Regulation, the list of which is not exhaustive.
9. Banks shall not be involved in unhealthy and unsafe banking practices.
10. The National Bank may apply the enforcement actions, up to the revocation of a license, to any bank, which activity is recognized as unhealthy and unsafe banking practices in accordance with the legislation of the Kyrgyz Republic.
11. The bank’s activities, actions/inaction of the bank’s officials shall be recognized as unhealthy and unsafe banking practices by the National Bank’s Supervisory Committee based on the information provided by the structural units of the National Bank.
12. The Supervisory Committee of the National Bank/the National Bank Board shall decide on the application of an appropriate enforcement action to the bank, its shareholders, and bank officials whose actions (omissions) are involved in unhealthy and unsafe banking practices within the limits of its competence.
Chapter 4. Voluntary Commitments
13. A distinctive feature of voluntary commitments is the demonstration of readiness for cooperation with the National Bank by the management of the bank in order to ensure the effectiveness of addressing identified shortcomings, as well as the identified risks of violating certain norms and rules, as well as provisions of the legislation and/or legal acts to combat the legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities, and/or threatening its stability and reliability.
14. The following types of voluntary commitments can be used:
1) elimination of comments in the framework of preliminary actions of the supervisory authority in respect of the bank;
2) signing a letter of commitment;
3) signing a written agreement.
15. A letter of commitment shall be prepared and submitted by the bank, the activities of which have shortcomings and threats/preconditions for violation of regulatory legal acts that do not cause significant concern to the supervisory authority. The letter of commitment shall contain specific measures to eliminate the shortcomings that will be undertaken by the Board of Directors and the management of the bank with the establishment of terms and targets. The letter of commitment shall be approved by the Board of Directors of the bank and subject to approval by the National Bank.
16. A written agreement between the bank and the National Bank shall be signed only in the cases when violations occur in the activities of the bank, but:
1) the bank is sufficiently capitalized;
2) the Board of Directors and the management of the bank understand the problems and are ready to take specific measures to remedy the existing problems;
3) shortcomings and threats/preconditions of the violation do not entail consequences threatening the financial condition of the bank.
17. The written agreement shall specify the actions and deadlines for their implementation, which will be undertaken by the Board of Directors and the management of the bank. The written agreement shall be prepared by the National Bank and signed by the Chairman of the Board of Directors after approval of the Board of Directors of the bank on the one hand and, by the Deputy Chairman/member of the National Bank Board on the other hand. The agreement shall contain the bank’s intention to eliminate shortcomings in the activities of the bank and improve its financial condition. By signing a written agreement, the bank shall assume obligations to fulfill its terms.
18. The written agreement shall not be signed with troubled banks that fall under the category of an undercapitalized bank.
Chapter 5. Enforcement Actions Applied by the National Bank
19. The National Bank’s enforcement actions may be formalized by the decisions of the National Bank Board or the Supervisory Committee of the National Bank, by the orders of the heads of the structural units of the National Bank.
20. The exclusive competence of the National Bank Board shall include the decision-making on the application of the following types of enforcement actions:
1) the introduction of the Provisional Administration;
2) revocation of a license of the bank.
§ 1. Order
21. The order shall be issued by the heads of structural units of the National Bank.
The order shall indicate specific references to the provisions of the regulatory legal acts of the Kyrgyz Republic, including the National Bank, which were violated by the bank, its shareholders and officials, and the time limit for their elimination.
Depending on the violation detected, as well as the identified risks that threaten the stability and reliability of the bank’s activity, the order may contain a requirement:
- on elimination, violation (on bringing to the established level of the values of mandatory standards, limits of open currency position, fulfillment of obligations to creditors and investors, etc.);
- on bringing the bank’s activities in line;
- on the performance of certain actions, including reducing/optimizing the level of risk accepted by the bank in the conduct of certain operations/transactions.
22. The order shall contain the following:
- the date and place of the order;
- registration number;
- full name of the body/the person who issued the order;
- surname, name, patronymic of the person whom the order is addressed to/full name of the bank;
- the period of entry into force;
- the validity of the order, if it is accepted for a certain period of time;
- the period of appeal and the authority where this order can be appealed.
The order shall also contain a description of the issue, that is, an indication of the fact of the violation, as well as of all the circumstances connected with the violation, and with the relevant references, provisions of the legislation of the Kyrgyz Republic, including regulatory legal acts of the National Bank that were violated by the bank/shareholder/by officials in support of the direction of the order.
When issuing the order, the laws and other regulatory legal acts shall be specified the National Bank was guided by in issuing the order, the statement of the decision, appropriate measures to be taken by the bank/shareholder(s)/bank officials and the deadlines for their execution.
The order shall be under the seal of the National Bank in accordance with the established internal order.
23. After the order is sent, the responsible structural unit of the National Bank initiating this order shall ensure control over the bank’s execution of the order within the established time limits and shall undertake immediate follow-up if it fails to comply.
§ 2. Fine
24. In case the bank violates the norms, requirements and restrictions established by the laws of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, Banks and Banking Activities”, “On Combating the Legalization (Laundering) of Criminal Proceeds and Financing of Terrorist or Extremist Activities”, “On Protection of Banking Deposits”, other regulatory legal acts of the Kyrgyz Republic, regulatory legal acts of the National Bank, the Supervisory Committee of the National Bank may impose a fine:
1) in the amount of not more than ten percent of the minimum authorized capital requirement - in respect of the bank;
2) in the amount not exceeding the average annual remuneration, including all types of payments (salary, premiums, bonuses, etc.) - in relation to the bank’s official.
25. The fine shall be paid by the bank, by its official on time, not later than three months from the day of handing him/her a resolution on imposition of a fine.
26. For violation of the currency position limits, the fine shall be imposed in accordance with the Instruction “On the Procedure for Observing the Net Foreign Exchange Position Limits and Position in Precious Metals by Commercial Banks in the Territory of the Kyrgyz Republic” approved by the resolution of the National Bank Board.
27. The imposition of a fine on the bank and its officials is not a ground for not eliminating an admitted violation.
28. If the fine is not paid by the bank/its official in the prescribed time, the fine is collected forcibly in the framework of the enforcement proceedings.
29. If the bank fails to comply with mandatory reserve requirements, the bank shall be recovered a fine in accordance with the regulatory legal acts of the National Bank.
30. The fine can also be imposed in accordance with the Code of the Kyrgyz Republic on Administrative Liability.
31. The decision to impose an administrative fine shall be taken by an authorized official of the National Bank in accordance with the regulatory legal acts of the National Bank.
§ 3. Requirement
32. The National Bank shall be entitled to submit the following requirements to the bank:
- for the financial recovery actions;
- for a repeated/special external audit of the bank;
- for the sale of bank shares during the period specified by the National Bank;
- for the reduction of administrative expenses;
- for the changes in the organizational structure of the bank;
- for the changes in policies, regulations, procedures and other internal regulatory documents of the bank.
§ 3-1. Requirement for the Financial Recovery Actions
33. The National Bank shall submit a requirement to the bank for the bank’s financial recovery actions.
The bank shall be obliged to have a Financial Recovery Plan approved by the Board of Directors in case of financial difficulties and problems.
The plan of the bank’s financial recovery shall be drawn up in accordance with the requirements contained in Appendix 2 to this Regulation. The plan shall be drawn up for one calendar year and shall be submitted to the National Bank before February 1 of the calendar year which it is provided for. The plan shall provide for adequate actions, ways and resources to restore the bank’s stable and resilient operations.
The bank shall be obliged to assess the adequacy of the bank’s Financial Recovery Plan.
34. The National Bank may require the bank to apply the actions provided for by the Financial Recovery Plan, as well as any other measures at any time in accordance with the banking legislation of the Kyrgyz Republic.
In the event that the bank is requested to carry out the financial recovery actions, the bank’s Financial Recovery Plan, including the updated one, as well as the bank’s activities for its implementation shall be subject to agreement with the Supervisory Committee of the National Bank.
35. From the date, on which the National Bank submits a requirement, the bank shall not be entitled to take decisions on the distribution of profits, payment of dividends (including on earlier decisions), and fulfillment of any financial obligations to shareholders, as well as any remuneration paid to the officials and employees of the bank, except for wages.
36. During the period of conducting the bank’s financial recovery actions, the National Bank shall be entitled to impose a prohibition or a restriction on the satisfaction of claims of creditors on the monetary obligation of the bank, if this leads to deterioration in its financial condition or bankruptcy.
The Board of Directors of the bank shall be obliged to approve the bank’s financial recovery program.
§ 3-2. Requirement for a Repeated/Special External Audit of the Bank
37. The National Bank’s Supervisory Committee shall be authorized to demand a repeated/special external audit of the bank’s activities in case of violations.
38. The Supervisory Committee of the National Bank shall require the bank to conduct a repeated/special external audit by issuing a resolution that may also contain additional requirements established by this Regulation. The requirement may also include restrictions on a certain type of the bank’s activity for the term of the external audit.
39. All expenses related to the conduct of a repeated/special external audit shall be paid for the account of the bank.
§ 3-3. Requirement for the Sale of Bank Shares
40. The National Bank shall require the parties that are not related to it to sale the shares of the bank’s shareholder for a period determined by the National Bank in the following cases:
- if facts of providing incorrect (false) information on the basis of which the permission of the National Bank for participation in the capital of the bank were elicited, or the person has ceased to meet the requirements for the founders provided for by the legislation. At the same time, the National Bank shall withdraw a permission to purchase shares previously issued to the applicant;
- if a person acquires the right of ownership for shares by inheritance or by restoring the rights to them in the amount that requires the consent of the National Bank prior to obtaining permission from the National Bank, or the said persons are denied to issue a permission of the National Bank;
- if the shareholder of the bank refuses to provide the bank with the information on the ownership of shares for inclusion in the legal case according to the list and in the amount established by the National Bank;
- cancellation of permission to purchase a threshold participation in the capital of a bank holding company;
- if the companies that are significant participants of the bank are withdrawn the permission to acquire a threshold participation in the bank’s capital and the National Bank has submitted a request to terminate a significant participation in the bank;
- if the legal entities controlled by significant bank participants are withdrawn the permission to be a significant participant in the bank and the National Bank has submitted a request to terminate a significant participation in the bank.
Voices for such shares shall not be taken into account when calculating the quorum and when making decisions. All previously adopted decisions are considered invalid if the number of votes on such shares affected the decision-making on the merits.
The person, whose violation has been revealed, shall be obliged to sell the corresponding stock of shares to the persons not related to him/her during the period determined by the National Bank. Otherwise, the National Bank shall apply to the court for the compulsory disposal of shares of the said person.
41. If a bank’s subsidiary shall participate in the activities not permitted by the legislation of the Kyrgyz Republic, the National Bank shall withdraw its permission to purchase shares and the bank shall sell the subsidiary’s shares it holds to the persons not related to the bank during the period determined by the National Bank.
The National Bank shall determine the period during which the bank shall be obliged to sell the shares. Otherwise, the National Bank shall apply to the court for the compulsory disposal of shares of the said person.
42. The National Bank’s request for the sale of bank shares, as well as for the sale of shares held by the bank, within a certain period shall be taken by the Supervisory Committee of the National Bank.
§ 3-4. Requirement for the Reduction of Administrative Expenses
43. The requirement for the reduction of administrative expenses shall be taken by the Supervisory Committee of the National Bank in cases where, in its opinion, the bank is acting risky and/or the existing administrative expenses are high and/or unreasonable, and for the avoidance of significant financial losses in the future.
44. The grounds for submitting a request for the reduction of administrative expenses may be:
1) financial problems in the bank;
2) identification of facts of violation of the requirements of the legislation and regulatory legal acts of the National Bank;
3) availability of an inadequate risk management system in the bank;
4) failure to comply with capital requirements by the bank;
5) other circumstances indicating that the existing administrative expenses are high and/or unreasonable and/or there is a potential to reduce them.
45. The National Bank may establish specific items of administrative expenses that are subject to reduction or exclusion for a certain period.
§ 3-5. Requirement for the Changes in the Organizational Structure of the Bank
46. The Supervisory Committee of the National Bank shall have the right to request a change in the organizational structure of the bank in cases where the organizational structure of the bank shall not and/or unclearly define the competence, division of powers and responsibility of the management bodies, structural units and officials of the bank.
47. The Supervisory Committee of the National Bank shall have the right to require the exclusion of inefficient structural/separate units from the organizational structure of the bank that create a complex and cumbersome structure of the bank that does not respond to the bank’s activities adequately.
§ 3-6. Requirement for the Changes in Policies, Regulations, Procedures and Other Internal Regulatory Documents of the Bank
48. In cases where the content of policies, regulations, procedures and other internal regulatory documents in the bank does not meet the requirements of the legislation and regulatory legal acts of the National Bank, the National Bank shall require to amend and/or supplement them.
49. The Supervisory Committee of the National Bank/Deputy Chairman/Member of the National Bank Board/Heads of structural units shall have the right to require changes in the internal regulatory documents according to the structural units that have revealed the discrepancy between the internal documents of the bank and the requirements of the legislation, as well as to reduce risks and strengthen control:
- regulatory policies of the bank and the procedure for conducting banking operations;
- on the distribution of functions and powers between departments (including on the issues that determine the procedure for making decisions, regulating the activities of the internal control service, on ensuring and organizing security, on ensuring the protection of limited access information, etc.).
§ 4. Increase in Economic Standards and Requirements
50. The National Bank may establish new and/or more stringent economic standards for the bank for violations of economic standards, as well as in cases when the bank’s activity is showing a tendency to deterioration, while the bank can observe the minimum economic standards and requirements of the National Bank.
51. The Supervisory Committee of the National Bank shall have the right:
1) to increase the size of capital adequacy ratios;
2) to reduce the maximum amount of risk per borrower or group of related borrowers;
3) to increase the liquidity ratio (indicators);
4) to strengthen the requirements for the procedure for the formation of reserves, including by raising the norms of mandatory reserves;
5) to reduce the size of the open currency position and the position in precious metals in the case when it is necessary to reduce the existing risks in conducting foreign currency and precious metals operations;
6) to change other economic standards, requirements and restrictions established by the National Bank.
52. The increase in the norm of mandatory reserves and the increase in the minimum amount of own (regulatory) capital shall be taken by the National Bank Board upon submission of the Supervisory Committee of the National Bank.
§ 5. Restrictions or Prohibitions
53. In cases where the bank is insufficiently (inadequately) capitalized (in accordance with the classification in Appendix 3 to this Regulation), and in cases when the bank violates the requirements of the legislation and regulatory legal acts of the National Bank, and the bank’s activities are at risk, the Supervisory Committee of the National Bank has the right to impose restrictions and prohibitions.
54. The Supervisory Committee of the National Bank has the right to impose restrictions or prohibitions on payment of dividends/disposal of the bank’s property and/or cash and/or bonuses in cases where the bank is insufficiently (inadequately) capitalized (in accordance with the classification in Appendix 3), and also in cases:
1) if it leads to a violation of the economic standards by the bank;
2) if the capital adequacy ratio of the bank is below the minimum limit established by the National Bank;
3) if reserves are not created or created in insufficient amount to cover potential losses and damages, as required by the National Bank;
4) if the bank has uncovered losses for previous years and/or for the reporting year;
5) if the financial condition of the bank worsens;
6) in other cases provided for by the law.
55. In cases where the bank violates the requirements for investment restrictions, including requirements and restrictions on real estate, security transactions and others that affect the bank’s compliance with economic standards, including the capital adequacy, the Supervisory Committee of the National Bank shall be entitled to impose restrictions and prohibitions on the implementation of investments and real estate, security transactions and others.
56. The Supervisory Committee of the National Bank has the right to impose restrictions or suspend certain types of transactions, if violations are found in the activities of the bank related to:
1) involvement of the bank in unhealthy and/or unsafe banking practices;
2) violation of the banking legislation, including the legislation and/or regulatory legal acts for the protection of bank deposits, to combat the legalization (laundering) of criminal proceeds and the financing of terrorist or extremist activities, antimonopoly regulation, competition development and banking services consumer rights protection, including non-observance of economic standards, normative acts of the National Bank or its orders.
57. Restriction or prohibition on the establishment of subsidiaries, branches, representative offices and other structural units of the bank is imposed in cases if:
1) registration and/or carrying out of the activities of such company is expected in offshore zones, the list of which shall be determined by the National Bank, as well as in the states and territories in respect of which the UN Security Council adopted international sanctions, mandatory for the Kyrgyz Republic;
2) co-founders of such company are the persons subject to restrictions by the banking legislation;
3) when expansion of the bank’s activity creates significant risks for the bank’s financial stability and soundness.
58. In cases of violation of the requirements of the banking legislation, including requirements and restrictions on transactions and transactions between the bank and related parties, the Supervisory Committee of the National Bank may impose restrictions and prohibitions on their commission.
The bank shall be obliged to provide the National Bank with the information on all bank transactions concluded with the bank-related parties in the order established by the National Bank.
59. The decision to file a demand to restrict or prohibit a bank’s shareholder in further participation in the bank’s activities shall be taken by the Supervisory Committee of the National Bank if the facts of violation of the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, Banks and Banking Activities”, regulatory legal acts of the Kyrgyz Republic by him/her will be found and supported, including in the cases specified in clause 39 of this Regulation. Any disposal of shares, including their sale, shall be carried out within the time specified in the decision of the Supervisory Committee of the National Bank.
60. If the cases of violation of the legislation are found, the Supervisory Committee of the National Bank shall make a decision that restricts/stops the shareholder’s direct or indirect influence on the management or policy of the bank (including direct or indirect exercise of voting rights) and reduction of its participation in the authorized capital bank to a level determined by the decision, within a specified period of time. In this case, the shareholder of the bank shall be obliged to suspend/stop the implementation of direct or indirect influence on the management or policy of the bank (including the direct or indirect exercise of the voting right) and is deprived of the right to vote at the shareholders’ meeting on the shares owned by it. A decision regarding the deprivation of a shareholder’s voting rights at a meeting of shareholders may specify certain issues on which he/she retains the right to vote in the absence of a quorum (for example, the issue of increasing capital).
The bank’s shareholder is required to sell its share for a period of time determined by the National Bank. Otherwise, the National Bank shall apply to the court for the compulsory disposal of shares of the said person.
§ 6. Removal or Dismissal of Officials, Change of Management Bodies
61. The decision to remove or dismiss officials, change the management bodies of the bank shall be made by the Supervisory Committee of the National Bank upon the ascertainment of:
1) concealment of a conflict of interest and/or interest in concluding bank transactions;
2) withholding the information, which indicates its non-compliance with the qualification requirements, requirements for independence and impeccable business reputation;
3) actions or inaction of a member of the Board of Directors of the bank, which caused a threat to the banks financial stability according to the National Bank’s assessment;
4) violations of the banking legislation and/or regulatory legal acts of the National Bank, which entailed significant financial losses and/or reputational risks;
5) participation in activities (actions/omissions), which is characterized as unhealthy and unsafe banking practices;
6) implementation or involvement in the activities that violate the regulatory legal acts of the Kyrgyz Republic on combating the legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities;
7) abuse of one’s position.
62. The Supervisory Committee of the National Bank shall review and decide on:
- removal of an official from his/her position in the bank if a criminal case is instituted against him/her;
- release of a certain official from his/her position;
- on the change of management bodies of the bank, which means the change of all or some of the officials and the prohibition of their further participation in the activities of any bank.
63. When the Supervisory Committee of the National Bank decides to remove or dismiss officials, change the management bodies of the bank, the factor of timely informing the National Bank about the known violation of the legislation of the Kyrgyz Republic (charges brought or decisions taken), as well as taking all possible, sufficient and reasonable steps to prevent or eliminate such a violation shall be taken into consideration.
64. The decision of the Supervisory Committee of the National Bank to remove or dismiss officials, change management bodies shall come into force from the date of such a decision.
65. The bank officials who have lost impeccable business reputation in connection with the removal or dismissal/change of management bodies of the bank by applying the enforcement action to them cannot re-apply for the positions that are subject to mandatory agreement with the National Bank during the limitation period established by the regulatory legal acts of the National Bank, from the moment of their entry into force.
§ 7. Introduction of a Special Regime
66. The National Bank has the right to introduce the following special regimes to the bank:
- introduction of a direct banking supervision;
- introduction of the Provisional Administration.
67. The decision on introduction of the direct banking supervision regime, as well as the implementation of the regime itself, shall be carried out in accordance with the requirements of the Regulation “On Direct Banking Supervision” approved by the resolution of the National Bank Board.
68. The decision on introduction of the regime of the Provisional Administration, as well as the implementation of the regime itself, shall be carried out in accordance with the requirements of the Provision on the Provisional Administration approved by the decision of the National Bank Board.
§ 8. Revocation of a License from the Bank
69. Revocation of a license from the bank shall be carried out on the grounds set out in the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, Banks and Banking Activities”, as well as in case of violation of the Laws of the Kyrgyz Republic “On Combating the Legalization (Laundering) of Criminal Proceeds and Financing of Terrorist or Extremist Activities”, “On Protection of Bank Deposits”.
70. The decision to revoke a license from the bank shall be made by a resolution of the National Bank Board.
71. Revocation of a license from the bank shall entail its liquidation on the grounds and in accordance with the procedure provided for by the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, Banks and Banking Activities”.
Chapter 6. Procedure for Filing an Appeal against Enforcement Actions
72. Pre-judicial appeal of decisions of the National Bank is mandatory. Any decisions of the National Bank are subject to pre-judicial appeal, with the exception of decisions of the National Bank Board, which are appealed to the court.
73. The pre-judicial appeal shall not suspend the decisions of the National Bank. Pre-judicial appeal of the decisions of the National Bank shall be carried out within a period not later than 20 (twenty) working days from the date of receipt of the relevant decision of the National Bank.
74. The National Bank shall consider the complaint on the merits not later than 30 (thirty) calendar days from the date, on which the complaint was received. The National Bank shall have the right to extend the period for consideration of the complaint once for 30 (thirty) calendar days.
75. The enforcement action applied to the bank may be canceled by the decision of the National Bank.
76. The procedure for pre-judicial appeal of the decisions of the National Bank shall be established by the regulatory legal acts of the National Bank.
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Appendix 1 to the Regulation on Enforcement Actions Applied to Banks and Some Other FCOs Licensed by the National Bank |
SIGNS
of the Bank’s Activities, Actions (Inaction) of Its Shareholders, Officials that May be Related to Unsafe Banking Practices
1. Inability of the Board of Directors and the Management Board of the bank to ensure adequate control and management of the bank in order to prevent unhealthy and unsafe banking practices and violation of the legislation of the Kyrgyz Republic.
2. Actions (inaction) of officials, which led to violation of the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank and/or to a significant deterioration of the financial condition of the bank.
3. Lack of appropriate actions or inaction on the part of the shareholder(-s) and/or the Board of Directors and/or the Management Board to change, dismiss, suspend and terminate the powers of the bank officials for which the National Bank has decided to suspend or remove officials, change management bodies.
4. Creation of inadequate reserve for covering potential losses and damages on assets and off-balance liabilities.
5. Lack of proper accounting of banking operations/transactions in accordance with IFRS and regulatory legal acts of the National Bank.
6. Failure to comply with the norms of the legislation, which resulted in risks (including the risk of loss of reputation) that affected or which could affect the stable operation of the bank.
7. Failure to comply with the requirements of the law regarding the detection of suspicious transactions and/or having no clear/obvious legal economic meaning and/or violation of the requirements of the legislation of the Kyrgyz Republic on combating the Legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities.
8. Inconsistency of the internal control system and compliance control, including the activities of the internal audit and risk manager to the requirements of the regulatory legal acts of the National Bank.
9. Carrying out of the operations by the bank with affiliates and other bank-related parties of the bank or decision-making by the authorized bodies/persons of the bank on conducting these operations in violation of the requirements of the regulatory legal acts of the National Bank, including the principle of impartiality.
10. Implementation of the activities for which there are no qualified and experienced employees in the bank.
11. Implementation of banking activities in the absence of appropriate policies and procedures, and/or their inconsistency with the requirements of the National Bank or, when the bank’s activities do not comply with policies and procedures, and/or when policies and procedures do not correspond with the scale of the bank’s activities and risk level.
12. Inconsistency of operations conducted by the bank to the standards of Sharia’h (for a bank that carries out operations in accordance with the Principles of Islamic Banking and Finance).
13. Extension of credits to the customers with violation of the requirements of the legislation of the Kyrgyz Republic, regulatory legal acts of the National Bank, as well as internal policies/procedures of the bank, and/or when the customer has outstanding obligations to this bank or some other bank when obtaining a new credit, or extension of credits to borrowers with repeated prolongation of credits and an unstable deteriorating a financial condition.
14. Significant deterioration in the quality of the bank’s assets due to the increase in the volume of overdue credits and/or their share in the total credit portfolio.
15. The practice of credit administration, including procedures for the extension of credits and monitoring procedures, has serious and significant shortcomings and/or irregularities.
16. Inadequate formation of a credit documentation, including the absence of important legal, financial and collateral documents in the credit files.
17. Admission of systematic (twice or more times during 12 consecutive calendar months) violations of the banking legislation of the Kyrgyz Republic.
18. Failure to comply with the terms of the orders established by the National Bank and other enforcement actions applied by the National Bank.
19. The Bank does not comply with the economic standards for sufficiency (adequacy) of capital and the bank does not take sufficient measures to bring economic standards in line with the requirements of the National Bank.
20. The bank’s capital is not sufficient to cover losses related to risks inherent in the bank. The founders/shareholder(-s), despite the prior warning of the National Bank, do not replenish the capital and/or do not take sufficient/exhaustive measures to replenish it within the period determined by the National Bank.
21. Threat of non-fulfillment of the minimum capital requirements established by the National Bank.
22. Payment of dividends in violation of the legislation of the Kyrgyz Republic and/or despite the restriction or prohibition on the distribution of profits.
23. The bank has insufficient liquidity for timely fulfillment of obligations.
24. Untimely, incomplete or unreliable submission of reports, as well as other officially requested documents and information to the National Bank.
25. Carrying out of the operations by the bank prohibited by the legislation of the Kyrgyz Republic, or not provided for by the license, but subject to licensing and/or agreement with the National Bank.
26. Functioning of the bank at a profit level insufficient for financial stability, ensuring payment of dividends and replenishment of capital.
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Appendix 2 to the Regulation on Enforcement Actions Applied to Banks and Some Other FCOs Licensed by the National Bank |
REQUIREMENTS
to the Bank Financial Recovery Plan
Section 1. Minimum Requirements to the Financial Recovery Plan
Part I. Assessment of a Situation in the Bank
1. General provisions;
2. Assessment and detailed information on the financial condition of a commercial bank;
3. Crisis management system in a bank. Involved responsible structural units.
4. Analytical and practical approaches to the determination, measurement, control and monitoring of banking risks inherent in the bank’s activities.
5. Instruments used to prevent the increase in the banking risks.
Part II. Scenarios (stress tests), Actions for Financial Recovery and Results
1. Reasons that can serve as the basis for the implementation of actions for the financial recovery of a commercial bank. Possible risks and scenarios of events that may lead to the need to implement actions for financial recovery. The following is not an exhaustive list of what shall be included in this clause:
- consideration of the scenario with a possible outflow of deposits exceeding a critical level for the bank. Bank activities including the activities of an internal nature from the organization of work with customers and structural units (including branches and savings banks) before the work with external parties (sale of assets, raising funds from shareholders, obtaining interbank credits, addressing to the National Bank, etc.) to solve the issue of ensuring the bank with the necessary liquidity and stabilizing the situation with depositors in order to avoid bank panic;
- consideration of scenarios of various cyber-attacks. Organization of the bank’s work and activities in the event of such risks. Work with customers;
- consideration of a scenario for resource mobilization in case of emergency;
- consideration of a scenario in case of occurrence of a significant credit risk;
- consideration of a scenario in case of a significant lack of own capital;
- other scenarios.
2. In case of participation in a banking group, the bank shall also need to reflect the risks inherent in the group and the measures taken to minimize and manage risks:
- at the parent company level;
- at the subsidiary level.
Section 2. Requirements to the Financial Recovery Action Plan
Part III. Minimum Requirements to the Content of the Action Plan and the Procedure for Its Submission
1. The bank shall provide the Bank’s Action Plan for the event of financial recovery actions for each type of a risk/scenario considered in Part II of the Bank’s Financial Recovery Plan and requiring financial recovery actions.
2. The total period for the implementation of the Action Plan determined by the commercial bank shall be justified taking into account the specific situation in the commercial bank and the nature of the proposed actions.
3. The Action Plan shall contain information on the expected result of its implementation as of the date of completion of the financial recovery procedure, including:
- the values of mandatory economic standards and requirements of the National Bank with breakdown by reporting dates for the entire period of implementation of the activities for financial recovery;
- the dynamics of changes in the value of equity (capital) with breakdown by reporting dates for the entire period of implementation of the activities for financial recovery;
- the recovery period for the adequacy of equity (capital) and the current liquidity of a commercial bank.
4. The commercial bank may provide for the phased implementation of each clause of the Action Plan with an indication of the calendar timeframe for each stage.
5. The expected result from the implementation of all (or most) actions for financial recovery is an indicator that characterizes the prospects for a stable operation of the commercial bank after the date of their completion.
When determining the expected result, the parameters provided in the business plan of a commercial bank can be used.
The proposed Action Plan for financial recovery of the bank shall contain the following: detailed actions and deadlines for their implementation, responsible executors at each stage of implementation, indication of performance indicators, as well as the actions taken by the bank to monitor the implementation of the Action Plan. The Bank’s Action Plan shall provide, if necessary, methods and conditions for the participation of shareholders and third parties in the financial recovery of the bank; actions on the reduction of expenses.
6. The Action Plan shall be signed by the head of the commercial bank and the chief accountant of the commercial bank, and approved by the Board of Directors.
7. All sheets of the Action Plan, including annexes, shall be numbered, tied and sealed with a commercial bank seal.
8. The commercial bank may engage an audit organization (an individual auditor) for the Action Plan development.
In the event that an audit organization (an individual auditor) was engaged by the commercial bank to develop the Action Plan, the audit report on the internal audit shall be included in the documents submitted to the National Bank, the final part of which shall reflect the degree of participation of the audit organization (individual auditor) in assessing the financial condition and (or) developing actions for financial recovery, as well as the opinion of the audit organization (individual auditor) on prospects for the activities of the commercial bank based on the developed actions for financial recovery.
9. In case of identifying shortcomings and sending a request for finalizing the Action Plan, the commercial bank shall submit a revised Action Plan to the National Bank within a period not later than 14 calendar days from the date of receipt of the specified requirement.
10. If necessary, the National Bank shall have the right to request from the commercial bank additional information necessary for the recognition of the Action Plan to be real by setting the deadline for its submission.
11. The commercial bank shall be obliged to ensure full and timely implementation of the Action Plan.
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Appendix 3 to the Regulation on Enforcement Actions Applied to Banks and Some Other FCOs Licensed by the National Bank |
CLASSIFICATION
of Banks On Capital Adequacy
When deciding on the application of a particular enforcement action, the decisive factor for the National Bank is the sufficiency (adequacy) of the bank’s capital.
The enforcement actions shall correspond to both the level of capital, the trends of its changes (static, decreasing or increasing), and the bank’s risk parameters, and depend on the need for urgent enforcement actions.
The classification of capital adequacy, which is used in the classification of banks, shall include the ranges in the capital adequacy ratios shown in Table 1.
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Table 1. Classification of Banks on Capital Adequacy |
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Classification of capital adequacy |
Indicators of sufficiency (adequacy) of capital |
Other factors |
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Provisions for losses |
Other peculiarities |
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Adequately capitalized |
Obligatory performance of the following indicators: Leverage (>=) 8.0%; Capital adequacy ratio of the 1st level (>=) 6.0%; Total capital adequacy ratio (>=) 12.0%; The amount of own funds meets or exceeds the requirements of the National Bank |
In total, adequate and formed in full |
Rapid and significant growth in total assets is not observed |
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Insufficiently capitalized |
Capital in any of the categories is less than the requirements of the National Bank, but none of the values falls under the definition of a “significantly undercapitalized” bank |
Inadequate and/or not formed in full |
At least, one of the established capital requirements of the National Bank is not observed. There has been observed a worsening financial situation |
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Significantly undercapitalized |
Leverage < 5.0%, but > 2%; Capital adequacy ratio of the 1st level < 4%, but (>=) 1.5%; Total capital adequacy ratio < 8%, but (>=) 3%; The amount of own funds comprises less than 50% of the established requirements of the National Bank |
Inadequate and/or not formed in full |
The capital requirements and/or any other requirements of the National Bank are not observed |
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Critically undercapitalized |
Any of the capital adequacy ratio comprises less than 25% of the ratio value established by the National Bank. The size of the own capital is less than 50% of the established requirements of the National Bank |
Extremely inadequate and/or not formed in full |
The capital requirements and/or any other requirements of the National Bank are not observed |
