Financial Crime World

Andorra’s Banking Sector Embraces Transparency and Regulation

In an effort to boost confidence in its financial system, Andorra has introduced new regulations aimed at increasing transparency and accountability among banking entities. The Financial Authority of Andorra (AFA) has issued several laws and directives that require banks to adhere to strict standards on remuneration, anti-money laundering, depositor protection, bank secrecy, and prudential requirements.

Exceeding 200% of Fixed Component of Total Remuneration

Andorran banking entities are now required to exceed 200% of the fixed component of total remuneration for each individual. This includes:

  • Salaries
  • Discretionary retirement benefits for categories of staff, including:
    • Senior management
    • Employees who take risks
    • Those who exercise internal control functions
    • Any employee who receives a lump-sum payment that includes them in the same scale of remuneration as senior management and other risk-taking employees

Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT)

Andorra is committed to complying with international standards on AML/CFT. Banking entities must comply with strict obligations, including:

  • Prior to the commencement of a business relationship, soliciting information regarding both the client and the beneficial owner
  • Reporting any suspicious transactions that could involve money laundering or terrorism financing
  • Applying simplified and enhanced due diligence measures according to the risk profile of the client
  • Keeping documentation for at least ten years

Depositor Protection Regime

Andorra has implemented a depositor protection regime, which ensures that clients’ deposits are repaid up to EUR100,000 in case of insolvency. The regime also includes:

  • A minimum capital requirement of 8% of risk-weighted assets
  • A liquidity coverage ratio of 100%

Bank Secrecy Requirements

Andorra has abolished bank secrecy, allowing for the exchange of information on tax purposes recommended by the OECD. Three types of exchange are regulated in Andorra:

  • Exchange of information on request
  • Automatic exchange of information
  • Spontaneous exchange of information

Prudential Regime

The prudential regime requires banking entities to maintain minimum internal capital that is adequate in quantity, quality, and distribution, having regard to the risks to which they are or may be exposed. The amount of capital maintained by banking entities is subdivided into:

  • Common Equity Tier 1 capital
  • Additional Tier 1 capital
  • Tier 2 capital

These new regulations aim to increase transparency and accountability among Andorra’s banking sector, promoting a stable and secure financial system for its citizens and businesses.