Financial Crime World

Andorran Banking Regulations: A Comprehensive Overview

Andorra, a small European principality, has established a robust regulatory framework to govern its banking sector. This article provides an in-depth look at the key areas that ensure financial stability, security, and compliance with international standards.

Remuneration of Directors and Management

The remuneration of directors and management is a critical aspect of Andorran banking regulations. Banks must ensure that the compensation packages for their senior management and risk-taking employees are consistent with market conditions and industry norms.

  • The regulatory framework requires banks to establish clear guidelines for determining executive compensation, including performance-based bonuses and equity participation.
  • This approach helps prevent excessive risk-taking and promotes a culture of sound banking practices.

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

Andorra has committed to international standards on AML/CFT by implementing the Fourth Anti-Money Laundering Directive and FATF recommendations. Banking entities have specific obligations, including:

  • Identifying clients and verifying their identities
  • Reporting suspicious transactions to the relevant authorities
  • Applying risk-based due diligence measures
  • Undergoing regular audits to ensure compliance

By adhering to these regulations, Andorran banks demonstrate their commitment to preventing money laundering and financing of terrorism.

Depositor Protection

The FAGADI Law regulates the deposit guarantee system in Andorra, aligning with EU Directive 2014/49/EU on deposit guarantee schemes. Key aspects of this regulation include:

  • Repaying deposits up to EUR100,000 in case of bank insolvency
  • Higher coverage for specific types of transactions
  • Ensuring that depositors are protected from losses due to bank failures

Bank Secrecy

Andorra has abandoned its tradition of bank secrecy due to international requirements on the exchange of information for tax purposes recommended by the OECD. Three types of exchange of information for tax purposes are regulated:

  • On request
  • Automatic
  • Spontaneous

This shift in policy demonstrates Andorra’s commitment to transparency and cooperation with international authorities.

Prudential Regime

Law 35/2018 aligns with EU Directive 2013/36/EU and Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms. Key aspects of this regulation include:

  • Maintaining adequate internal capital
  • Developing strategies for assessing and maintaining capital
  • Covering liquidity outflows

By adhering to these regulations, Andorran banks ensure that they operate in a safe and sound manner, protecting the interests of their depositors and contributing to financial stability.