Financial Crime World

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Banking Regulation and Resolution in Andorra

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Andorra’s financial regulatory framework is designed to ensure stability and security for its banking system. This article provides an overview of the key aspects of banking regulation and resolution in Andorra.

Regulatory Authorities

The Andorran Financial Authority (AFA) plays a crucial role in enforcing banking laws and regulations. The AFA has wide-ranging enforcement powers, including:

  • Restricting or limiting business operations
  • Requesting divestment of high-risk activities
  • Imposing specific liquidity requirements

In addition to its domestic responsibilities, the AFA has a memorandum of understanding with the Bank of Spain to facilitate cooperation on supervisory matters.

Enforcement Challenges

While Andorra’s banking system is relatively stable compared to other jurisdictions, there are some common enforcement issues that need attention:

  • High default ratios (NPL ratio) of banks
  • Compliance with anti-money laundering regulations
  • Judicial proceedings against unfair consumer contracts

These challenges are being addressed by regulatory authorities to maintain the integrity and stability of the Andorran banking system.

Resolution Framework

Act No. 8/2015 provides a framework for the restructuring and resolution of banks in accordance with EU Directive 2014/59/EU on establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD). This framework includes:

  • The ability of regulatory authorities to take over insolvent or near-insolvent banks
  • Shareholders bearing losses first, followed by creditors with seniority

Resolution Process

The Andorran Resolution Authority (AREB) plays a key role in initiating and managing the resolution process for struggling banks. This includes:

  • Intervening in a bank’s business to start restructuring and resolution processes
  • Replacing the board of directors and senior management if deemed unfit
  • Submitting a resolution plan by the bank’s management, outlining measures to restore the bank’s position and ensure operational continuity

Personal Liability

Managers or directors may incur personal liability in the case of a bank failure, including:

  • Civil sanctions (e.g., pecuniary fines)
  • Criminal sanctions (e.g., imprisonment)
  • Administrative sanctions (e.g., removal from their positions, disqualification from banking activities)

These sanctions aim to hold individuals accountable for their roles in ensuring the stability and security of the Andorran banking system.