Bank Regulation and Supervision: Audit and Control
In order to ensure the stability of the financial system, governments have introduced strict regulations and supervision measures for banks and financial institutions. One such measure is the appointment of auditors who are responsible for monitoring the activities of these institutions.
Notification Obligations
According to Article 41, bank auditors have the obligation to notify the Central Bank with all due diligence any fact liable to endanger the interests of the bank or financial institution, its depositors, or other creditors. They must also report any irregularity or violation of regulatory or legal provisions and transmit their reports to the Central Bank at least three weeks before the meeting of the Board of Directors.
Consequences of Non-Compliance
Article 42 states that non-compliance with these regulations may result in penalties imposed by the bank on the concerned auditor. These penalties include:
- Warning
- Prohibition from carrying out control operations
- Erasure from the list of approved auditors for a period of three years
- Definitive erasure
Disciplinary Sanctions
Article 43 outlines the disciplinary sanctions that may be imposed on banks or financial institutions for irregularities or infringements to this law, regulations, or decisions of the Central Bank. These sanctions include:
- Warning
- Disapproval
- Suspension of assistance from the Central Bank
- Prohibition from carrying out certain activities
- Withdrawal of approval
Additionally, Article 43(2) states that persons taking part in administration, direction, or management of a bank or financial institution who are guilty of irregularities or infringements to paragraph 1 above are liable to penalties such as:
- Temporary suspension
- Summary dismissal with or without appointing a provisional administrator
- In case of contestation of these sanctions, the concerned party can appeal to an ad hoc commission set up by the Minister responsible for Finance.
Troubled Banks
Article 44 states that in cases where a bank or financial institution is facing difficulties, the Bank may ask members of the Board of Directors, leaders, managers, shareholders, or other owners to propose a recovery plan. This plan must include measures to re-establish or reinforce the financial balance of the institution, including:
- Constitution of funds and reserves
- Suspension of dividend distribution
- Increase in capital in cash
- Any other financial support or guarantee
Provisional Administration and Control
Article 45 gives the Central Bank the power to appoint a full-time provisional controller for a maximum term of six months for banks or financial institutions that infringe the provisions of the law or regulations or no longer fulfill the approval conditions. This appointment may also be made when justified by reasons of public interest.
The bank or financial institution is bound to put at the disposal of the provisional controller all documents, information, and justifications he requires, as well as all human and material means necessary for the exercise of his functions.
Conclusion
These regulations aim to ensure the stability and soundness of the financial system by providing a framework for audit and control. The appointment of auditors and provisional controllers serves as an additional layer of supervision and oversight, helping to prevent irregularities and maintain public trust in the banking sector.