Bank Resolution in Andorra: Key Principles and Practices

Government Takeovers

In Andorra, banks may be taken over by regulatory authorities (AFA or AREB) when they infringe or are expected to infringe insolvency, organizational, or disciplinary regulations. The AFA can adopt measures to rectify the situation, and if not resolved, the AFA determines unviability and communicates it to the AREB, which decides on resolution measures.

Key Points

• Banks may be taken over by regulatory authorities for non-compliance with regulations.
• Regulatory authorities have the power to determine unviability and decide on resolution measures.
• Shareholders bear losses first, followed by creditors based on seniority of their credits.

Resolution Principles

The resolution principles in Andorra are designed to ensure that shareholders and creditors bear losses fairly. Key principles include:

Fair Loss Distribution

• Shareholders bear losses first
• Creditors bear losses based on seniority of their credits
• Equivalent treatment for creditors with same seniority
• Shareholders and creditors do not bear higher losses than those in insolvency proceedings

Bank Failure

In the event of a bank failure, the management must draft an action plan to restore the bank’s position. This plan should include a specific implementation schedule and detail the strategy, operational continuity arrangements, and financing requirements.

Key Steps

• Draft an action plan to restore the bank’s position
• Develop a debt restructuring plan with creditors
• In some cases, develop a reorganization plan to ensure long-term economic viability

Personal Liability

Managers or directors may incur civil, criminal, or administrative liability for damages caused by gross negligence or wilful misconduct in the case of a bank failure. Sanctions include pecuniary penalties, removal from director positions, disqualification from management activities, and public reprimand.

Key Points

• Managers or directors may be held liable for damages caused by gross negligence or wilful misconduct
• Sanctions include pecuniary penalties, removal from director positions, and disqualification from management activities

Resolution Planning Exercises

Banks must draft an action plan to restore their position when entering insolvency. This plan should detail the strategy, operational continuity arrangements, and financing requirements.

Key Requirements

• Draft an action plan to restore the bank’s position
• Include a specific implementation schedule
• Detail the strategy, operational continuity arrangements, and financing requirements