Financial Crime World

Corporate Governance and Financial Regulation: Key Requirements for Banking Institutions

In an effort to promote good governance and prevent financial instability, the Superintendency of Banks (SUGEF) has established a set of regulations that all banking institutions must comply with. These regulations cover various aspects of corporate governance, including remuneration requirements, anti-money laundering and combating the financing of terrorism (AML/CFT), and depositor protection.

Remuneration Requirements

According to CONASSIF 4-16, the board of directors is responsible for approving remuneration conditions and defining a scheme that encourages good performance and promotes acceptable risk management criteria. A Remunerations Technical Committee must also be in place to monitor the design and function of an adequate remuneration system. The approved policy must be revised periodically and monitored to ensure its correct application.

  • Breaching these requirements could result in internal disciplinary actions, economic penalties, or fines imposed by SUGEF.

AML/CFT Requirements

Article 15 of the AML Act subjects certain activities to compliance with and supervision by SUGEF, including: + Systematic money exchange and transfer operations + Trust administration + Money remittances

To comply, regulated entities must:

  • Appoint a compliance officer
  • Implement know-your-client (KYC) and know-your-employee (KYE) procedures
  • Report suspicious transactions
  • Maintain identified holder accounts
  • Register and verify client information
  • Ensure that bearer shares and numbered accounts are forbidden
  • Verify the legal registration of foreign entities requesting account opening

Depositor Protection

The Law of the Deposit Guarantee Fund and Liquidation of Financial Entities regulates deposit insurance through a special fund and banking resolution. The Deposit Guarantee Fund (the “Fund”) establishes three compartments to cover deposits in: + Public banks + Private banks and non-bank financial entities + Savings and credit co-operatives supervised by SUGEF

  • The maximum coverage amount is approximately USD10,000 per person/entity, in local or foreign currency.
  • The Fund receives contributions from regulated entities, with a maximum contribution of 0.15% of total financial intermediation liabilities covered.
  • Deposits such as savings, accounts, and investments are covered by the Fund.

Conclusion

Banking institutions must comply with these regulations to ensure good corporate governance, prevent financial instability, and protect depositors. Failure to comply can result in severe consequences, including economic penalties or fines imposed by SUGEF.