Financial Crime World

BCTL Approval Mandates for Senior Management Board

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In a move to ensure the stability of East Timor’s financial system, the Banking Control and Supervision Authority (BCTL) has issued regulations requiring approval from its board for senior management remuneration packages.

Remuneration Approval

According to the new rules, banks seeking a banking license must submit their proposals for senior management compensation along with a certified copy of the decision made by the General Meeting of Shareholders or the Governing Board. BCTL will review these proposals to ensure they do not negatively impact the bank’s future earnings prospects or financial condition.

  • Any changes to remuneration packages approved by BCTL must be made in writing prior to implementation.
  • The authority has emphasized that it will decline any proposal that does not meet its standards.

Internal Control Systems

In addition to remuneration approval, banks operating in East Timor are also subject to strict internal control systems. Instruction CPO/B-2001/5 (Instruction 5/2001) requires banks to establish a “sound internal control process” to:

  • Prevent losses
  • Maintain reliable financial and managerial reporting
  • Promote stability in the financial system

Under this instruction, banks must:

  • Appoint an independent external auditor recommended by the Audit Committee and approved by BCTL.
  • The auditor’s duties include:
    • Assisting in maintaining proper accounts and records
    • Preparing an annual report on the bank’s financial statements
    • Informing BCTL of any fraudulent acts or irregularities

Bank Capital Requirements

Banks licensed in East Timor must also meet minimum capital requirements set by BCTL. Section 4 of the Banking Law states that the authority has sole competence and responsibility for defining the minimum capital requirement, which is currently set at the equivalent of US$2 million.

  • The amount of capital allocated to a bank determines the financial activities it will be permitted to engage in.
  • The Banking Law outlines a range of financial activities that banks can perform based on their amount of capital, such as:
    • Receiving deposits
    • Buying and selling debt securities
    • Extending credit
    • Providing payment services

Liquidity Requirements

In addition to capital requirements, Instruction CPO/B-2000/3 (Instruction 3/2000) establishes liquidity requirements for banks licensed in East Timor. The purpose of this instruction is to ensure an adequate balance between a bank’s invested funds (assets) and its liabilities.

  • These regulations are aimed at ensuring the stability of East Timor’s financial system by promoting:
    • Good governance
    • Prudent risk management
    • Strong internal control systems among banks operating in the country.