Financial Crime World

BCTL Tightens Screws on Banking Licence Applicants

In a move aimed at ensuring the stability and soundness of East Timor’s banking sector, the Bank of Central Timor-Leste (BCTL) has announced that it will only approve proposals for remuneration packages submitted by banks seeking a banking licence if they do not pose a risk to the institution’s future earnings prospects or financial condition.

Remuneration Requirements

According to BCTL regulations, any changes made to remuneration packages must be approved in writing before implementation. This is part of a broader effort to ensure that banks operate prudently and maintain reliable financial reporting systems.

  • Banks are required to submit their remuneration proposals for approval
  • Proposals must not pose a risk to the institution’s future earnings prospects or financial condition
  • Any changes made to remuneration packages must be approved in writing before implementation

Internal Control Systems

BCTL has also emphasized the importance of robust internal control systems. Banks are required to establish sound internal controls to:

  • Prevent losses
  • Maintain accurate financial records
  • Promote stability in the financial system

External Auditors and Financial Reporting

Furthermore, BCTL has reiterated its requirement that banks appoint an independent external auditor who will assist in maintaining proper accounts and records, prepare annual reports on a bank’s financial condition, and inform BCTL of any fraudulent acts or irregularities in a bank’s administration.

  • Banks must appoint an independent external auditor
  • Auditors must prepare annual reports on a bank’s financial condition
  • Auditors must inform BCTL of any fraudulent acts or irregularities

Capital Requirements

In terms of capital requirements, BCTL has the sole competence to define the minimum capital for newly licensed banks, which must not be less than US$2 million. The amount of capital allocated to a bank determines the financial activities it is permitted to engage in.

  • Minimum capital requirement: US$2 million
  • Capital allocation determines financial activities

Financial Activities

Banks with minimum capital can only perform certain financial activities, such as:

  • Receiving deposits
  • Buying and selling debt securities
  • Extending credit
  • Providing payment services

Capital Adequacy Requirements

The regulatory body has also developed capital adequacy requirements through Instruction 2/2000 on Regulatory Capital. Banks are required to maintain a minimum capital adequacy ratio of at least 12%, based on a comparison of their regulatory capital and assets.

  • Minimum capital adequacy ratio: 12%
  • Capital adequacy ratio is based on regulatory capital and assets

Dividend Distribution

In addition, BCTL has established limitations on dividend distribution, prohibiting banks from distributing dividends if it would lead to a situation where the bank fails to comply with minimum regulatory capital or capital adequacy ratios.

  • Banks are prohibited from distributing dividends if it would compromise regulatory capital or capital adequacy ratios

Liquidity Requirements

Finally, Instruction CPO/2000/3 on Liquidity Requirements for Banks licensed in East Timor has been developed to provide an adequate balance between a bank’s invested funds and its liabilities. The purpose of this instruction is to ensure that banks maintain sufficient liquidity to meet their financial obligations.

  • Purpose: Ensure banks have sufficient liquidity to meet financial obligations
  • Instruction provides guidelines for maintaining adequate liquidity

These measures are designed to promote the stability and soundness of East Timor’s banking sector, ensuring the protection of depositors’ interests and the overall health of the economy.