Financial Crime World

WAEMU Adopts Prudential System for Banking Sector

The Council of Ministers of the West African Economic and Monetary Union (WAEMU) has adopted a prudential system for the banking sector, as per Article 44 of the Banking Law. This new framework aims to establish a robust regulatory environment that promotes financial stability and ensures the safety and soundness of credit institutions.

Key Components

The prudential system is based on the Basel II and Basel III rules, which have been adapted to account for the specific characteristics of the WAEMU banking system. The framework consists of three main themes:

  • Conditions for Exercising the Profession: Establishes requirements for banks to operate in the region.
  • Regulation of Specific Operations: Outlines rules for specific activities such as operational risk management and capital requirements.
  • Management Standards: Sets standards for bank governance, risk management, and internal controls.

Operational Risk Management

The system introduces operational risk management as a key aspect of supervising credit institutions. Banks must establish an operational risk management function with strong involvement from the executive body to define roles and responsibilities.

Capital Requirements

The framework sets minimum capital requirements based on the Basel Committee’s guidelines:

  • Conservation Buffer: Established at 2.5% of total exposure to risk.
  • Capital Ratio Requirements:
    • Minimum common equity tier 1 capital ratio: 7.5%
    • Minimum total capital ratio: 11.5%, inclusive of the conservation buffer

Share Capital Thresholds

The framework sets thresholds for bank share capital:

  • Minimum Share Capital: XOF10 billion for banks and XOF3 billion for financial institutions of a banking nature.

Insolvency, Recovery, and Resolution

The legal and regulatory framework governing insolvency, recovery, and resolution of banks in Senegal is governed by the OHADA Uniform Act on the Organization of Collective Procedures and the Law of 2008.

Procedures

  • Preventive Settlement: Aims to avoid insolvency or closure of business and enable debt discharge through a preventive composition agreement.
  • Judicial Recovery: Designed to safeguard the company and allow it to pay off its liabilities.
  • Liquidation of Assets: Aims to realize assets to pay off liabilities.

Resolution Framework

In the event of liquidation proceedings against a credit institution, the Banking Commission must take a decision on withdrawal of authorization and winding up of the institution. The framework does not explicitly implement the FSB Key Attributes of Effective Resolution Regimes, but creditors cannot pursue individual recovery procedures in case of default.