Financial Crime World

WAEMU Adopts Prudential System for Banking Sector

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The West African Economic and Monetary Union (WAEMU) has adopted a new prudential system for the banking sector to ensure the stability and soundness of credit institutions in the region.

Background

The system was proposed by the Bank of Central African States (BCEAO) and approved by the WAEMU Council of Ministers. It is based on the Basel II and Basel III rules and takes into account the specificities of the regional banking system.

Key Components

  • Conditions for exercising the profession: Requirements for credit institutions to maintain minimum capital requirements, set up an operational risk management function, and establish a conservation buffer.
  • Regulation of specific operations: Integration of operational risk into the supervisory process, requiring banks to evaluate risks based on weightings applied to their net banking income.
  • Management standards: Minimum common equity tier 1 capital ratio of 7.5% and a total capital ratio of 11.5%, both inclusive of a 2.5% conservation buffer.

Capital Requirements

The prudential framework also sets out requirements for bank share capital:

  • Minimum share capital of XOF10 billion for banks.
  • Minimum share capital of 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: A procedure intended to avoid insolvency or closure of business and enable the discharge of liabilities through a preventive composition agreement.
  • Judicial recovery: Designed to safeguard the company and allow it to pay off its liabilities.
  • Liquidation of assets: Aimed at realizing the debtor’s assets to pay off its liabilities.

Decision-Making Process

In the event of the opening or pronouncement of liquidation proceedings against a credit institution, the Banking Commission shall take a decision on the withdrawal of authorization and winding up of the institution. Creditors cannot pursue individual recovery procedures, as collective procedures may be imposed on creditors of a company in difficulty.