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WAEMU’s Prudential Regime: A New Era for Banking Regulation

In a bid to strengthen banking regulation in West Africa, the WAEMU (West African Economic and Monetary Union) Council of Ministers has adopted a new prudential regime aimed at ensuring the stability and soundness of credit institutions. The regime, which came into effect in 2022, is designed to prevent bank failures and ensure that financial markets function smoothly.

Capital, Liquidity and Risk Control Requirements

At its core, the prudential regime requires credit institutions to maintain a minimum capital ratio of 7.5% and a total capital ratio of 11.5%, inclusive of a 2.5% conservation buffer. Banks must also hold a level of core capital corresponding to a minimum threshold of 5% of their exposure to credit, market and operational risks.

  • A new approach to evaluating operational risk is introduced, which is integrated into the supervisory process.
  • Credit institutions are required to set up an operational risk management function with strong involvement from senior executives.

Insolvency, Recovery and Resolution

In the event of insolvency, the prudential regime provides for three procedures:

  • Preventive settlement: allows companies in difficulty to avoid insolvency by negotiating a composition agreement with creditors.
  • Judicial recovery: involves legal proceedings to recover assets.
  • Liquidation of assets: involves the sale of assets to pay off debts.

Sanctions for Non-Compliance

In the event of non-compliance with the prudential regime, credit institutions may be subject to sanctions, including:

  • Imprisonment of one month to two years and/or a fine of XOF10-100 million.
  • In cases of repeated offences, the maximum penalty will increase to five years’ imprisonment and a fine of XOF300 million.

Conclusion

The WAEMU’s prudential regime is a significant step forward in ensuring the stability and soundness of credit institutions in West Africa. The new framework provides a robust regulatory environment that will help to prevent bank failures and ensure that financial markets function smoothly.

Credit institutions are advised to familiarize themselves with the requirements of the prudential regime to avoid sanctions for non-compliance.

Contact Information

For more information on the WAEMU’s prudential regime, please contact:

  • The WAEMU Council of Ministers
  • The Banking Commission
  • Your local banking regulatory authority.