Banks and Trust Companies (Large Exposures) Regulations

Link to law: http://laws.bahamas.gov.bs/cms/images/LEGISLATION/SUBORDINATE/2006/2006-0003/BanksandTrustCompaniesLargeExposuresRegulations_1.pdf
Published: 2006-01-27

Banks and Trusts Companies Regulation
CH.316 – 24] BANKS AND TRUST COMPANIES REGULATION






STATUTE LAW OF THE BAHAMAS LRO 1/2008

BANKS AND TRUST COMPANIES (LARGE
EXPOSURES) REGULATIONS

ARRANGEMENT OF REGULATIONS

SECTION

1. Citation.
2. Interpretation.
3. Single exposure limit.
4. Limit on exposures to related parties.
5. Central Bank to monitor.
6. Aggregate limits on large exposures.
7. Exempt exposures.
8. Exemption from exposure limits.
9. Compliance and internal policies.
10. Review of internal policies.
11. Reporting requirements.
12. Notification of breach.
13. Remedial action by the Central Bank.
14. Notice of remedial action for Compliance.
15. Variation of limits.
16. Penalty for non-compliance.



BANKS AND TRUST COMPANIES (LARGE
EXPOSURES) REGULATIONS

(SECTION 24)
[Commencement 27th January, 2006]


1. These Regulations may be cited as the Banks and

Trust Companies (Large Exposures) Regulations.
2. In these Regulations —
“capital base” means the total of shareholders funds

plus other capital items permitted by the Central
Bank and subject to any deduction required by
the Central Bank and reported in the most recent
form BSDI;

“Central Bank” means the Central Bank of The
Bahamas established pursuant to section 3 of the
Central Bank of The Bahamas Act;

S.I. 3/2006

Citation.

Interpretation.

Ch.321.

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“concessive terms” means conditions and
requirements that are less demanding than or
inconsistent with the conditions and requirements
imposed upon the general range of non-related
party clients in similar circumstances;

“counterparty” means the borrower (customer), the
person guaranteed, the issuer of a security in the
case of an investment in a security or the party
with whom the contract is made in the case of a
contract;

“connected party” means —
(a) any party that, either directly or indirectly,

controls the counterparty;
(b) any party that is controlled, either directly or

indirectly, by any party that controls, either
directly or indirectly, the counterparty;

(c) a subsidiary or associate company of the
counterparty;

(d) directors, executive officers, senior staff, and
controlling shareholders of the counterparty;

(e) directors, executive officers, senior staff, and
controlling shareholders of any person identified
in (a), (b) and/or (c), above;

“exposure” means —
(a) claims on a counterparty including actual claims

and potential claims which would arise from the
drawing down in full of undrawn advised
facilities (whether revocable, irrevocable,
conditional or unconditional), which the licensee
has committed itself to purchase or underwrite;

(b) contingent liabilities arising in the normal course
of business and liabilities that would arise from
the drawing of undrawn advised facilities;

(c) holdings of equity capital, bonds, bills or other
financial instruments;

(d) any other assets that constitute a claim on a
counterparty for the licensee and which are not
included in paragraphs (a), (b), or (c) above;

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STATUTE LAW OF THE BAHAMAS LRO 1/2008

“large exposure” means an exposure which is equal to
or exceeds ten percent of the capital base of a
licensee;

“licensee” means any Bank or Trust company which is
incorporated in The Bahamas and which holds a
licence granted under section 4 of the Act;

“related party” includes —
(a) a person that controls, whether directly or

indirectly, a licensee;
(b) a person that is controlled, whether directly or

indirectly, by the person that controls the
licensee;

(c) the subsidiaries or associate companies of a
licensee;

(d) the directors, executive officers, senior staff of —
(i) a licensee;
(ii) any person identified in paragraphs (a),(b),

or (c) above;
(e) any person who, either alone or together with any

associate, is entitled to exercise control over ten
percent or more of the share capital of —
(i) a licensee;
(ii) any person identified in paragraphs (a), (b)

or (c) above;
(f) the immediate family members of persons

identified in paragraphs (a), (d) or (e) above;
(g) partnerships, companies, trusts or other entities in

which an immediate family member referred to in
paragraph (f) above, has a controlling interest;
and

(h) any person that manages or is managed by a
licensee under a management contract;

“the Act” means the Banks and Trust Companies
Regulation Act;

“Zone A countries” means all countries which are full
members of the Organization for Economic Co-
operation and Development (OECD), together
with those countries which have concluded
lending arrangements with the International

Ch. 316.

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Monetary Fund associated with the General
Agreement to Borrow, excluding those countries
which have rescheduled their external debts
during the preceding five years and those
countries whose rating for long-term liabilities in
foreign currencies is lower than “investment
grade” or which have no rating and whose yield
to maturity and remaining duration are not
comparable with those of long-term liabilities
with an investment grade rating.

3. (1) No licensee shall incur an exposure to any
individual counterparty or group of connected parties,
which exceeds twenty- five percent of the licensee’s capital
base.

(2) No licensee shall hold investments in securities of
an issuer which exceed ten percent of the licensee’s capital
base.

4. (1) No licensee shall incur any exposure, whether
on an individual or aggregate basis, to related parties of
greater than fifteen percent of the licensee’s capital base.

(2) All exposures to related parties must be:
(a) negotiated on an arms length basis for clear

commercial advantage of the licensee at market
rates and without concessive terms;

(b) specifically approved by the licensee’s Board of
Directors.

5. The Central Bank shall monitor all exposures to
related parties and may deduct them from the capital base
of the licensee if they are, in the opinion of the Central
Bank, of the nature of a capital investment or made on
concessionary terms.

6. No licensee shall incur non-exempt large
exposures which in aggregate exceed eight hundred percent
of its capital base.

7. (1) The following exposures are exempt from the
limits outlined in regulations 3, 4 and 6 —

(a) exposures to the Government of The Bahamas
and non-commercial Bahamian government
institutions;

(b) exposures to Zone A Central Governments with a
Moody’s rating above Baa2 for foreign currency
debt;

Single exposure
limit.

Limit on
exposures to
related parties.

Central Bank to
monitor.

Aggregate limits
on large
exposures.

Exempt
exposures.

CH.316 – 28] BANKS AND TRUST COMPANIES REGULATION






STATUTE LAW OF THE BAHAMAS LRO 1/2008

(c) exposures to Zone A Central Banks; and
(d) exposures secured by Zone A Central

Government securities or guarantees with a
Moody’s rating above Baa2 for foreign currency
debt;

(e) short-term inter-bank deposits (where limits have
been pre-approved by the Inspector) of not more
than 6 months maturity, booked with Zone A
banks which are located in Zone A countries;

(f) exposures which are fully collateralized
throughout their tenure by cash deposits,
including certificates of deposit and equivalent
instruments, held with the specific right of offset,
where the release of the deposit is conditional on
the repayment of the related extension(s) of
credit.

(2) In Regulation 7(1)(e) “Zone A banks” means
banks which have Home Supervisors that are located in
Zone A countries.

8. The Inspector of Banks and Trust Companies
may, upon receiving prior notice from a licensee of any of
the exposures set out in paragraphs (a), (b), (c), (d), (e) and
(f) hereof, exempt the licensee from the exposure limits
outlined in regulations 3, 4 and 6 —

(a) exposures which are collateralized by
marketable securities throughout their tenure
having a market value equal to at least one
hundred percent of the extension of credit or such
higher percentage as the Inspector shall require;

(b) exposures which are supported by a guarantee or
letter of comfort from a bank, which is acceptable
to the Inspector;

(c) underwriting exposures which do not exceed 90
days duration. Any residual holdings of
securities, which are held for more than 90 days,
are no longer eligible for exemption under this
regulation and are subject to the limits outlined in
regulations 3, 4 and 6;

(d) certain exposures to related parties which are
subject to supervision and which have been pre-
approved by the Inspector.

Exemption from
exposure limits.

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(e) off-balance sheet exposures (such as derivative
contracts) to banks which are acceptable to the
Inspector.

9. Licensees shall implement and maintain internal
policies and internal limits which will ensure compliance
with regulations 3, 4 and 6.

10. Licensees shall regularly, but not less than once
annually, review their internal policies to take account of
changing operating circumstances.

11. Licensees shall report to the Inspector all large
exposures, exempt or otherwise, on a quarterly basis (or
more frequently if required by the Central Bank) in the
manner determined by the Inspector.

12. On becoming aware of any breach of regulations
3, 4 or 6 a licensee shall immediately notify the Inspector
of the breach and provide the Inspector with particulars of
the breach in the manner determined by the Inspector.

13. Where a licensee is in breach of regulation 3, 4 or
6 the licensee and the Inspector shall enter into discussions
for the purpose of determining what remedial action is
required.

14. The Inspector may, by notice in writing served on
the licensee, require the licensee to take such remedial
action as he thinks fit to ensure compliance with
regulations 3, 4 and 6.

15. The Inspector may, by notice in writing served on
a licensee, vary any of the limits specified in regulation 3,
4 or 6 in relation to that licensee.

16. The Governor may impose a fine not exceeding
five thousand dollars where a licensee fails to comply with
the provisions of any of regulations 3, 4 or 6:

Provided that the Governor may, if he thinks
fit, exempt a licensee from the provisions of this
regulation.

Compliance and
internal policies.

Review of
internal policies.

Reporting
requirements.

Notification of
breach.

Remedial action
by the Central
Bank.

Notice of
remedial action
for compliance.

Variation of
limits.

Penalty for non-
compliance.
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