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Law On Regulation Of Solvency And Liquidity Criteria In Financial Institutions, Of 29-2-96

Original Language Title: Llei de regulació dels criteris de solvència i de liquiditat de les entitats financeres, de 29-2-96

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Law on regulation of solvency and liquidity criteria in financial institutions since the General Council at its session of 29 February 1996 has approved the following: law on regulation of solvency and liquidity criteria in financial institutions preamble The law regulating deposit guarantee reserves and other operational obligations to maintain and deposited by entities operating in the financial system , dated 11 May 1995, in the section on) their fourth transitional provision, preceptua that the General Council will have to regulate, during the six months following the entry into force of the same law, the solvency and liquidity criteria in financial institutions, including the rules of weighting in terms of equity, provided for in article 18 of the law of regulation of the financial system.

The referred to article 18 of the law of regulation of the financial system specifies that the banks – and, when and in the corresponding concepts, financial institutions-will be forced to maintain an orderly financial structure to ensure the ability to meet their obligations. This ability has been basically observed from a double perspective: on the one hand, by means of a quantification of the adequacy of own funds; on the other hand, by the work of an appropriate temporal relationship between the maturities of the bonds and the availability of investments.

The General Council is based on the premise that the most effective guarantee, and irreplaceable, the solvency and liquidity of a financial institution is given by the professional self-discipline of their leaders who, by principle, it must be carried out through a management presided over, always, for a great prudence. The rules to be a technical verification of this prudence, stated in a financial structure that demonstrate the sufficiency of own funds of the institution and index that reflect a policy well measured in the use of the resources of third parties.

The present law shall be developed from the two following patterns: the first is that the rules relating to the solvency and liquidity of the Andorran financial institutions must be established according to a high level of demand, in order to maintain the solidity of the structure of the financial system.

The second is that this level of demand is quantified in such a manner that the solvency ratio-formulated on the basis of the recommendations of the Basel Committee and the minimum liquidity are superior to those that prevail in the countries that we can serve as a reference, so that the required legislation will contribute to give the Andorran financial system a comparatively favorable image in the international arena.

These two basic ideas that make up the background issues, he has added a third that refers to the way of establishing the calculations of ratios and the control of their compliance. The will of legislators is that the procedures and monitoring are established in such a way that they can be efficient without being wordy, avoiding bureaucratic interventionism, in order to shelter the values inherent in the effectiveness of business entities in the Andorran financial system, discretion and non-interference in their relationships with customers.

The current reality of the Andorran financial system, and the situation of its normative level, means that the precepts of the law relating to solvency affect in a way much more crucial banking entities and that the liquidity of the affect of an exclusively. The normative development of the non-banking financial institutions, scheduled for 1996, will indicate any new provisions that need to be set up to promote the structural soundness of these entities.

It is based on the precedents that reasoning the General Council has approved this law: chapter. Solvency ratio 1 Article banks are required to maintain an appropriate relationship between the number of its own funds and that of its financial commitments towards third parties.

Article 2 The appropriate ratio of shareholders ' equity is defined on the basis of a ratio of solvency, the numerator of which is constituted by the own funds and the denominator by the whole of the weighted risk, according to a particular gradation which reflects the greater or lesser degree of risk inherent in its operations of asset.

Article 3 1. Is meant by own funds of the institution, for the purposes of this law, your net worth according to their expression in the balance sheet. Is made up of the sum of the items that represent the share capital paid up, the reservations, the benefits of the exercise in progress, provisions and any other game that appears in the balance sheet under the heading of the corresponding liabilities to shareholders ' equity; to this sum must be inferred, if appropriate, the intangible assets, own shares in portfolio accounting, value any losses for the year in progress and any other game assets that indicate a decrease of heritage.

2. The regulations, subject to a report of the Institut Nacional Andorrà de Finances and opinion of the Committee of finance, will be able to establish limitations or conditions to all those games of equity that a reduced effectiveness for the covering of losses. As well as determine the new games that integrate the own funds and their deductions.

Article 4 the total weighted risk is made up of the sum of all the items of the assets of the entity, including those relating to accounts, after applying to each of them, depending on the assets that represent a percentage weighting of risk, according to the following scale: 0% risk Weighting 1. Lace and comparable elements 2. Public debt of the Principality of Andorra 3. Balances in the Andorran National Institute of Finance 4. Credits with guarantee of the Andorran State 5. Credits on the Common of the Principality of Andorra 6. Credits on the central Governments and central banks of the countries of the OECD, or expressly guaranteed by these agencies 7. Accounts with unique features of administrative control risk Weighting 20% 8. Deposits and other credit securities on banks multilateral development officers 9. Deposits and other credits on the banks of the countries of the OECD 10. Credits on regional and local administrations of the countries of the OECD 11. Accounts that record documentary letters of credit, lines of credit not used and other comparable operations risk Weighting 50% 12. Accounts that include the operations of financial derivatives


13. Credits on other public and parapublic entities of Andorra 14. Housing 100% risk Weighting mortgage credits 15. Accounts that logged the guarantees, deposits, guarantees and other similar operations, except those that are included in other groups of risk weighting 16. All other items of the assets, except those that have been counted as reducing factors of equity for the purpose of risk weighting regulated by this article, the term credits it is understood in a broad sense and all other active operations, ineffective or warranty.

Article 5 empowers the Government, subject to a report of the Institut Nacional Andorrà de Finances and opinion of the Committee of finance, because, before the introduction of new financial procedures or the expression of new accounting formulas, you can determine the frequency of risk and, in function of this weighting, include them in the group corresponding to the scale established in the preceding article 4.

Article 6 The solvency ratio of the banks, as it is defined in the previous articles of this law, must be at least 10%, second chapter. Liquidity ratio Article 7 banks are required to maintain an appropriate relationship between their assets and their commitments in the short term.

Article 8 The appropriate relationship between their assets and their commitments in the short term is defined on the basis of a ratio of liquidity the numerator of which is constituted by the availability and easily disposable assets, and the denominator by the sum of the liabilities payable in the short term.

Article 9 for the purposes of the present law, the money is understood to be fit, balances at the Institut Nacional Andorrà de Finances of freely available, and balances in banks in sight; It is understood by easily disposable assets the titles listed on the stock market shares and deposits in banks of maturities not exceeding one month.

Article 10 liabilities are understood to be required in the short term, for the purposes of this law, the accounts and deposits of banks and up to a month after the deadline, the current accounts, savings accounts, notice accounts, the accounts within a month, and any other obligation due date is no more than a month.

Article 11 the ratio of liquidity of banks, as it is defined in this law, it must be, at least 40%.

Third chapter. Other solvency rules Article 12 banks are required to keep their investments involve risk concentration.

Article 13 is meant by concentration of risk, for the purposes of the present law,) the accumulation of credits, or other operations involving risk in favor of a single beneficiary to a global figure that exceeds 20% of the own funds of the Bank, b) the accumulation of high risks when the aggregate value exceeds 400% of the own funds of the institution;

It is understood by high risks, for the purposes of this Act, credit, or other operations involving risk in favor of a single beneficiary to a global figure that exceeds 5% of the own funds of the Bank.

Article 14 for the purposes of the preceding article 13, will be calculated as of the same beneficiary active operations awarded to other holders of the same family unit and to companies that are related to the beneficiary, or the referring other holders, directly or indirectly, for financial or management links, for the purposes of risk, must be regarded as forming part of a set.

Article 15 the banks will not be able to give to members of their respective boards of Directors credit facilities, or other operations that involve risk, for a cumulative number greater than 15% of its own funds.

Article 16 When the person affected by articles 13 and 15 is another Andorran Bank, not you will apply the limitations set in the said articles.

The fourth chapter. Supplementary provisions Article 17 banks must maintain, by means of appropriate internal monitoring and control procedures, a continuous surveillance of foreign exchange risk and interest rate risk.

Article 18 each of the banks will have to report, on a quarterly basis, at the Institut Nacional Andorrà de Finances (INAF) the solvency and liquidity ratios.

Communications will be carried out within the first two weeks following the date of the corresponding balance sheets.

The Andorran National Institute of Finance may request to the location of the ratios at any time that it deems appropriate.

Article 19 the formal structure and nomenclature of the balance sheets and profit and loss accounts of the banks should be allowed to control the fulfilment and calculating the solvency and liquidity ratios and the limitation of the great risks, without the need for additional information.

Article 20 the effects provided for in the preceding articles 13 and 15, it is considered that the global figure or accumulated risk, referred to in the aforementioned articles, is the value added of the various games that involve risk, once applied, each of them, the weighting scale set in article 4 of this law.

Article 21 the accounts in currencies other than the peseta will be calculated on the basis of the change relative to the last day of the previous quarter.

Article 22 the Government, at the request of the interested entity within the area, with the previous report of the Institut Nacional Andorrà de Finances (INAF) and the opinion of the Committee of finance, is authorized to introduce individualized factors temporary adjusters on the application of the scaling of risk weighting referred to in article 4, with validity, at best, during the period of one year.

Article 23 In the memories of the external audits, foreseen in article 21 of the law of regulation of the financial system, dated November 27, 1993, there will appear a chapter related to the fulfillment of the precepts embodied in this law.

First additional provision In the legal norms provided for in 1996 to regulate the non-banking financial institutions, will be included, to the extent that corresponds to the specific nature of each group or subgroup of entities, and the operational powers that are attributed, to comply with rules in the area of solvency and liquidity, or comparable to these conditions.

Second additional provision regulating the disciplinary system will determine the applicable administrative sanctions for the breach of


the provisions of the present law.

Third additional provision the Institut Nacional Andorrà de Finances will establish the technical procedures necessary for the implementation and monitoring of compliance with the precepts contained in this law.

First transitional provision While not regulated the presentation of the consolidated balance sheets, the Government is authorized to order a consolidated balance sheet for the banks that act as a group. This balance must reflect the requirements of solvency and bumped off set by this law.

Second transitional provision As the General Council did not note the minimum social capital figures, according to the provisions of the fourth transitional provision of law regulating deposit guarantee reserves and other operational obligations to maintain and deposited by entities operating in the financial system, banks will not be able to reduce its share capital to the bottom of the figure presented their respective balance sheets as of December 31, 1994.

Third transitional provision the financial entities will have to accommodate, no later than June 30, 1997, its financial structures in the provisions of the present law.

Final provision this law shall enter into force on the day of its publication in the Official Gazette of the Principality.

Casa de la Vall, 29 February 1996 Josep Dallerès Codina, General Syndic Us the co-princes the sancionem and promulguem and let's get the publication in the official bulletin of the Principality of Andorra.

Jacques Chirac Joan Martí Alanis, President of the French Republic the Bishop of Urgell Co-prince of Andorra Co-prince of Andorra