Law of the Republic of Azerbaijan on Non-Banking Credit Institutions

Transcription

1 Law of the Republic of Azerbaijan on Non-Banking Credit Institutions This Law regulates establishment, management and activities of non-bank credit institutions with purpose of more thoroughly meeting needs of legal and natural persons for financing resources, and creating favorable funding environment to use financial services. Chapter I. General Provisions Article 1. Key definitions 1.0. Definitions used herein bear the following meanings: Non-banking credit institutions (hereinafter referred to as NBCI) are specialized credit institutions which perform lending and other activities prescribed herein based on a special permit (license) Joint borrower group parties that based on a contract act as mutual guarantors for repayment of a borrowing by any group member Collateral\collateral deposit is the cash which is repaid by a borrower or joint borrowers group to NBCI fully or by installments for the duration of a loan agreement and acts as loan repayment collateral Administrator single manager of NBCI or members of NBCI s executive body, accounting manager (chief accountant, CFO etc.), other employees authorized to make decisions on collateral deposit, internal auditor, as well as a branch and an accounting manager of NBCI that is authorized to accept collateral deposit Related parties NBCI founders, administrators, managers of structural units and their close siblings (spouses, parents, children, including adopted children), as well as parties authorized to act on their behalf. Article 2. Legal framework for NBCI activities and the scope of the present Law 2.1. Activities of NBCIs are regulated by the Constitution of the Republic of Azerbaijan, the present Law, the Civil Code of the Republic of Azerbaijan, the Law of the Republic of Azerbaijan on the Central Bank of the Republic of Azerbaijan (hereinafter the Central Bank ), other laws and legal acts of the Republic of Azerbaijan, Regulations of the Central Bank, as well as international treaties Azerbaijan is a party to This Law is not applicable to credit unions and pawnshops.

2 Article 3. Independence of NBCIs 3.1. NBCIs shall perform their activities independently within the framework of authorities set forth herein With exception of cases provided for in the legislation, NBCIs shall be independent from public and municipal bodies and those authorities may not intervene in NBCI s current activities NBCI and government shall not bear any responsibility for each other s commitments Interest rates on loans issued by, as well as the amount of commissions and service fees on financial services provided by NBCIs in accordance with the present Law shall be set independently in an agreement between NBCI and the borrower (users of service). Article 4. NBCI unions and associations 4.1. NBCI may establish unions and associations to coordinate their activities, as well as represent and protect their common interests NBCI may not use unions and associations to conclude agreements limiting competition and monopolizing the market and conduct coordinated activities, including establishment of interest rates and commissioning fees. Associations and unions shall comply with the anti-monopoly legislation in their activities. Chapter II. Establishment and Management of NBCIs Article 5. Organizational-legal types and forms of NBCIs 5.1. NBCIs may be established by a domestic and\or foreign legal and natural persons, as well as international organizations under the organizationallegal form provided for commercial entities in the Civil Code of the Republic of Azerbaijan. Non-commercial NBCIs may be established solely as a Fund by international organizations, as well as non-governmental organizations funded from state budgets of foreign countries according to the agreements entered into by the Republic of Azerbaijan. Non-commercial NBCIs may not launch or participate in commercial entities NBCI shall be divided into two types: entities with and without authority to accept collateral deposit NBCIs functioning on the territory of foreign countries may establish only branches without the right to accept collateral deposit in the Republic of

3 Azerbaijan. Such branches shall be licensed, their activities regulated and supervised in accordance with procedures set forth herein related to NBCIs without pledge acceptance right. Article 6. Names of NBCI 6.1. NBCI name should contain non-banking credit institution. In documents, advertisements or announcements an NBCI may not be referred to by any name other than the name used in its charter NBCI may not use names of state registered and acting banks, credit unions and other non-banking credit institutions. Article 7. NBCI statutory (share) capital 7.1. Minimum paid in (share) capital of NCBIs, as well as property rights of founders of non-commercial legal person - NBCI shall be paid in cash. Paid-in (share) capital (property rights) shall be denominated in the national currency of the Republic of Azerbaijan Requirements for minimum statutory (share) capital of NBCIs, as well as initial property of NBCI established shall be set by the Central Bank. Article 8. Requirements on organizational structure and administrators of an NBCI 8.1. Irrespective of their organizational-legal status, organizational structure of an NBCI shall at least contain the following positions: manager (director, head of joint executive body); accounting manager (chief accountant, chief finance officer); loan officer; internal auditor NBCI administrators shall have higher education and at least one year of relevant work experience. Accounting manager should have higher education and at least one year of accounting experience or vocational education and at least 5 years of accounting experience Persons prohibited by the Law to take a relevant position, as well as persons with willful crime records may not become NBCI administrators. Article 9. NBCI branches and representative offices 9.1. NBCIs may open their branches and representative offices Branches of NBCI with authority to accept collateral deposits may be opened with the permission issued by the Central Bank.

4 9.3. Branches of NBCI without authority to accept collateral, as well as representative offices of both types of NBCIs may be opened through prior written notification to the Central Bank. If that is the case, the NBCI shall deliver a written notification to the Central Bank within 5 business days from the day the decision is made to open a branch or a representative office. The notification shall contain the name of decision-making management body, decision date and number, name of the opening branch or representative office, addresses and information on managers (qualifications and work experience) Statutes of branches and representative offices shall be approved by the NBCI NBCI shall bear full responsibility for all activities and liabilities of its branches and representative offices. Article 10. License Chapter III. Issue of Licenses and Permits In order to issue loans the NBCI shall obtain a special permission (license) (hereinafter - license ) from the Central Bank In order to allow the NBCI to perform activities with authority to accept collateral deposit, the license of the NBCI shall contain a special note thereof. NBCI shall be prohibited to accept collateral deposits without such permission NBCI shall be licensed for unlimited duration Licenses shall take effect from the date of issue by the Central Bank. License may be used solely by the recipient NBCI. Article 11. Application for license In order to obtain a license an NBCI should submit the following documents to the Central Bank: application signed by the founder(s) or agent(s) authorized under the legislation; notarized copies of state registration certificate and charter; bank statement on payment of minimum statutory (share) capital (formation of initial property); written statement on organizational structure; written statement on administrators professional qualifications and absence of willful crime record;

5 written information on funding sources, as well as key indicators of lending policy (territory covered, lending subjects, loan terms, interest rates etc.); if NBCI is operating in a foreign country, written permission of foreign supervisory body (if required by foreign country s legislation) to open a branch in Azerbaijan; bank statement indicating payment of state duty for a license The information listed in Article 11.1 hereof shall be signed by person(s) applying for the license. The format and content of the application, attachments thereof shall meet the requirements specified in Regulation of the Central Bank, Central Bank shall review the license application within 30 days. In the event the submitted documents are incomplete, the Central Bank shall deliver a written notification to eliminate those deficiencies upon not later than 15 days from receipt of application. After elimination of deficiencies the Central Bank shall review the documents and make a relevant decision within 15 days. Article 12. Grounds to reject license application Licenses shall be rejected in the following cases: in the event of incompliance of submitted documents with requirements of the legislation or inaccurate data; if the applicant fails to submit a bank statement about repayment of minimum statutory (share) capital or establishment of founders property rights required by the Central Bank; if the administrators do not meet professional qualification requirements and\or have willful criminal record In the event the Central Bank shall reject to issue a license, it shall provide a written rejection decision to the applicant through indication of grounds thereof The applying party may raise a claim in court in accordance with the legislation, against the Central Bank s decision to reject the license. Article 13. Application for permit to open NBCI branches In the event an NBCI with authority to accept collateral deposit intends to open a branch, following documents should be submitted to the Central Bank: An application signed by a senior authority of the NBCI; NBCI senior management body s decision to open a branch; Branch charter;

6 Decision of NBCI senior management authority to appoint a branch administrator, information on their professional qualifications and absence of willful crime record (this information is signed by the senior authority of the NBCI) Central Bank shall review the branch permit application within 20 days. In the event the submitted documents are incomplete or deficient, the Central bank delivers a written notification to eliminate those deficiencies not later than 5 work days upon receipt of application. After elimination of deficiencies the Central Bank reviews documents and makes a decision within 10 days If the submitted documents and information are in compliance with the legislative requirements the Central Bank shall make a decision to permit branch opening, otherwise the CBA will deliver a written notification on rejection indicating grounds for such a decision. Article 14. Licenses and permits registry The Central Bank shall develop a unique registry of NBCIs, their branches and representative offices available for public. Names and addresses of NBCIs, their branches and representative offices, registration numbers and dates of issued and annulled\revoked licenses and permits, information on administrators, as well as information on terminated NBCIs, their branches and representative offices shall be input to the registry within 3 days NBCI shall inform the Central Bank in writing about any amendments or changes to the registry information, as well as constituent documents (charter, statute) within 5 calendar days. In the event new administrators are appointed to the NBCI, the abovementioned written notification should verify that those persons meet requirements of Articles 8.2 and 8.3 herein. Chapter IV. Requirements to NBCI Activities Article 15. Activities of NBCIs NBCIs may grant secured and unsecured loans based upon the license issued by the Central Bank. Loans issued by NBCIs may be secured through movable and immovable property, collateral deposit, guarantees and other means under the legislation. Collateral deposit may be accepted solely upon special permit thereof under the license issued by the Central Bank for the NBCI NBCIs obtained licenses for lending may perform the following operations\activities:

7 purchase-sale of debt obligations (factoring, forefeiting); leasing; accounting for bills\bonds; issue of guarantees; , perform insurance agent services provide funding, technical and management consulting services for borrowers, including joint borrower groups In the event when the legislation requires an additional license to perform activity types indicated in Article 15.2 herein, the NBCI may perform those activities solely after obtaining a relevant license from related state structures NBCI shall be prohibited to accept deposits from natural and legal persons. Article 16. Funding sources of NBCI activities NBCI activities may be funded through the following sources: statutory (share) capital (property rights) and acquired income; attracted loans; donations, grants and other types of free funds of natural and legal persons; funds obtained from other sources not prohibited by the legislation Free funds from international organizations, governments of foreign countries and other donors, as well as income generated thereof shall not be repatriated from the Republic of Azerbaijan. Article 17. Loan agreement In lending process, NBCI shall ensure transparency and inform borrowers thoroughly on the value of their borrowing and associated costs Loan agreement between the NBCI and the borrower shall contain at least the following, unless otherwise required by the legislation: names and legal addresses of parties; purpose of the loan; loan amount; maturity of the loan; repayment type; collateral (if the loan is secured);

8 interest payments, including annual interest rates (annual interest rates shall be indicated irrespective of the loan maturity); in the event of annuity repayment of the debt (principal and interest), average payable real interest rate for the duration of loan; responsibilities of parties Loan agreement is developed in writing in at least 2 copies, one copy is presented to the borrower, other copies are incorporated in an NBCI s credit file Loan agreement entered into with a joint group of borrowers should contain information on all group members (names, legal addresses etc) and a separate copy should be developed per member and each member should receive a copy In the event the terms and conditions indicated in Article 17.2 hereof are not incorporated in the loan agreement and as a result the borrower incurs some losses\damages, he/she may claim compensation\reimbursement of those costs from NBCI in the order specified in the legislation. Article 18. Collateral deposit Loan agreement may provide for securitization of the loan with collateral deposit. Value of collateral deposit may not exceed outstanding balance of the principal and accrued interest payment, its term should not exceed the loan maturity Collateral deposit is disbursed to NBCI in cash or non-cash form and within 2 days is deposited to special account(s) in the servicing bank(s) NBCI shall account for each collateral deposit received. Accounting information should allow to fully reconcile\identify borrower (joint group of borrowers) and the loan secured with collateral deposit In the event the loan is fully repaid or other cases set by the loan agreement the collateral deposit is returned by NBCI to the borrower (group of joint borrowers) within not later than 2 days upon borrower s application In the cases set by the loan agreement, NBCI should pay interest on collateral deposit In the event the borrower (joint borrower group) fails to repay the borrowing (principal, interest, penalty), in cases stipulated in the loan agreement, the NBCI may recover that borrowing indisputably (without acceptance) from the collateral deposit NBCI may not make loans and provide other financial services from the funds allocated in collateral deposit accounts. Collateral deposit accounts may be used solely in the following cases:

9 purchase of T-bills and securities of central banks (in accordance with Article 18.4 hereof); exercise the rights stipulated in Article 18.6 hereof. Article 19. Prudential norms and requirements on NBCI activities In order to ensure financial stability of NBCIs with authority to accept collateral deposit, the Central Bank may impose the following prudential norms and requirements on their activities: maximum loan amount payable to one borrower and joint borrower group; maximum loan amount to related parties and requirements to related party transactions; ratio of accepted collateral deposits to NBCI capital; depending on classification and valuation of assets and off-balance sheet liabilities, requirements to specific reserves to be created from possible loan loss expenses In regulating NBCI activities the Central Bank may impose all or part of norms as deemed necessary NBCI who operate as non-commercial legal entities or do not have authority to accept collateral deposit shall maintain the minimum level of statutory (share) capital (property) established by the Central Bank New prudential norms and requirements set by the Central Bank, as well as amendments thereto take effect not earlier than one month upon official declaration to NBCI; amendments to minimum required statutory (share) capital (property) take effect not earlier than six months upon declaration to NBCI. New prudential norms and requirements are not revocable. Article 20. NBCI accounting and financial reporting NBCI shall maintain accounting and develop financial statements in accordance with the Law of the Republic of Azerbaijan on Accounting and other relevant legislative acts Borrowers, as well as other stakeholders enjoy the right to acquaint with NBCI s latest financial statements NBCI should submit annual financial statements approved by an external auditor to the Central Bank not later than 5 months upon the end of fiscal year and publish the statements in mass media.

10 Article 21. Transparency requirements on NBCI activities NBCI and their branches should post terms and conditions for lending and other services provided and demonstrate their license (permit) in a suitable location in their administrative building and allow any interested party to get acquainted with them NBCI may not allow deliberately false advertising about its activities and should comply with other advertising requirements of the legislation In the event the name or address of the NBCI is changed, relevant information should be published in mass media within 7 calendar days. Article 22. Submitting information to Centralized Credit Registry NBCI shall submit information on each borrower to the Centralized Credit Registry created at the Central Bank in accordance with the work schedule set by Central Bank s regulations, as well as nature of information, terms and procedures for submission of this information NBCIs may receive information regarding their borrowers and persons applying for loans from the aforementioned registry in accordance with work procedures of Centralized Credit Registry, as well as terms and guidelines on receiving information Any of NBCI borrowers may obtain information from the Centralized Credit Registry in accordance with the registry s work schedule Bank secrecy regime shall be exercised on the data obtained from the Centralized Credit Registry by the NBCI under the legislation. All persons violating the regime of bank secrecy shall bear obligation in accordance with the legislation of the Republic of Azerbaijan. Article 23. Confidentiality NBCI shall ensure confidentiality of information on transactions with its customers as well as information on received collateral deposits in accordance with the Law of the Republic of Azerbaijan on Commercial Secrecy and shall not allow its illegal disclosure. Such information should be kept with NBCI for at least 5 years upon termination of mutual relations with a customer.

11 Chapter V. Supervision over NBCI Activities Article 24. Supervision over NBCI activities NBCI activities are supervised by relevant managerial authority identified in its Charter NBCIs should submit their prudential reports to the Central Bank in the format and context established by the Central Bank not later than 10 calendar days upon the end of each reporting quarter If as a result of review of reports, cases of violation of the present Law or other relevant regulations of the Central Bank, as well as facts that might cause such violations are discovered, the Central Bank shall direct a notification letter to NBCI to eliminate such cases. The letter shall delineate measures and their implementation deadlines to eliminate NBCI violations (deficiencies) or facts preceding such violations Within the period indicated in the notification, the NBCI shall inform the Central Bank in writing on implementation of measures indicated therein. If within the allocated time the NBCI fails to fully or properly implement those measures the Central Bank shall forward a second letter to the NBCI and notify that in the event of failure to implement those actions in the allocated time, their license shall be revoked In case of necessity to verify reporting information, the Central Bank may provide on-site examination of the NBCI activities through sending 10 days prior written notice. Central Bank s inspectors shall enjoy the right to enter NBCI premises producing an examination certificate and inspect their reports, accounting books, documents and other records, as well as request their explanation thereof. Article 25. Termination of licenses and permits The Central Bank may terminate NBCI licenses or branch permits in one or more of the following cases\grounds: NBCI submits a relevant application; information submitted by NBCI for license or permit application is found to be erroneous; NBCI or its branch fails to commence activities within twelve months upon effective date of its license or permit; failure to implement the Central Bank instructions to eliminate violations\deficiencies in activities;

12 failure to submit required reports to the Central Bank for two consecutive reporting periods or purposeful submission of fraudulent\erroneous information to the Central Bank; implementation of activities not stipulated herein or prohibited by the license (permit); termination or bankruptcy of NBCI in accordance with the legislation Decision to terminate the license shall be delivered to NBCI immediately, to the relevant tax authority not later than 5 business days upon its effective date, as well as published in mass media. The Central Bank s decision to terminate the NBCI branch permit shall be forwarded to the NBCI in writing within 3 business days upon its effective date Unless another date is intended in the decision to terminate the license, it becomes effective as of its publishing date in media The NBCI shall suspend its activities from the effective date of the relevant decision and is liquidated in accordance with the Civil Code of the Republic of Azerbaijan NBCI may, in accordance with the legislation, raise a court claim against Central Bank s decision to terminate its license. A claim to the court does not impede implementation of Central Bank s relevant decision. Article 26. Transition provisions Chapter VI. Transition Provisions The requirements of the present Law shall apply to loan agreements entered into by operating NBCIs after the present Law shall take effect The NBCIs, who intend to acquire authority to accept collateral deposit desiring to receive a new license under the present Law, may apply to the Central Bank in accordance hereto. Baku, 200_ Ilham Aliyev President of Azerbaijan