Banking (General Practice) Regulatory Code 2005
Statutory Document No: 832 / 05 [Amendment Code: SD 280 / 06]
BANKING ACT 1998 BANKING (GENERAL PRACTICE) REGULATORY CODE 2005 Approved by Tynwald 13th December 2005 Coming into operation 1st July 2006 In exercise of the powers conferred on the Financial Supervision Commission by section 10(1) of the Banking Act 1998 (a), and of all other enabling powers, the following Regulatory Code is hereby made - Citation, commencement and revocation 1. This Regulatory Code may be cited as the Banking (General Practice) Regulatory Code 2005 and shall come into operation on 1st July 2006. 2. The Banking (General Practice) Regulatory Code 1999(b) is hereby revoked. Interpretation "adjusted capital base" or "ACB" means a measurement of a bank's capital available to cover its risk weighted assets. The components of the measurement are detailed in schedule 1, Form SR-2A; "advertisement" is defined in the Banking Act 1998; "Annual Compliance Certificate" is a document on which a bank confirms to the Commission that, during a specified period, its business has complied with certain legislation, conditions, recommendations and directions. The form of this document is specified in Schedule 2; "Approved Manager" has the meaning given by section 3(2) of the Banking Act 1998 for "manager"; "associate", in relation to any individual, means any of: (a) a spouse, child, stepchild of the individual; or (b) a business partner or employee of the individual; or (c) a trust in respect of which the individual has a beneficial interest; or (d) any company in which the individual is a director; or (e) any company in which the individual is a shareholder, and, together with any other associate, holds 20% or more of the equity; or (f) any other person whose business or domestic relationship with the individual or his associate might reasonably be expected to give rise to a community of interest between them which may involve a conflict of interest in dealings with third parties; "associated company" means: (a) any company in which the bank holds more than 20% of the equity shares; or (b) a company, other than a subsidiary, over which the bank is able to exercise a significant influence; and
"bank" means any banking institution which is a holder of a banking licence issued under section 6 of the Banking Act 1998; "banking business" is defined in the Banking Act 1998; "banking returns" means Forms "SR-1A", "SR-1B", "SR-1C", "SR-2A", "SR-2B", "SR-2C", "SR-3A", "SR-3B", "SR-4" on which banks report financial and other information to the Commission. A "set of banking returns" means one of each of these banking return Forms completed as at a specific date. The content of each form is specified in Schedule 1 to this Code; "Board" means Board of Directors of the bank; "chief executive" means a person who is employed by the bank and who, either alone or jointly with others, is or will be responsible, under the immediate authority of the directors, for the conduct of the business of the bank; "company" means a body corporate whether constituted under the law of the Isle of Man or elsewhere; "consolidated supervision" means overall evaluation of the strength of a group to which a bank belongs, including the activities of group companies not incorporated in the consolidated returns; "controller" means: (a) a managing director of the bank or of a body corporate of which the bank is a subsidiary, or in the case of a partnership, a partner; or (b) a chief executive of the bank or of a body corporate of which the bank is a subsidiary; or (c) a person in accordance with whose directions or instructions one or more of the directors of the bank or of a body corporate of which the bank is a subsidiary are accustomed to act; or (d) a person who, either alone or with any associate or associates, is entitled to exercise or control the exercise of 15% or more of the voting power at any general meeting of the bank or of another body corporate of which it is a subsidiary. "depositors compensation scheme" means the scheme contained in the Banking Business (Compensation of Depositors) Regulations 1991(c); "director" means any individual occupying the position of director by whatever name called; or any individual in accordance with whose directions or instructions one or more of the appointed directors are accustomed to act; "Financial Services Ombudsman Scheme" means the scheme for mediation, investigation and adjudication in disputes relating to financial services as provided for in the Financial Supervision Act 1988(d) sections 21A-C; "four-eyes" has the meaning given in Codes 10 and 69; "group" in relation to a body corporate is defined in the Banking Act 1998; "Home Regulator" means the financial regulatory body that supervises the bank in its place of incorporation; "Lead Regulator" means the lead financial regulatory body that supervises, on a consolidated basis, the whole group of which the bank is a part; Large Exposures' definitions are shown at the end of Code 3; "liquidity" means risk of non-availability of liquid assets; "manager" - except in Codes 52-56 and 96-100 concerning Managed Banks, means an individual employed by the banking institution who, under the immediate authority of a director or its chief executive:- (a) exercises managerial functions; or (b) is responsible for maintaining the accounts or other records of the banking institution. This is as defined in the Banking Act 1998 section 16(7). "Managed Bank" means a bank which does not have its own offices and staff in the Isle of Man and whose operations in the Isle of Man are managed by another bank, which is the "Approved Manager"; In relation to liquidity, "mismatch" means the difference between the cumulative totals of assets and liabilities in specified time-bands, expressed as a percentage of total deposit liabilities; "net short open position" means the difference between the value of asset exposures and the value of liability exposures in any one currency; "reporting date" means the date corresponding to the information in a report, also known as the "as at" date; "public document" is defined in the Interpretation Act 1976; "Risk Asset Ratio" or "RAR" means a ratio of adjusted capital base to risk weighted assets; "Senior Management" means the chief executive, and/or four-eyes, and/or manager of the bank; "Statistical Rating Agency" means a body which analyses and rates inherent credit risk associated with credit institutions (including banks) and sovereign countries; "subsidiary" is defined in the Companies Act 1974(e); "SR-1A", "SR-1B", SR-1C, "SR-2A", "SR-2B", "SR-2C", "SR-3A", "SR-3B", "SR-4" are Banking Return forms on which banks report financial and other information to the Commission. The content of each form is specified in Schedule 1 to this Code; Large Exposures - Definitions In relation to Large Exposures, the following terms have these meanings:- "an exposure" means a claim on an individual counterparty or group of closely related counterparties; "counterparty" means any person on whom a bank has as claim, whether directly or indirectly; "exempt exposure" means those exposures which do not need to be included in calculating whether the aggregate of a bank's exposures to a particular counterparty is within the 25% limit; "group of closely related counterparties" means individual counterparties which are related in such a way that the financial soundness of any one of them may affect the financial soundness of the others and as such they constitute a single risk; "large exposure" means any exposure which is 10% or more of a bank's Large Exposures Capital Base ("LECB"); "Large Exposure Capital Base" or "LECB" means the adjusted capital base calculated annually on the latest audited financial statements and agreed with the Commission; "large exposures policy statement" means a statement of a bank's policy on treatment of large exposures; "pre-notification" means advising the Commission in writing before incurring the exposure; "the 25% limit" means the limit (of 25%) on exposures to an individual counterparty or group of closely related counterparties expressed as a percentage of the bank's LECB; "Zone A" means countries which are full members of the Organisation for Economic Co-operation and Development and those countries which have concluded special lending arrangements with the International Monetary Fund ("IMF") associated with the IMF's General Agreement to Borrow, provided they have not rescheduled their external sovereign debt to official or private sector creditors in the previous five years. The Isle of Man, Jersey, Guernsey, Gibraltar and Bermuda should also be regarded as being within Zone A; "Zone B" means all countries which are not in Zone A. PART 1 - BANKS INCORPORATED IN THE ISLE OF MAN Application 4. This Part applies to banks which are incorporated in the Isle of Man. (1) have an authorised, issued and fully paid-up share capital of not less than 3,500,000 sterling or its equivalent in another currency; and (2) be a wholly-owned subsidiary of a company which is authorised as a bank and is subject to consolidated supervision in its place of incorporation by a Lead Regulator. Direction and Management (1) The directors shall ensure that the bank has in place arrangements for effective corporate governance that are appropriate to its size and the nature of its business. (2) The bank shall have policies, procedures and practices (including Board and Senior Management oversight) in respect of all material business and control risks, including credit risk and large exposures, market risk (including foreign exchange, interest rate and derivatives), liquidity and risks of an operational nature. The Board shall ensure that the bank's policies, procedures and systems are appropriate and adequate. 7. New appointments and departures from office (1) The bank shall notify the Commission in writing at least 21 business days in advance of the proposed appointment of any director, manager, controller, four-eyes, company secretary, compliance officer or money laundering reporting officer. The bank shall confirm to the Commission the responsibilities and title of the new position. (2) The bank shall notify the Commission in writing of the reason(s) for the departure from office of any director, manager, controller, four-eyes, company secretary, compliance officer or money laundering reporting officer. This notification is to be given within 10 business days of the departure from office. 8. Directors The directors shall manage and control the business of the bank from the Isle of Man. At least one director shall be of non-executive status. The bank shall have as its Company Secretary ("Secretary") an individual who is qualified in accordance with paragraphs (a) to (e) of section 19(4) of the Companies Act 1982(f), or is an Associate of the Chartered Institute of Bankers, or its equivalent. 10. "Four-Eyes" The business of the bank shall be effectively controlled on a day-to-day basis by at least two individuals who shall be jointly responsible for overseeing the bank's proper conduct. These individuals shall be known as the four-eyes. Internal procedures should be established to ensure that the four-eyes have dual control and separation of functions where appropriate. 11. Compliance Officer and Money Laundering Reporting Officer The bank shall appoint the following officer(s): - (1) Compliance Officer(s)
(2) Money Laundering Reporting Officer A nominated money laundering reporting officer ("MLRO"). Capital 12. Capital (1) The bank shall: - (a) have an Internal Capital Adequacy Assessment Process ("ICAAP") which is appropriate to the nature and scale of its business. The ICAAP shall be reviewed annually and approved by the Board of Directors; and (b) provide the Commission with a copy of: (i) the ICAAP within 21 business days of the Board's approval of the document; and (ii) any significant amendment(s) to the ICAAP within 21 business days of the Board's approval of the changes; and (c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the ICAAP was up to date and appropriate. (2) The bank shall maintain a level of capital appropriate to the nature and scale of its business, expressed as a Risk Asset Ratio ("RAR"). (3) The minimum RAR shall be 8% except where the Commission has issued a recommendation to the bank under section 11 of the Banking Act 1998 to specify an alternative minimum RAR. (4) The bank shall not, at any time, permit its RAR to fall below the minimum RAR set out in (3) above or in any recommendation issued by the Commission to the bank under (3), whichever is the higher. (5) The bank shall inform the Commission immediately if its RAR falls below the minimum RAR set out in (3) above or in any recommendation issued by the Commission to the bank under (3), whichever is the higher. (6) The bank shall maintain adequate procedures and controls to monitor its financial position in order to ensure that its RAR is always in excess of the minimum set out in (3) above or in any recommendation issued by the Commission to the bank under (3), whichever is the higher . Ownership and share transfers 13. Disclosure of ultimate beneficial ownership (1) The bank shall notify the Commission in writing of any change to its ultimate beneficial ownership which results in any shareholding of the bank's issued capital being greater than 5%. (2) The bank shall notify the Commission in writing of any change to its ultimate beneficial ownership which results in any shareholding of its holding company(s) being greater than 15%. 14. Share transfers (1) In relation to any transfer of 15% or more of a bank's voting shares or any lesser transfer which has a material effect on its immediate or ultimate beneficial control:-
(2) The bank shall notify the Commission in writing not less than 21 business days in advance of any change in the ownership structure between it and its ultimate parent company, or a change to the ultimate parent. 15. Changes in capital structure The bank shall notify the Commission in writing before seeking to reduce or change the nature of its issued share or loan capital, including the rights and obligations of shareholders and loan stockholders. 16. Subsidiaries, branches, representative offices The bank shall notify the Commission in writing before acquiring or establishing a subsidiary, branch or representative office in the Isle of Man or elsewhere. 17. Acquisition of shares of another company The bank shall notify the Commission in writing before entering into any contract to subscribe for or acquire 10% or more of the shares of another company. 18. Sale or merger of whole or part of the bank The bank shall notify the Commission in writing before entering into any agreement to sell or merge the whole or any part of the business of the bank. 19. Creation of charges over assets The bank shall notify the Commission in writing before entering into any agreement that creates any charge over its assets. (1) The bank shall prepare the following banking returns ("set of banking returns") as at each calendar quarter-end:-
(2) The bank shall complete an additional set of banking returns as at its financial year end date if this does not fall on a calendar quarter-end. (3) The set of banking returns shall be submitted to the Commission within 21 business days of the date to which they relate. (4) The four-eyes are responsible for the completeness and accuracy of the banking returns that are submitted to the Commission. Financial statements and accounting records 21. Audited Financial statements (1) The bank shall draw up financial statements annually. (2) The financial statements in (1) shall be audited by a member of one of the professional accountancy bodies described in section 14(1)(a) of the Companies Act 1982. 22. Change to financial year end The bank shall notify the Commission before changing the date to which its annual financial statements are prepared. (1) The bank shall ensure that its financial statements are prepared in accordance with International Financial Reporting Standards (as promulgated by the International Accounting Standards Board) or United Kingdom Accounting Standards (as promulgated by the Accounting Standards Board). (2) The financial statements shall include the following:- (a) an analysis of assets and liabilities by maturity date in the following time bands, separately identifying deposit liabilities and placings with banks,:- Sight - less than 8 days 8 days - less than 1 month 1 month - less than 3 months 3 months - less than 6 months 6 months - less than 12 months 1 year - less than 3 years 3 years - less than 5 years Over 5 years; and (b) the gross amount of all loans and advances due from intra group companies; and (c) the gross amount of all loans and advances due from, and guarantee commitments entered into on behalf of:-
(d) in respect of Large Exposures to the non bank sector, the number and total value of credit exposures which individually exceed 10% of the total of the Large Exposures Capital Base. Loans to related parties must be aggregated; and (e) the following profit and loss information:-
24. Auditor's report on Banking Returns (1) The bank shall ensure that one calendar quarter's set of banking returns, as submitted to the Commission during the financial year, is verified to the accounting records by the auditor, who shall report his findings in writing to the bank. The set of banking returns selected shall not be that which coincides with the bank's financial year-end. (2) The bank shall submit a copy of the auditor's report on this matter to the Commission, within four months of the bank's year-end. (3) Where the auditor's report identifies exceptions, the bank shall provide the Commission with its written comments on these when it submits the auditor's report to the Commission. 25. Submission of accounting information (1) The bank shall provide the following documents to the Commission within four months of the end of the accounting period to which they relate: - (a) a signed set of its annual audited financial statements; (b) its detailed profit and loss account; (c) an Annual Compliance Certificate in the form set out in Schedule 2; (d) a copy of its auditor's Management Letter, or, if the auditor is not issuing a Management Letter, a copy of the auditor's letter confirming this fact; (e) a letter from its auditor confirming that to the best of the auditor's knowledge and belief, the bank has complied with Codes 12(2), 19, 24, 26(1), 26(2) and 27; (f) a statement detailing the calculation of its Large Exposure Capital Base ("LECB"); (g) a statement providing a reconciliation of all material differences between the set of banking returns submitted to the Commission as at the bank's year end and its audited financial statements. (2) In respect of any subsidiary or associated company, the bank shall provide to the Commission, within four months of the end of the accounting period to which they relate, a signed set of the audited financial statements, together with a detailed profit and loss account. (3) The bank shall provide to the Commission a copy of its immediate and ultimate parent companies' audited annual financial statements, as soon as these are available to the bank. Where either of these companies is incorporated in the Isle of Man, the audited financial statements shall be signed and the bank shall also supply a detailed profit and loss account. 26. Retention of accounting records (1) The bank shall keep such accounting records in the Isle of Man as are necessary to accurately disclose the financial position of the business at any time. (2) The bank shall preserve its accounting records for a minimum of six years from the date on which they are made. (3) A bank which surrenders its licence or whose licence is revoked shall preserve its accounting records for a minimum of six years from the date of surrender or revocation. The bank shall notify the Commission in advance of the method and location of storage. 27. Accounting Records - written communications with the Commission In addition to the accounting records required for the purposes of section 1 of the Companies Act 1982, the bank shall treat all written communications with the Commission in the exercise of the Commission's functions under the Banking Act 1998, as part of its accounting records. 28. Audited financial statements available to the public (1) Within four months of the end of the accounting period to which they relate, the bank shall:- (a) make its full annual audited financial statements available for public inspection in the Isle of Man; (b) display a notice in its registered office and all other offices in the Isle of Man stating that a copy of the latest audited balance sheet of the bank together with the last auditor's report (as it appears in the audited financial statements) may be inspected by any person on demand and that copies are available to be taken away. (2) In addition to the financial statements at (1), banks may offer abridged financial statements. If they do, such abridged financial statements shall contain the following information as a minimum:- (a) a Balance Sheet identifying separately: Liabilities - Paid up element of issued share capital
Revenue reserves
Subordinated loans
Deposit liabilities
All other liabilities
Total liabilities
Assets - Money Market assets, differentiating between inter-group and other
Loans
Investments
Intangible assets
Fixed assets
All other assets
Total assets
(b) general - Note of any contingent liabilities
Names of Directors and Secretary
Immediate and ultimate parent
Subsidiaries
Registered Office
Auditor's report
A note that a copy of the full audited financial statements is available upon request (specifying any fee that will be charged)
Auditors (1) The bank shall ensure that the audit partner or audit director has not less than 5 years experience in bank auditing. (2) The name of the audit partner or audit director, together with a rsum of his bank auditing experience shall be provided to the Commission, in writing, within 15 business days of his appointment. (3) Where the same firm or company carries out internal and external audits of a bank, separate partners or directors shall be responsible for these audits. (4) The auditor shall have professional indemnity insurance of not less than 20,000,000. 30. Removal of auditor The bank shall notify the Commission in writing of the intention of its shareholders to seek the removal of its auditor. It shall give the auditor notice of such intention and shall provide the Commission with a copy of any representations that the auditor has made against the proposal. 31. Resignation of auditor The bank shall notify the Commission in writing of the intention of its auditor to resign from office. It shall provide the Commission with the reason for the resignation, together with any submissions or representations made to it by the auditor. (1) The bank shall:- (a) have a credit risk policy which is appropriate to the nature and scale of its business. The policy shall be reviewed annually and approved by the Board of Directors; and (b) provide the Commission with a copy of:-
(c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate. (2) The policy shall include limits on different types of lending (including geographical, economic and individual sectors), connected and related party lending, sanctioning limits and authorisation procedures, permissible forms of collateral, monitoring and control procedures, arrears and provisioning procedures. (3) Credit Risk Management The bank shall:- (a) have adequate systems for monitoring compliance with its credit risk policy; (b) ensure the policy is adhered to. The bank shall:- (1) be able to monitor its large exposures on a daily basis; (2) not incur an exposure that exceeds 25% of its LECB, ("the 25% limit") unless the exposure is an exempt exposure; (3) notify the Commission before entering into an exempt exposure, except:- (a) for exposures defined in Code 36(1); or
(b) where the Commission has issued a recommendation under section 11 of the Banking Act 1998 to waive this requirement;
(4) report to the Commission as at each calendar quarter-end, all exposures (including exempt exposures) that have equalled or exceeded 10% of its LECB during that quarter. Figures are to be reported on Form SR-2B within 21 business days of the reporting date; (5) notify the Commission before the total of its large exposures, excluding exempt exposures, exceeds 300% of its LECB; (6) limit its large exposures, excluding exempt exposures, to a total of 800% of its LECB; (7) notify the Commission immediately of any breach of the 25% limit, or the limits of 300% or 800% in (5) and (6), or of any other counterparty limits agreed with the Commission for large exposure purposes; (8) notify the Commission immediately if its LECB falls below its current ACB. 34. Large Exposure Policy (1) The bank shall:- (a) have a large exposures policy which is appropriate to the nature and scale of its business. The policy shall be reviewed annually and approved by the Board of Directors; and (b) provide the Commission with a copy of:-
(c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting, the Directors confirmed that the policy was up to date and appropriate. (2) The policy shall include exposure limits for customers, counterparties, countries and economic sectors, sanctioning limits and authorisation procedures, permissible forms of collateral, procedures where exposures are to a guarantor, monitoring and control procedures and regulatory reporting policy. (3) The bank shall ensure the policy is adhered to. 35. Large Exposures - Exposure calculation (1) Banks should calculate an exposure as the gross amount at risk from:- (a) claims including actual and potential claims which would arise from the drawing down in full of undrawn advised facilities (revocable or irrevocable, conditional or unconditional) which the bank has committed itself to provide, and claims which the bank has committed itself to purchase or underwrite; or (b) contingent liabilities arising in the normal course of business, and those contingent liabilities which would arise from the drawing down in full of undrawn advised facilities (whether revocable or irrevocable, conditional or unconditional) which the bank has committed itself to provide; or (c) assets, including assets which the bank has committed itself to purchase or underwrite, whose value depends wholly or mainly on a counterparty performing its obligations, or whose value otherwise depends on that counterparty's financial soundness but which do not represent a claim on the counterparty. (2) Accrued interest should not be included in the figure(s) reported in Form SR-2B, but the amount of any accrued interest must not cause the bank to exceed the 25% limit. (3) Exposures should be reported gross of specific provisions for bad and doubtful debts. For monitoring against limits, a specific provision made against a loan should be set off against the gross amount of the exposure. (4) If a third party has provided an explicit unconditional irrevocable guarantee, the bank may report the exposure as being to the guarantor. The bank's large exposures policy statement must address such situations. (5) A bank shall not net its claims and obligations in calculating its exposure to a counterparty unless:- (a) there is a legally enforceable and binding contract; and (b) it has notified the Commission before it enters into the arrangement. 36. Large Exposures - Exempt Exposures (1) Exposures of one year or less to Zone A banks (excluding multilateral development banks) not related to the bank, are exempt exposures provided the placing(s) is/are not subject to any form of charge or pledge and where the exposure is part of the bank's normal Treasury operations. If such an exposure will exceed the 25% limit, the bank is not required to pre-notify the Commission. (2) The bank shall notify the Commission before it incurs any of the following exposures which are also exempt exposures: - (a) exposures to or guaranteed by central governments and central banks from Zone A countries; (b) exposures to Zone B central governments if they are denominated in local currency and funded by liabilities in the same currency; (c) exposures secured either by cash (including Certificates of Deposit issued by the lending bank) held by the lender, or Zone A central government, or central bank securities, subject that:-
(d) exposures to other group companies that are credit institutions in Zone A countries; (e) exposures with parental guarantees. Arrears and Provisioning Policy 37. (1) Arrears and Provisions Policy for Bad and Doubtful Debts The bank shall:- (a) have a policy on arrears and provisioning for bad and doubtful debts which is appropriate to the nature and scale of its business. The policy shall be reviewed annually and approved by the Board of Directors; and (b) provide the Commission with a copy of:-
(c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate. (2) Arrears and Provisions Management The bank shall:- (a) hold an adequate level of provisions for specific bad and doubtful debts; (b) report its arrears and provisions for bad and doubtful debts as at each calendar quarter-end, or more frequently if required by the Commission. Figures are to be reported to the Commission on Form SR-2A within 21 business days of the reporting date; (c) have adequate systems for monitoring compliance with its policy; (d) ensure the policy is adhered to. The bank shall:- (a) have a prudent liquidity policy which is appropriate to the nature and scale of its business and which includes specific limits for liquidity. The policy shall be reviewed annually and approved by the Board of Directors; and (b) provide the Commission with a copy of:-
(c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate; and (d) have an appropriate liquidity contingency plan, a copy of which must be provided to the Commission. (2) Liquidity Management (a) The liquidity mismatch limits shall be as follows unless the Commission has issued a recommendation under section 11 of the Banking Act 1998 to specify alternative limit(s): Sight to 8 days = 0%
Sight to 1 month = -5%
(b) Where the limits in (a) are to be subject to behavioural adjustments, the Commission will issue a recommendation under section 11 of the Banking Act 1998 to specify the adjustments. (3) The bank shall:- (a) maintain liquidity at the minimum level(s) shown in (2); (b) measure and monitor liquidity, as frequently as is appropriate, by calculation of mismatch positions; (c) report its liquidity positions as at each calendar quarter-end. Figures are to be reported to the Commission on Form SR-3A within 21 business days of the reporting date; (d) report breaches of mismatch limit(s) to the Commission immediately, remedy breaches and take action to prevent future breaches as soon as possible; (e) have adequate systems for monitoring compliance with its policy statement; (f) ensure the policy is adhered to. 39. (1) Foreign Exchange Risk Policy The bank shall:- (a) have a prudent foreign exchange risk management policy which is appropriate to the nature and scale of its business and which includes specific limits. The policy shall be reviewed annually, or more frequently if appropriate, and approved by the Board of Directors; and (b) provide the Commission with a copy of:-
(c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate. (2) Foreign Exchange Risk Management The bank shall:- (a) have appropriate systems and procedures to measure and monitor foreign exchange risk; (b) monitor foreign exchange risk on a frequent and timely basis; (c) ensure the policy is adhered to; (d) report its foreign exchange risk positions as at each calendar quarter-end. Figures are to be reported to the Commission on Form SR-4 within 21 business days of the reporting date. Interest Rate Risk 40. (1) Interest Rate Risk Policy The bank shall:- (a) have a prudent interest rate risk management policy which is appropriate to the nature and scale of its business and which includes specific limits. The policy shall be reviewed annually, or more frequently if appropriate, and approved by the Board of Directors; and (b) provide the Commission with a copy of:-
(c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate. (2) Interest Rate Risk Management The bank shall:- (a) have appropriate systems and procedures to measure and monitor interest rate risk; (b) monitor interest rate risk on a frequent and timely basis; (c) ensure that the policy is adhered to; (d) report its interest rate risk positions as at each calendar quarter-end. Figures are to be reported to the Commission on Form SR-3B within 21 business days. Money laundering and financing of terrorism 41. The bank shall have adequate policies and procedures relating to anti money laundering and to combating the financing of terrorism. Controls and procedures (1) Operational Risk Management Policy The bank shall:- (a) have a comprehensive operational risk management policy which is appropriate to the nature and scale of its business. The policy shall be reviewed annually, or more frequently if appropriate, and approved by the Board of Directors; and (b) provide the Commission with a copy of:- (i) the policy within 21 business days of the Board's approval of the policy; and (ii) any significant amendment(s) to that policy, within 21 business days of the Board's approval of the changes; and (c) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate. (2) The policy shall include clear arrangements for:- (a) delegating (where delegation is appropriate) and the separation of the functions that involve committing the bank, paying away its funds, and accounting for its assets and liabilities; (b) reconciliation of these processes; (c) safeguarding its assets; and (d) appropriate independent internal or external audit and compliance functions to test adherence to controls and applicable laws and regulations. (3) Operational Risk Management The bank shall:- (a) have appropriate systems and procedures to measure and monitor operational risk; (b) monitor operational risk on a frequent and timely basis; (c) ensure the policy is adhered to; (d) report its capital charge for operational risk as at each calendar quarter-end. Figures are to be reported to the Commission on Form SR-1C within 21 business days of the reporting date. 43. Breakdown of controls and breaches of Codes The bank shall notify the Commission as soon as it becomes aware of the occurrence of any of the following:- (1) breakdowns of administrative or control procedures the breakdown of administrative or control procedures relevant to any of the bank's business (including breakdowns of computer systems or other accounting problems resulting, or likely to result in, failure to maintain proper records); (2) inability to comply with Regulatory Code(s) any event which makes it impracticable for the bank to comply with any one or more of the Regulatory Codes relating to its business. The bank shall specify the steps that it proposes to take to deal with the situation; (3) external investigators the appointment of inspectors by a statutory or other regulatory authority to investigate the affairs of the bank or any associated company; (4) external disciplinary measures the imposition of disciplinary measures or sanctions on the bank or any associated company, in relation to its business, by any statutory or other regulatory authority; (5) indictments and convictions of offences the bringing of any criminal proceedings against, or the conviction of, the bank or any associated company, of any offence; (6) fraud and mismanagement any event which may amount to fraud or serious mismanagement in the conduct of the bank's business; (7) notification of breaches breaches of:- (a) the Banking Act 1998; or (b) Regulations or Codes issued under that Act; or (c) any licence conditions, recommendations or directions issued by the Financial Supervision Commission. The bank shall maintain a register of its breaches of the Banking Act 1998, Regulations and Codes issued under that Act, licence conditions, recommendations and directions. 45. Business resumption/contingency arrangements The bank shall:- (1) have in place business resumption/contingency arrangements that are appropriate to the nature and scale of its business and shall test these at appropriate intervals; (2) provide to the Commission full details of its business resumption/contingency plan as part of the proposed business plan which it submits with its licence application; (3) notify the Commission of any significant changes to the plan; (4) confirm to the Commission, within four months of each year-end, that at the last full Board meeting the Directors confirmed that the policy was up to date and appropriate; (5) notify the Commission immediately of:- (a) any serious or prolonged breakdown in its systems; and (b) the contingency arrangements that are in place to address the breakdown. The bank shall notify the Commission in writing of the intention of its Directors to make a Declaration of Solvency in accordance with section 218 of the Companies Act 1931(g), not less than 5 business days before the Declaration is signed. 47. Notification of default The bank shall notify the Commission immediately if an event occurs that would constitute a default within the meaning of the Banking Business (Compensation of Depositors) Regulations 1991. 48. Cessation of business A bank that decides voluntarily to cease carrying on business, should notify the Commission not less than 21 business days before that decision is implemented and should provide details of arrangements for the safeguarding of depositors' and other clients' assets. Services and products 49. Changes in services or products (including unregulated services or products) The bank shall notify the Commission before making any additional or material change to any of the services or products it offers (including unregulated services or products). This requirement also applies to any overseas branches of the bank. 50. Changes in investment business services The bank shall notify the Commission before:- (1) beginning to undertake investment business or to extend its investment business activities as defined within the Investment Business Order 2004(h). The notification shall set out the form that the intended investment business will take. (2) accepting an appointment as a trustee or custodian of any collective investment scheme, as defined in the Financial Supervision Act 1988. Delegation of function/outsourcing 51. Delegation of function/outsourcing (1) The bank shall notify the Commission before delegating any material management or business function to another entity (irrespective of whether or not that other entity is another company within the same group as the bank). (2) Any delegations of function must be evidenced by a written agreement between the two parties which must clearly set out the responsibilities and duties of each of the parties, including provisions for terminating such an agreement. The bank shall notify the Commission before any material changes are made to delegation agreements. (3) The delegating bank retains ultimate responsibility for all functions delegated. (4) The delegating bank shall ensure that, in the event of a breakdown in an agreement, it is able to carry out or assume control of the delegated function. (5) The delegating bank shall ensure that the Commission has access to records relating to delegated functions for supervisory purposes. Managed banks 52. Codes 3 to 51 and 57 to 64 apply to Managed Banks, except as indicated in Codes 53 to 56. 53. Approved Manager (1) A bank shall notify the Commission before beginning to act as an Approved Manager. (2) A Managed Bank shall not be an Approved Manager. 54. Management agreement The Managed Bank shall enter into a management contract with the Approved Manager, which is applicable to the nature and scale of the business, and shall provide a copy of this contract to the Commission, before the Managed Bank commences business in or from the Isle of Man as a Managed Bank. 55. Premises of Approved Manager A Managed Bank shall not conduct any business except from the premises of its Approved Manager. 56. Change of Approved Manager If a Managed Bank proposes to change its Approved Manager, it shall notify the Commission in writing not less than three months in advance of the proposed change. The Managed Bank shall provide the Commission with a copy of the proposed management contract (between the Managed Bank and the proposed Approved Manager). General requirements 57. Change of corporate details The bank shall notify the Commission before seeking to change its name, its business name, its country of domicile or residence, or the corporate form or structure under which its business is conducted. 58. Change of registered office or any permanent place of business The bank shall notify the Commission in writing, not less than 21 business days in advance, of a change in:- (1) its registered office; (2) any permanent place of its business, normally open to the public, in the Isle of Man; and (3) any permanent place of its business, normally open to the public, in any other jurisdiction. Advertisements Advertisements for products or services shall contain a fair and accurate indication of the product(s) or service(s) that the bank provides or is offering. 60. Reference to licensing in advertisements Every advertisement which the bank publishes or causes to be published (apart from cheques, cheque books, paying in books, statements and cheque guarantee, charge, debit and credit cards or cards of a similar nature) shall make reference to the fact that the bank is licensed by the Commission and to the type of business for which it is authorised. The reference shall appear in a prominent position. 61. Reference to the depositors compensation scheme in advertisements (1) A bank shall not issue an advertisement which states or implies that any deposits or interest will be guaranteed, secured, insured or the subject of any form of protection (other than that provided by the Banking Business (Compensation of Depositors) Regulations 1991) unless it states:- (a) the form of the protection; (b) the extent of the protection; and (c) the full name of the person who will be liable to meet any claim by the depositor by virtue of the arrangements conferring the protection. (2) All advertisements issued by a bank which is not a participant in the Depositors Compensation Scheme, as indicated by the schedule to the Banking Business (Compensation of Depositors) Regulations 1991, and which refer to its banking business or contain an invitation to make deposits shall state that the bank is not a participant in the Depositors Compensation Scheme. Such a statement shall appear in a prominent position. (1) The bank shall notify the Commission in writing within 10 business days of the discovery of an event which may lead to serious disciplinary action being taken against any of its employees. This notification shall specify the event but shall not disclose the name(s) of the employee(s). (2) The bank shall notify the Commission promptly in writing of any serious disciplinary action it takes against any of its employees. Full details of such action including copies of any notices or written warnings issued by the bank to the relevant employee must be provided to the Commission. The bank shall provide the employee concerned with a copy of any such notification. (3) Serious disciplinary action is to be interpreted in accordance with the bank's internal human resources policy. 63. Internal Complaints Procedure (1) The bank shall have documented procedures for dealing with complaints from customers and clients. These procedures shall be readily accessible to the public and shall include reference to the Financial Services Ombudsman Scheme where appropriate. (2) The bank shall ensure that complaints from customers and clients are properly handled and that any remedial action needed is taken promptly. A record of the details of the complaint, the bank's response and any action taken as a result, should also be made and maintained. The bank shall notify the Commission as soon as it becomes aware of any actual or intended legal proceedings taken by, or against, it where any amount claimed or disputed is likely to be in excess of:- (1) 500,000 sterling or its equivalent in another currency; or (2) 5% of the bank's Large Exposure Capital Base; whichever is the lower. PART 2 - BANKS OPERATING IN OR FROM THE ISLE OF MAN WHICH ARE INCORPORATED OUTSIDE THE ISLE OF MAN Application 65. This Part applies to banks which are incorporated outside the Isle of Man, in relation to banking business carried on by them in or from the Isle of Man. Licensing (1) be a company authorised as a bank in its place of incorporation by a Home Regulator which has acknowledged that, in its supervision, it will treat the bank's operations in or from the Isle of Man no differently (by virtue of location) than the operations of the bank within its own jurisdiction; and (2) where it is part of a group, be a wholly-owned subsidiary of another company which is authorised as a bank and is subject to consolidated supervision in its place of incorporation by a Lead Regulator. Direction and management (1) The Senior Management shall ensure that the bank has in place arrangements for effective corporate governance that are appropriate to its size and the nature of its business. (2) The bank shall have policies, procedures and practices (including Senior Management oversight) in respect of all material business and control risks, including credit risk, market risk (including foreign exchange, interest rate and derivatives), liquidity and risks of an operational nature. 68. New appointments and departures from office (1) The bank shall notify the Commission in writing at least 21 business days in advance of the proposed appointment of any new manager, four-eyes, compliance officer, or money laundering reporting officer. The bank shall confirm to the Commission the responsibilities and title of the new position. (2) The bank shall notify the Commission in writing of the reason(s) for the departure from office of any manager, four-eyes, compliance officer, or money laundering reporting officer. This notification is to be given within 10 business days of the departure from office. 69. "Four eyes" The business of the bank shall be effectively controlled on a day-to-day basis by at least two individuals who shall be jointly responsible for overseeing the bank's proper conduct. These individuals shall be known as the four-eyes. Internal procedures should be established to ensure that the four-eyes have dual control and separation of functions where appropriate. 70. Compliance Officer and Money Laundering Reporting Officer The bank shall appoint the following officer(s):- (1) Compliance Officer(s) (a) A nominated compliance officer to oversee compliance with the Banking Act 1998 and any public document made thereunder; and (b) A nominated compliance officer to oversee compliance with the anti-money laundering legislation and combating the financing of terrorism; and, (2) Money Laundering Reporting Officer - A nominated money laundering reporting officer ("MLRO"). Ownership and share transfers 71. Disclosure of ultimate beneficial owenership (1) The bank shall notify the Commission in writing of any change to its ultimate beneficial ownership which results in any shareholding of the bank's issued capital being greater than 5%. (2) The bank shall notify the Commission in writing of any change to its ultimate beneficial ownership which results in any shareholding of its holding company(s) being greater than 15%. 72. Share transfers The bank shall notify the Commission in writing not less than 21 business days in advance of any proposed change in the ownership structure between it and its ultimate parent company, or a change to the ultimate parent. 73. Sale of merger of whole or part of the bank The bank shall notify the Commission in writing of its intention to sell or merge the whole or any material part of the business of the bank. (1) The bank shall prepare the following banking returns ("set of banking returns") as at each calendar quarter-end:-
(2) The bank shall complete an additional set of banking returns as at its financial year end date if this does not fall on a calendar quarter-end. (3) The set of banking returns shall be submitted to the Commission within 21 business days of the date to which they relate. (4) The four-eyes are responsible for the completeness and accuracy of the banking returns that are submitted to the Commission. Financial statements and accounting records 75. Auditor's report on Banking Returns (1) The bank shall ensure that one calendar quarter's set of banking returns, as submitted to the Commission during the financial year, is verified to the accounting records by the auditor, who shall report his findings in writing to the bank. The set of banking returns selected shall not be that which coincides with the bank's financial year-end. (2) The bank shall submit a copy of the auditor's report on this matter to the Commission, within four months of the bank's year-end. (3) Where the auditor's report identifies exceptions, the bank shall provide the Commission with its written comments on these when it submits the auditor's report to the Commission. 76. Submission of accounting information (1) The bank shall provide the following documents to the Commission within four months of the end of the accounting period to which they relate:- (a) a copy of the audited accounts of the bank; (b) a detailed profit and loss account in respect of the bank's operations in or from the Isle of Man; (c) an Annual Compliance Certificate in the form set out in Schedule 2; (d) a copy of the auditor's Management Letter, in respect of the bank's operations in the Isle of Man, or if the auditor is not issuing a Management Letter, a copy of the auditor's letter confirming this fact; (2) The bank shall provide to the Commission a copy of its immediate and ultimate parent companies' audited annual financial statements, as soon as these are available to the bank. 77. Retention of accounting records (1) The bank shall keep such accounting records as are necessary to accurately disclose its business transacted in or from the Isle of Man at any time. (2) The bank shall preserve its accounting records for a minimum of six years from the date on which they are made. (3) A bank which surrenders its licence or whose licence is revoked shall preserve its accounting records for a minimum of six years from the date of surrender or revocation. The bank shall notify the Commission in advance of the method and location of storage. 78. Accounting Records - written communications with the Commission In addition to the accounting records required for the purposes of section 1 of the Companies Act 1982, the bank shall treat all written communications with the Commission in the exercise of the Commission's functions under the Banking Act 1998, as part of its accounting records. 79. Audited financial statements available to the public (1) Within four months of the end of the accounting period to which they relate, the bank shall:- (a) make its full annual audited financial statements available for public inspection in the Isle of Man; (b) display a notice in all its offices in the Isle of Man stating that a copy of the latest audited balance sheet of the bank together with the last auditor's report (as it appears in the audited financial statements) may be inspected by any person on demand and that copies are available to be taken away; (2) In addition to the financial statements at (1) above, banks may offer abridged financial statements. (1) The bank shall:- (a) have a credit risk policy which is appropriate to the nature and scale of its business. The policy shall be reviewed annually; and (b) provide the Commission with a copy of:-
(2) The policy shall include limits on different types of lending (including geographical, economic and individual sectors) and on connected and related party lending; sanctioning limits; details of authorisation procedures, permissible forms of security, monitoring and control procedures, arrears and provisioning procedures. (3) Credit Risk Management The bank shall:- (a) have adequate systems for monitoring compliance with its credit risk policy; (b) ensure the policy is adhered to. (1) The bank shall report as at each calendar quarter-end, the ten largest bank exposures and the ten largest non-bank exposures that relate to its operations in or from the Isle of Man. These figures are to be reported to the Commission on Form SR-2B within 21 business days of the reporting date; (2) The bank shall have and comply with documented controls and procedures in accordance with its Head Office Large Exposures Policy. Arrears and Provisioning Policy 82. Arrears and Provisions Policy for Bad and Doubtful Debts (1) The bank shall:- (a) have a policy on arrears and provisioning for bad and doubtful debts which is appropriate to the nature and scale of its business. The policy shall be reviewed annually; and (b) provide the Commission with a copy of:-
(2) Arrears and Provisions Management The bank shall:- (a) hold an adequate level of provisions for specific bad and doubtful debts; (b) report its arrears and provisions for bad and doubtful debts as at each calendar quarter-end. Figures are to be reported to the Commission on Form SR-2A within 21 business days of the reporting date; (c) have adequate systems for monitoring compliance with its policy; (d) ensure the policy is adhered to. The bank shall:- (a) have a prudent liquidity policy which is appropriate to the nature and scale of its business. The policy shall be reviewed annually, or more frequently if appropriate; and (b) provide the Commission with a copy of:-
(c) have an appropriate liquidity contingency plan, a copy of which must be provided to the Commission. (2) Revoked (3)Liquidity Management The bank shall: (a) [revoked] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
