Bank holding company regulation in Kenya, Nigeria and South Africa: a comparative inventory and a call for Pan-African regulation

Abstract

This article provides an overview of the regulation of bank holding companies in three African jurisdictions (Kenya, Nigeria and South Africa), from a comparative legal perspective (with the EU and US), identifying regulation of a banking group’s parent on the basis of ten identified elements of bank holding company regulation. It reveals that, while the regulation in these African jurisdictions is advanced and often consistent, there are differences. These differences not only increase the costs and reduce the efficiency and effectiveness of banking groups operating across borders in Africa but they also complicate the work of national supervisory authorities that seek to monitor and contain the risks to the safety and soundness of the financial system. These adverse consequences lead us to recommend the building of a harmonised Pan-African regulatory environment, drawing upon the commonalities that already exist, as we believe that this would contribute to the sustainable development and well being of Africa as a whole.

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Notes

  1. 1.

    Swahili name: Benki Kuu ya Kenya. See: https://www.centralbank.go.ke/.

  2. 2.

    The CBK’s website states that, under Kenya’s 2010 Constitution, the CBK “has the responsibility of formulating monetary policy, promoting price stability, issuing currency and performing any other functions conferred on it by an Act of Parliament”, whereas the “Constitution guides that ‘the Central Bank shall not be under the direction or control of any person or authority in the exercise of its powers or performance of its functions’”.

  3. 3.

    Prudential Guidelines for Institutions Licensed under the Banking Act, January 2013 (all effective 1 January 2013), at: https://www.centralbank.go.ke/images/docs/legislation/Prudential%20Guidelines-January%202013.pdf.

  4. 4.

    The Central Bank of Kenya Act, CHAPTER 491, at: https://www.centralbank.go.ke/images/docs/legislation/CBKAct1stOct2015.pdf.

  5. 5.

    The missing Prudential Guideline (No. 23) is the Guideline on Incidental Business Activities CBK/PG/23, also effective as of 1 October 2013. It regulates the permitted ancillary business of licensed banks.

  6. 6.

    At: https://www.centralbank.go.ke/wp-content/uploads/2016/08/CBKs-Risk-Based-Supervision-Framework-May-2013-1.pdf.

  7. 7.

    See: https://www.centralbank.go.ke/policy-procedures/legislation-and-guidelines/.

  8. 8.

    See https://www.cbn.gov.ng/.

  9. 9.

    At: http://www.cenbank.org/OUT/PUBLICATIONS/BSD/2007/CBNACT.PDF.

  10. 10.

    See: http://ndic.gov.ng/.

  11. 11.

    See: http://sec.gov.ng/.

  12. 12.

    See: http://naicom.gov.ng/.

  13. 13.

    See: http://www.pencom.gov.ng/.

  14. 14.

    See: http://new.cac.gov.ng/home/.

  15. 15.

    Federal Inland Revenue Service; see: http://www.firs.gov.ng/.

  16. 16.

    See: http://www.nigerianstockexchange.com/.

  17. 17.

    See: http://www.nigeriacomex.com/, however: website unavailable when visited.

  18. 18.

    Cap. B3, Laws of the Federation of Nigeria, 2004, see: http://www.cenbank.org/OUT/PUBLICATIONS/BSD/1991/BOFIA.PDF.

  19. 19.

    As explained at the CBN website: https://www.cbn.gov.ng/AboutCBN/#.

  20. 20.

    Available at: https://www.cbn.gov.ng/documents/guidelines.asp.

  21. 21.

    At: https://www.cbn.gov.ng/out/2014/fprd/holdco%20regulation%20(cleaned)%20-%20final%20for%20issuance%203.pdf.

  22. 22.

    At: http://www.cenbank.org/out/2014/fprd/combineddocument-holdco%20regulations%20draft%20guidelines.pdf.

  23. 23.

    At: http://www.cbn.gov.ng/OUT/2011/CIRCULARS/GOV/HOLDCO%20CIRCULAR.PDF.

  24. 24.

    At: http://www.cenbank.org/OUT/2010/CIRCULARS/BSD/CBN%20REGULATION%20ON%20%20NEW%20BANKING%20MODEL%20%20CLEAN%20091110%20FINAL.PDF.

  25. 25.

    See Articles 3-9 Banks Act 94 of 1990, as amended, which define the powers of the Registrar.

  26. 26.

    See the amendments submitted to the original twin peaks bill and published by the South African Treasury on its website on 21 October 2016: Financial Sector Regulation Bill, Revised Version 21 October 2016, at: http://www.treasury.gov.za/twinpeaks/FSR%20Bill%20comparison%20of%20revisions%20with%20July%202016%20version.pdf. This South African Treasury page gives a full overview: http://www.treasury.gov.za/twinpeaks/.

  27. 27.

    We made use of the latest consolidated version published jointly by the University of Pretoria and the Southern African Legal Information Institute of 29 June 2015, available at: http://www.saflii.org/za/legis/consol_act/ba199063.pdf.

  28. 28.

    Effective 1 July 2016, available at: http://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/7306/Amended%20Regulations%20effective%201Jul2016.pdf.

  29. 29.

    Basel Core Principles for Effective Banking Supervision (BCPs), in their current version (2012), see: http://www.bis.org/publ/bcbs129.htm.

  30. 30.

    IMF Country Report 15/51 (South Africa: Financial Sector Assessment Program-Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)-Technical Note), available at: https://www.imf.org/external/pubs/ft/scr/2015/cr1551.pdf; IMF Country Report 15/53 (South Africa: Financial Sector Assessment Program-Financial Safety Net, Bank Resolution, and Crisis Management Framework-Technical Note), available at: https://www.imf.org/external/pubs/ft/scr/2015/cr1553.pdf; IMF Country Report 15/54 (South Africa: Financial Sector Assessment Program-Stress Testing the Financial System-Technical Note), available at: https://www.imf.org/external/pubs/ft/scr/2015/cr1554.pdf; and, notably (with most relevance for our research) IMF Country Report 15/55 (South Africa: Financial Sector Assessment Program-Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision), available at: https://www.imf.org/external/pubs/ft/scr/2015/cr1555.pdf. These reports were published on 3 March 2015.

  31. 31.

    While Section 2 of the Banking Act defines a “significant shareholder” as a holder of “five per cent or more of the share capital” of a bank, Guideline 1.4.16 of the Guideline on Non-Operating Holding Companies CBK/PG/24 defines the same term as the holding of “more than five per cent of the share capital”. In this article, we have chosen the more conservative definition..

  32. 32.

    Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria, definitive guidelines, 29 August 2014, 4.1a, or a change in ownership which results in a change in control.

  33. 33.

    Section 37 (1) of the Banks Act, and at specified higher increments thereafter: see Section 37 (2).

  34. 34.

    See the definition of “non-operating holding company” in Section 2 (1) of the Banking Act.

  35. 35.

    Each of these terms is defined in Section 2 (1) of the Banking Act. A “bank” is defined as “a company which carries on, or proposes to carry on, banking business in Kenya”, excluding the CBK: Section 2 of the Banking Act. In summary, “banking business” is therein defined as accepting money on deposit and on current account from the public and lending or investing such money for the bank’s own account.

  36. 36.

    Even formation of an NOHC with the intention of acquiring more than 25% of a bank’s paid-up share capital requires CBK prior approval: Guideline 3.1.a of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  37. 37.

    Section 13 (1) of the Banking Act.

  38. 38.

    The exceptions are: other Kenyan or foreign licensed institutions, governments, Kenyan state corporations and NOHCs approved by CBK.

  39. 39.

    The Banking Act, in Section 2, defines an “institution” as “a bank or financial institution or a mortgage finance company”. Here, we are only concerned with banks and their holding companies.

  40. 40.

    Section 9A (2) of the Banking Act. See Part B of the First Schedule to the Banking Act for the Criteria for Determining Moral Suitability of Significant Shareholders Proposed to Manage or Control Institutions, subparagraph b whereof specifies that “(f)or the purposes of determining the moral suitability of a corporate entity, its directors and senior officers shall satisfy the criterion prescribed in paragraph (a) of Part B of this Schedule”. This paragraph (a) requires that the CBK, when determining the moral suitability of shareholders, is to have regard “to the previous conduct and activities of the significant shareholder concerned in business or financial matters and, in particular, to any evidence (i) [of a conviction for (…)] fraud or any other offence of which dishonesty is an element; [and] (ii) [whether the person concerned] has contravened the provisions of any law designed for the protection of members of the public against financial loss due to the dishonesty or malpractices by persons engaged in the provision of banking, insurance, investment or other financial services”.

  41. 41.

    In Guideline 1.4.7 of the Guideline on Consolidated Supervision CBK/PG/19.

  42. 42.

    In Guideline 3.2.2 of the Guideline on Consolidated Supervision CBK/PG/19.

  43. 43.

    Listed in Guideline 3.5–3.7 of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  44. 44.

    These criteria are set out in Section 4 (4) and (5) of the Banking Act and encompass “(a) the financial condition and history of the institution; (b) the character of its management; (c) the professional and moral suitability of the persons proposed to manage or control the institution; (d) the adequacy of its capital structure and earning prospects; (e) the convenience and needs of the area to be served; and (f) the public interest which will be served by the granting of the licence”.

  45. 45.

    Guideline 3.4 of the Guideline on Non-Operating Holding Companies CBK/PG/24: “The [CBK] may impose conditions on any approval, including conditions to address concerns on the competitive, financial, managerial, safety and soundness, convenience and needs, compliance or other concerns, to ensure that approval is consistent with the relevant statutory factors and other provisions of the Banking Act”.

  46. 46.

    Guideline 1.4.15 of the Guideline on Non-Operating Holding Companies CBK/PG/24, which mirrors the description of the activities permitted to NOHCs in Section 2 of the Banking Act, as does the definition of NOHC in the Guideline on Consolidated Supervision CBK/PG/19, 1.4.9. However, it is interesting to note that Guideline 3.15 of the Guideline on Non-Operating Holding Companies CBK/PG/24 expresses the activities permitted to an approved NOHC differently and, in particular, adds “advisory, financial, accounting, or information processing services” to support any company within the group of the NOHC “and … such other business or activity as may be approved by” CBK.

  47. 47.

    Guideline 3.2.d of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  48. 48.

    Guideline 3.2.a–b of the Guideline on Non-Operating Holding Companies CBK/PG/24. The NOHC is reminded to obtain approval from the Competition Authority of Kenya if needed; the CBK may weigh “the anti-competitive effects” and the establishment of an NOHC’s “probable effect in meeting the needs of the public”, and decide to authorize the NOHC when the former are “clearly outweighed” by the latter.

  49. 49.

    Guideline 3.2.c of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  50. 50.

    Section 11 (1) and (2) of the Banking Act.

  51. 51.

    Section 11 (3) of the Banking Act, which also provides that an institution’s officers may, in certain cases, be exonerated when they show that they have been unaware of, or have taken reasonable steps to prevent, such advances.

  52. 52.

    Section 11 (1)(b) of the Banking Act.

  53. 53.

    Guideline 7.0 of the Guideline on Non-Operating Holding Companies CBK/PG/24 states that:”The provisions on the restrictions (…) set out under Section 11 (1) and 11 (2) of the Banking Act (…) extend to the non-operating holding companies”.

  54. 54.

    As defined in section 11 (1A) of the Banking Act.

  55. 55.

    Guideline 7.0 of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  56. 56.

    Guideline 7.1 and 7.2 of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  57. 57.

    Guideline 7.3 of the Guideline on Non-Operating Holding Companies CBK/PG/24.

  58. 58.

    Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria at https://www.cbn.gov.ng/Out/2014/FPRD/HoldCo%20Regulation%20(Cleaned)%20-%20Final%20for%20issuance%203.pdf (hereafter FHC Guidelines), 1.0 (Introduction), explaining the New Banking Model. The FHC Guidelines provide the principal source of guidance concerning FHCs, although the CBN expects them to be read in conjunction with other relevant CBN regulations on the subject.

  59. 59.

    FHC Guidelines 8.1.

  60. 60.

    As the introduction to FHC Guidelines 1.0 makes clear.

  61. 61.

    FHC Guidelines 1.0, where the CBN’s expectations are spelled out explicitly: “A financial holding company shall be a source of financial strength to the subsidiaries. In serving as a source of financial strength to its subsidiaries, a financial holding company shall maintain financial flexibility and capital-raising capabilities for supporting its subsidiaries. It shall also stand ready to use available resources to augment capital funds of its subsidiaries in periods of financial stress or adversity”.

  62. 62.

    FHC Guidelines 2.1. These terms are defined in section 66 of the Banks and Other Financial Institutions Act, 1991 (hereafter the BOFI Act).

  63. 63.

    See Section 66 of the BOFI Act.

  64. 64.

    FHC Guidelines 9.0xv.

  65. 65.

    Section 10 of the CBN Regulation on the Scope of Banking Activities & Ancillary Matters, No. 3, 2010.

  66. 66.

    Precisely, in Section 338 of the Companies and Allied Matters Act, Cap. C20, 2004.

  67. 67.

    See CBN’s holding companies circular (“Definition and Structure of Holding Companies in Pursuance of the New Banking Model”) FRP/DIR/CIR/GEN/01/024, 30 December 2011, at: http://www.cenbank.org/OUT/2011/CIRCULARS/GOV/HOLDCO%20CIRCULAR.PDF. The CBN expresses its expectation that banks wishing to offer other financial services should do so through separate subsidiaries which are held through a HoldCo structure.

  68. 68.

    FHC Guidelines 3.1 on “grant of Approval-In-Principle (AIP)”.

  69. 69.

    FHC Guidelines 3.1.4: “A written and duly executed undertaking by the promoters that the financial holding company will be adequately capitalized for the volume and character of its business at all times, and that the financial holding company shall always submit itself to the supervisory authority of the CBN as an OFI”. An “OFI” is taken to refer to an other financial institution, as governed by Part II of the BOFI Act (Sections 58–63), even though the definition of “other financial institution” in Section 66 does not seem to encompass an FHC.

  70. 70.

    FHC Guidelines 3.1 through 3.3.

  71. 71.

    FHC Guidelines 9.0vii.

  72. 72.

    FHC Guidelines 5. Human resources, risk management, internal control, compliance and other services as approved by the CBN are the permitted areas of policy direction from the FHC.

  73. 73.

    FHC Guidelines 5.3 lists Information and Communications, Facilities, Legal and other approved services. Shared services in the banking group (and other intra-group transactions) must be operated at arm’s length: FHC Guidelines 5.4 and 6.2.1.

  74. 74.

    Enumerated in FHC Guidelines 6.

  75. 75.

    In February 2015, the CBN reminded banks not to use funds borrowed from the Nigerian banking system to shore up group capital. The CBN states “(…) the requirement that funds for the (re) capitalization of financial institutions should NOT be sourced from borrowings within the banking system still subsists”. The CBN ends the circular on a severe tone: “Financial institutions are advised to strictly adhere to the above, as breaches will be met with severe regulatory sanctions”. See CIRCULAR BSD/DIR/GEN/LAB/08/008 of Feb 5, 2015 on the prohibition from borrowing to capitalize banks, available at: http://www.cenbank.org/Out/2015/BSD/RE-PROHIBITION%20FROM%20BORROWING%20TO%20CAPITALIZE%20BANKS.pdf; andCIRCULAR FPR/DIR/CIR/GEN/05/007 of June 23, 2015 on the redesign of the credit risk management system, available at: http://www.cenbank.org/Out/2015/FPRD/Circular%20on%20CRMS%20Redesign.PDF. Interestingly, restrictions on lending to group related persons are less strict than in other jurisdictions discussed in this Article, for example, in Kenya.

  76. 76.

    The thresholds begin at 15% and are stated, in Section 37 (2) of the Banks Act, as holdings of >15–24, >24–49, >49–74, and >74. The latter two require the permission of the Minister of Finance, through the Registrar.

  77. 77.

    An officer of the Reserve Bank of South Africa under Section 4 of the Banks Act.

  78. 78.

    Moreover, the controller must be a “public company” within the meaning of the South African Companies Act, or a South African bank, or “an institution which has been approved by the Registrar and which conducts business similar to the business of a bank in a country other than the Republic [of South Africa]”: Section 42 (1) Banks Act.

  79. 79.

    Sections 43 ff. Banks Act.

  80. 80.

    In section 42 (2) Banks Act.

  81. 81.

    Control is assumed for a company whose subsidiary is a bank. When, due to voting right limitations, a person owning 50% of the shares cannot “decisively influence the outcome of the voting at a general meeting of the bank”, he or she is considered not to be in control. If, in another situation, a person has a right to appoint the majority of directors, control is assumed. See section 42 (2)(a)–(c) Banks Act.

  82. 82.

    Section 42 (2)(a–c) Banks Act.

  83. 83.

    Section 43 (1) Banks Act.

  84. 84.

    Section 44 (1) Banks Act.

  85. 85.

    Section 44 (2) Banks Act.

  86. 86.

    Section 45 Banks Act.

  87. 87.

    Section 46 Banks Act.

  88. 88.

    Directive D9/2013, dated 24 June 2013.

  89. 89.

    Which we understand to mean: immovable property including land, buildings and fixtures, in other words: immovable property or real estate. No definition of the term has been found.

  90. 90.

    Regulation 36(16) on intra-group transactions and exposure requires banks and controlling companies to have robust arrangements in place to manage intra-group risk and permit the Registrar to take supervisory measures (including deduction of capital, demanding adequate collateral, imposing limitations to exposures) in relation to intra-group risk.

  91. 91.

    While finding South Africa in compliance with Principle 12 of the Basel Core Principles on Consolidated Supervision, the IMF recommended that “the authorities should make further effort to monitor and manage risks arising from nonbanking activities or parent entities of a financial group (some of which are not bank controlling companies) to which a South African bank belongs. In this regard (…) the authorities should strengthen its technique, such as group-wide stress testing, to monitor and assess those risks. The authorities should further improve the recovery and resolution planning of large banking groups particularly once the necessary power is given to the supervisor by the expected new legislation. Such planning should also consider scenarios where shocks originate from non banking entities or parent groups”. IMF Country Report 15/55 (South Africa: Financial Sector Assessment Program-Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision), at: https://www.imf.org/external/pubs/ft/scr/2015/cr1555.pdf, published on 3 March 2015.

  92. 92.

    Section 2 (1) Banking Act defines "significant shareholder" as meaning “a person, other than the Government or a public entity, who holds, directly or indirectly, or otherwise has a beneficial interest amounting to, five per cent or more of the share capital of an institution”, and Section 13 (4) Banking Act states: “No institution shall transfer more than five percent of its share capital to an individual or an entity except with the prior written approval of the [CBK]”.

  93. 93.

    Amendments to the Banking Act in 2015, extend the vetting to certain non-significant shareholders, including those who exercise, or have the capacity to exercise, direct or indirect control of a bank: see section 9A (3A) and (3B).

  94. 94.

    An “institution”, according to Section 2 s(1) Banking Act, “means a bank or financial institution or a mortgage finance company” whereas a “financial institution means a company, other than a bank, which carries on, or proposes to carry on, financial business and includes any other company which the Minister may, by notice in the Gazette, declare to be a financial institution for the purposes of this Act”.

  95. 95.

    Section 2 of the Banking Act.

  96. 96.

    Directors include non-executive directors (see Guideline on Non-Operating Holding Companies CBK/PG/24 at 1.4.6).

  97. 97.

    The term “senior officer” is defined as “a person who manages or controls” an institution and specifically includes the officers listed in section 9A (8) of the Banking Act. This provision reads as follows: “For the purposes of this section and of the First Schedule, ‘senior officer’ means a person who manages or controls an institution licensed under the Act, and includes: (a) the chief executive officer, deputy chief executive officer, chief operating officer, chief financial officer, secretary to the board of directors, treasurer, chief internal auditor, or manager of a significant unit of an institution licensed under this Act; (b) a person with a similar level of position or responsibilities as a person described in paragraph (a)”.

  98. 98.

    Section 9A (1) of the Banking Act and First Schedule, Part B(b).

  99. 99.

    The qualities and types of conduct are stated in Part A of the First Schedule of the Banking Act.

  100. 100.

    Section 9A (2) and (3) of the Banking Act. In certain circumstances, other shareholders may also be similarly vetted: see Section 9A (3A) of the Banking Act.

  101. 101.

    See Part B (a) and (b) of the First Schedule of the Banking Act. Compare the fit and proper criteria set forth in the Second Schedule of the NOHC Guideline. The latter require an applicant to answer a series of questions to address the criteria set forth in the First Schedule of the Banking Act.

  102. 102.

    See Guideline on Non-Operating Holding Companies CBK/PG/24 at 3.5–3.7 and the Second Schedule. Guideline 3.7 refers to the criteria “under the Second Schedule to the Act”. In fact, the criteria are set out in the First Schedule to the Act and the Second Schedule to the Guideline.

  103. 103.

    Section 9A (4) of the Banking Act. This appears to be a mandatory consequence, not requiring board or shareholder decision or a prior arbitral or judicial proceeding, as is the case in South Africa. Section 9A (5) of the Banking Act adds that, if the CBK determines and notifies that a director or senior officer is no longer fit and proper, the person shall cease to hold the office. However, that Section refers to a director or senior officer of an “institution” and, as previously mentioned, an NOHC is not an “institution” as defined in the Banking Act.

  104. 104.

    Guideline on Corporate Governance CBK/PG/02 (hereafter Corporate Governance Guideline).

  105. 105.

    Including evaluation forms for the Board and its members, and prescription of how to conduct video conferencing of Board meetings.

  106. 106.

    See 2.1, Corporate Governance Guideline, emphasis added.

  107. 107.

    See 2.2, Corporate Governance Guideline, emphasis added.

  108. 108.

    See 3.6 of Corporate Governance Guideline, which also adds various specific requirements.

  109. 109.

    Corporate Governance Guideline, 3.2.2.

  110. 110.

    Applicable to significant shareholders as set out in Section 9A (4) of the Banking Act.

  111. 111.

    FHC Guidelines 2.2.

  112. 112.

    FHC Guidelines 2.3.3 and 2.3.7.

  113. 113.

    FHC Guidelines 4.0.

  114. 114.

    FHC Guidelines 4.0d.i.

  115. 115.

    See FHC Guidelines 6.4a.i and 6.4b. In addition, a cooling-off period of three years applies to executive directors aspiring to take up a non-executive director (NED) position with their “banks and subsidiaries”: see CBN Circular BDS/DIR/GEN/LAB/07/009 of March 13, 2004. It is not clear whether this is applied to an executive director aspiring to take up a NED position with a FHC in the same group.

  116. 116.

    See “Assessment Criteria for Approved Persons’ Regime for Financial Institutions”, June 21, 2011 (attached to CBN Circular FPR/DIR/GEN/01/016) (hereafter the Assessment Criteria) 1.0.

  117. 117.

    Sections 18, 19 and 48-50 of BOFI Act and the Assessment Criteria 2.0 and 3.0.

  118. 118.

    Assessment Criteria 3.0.

  119. 119.

    Expressly for (a) Managing Director/Deputy Managing Director/Executive Director; (b) General Manager/Deputy General Manager/Assistant General Manager; (c) Non-Executive Directors; (d) Company Secretary/Chief Legal Officer; and others. See Assessment Criteria 3.2.

  120. 120.

    FHC Guidelines 4.0c.

  121. 121.

    Including if of unsound mind, or of ill health rendering her/him incapable of carrying out her/his duties, is bankrupt or in suspension of payments, is convicted of an offence involving dishonesty or fraud, is guilty of serious misconduct, or is disqualified or suspended from practicing a profession in Nigeria requiring qualification. A director or manager of a bank wound up by the Federal High Court is barred from acting or continuing as director of a bank (specific CBN Governor exemption possible). Those who lose their job because of “fraud, dishonesty or conviction for an offence involving dishonesty or fraud shall not be employed by any bank”: Section 48 (4) of the BOFI Act.

  122. 122.

    Section 60 of the BOFI Act prescribes periodic penalty payments, fines, imprisonment and loss of license as the consequences of failure to comply with the conditions for licensing.

  123. 123.

    Assessment Criteria 5.0. Some of these criteria would apply only to natural persons. Others could apply to corporate shareholders, but it is not known whether or how CBN applies the criteria to corporate shareholders.

  124. 124.

    FHC Guidelines 4.0d.

  125. 125.

    See CBN Circular FPR/DIR/CIR/GEN/01/004, dated 16 May 2014. The corporate governance of banks, for which the board and management are responsible, is a specific subject for review by the NCB under the Supervisory Review and Evaluation Process (SREP); see Guidance Notes on Supervisory Review Process, BSD/DIR/GEN/BAS/08/031/5, at: http://www.cenbank.org/Out/2015/BSD/5.Guidance%20Notes%20on%20Supervisory%20Review%20Process.pdf.

  126. 126.

    Section 37 (4) Banks Act.

  127. 127.

    IMF Financial Sector Assessment Programme (FSAP)’s assessment of South Africa’s compliance with the Basel Core Principles (BCPs) and other international standards and best practices. See: IMF Country Report 15/55 (South Africa: Financial Sector Assessment Program-Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision), available at: https://www.imf.org/external/pubs/ft/scr/2015/cr1555.pdf, published on 3 March 2015.

  128. 128.

    The definition of “director” in Section 1 of the Banks Act “has the meaning ascribed to that word in section 1 of the Companies Act, and includes an executive director and a non-executive director, unless expressly stated otherwise”.

  129. 129.

    An executive officer of “a bank, includes any employee who is a director or who is in charge of a risk management function of the bank, the compliance officer, secretary of the company or any manager of the bank who is responsible, or reports, directly to the chief executive officer of the bank”: section 1 of the Banks Act.

  130. 130.

    Section 1A(a) Banks Act.

  131. 131.

    Section 1A(b) Banks Act.

  132. 132.

    See, also, Regulation 41 (Composition of the board of directors of a bank or controlling company). This specifies incompatibilities in respect of the Chairman of the Board of Directors of a bank or a controlling company. The Chairman of the Board of Directors of a controlling company cannot be an employee of the controlling company or of any bank held by the controlling company, or a member of the audit committee of the controlling company or of any bank held by the controlling company.

  133. 133.

    Or the Minister of Finance, if the shareholding or voting rights exceed 49%: see Section 37 (5)(b).

  134. 134.

    Section 37 (5) of the Banks Act.

  135. 135.

    Regulation 39 (Process of corporate governance) has been amended various times since the Regulations under the Banks Act were published on 12 December 2012 (Government Notice No. R. 1029 in Government Gazette/Staatskoerant No. 35950) and now covers more than 55 pages. See also Regulation 36(16)(a) and (17).

  136. 136.

    As explained on its website, “CBK has adopted consolidated supervision, which entails supervising a bank as an individual as well as a member of a banking group. Where a bank has affiliates (a holding company, subsidiary, associate and other affiliates), CBK’s regulatory and supervisory purview spans across the entire group of companies since risks that may affect the stability of the bank may emanate from any of the members of the group”. At: https://www.centralbank.go.ke/index.php/banksupervision, which also states: “Further, CBK together with the East African Community member states and other regional Central Banks have embraced the concept of supervisory colleges as part of the supervisory framework for regional banking groups. A supervisory college is a forum of banking supervisors to share knowledge and information on regional banks. Through supervisory colleges, CBK and other regional Central Banks are able to promote the stability of the regional banking system”.

  137. 137.

    Guideline on Non-Operating Holding Companies CBK/PG/24 1.4.4 and Guideline on Consolidated Supervision CBK/PG/19 1.4.5.

  138. 138.

    Guideline on Non-Operating Holding Companies CBK/PG/24 10.1.

  139. 139.

    “The aim of approving non-operating holding companies of banks is to free banks to concentrate on their core business of mobilizing deposits and advancing loans and leaving the business of capital and risk management for banks in a group to the non-operating holding company.” (Emphasis added).

  140. 140.

    The exact levels of capital required are set out in Guideline on Non-Operating Holding Companies CBK/PG/24 8.5: core capital at least equal to 8% of risked weighted assets and off-balance sheet items, and of 8% of total deposit liabilities held by the NOCH’s subsidiaries, and total capital of at least 12% of risked weighted assets and off-balance sheet items. Banking institutions are required to hold a capital conservation buffer of 2.5% (8.6) and the CBK may raise the minimum capital level for an NOCH having regard to its risk profile or for other considerations (8.7). Core capital is defined in Section 2 of the Banking Act and elaborated in 1.4.2 of the Guideline on Capital Adequacy CBK/PG/03. See, also, minimum core capital levels expressed in Kenyan shillings in 4.1.3, which amount to Ksh 1 billion (around EUR 9 million) for banks. Criteria for higher capital ratios are non-exhaustively enumerated in 4.2 of the Guideline on Capital Adequacy CBK/PG/03.

  141. 141.

    A “parent” is defined as “an entity that controls one or more entities”: Guideline on Consolidated Supervision CBK/PG/19 1.4.13.

  142. 142.

    Guideline on Consolidated Supervision CBK/PG/19 4.1.2.

  143. 143.

    Section 18(2): “A non-operating holding company or any other vehicle of ownership which controls a group shall, in relation to its business, maintain adequate capital and adequate forms of liquidity to demonstrate that it is a source of strength for the institution and shall comply with any regulations issued by the Central bank on minimum ratios or capital requirements in any other form”.

  144. 144.

    Guideline on Non-Operating Holding Companies CBK/PG/24 8.2: “An approved non-operating holding company shall be required to maintain the prescribed capital adequacy ratios. For banking entities in the group, minimum capital requirements should be complied with on a solo and consolidated basis”. Guideline of Consolidated Supervision CBK/PG/19: “4.1.2 Members of the banking group are required to maintain the capital adequacy ratios prescribed by their respective regulators and ensure minimum capital requirements are complied with on a solo and consolidated basis. In case of any shortfall in the capital adequacy ratio of any of the subsidiaries, the parent should maintain capital in addition to its own regulatory requirements to cover the shortfall”.

  145. 145.

    Section 18 of the Banking Act and Guideline on Capital Adequacy CBK/PG/03.

  146. 146.

    Guideline on Non-Operating Holding Companies CBK/PG/24 8.3.

  147. 147.

    Guideline on Non-Operating Holding Companies CBK/PG/24 8.4 and 8.8. The approved NOHC is to comply with such directions. See, also, Part V of the Guideline on Capital Adequacy CBK/PG/03 on the remedial actions the CBK may impose, which include restricting dividend pay-outs, limitations on credit operations and on deposit taking.

  148. 148.

    Guideline on Non-Operating Holding Companies CBK/PG/24 8.1, where it is also stated: “In respect of non-banking financial entities within bank groups, each should comply with its solo liquidity requirements as applicable”.

  149. 149.

    Guideline on Non-Operating Holding Companies CBK/PG/24 8.3.

  150. 150.

    Guideline on Prohibited Business CBK/PG/07 3.3. Large exposures are defined, in 1.4.4 of this Guideline, as “all credit facilities granted to a person and his associates above 10% of an institution’s core capital”.

  151. 151.

    Guideline on Consolidated Supervision CBK/PG/19 4.1.3.

  152. 152.

    Guideline on Corporate Governance CBK/PG/02 3.13.1.

  153. 153.

    Guideline on Publication of Financial Statements and Other Disclosures CBK/PG/10 3.5.

  154. 154.

    Guideline on Capital Adequacy CBK/PG/03 4.4 and Guideline on Stress Testing CBK/PG/20.

  155. 155.

    The Guideline on Capital Adequacy CBK/PG/03 specifies as follows, under 4.4 (ICAAP):

    “Stress testing—An institution’s capital planning process should incorporate rigorous, forward-looking stress testing that identifies possible events or changes in market conditions that could adversely impact the institutions. In their ICAAPs, institutions should examine future capital resources and capital requirements under adverse scenarios. The results of forward-looking stress testing should be considered when evaluating the adequacy of an institution’s capital. For further guidance on stress testing expectations, institutions should refer to Guideline on Stress Testing (CBK/PG/20)”.

  156. 156.

    Guideline on Capital Adequacy CBK/PG/03 1.03, as those terms are defined in the Banking Act: Guideline on Capital Adequacy CBK/PG/03 1.4.

  157. 157.

    Guideline on Stress Testing CBK/PG/20 1.3, also as defined in the Banking Act: Guideline on Stress Testing CBK/PG/20 1.4.

  158. 158.

    In particular, a NOHC is not an “institution” as defined in the Banking Act. For the definition of an NOHC, see the text at footnote 35 above.

  159. 159.

    Guideline on Non-Operating Holding Companies CBK/PG/24 10.1 does not include the stress testing Guideline in the prudential guidelines an NOHC should ensure compliance with.

  160. 160.

    It may be that the CBK could direct an NOHC to perform stress testing, e.g. if it was failing to comply with other regulatory requirements, for example, capital adequacy or liquidity requirements.

  161. 161.

    A Framework for Consolidated Supervision of Financial Institutions in Nigeria and related Guidelines, were issued by the FSRCC in April 2013.

  162. 162.

    FHC Guidelines 7.1: “A financial holding company shall have a minimum paid up capital which shall exceed the sum of the minimum paid up capital of all its subsidiaries, as may be prescribed from time to time by the sector regulators (Where the financial holding company owns 100 per cent of the subsidiaries).

    Where the financial holding company owns less than 100 per cent of the subsidiaries, its minimum paid up capital shall exceed the summation of its proportionate holding in the subsidiaries.

    NB: It is the capital of the Holdco that is applied to the subsidiaries. Excess capital in one subsidiary shall not be used to make up a shortfall in another subsidiary”.

  163. 163.

    In addition, under 2.4.1.2 ii e of the Framework for Consolidated Supervision of Financial Institutions in Nigeria, April 2013, if a capital shortfall is determined, the regulator “shall require” the supervised institution to inject “fresh capital” in the holding company within a specified period.

  164. 164.

    FHC Guidelines 7.3.

  165. 165.

    There seems to be no application of a leverage ratio to banks or FHCs. On the CBN’s website, a draft regulation of mortgage refinance companies (MRCs) can be found that includes a 5% leverage ratio. There is also a leverage ratio applied to SME lending by banks, pursuant to the Prudential Guidelines of 2010 (at 8.4). It is unclear if the CBN intends to expand application of a leverage ratio to banks and FHCs.

  166. 166.

    See: CBN INSTRUCTION TO BANKS to complete new reporting template for capital adequacy ratio by July 31 2015—BSD/DIR/GEN/BAS/08/031 of June 24 2015 (REVISED GUIDANCE NOTES ON BASEL II IMPLEMENTATION AND THE REPORTING TEMPLATE FOR CAPITAL ADEQUACY RATIO), available at: http://www.cenbank.org/documents/bsdcirculars.asp; where the following Guidance Notes can also be found:

    BSD/DIR/GEN/BAS/08/031/1. Guidance Notes on Regulatory Capital;

    BSD/DIR/GEN/BAS/08/031/2. Guidance Notes on the Calculation of Capital Requirement for Credit Risk - Standardized Approach;

    BSD/DIR/GEN/BAS/08/031/3. Guidance Notes on the Calculation of Capital Requirement for Market Risk;

    BSD/DIR/GEN/BAS/08/031/4. Guidance Notes on the Calculation of Capital Requirement for Operational Risk—basic indicator approach (BIA) and Standardized Approach (TSA);

    BSD/DIR/GEN/BAS/08/031/5. Guidance Notes on Supervisory Review Process; and

    BSD/DIR/GEN/BAS/08/031/6. Guidance Notes on Pillar III—Market Discipline.

  167. 167.

    FHC Guidelines 7.2.

  168. 168.

    FHC Guidelines 7.4 and 7.5.

  169. 169.

    FHC Guidelines 7.6 and 7.7.

  170. 170.

    Framework for Consolidated Supervision of Financial Institutions in Nigeria 2.4.1.1 (ii) b.

  171. 171.

    Framework for Consolidated Supervision of Financial Institutions in Nigeria 2.4.1.5 (ii) c.

  172. 172.

    Framework for Consolidated Supervision of Financial Institutions in Nigeria 2.4.1.4. A warning is also given of the risks of intra-group exposures and an aggregate exposure limit is to be set for each supervised institution, including therefore FHCs: Id. At 2.4.1.4 i. b and ii.

  173. 173.

    In its Prudential Guidelines of 5 May 2010, at 3.2.

  174. 174.

    In its Prudential Guidelines of 5 May 2010, at 3.5.

  175. 175.

    FHC Guidelines 2.4.

  176. 176.

    See CIRCULAR BSD/DIR/GEN/LAB/08/008 of Feb 5, 2015 on the prohibition from borrowing to capitalize banks, available at: http://www.cenbank.org/Out/2015/BSD/RE-PROHIBITION%20FROM%20BORROWING%20TO%20CAPITALIZE%20BANKS.pdf.

  177. 177.

    FHC Guidelines 6.2.

  178. 178.

    Framework for Consolidated Supervision of Financial Institutions in Nigeria 2.4.1.3.

  179. 179.

    Framework for Consolidated Supervision of Financial Institutions in Nigeria, at 2.4.2.1 i. d and at 2.4 2.3 ii. h.

  180. 180.

    Guidance Notes on Supervisory Review Process (BSD/DIR/GEN/BAS/08/031/5) paragraphs 2.3.3 and 2.3.6e.

  181. 181.

    See Section 6 (3). Section 75 (4)(b) confers authority on the Registrar to issue the Regulations summarized in the text requiring holding companies of banks to furnish annual, consolidated financial returns relating to all entities within their banking groups, including their controlling companies.

  182. 182.

    In Section 70A, especially section 70A(2).

  183. 183.

    Regulation 36(8)(b)(ix).

  184. 184.

    See, notably, Regulation 36(5) which reads as follows: “Unless specifically otherwise provided in this regulation 36 or specified in writing by the Registrar, all the relevant directives and interpretations, a) relating to the completion on a solo basis of the relevant risk-based returns by a bank; or b) for the calculation on a solo basis of the relevant minimum required amount of capital and reserve funds of a bank, shall mutatis mutandis apply to the completion of the consolidated return or calculation of the minimum required consolidated amount of capital and reserve funds to be held by a bank or controlling company.” [Italics, added].

  185. 185.

    Regulation 38(17)(a) and (b)(iii)(c).

  186. 186.

    Regulation 26(12) on the LCR and 26(14) on the NSFR.

  187. 187.

    Regulation 26(11)(a)(v).

  188. 188.

    Regulation 36(1)(b).

  189. 189.

    Regulation 36(16)(a).

  190. 190.

    Article 73(1) Banks Act and Regulation 24(7)(a); such credit exposures when totalling 800% of capital may be subject to additional capital requirements.

  191. 191.

    Regulation 24(7)(b), based on Article 73(2) Banks Act.

  192. 192.

    Regulation 24(4)(c) which is just an example among many that could have been included to explain the nature of South African banking regulations. Also, Regulation 39 on Corporate Governance is very detailed and prescriptive, encompassing pages 882–934 in the Staatskoerant, whilst mostly providing minimum norms.

  193. 193.

    Regulations 39 (8)(h), (10) through (16) and (20). The stress testing process must factor in many specific elements: for example see Regulation 39 (14)(b)(viii)(E), Government Gazette/Staatskoerant No. 38616 of 27 March 2015 at page 17.

  194. 194.

    In South African regulatory parlance: “policies, processes, procedures and systems”.

  195. 195.

    Regulation 36(14)(b)(ii)(C).

  196. 196.

    IMF Country Report No. 15/55 (Financial Sector Assessment Program—Detailed Assessment Of Compliance On The Basel Core Principles For Effective Banking Supervision). For a stress test exercise by authorities, see IMF Country Report No. 15/54 (Stress Testing the Financial System—Technical Note).

  197. 197.

    While finding South Africa in compliance with Principle 12 of the Basel Core Principles on Consolidated Supervision, the IMF recommended that “the authorities should make further effort to monitor and manage risks arising from nonbanking activities or parent entities of a financial group (some of which are not bank controlling companies) to which a South African bank belongs. In this regard (…) the authorities should strengthen its technique, such as group-wide stress testing, to monitor and assess those risks. The authorities should further improve the recovery and resolution planning of large banking groups particularly once the necessary power is given to the supervisor by the expected new legislation. Such planning should also consider scenarios where shocks originate from non banking entities or parent groups”. IMF Country Report 15/55 (South Africa: Financial Sector Assessment Program-Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision), at: https://www.imf.org/external/pubs/ft/scr/2015/cr1555.pdf, published on 3 March 2015.

  198. 198.

    Guideline on Liquidity Management CBK/PG/05 4.2.4.

  199. 199.

    Guideline on Non-Operating Holding Companies CBK/PG/24 8.1.

  200. 200.

    In Sections 33–35.

  201. 201.

    Banking Act Section 33 (1).

  202. 202.

    Banking Act Section 33 (1A).

  203. 203.

    Banking Act Section 33 (1C)(b).

  204. 204.

    This rating system, recognized internationally, is used by bank supervisors to rate financial institutions according to six factors represented by the acronym CAMELS: Capital adequacy, Asset quality, Management capability, Earnings quantity and quality, the adequacy of Liquidity and Sensitivity to market risks. Supervisors assign a score on a scale of one (the best) to five (the worst) and exercise increasing scrutiny over higher scored institutions.

  205. 205.

    Guideline on Prompt Corrective Action CBK/PG/21 3.1 (2).

  206. 206.

    A PCA Order is a written directive stipulating the actions and violations from which an institution must cease. The remedial actions that an institution should take include adopting a Capital Restoration Plan and strengthening the board of directors and management: Guideline on Prompt Corrective Action CBK/PG/21, 1.4.

  207. 207.

    Guideline on Prompt Corrective Action CBK/PG/21 4.3.4.

  208. 208.

    Guideline on Prompt Corrective Action CBK/PG/21 4.3.4.6, 4.3.4.7, 4.4 and monetary penalties may be assessed: 4.3.4.9.

  209. 209.

    Banking Act Section 34.

  210. 210.

    Banking Act Section 6.

  211. 211.

    See also CBK Guideline on Voluntary Liquidation CBK/PG/18.

  212. 212.

    The lack of arrangements for cross-border supervision and resolution has been a matter for concern in the IMF’s Financial Sector Assessment Program. See: IMF Country Report No. 13/142 (Financial Sector Assessment Program Nigeria Banking Cross-Border Issues Technical Note), at: http://www.imf.org/external/pubs/ft/scr/2013/cr13142.pdf. The IMF also called upon the CBN to implement R&R planning for SIFIs in Nigeria, and put forward a number of suggestions for improving the resolution and crisis management framework. See: IMF Country Report No. 13/140 (Nigeria: Financial Sector Stability Assessment), at: http://www.imf.org/external/pubs/ft/scr/2013/cr13140.pdf, p. 28, and paras. 56-69. For specifics, see IMF Country Report No. 13/143 (Nigeria: Financial Sector Assessment Program Documentation—Technical Note on Crisis Management and Crisis Preparedness Frameworks), at: http://www.imf.org/external/pubs/ft/scr/2013/cr13143.pdf.

  213. 213.

    Framework of Consolidated Supervision of Financial Institutions in Nigeria, 1.4.

  214. 214.

    Framework of Consolidated Supervision of Financial Institutions in Nigeria, 1.6, 2.1 and 2.2.

  215. 215.

    Framework of Consolidated Supervision of Financial Institutions in Nigeria, 2.3 and 2.4.

  216. 216.

    BOFI Act Section 37.

  217. 217.

    BOFI Act sections 39 and 40, after application to the Federal High Court.

  218. 218.

    FHC Guideline 9.0 xii.

  219. 219.

    National Treasury, SARB and Financial Services Board, Strengthening South Africa’s Resolution Framework For Financial Institutions, 2015, at: http://www.treasury.gov.za/publications/other/RFFI/2015%20Resolution%20Framework%20Policy.pdf. The SARB is to be the resolution authority.

  220. 220.

    IMF Country Report 15/53 (South Africa: Financial Sector Assessment Program-Financial Safety Net, Bank Resolution, and Crisis Management Framework-Technical Note), at: https://www.imf.org/external/pubs/ft/scr/2015/cr1553.pdf.

  221. 221.

    Regulation 36(8)(b)(xi).

  222. 222.

    See Regulations 39 (14)(B)(viii)(F) and 39(20).

  223. 223.

    Guidance Note G4/2012, at: https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/5034/G4%20of%202012.pdf.

  224. 224.

    Banking Act Section 28(1) through (3).

  225. 225.

    For example Guideline on Non-Operating Holding Companies CBK/PG/24 4.0, 6.1 and 6.2. In addition, the CBK has wide powers to inspect banks and gather information on holding companies under section 32 of the Banking Act.

  226. 226.

    Guideline on Non-Operating Holding Companies CBK/PG/24 10.1, in conjunction with Guideline on Consolidated Supervision CBK/PG/19 3.3.5.

  227. 227.

    Guideline on Non-Operating Holding Companies CBK/PG/24 10.1, in conjunction with Guideline on Consolidated Supervision CBK/PG/19 3.4.

  228. 228.

    Guideline on Non-Operating Holding Companies CBK/PG/24 10.2.

  229. 229.

    External auditors of an approved NOHC must be approved by the CBK and the CBK may require a banking group to retain a single auditor to provide an overview review of the group including consolidated financial statements: see Guideline on Non-Operating Holding Companies CBK/PG/24 9.1 and 9.3 and Banking Act section 32B.

  230. 230.

    See Guideline on Non-Operating Holding Companies CBK/PG/24 10.3.

  231. 231.

    Guideline on Non-Operating Holding Companies CBK/PG/24 4.0.

  232. 232.

    Guideline on Non-Operating Holding Companies CBK/PG/24 4.1.

  233. 233.

    FHC Guidelines 8.1 and 8.2.2.

  234. 234.

    Sections 57, 61 and 62 of the BOFI Act, as well as the power to appoint examiners to carry out examination of the books and affairs of “other financial institutions” (section 61(2) and (3)), which include FHCs: FHC Guideline 9.0 xii.

  235. 235.

    Framework for Consolidated Supervision of Financial Institutions in Nigeria 2.4.1.1ii.

  236. 236.

    These elements include intra-group financial transactions, large exposures, group structure and governance, and risk management. See FHC Guideline 2.4.1–2.4.2.

  237. 237.

    Ibid. 2.5.4.

  238. 238.

    Article 52 Banks Act and Regulation 56.

  239. 239.

    Section 53 Banks Act.

  240. 240.

    Section 58 Banks Act.

  241. 241.

    Section 59 Banks Act.

  242. 242.

    Section 65 (1) and (2) Banks Act.

  243. 243.

    Section 61 Banks Act.

  244. 244.

    Section 74 (1) Banks Act.

  245. 245.

    Regulation 36 (8)(a).

  246. 246.

    Regulation 36 (8)(b).

  247. 247.

    Section 31 (1) clarifies that the information is not to be published if it would disclose the financial affairs of any person, without the prior written consent of that person.

  248. 248.

    Guideline on Publication of Financial Statements and Other Disclosures CBK/PG/10. This Guideline requires publication in a newspaper of national circulation of audited financial statements (annually, see CBK/PG/10 3.2) as well as un-audited statements (quarterly, see CBK/PG/10 3.3), as well as availability on the bank’s website (CBK/PG/10 3.4).

  249. 249.

    Guideline on Publication of Financial Statements and Other Disclosures CBK/PG/10 3.5. This Guideline has more than 50 pages of forms and notes explaining the disclosures required. However, no mention is made of disclosure of countercyclical capital buffers, credit and dilution risk exposures, leverage ratios or credit risk mitigation techniques.

  250. 250.

    Guideline on Corporate Governance CBK/PG/02, at 3.11.2h.

  251. 251.

    Guideline on Corporate Governance CBK/PG/02, at 3.6.2 II.b.

  252. 252.

    Code of Corporate Governance for Banks and Discount Houses in Nigeria, May 2014 (the “Nigerian Corporate Governance Code”) 5.0.

  253. 253.

    Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria 4.0 d i.

  254. 254.

    Nigerian Corporate Governance Code 5.1.1.

  255. 255.

    Nigerian Corporate Governance Code 5.1.2.

  256. 256.

    Nigerian Corporate Governance Code 5.2, 5.3 and 6.0.

  257. 257.

    Nigerian Corporate Governance Code 3.1.3, which provides further that website communication shall include major developments in the bank, risk management practices, executive compensation, local and offshore branch expansion, establishment of investment in subsidiaries and associates, Board and top management appointments, sustainability initiatives and practices, etc”.

  258. 258.

    Guidance Notes on Pillar III—Market Discipline (BDS/DIR/GEN/BAS/08/031/6).

  259. 259.

    Id. at Table 2 (c) and (d).

  260. 260.

    See Banks Act, sections 66 and 67.

  261. 261.

    Regulation 43(3).

  262. 262.

    See: Banks Act (94/1990): Amendment of Regulations. Effective 1 July 2016, at: https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/7306/Amended%20Regulations%20effective%201Jul2016.pdf.

  263. 263.

    Regulation 43(1), which also states that each material item must be disclosed separately: Regulation 43(1)(c). With approval of the Registrar, proprietary or confidential information need not be disclosed: Regulation 43(1)(i).

  264. 264.

    Guideline on Anti-Money Laundering and Combating the Financing of Terrorism CBK/PG/08.

  265. 265.

    Ibid. 1.2 and 2.2.1. Customer due diligence must also be carried out by banking agents: Guideline on Agent Banking CBK/PG/15 3.9.

  266. 266.

    More particularly elaborated in part 5 of the Guideline on Anti-Money Laundering and Combating the Financing of Terrorism CB K/PG/08 5.

  267. 267.

    Id. 2.3.

  268. 268.

    For example, the Proceeds of Crime and Anti-Money Laundering Act 2009, as amended.

  269. 269.

    Money Laundering (Prohibition) Act, 2011, as amended, Section 15(1) and (2).

  270. 270.

    Terrorism Prevention Act, 2011 as amended, Section 13.

  271. 271.

    CBN (Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations, 2013, section 3. See also Part 5 and Annexures 7and 8 of those regulations at: http://www.cbn.gov.ng/out/2010/publications/bsd/prudential%20guidelines%2030%20june%202010%20final%20%20_3_.pdf.

  272. 272.

    See Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria 9.0 xii.

  273. 273.

    Regulation 36(17)(a)(iv). Extensive AML/CTF control and compliance requirements are mandated by the Financial Intelligence Centre Act, 2001 as amended.

  274. 274.

    Regulation 36(17)(b)(ii). Deficiencies in the effectiveness of South Africa’s reinforced AML/CTF legislation and enforcement are noted in IMF Country Report 15/51 (South Africa: Financial Sector Assessment Program-Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)-Technical Note), March 2015, at: https://www.imf.org/external/pubs/ft/scr/2015/cr1551.pdf. However, these relate mainly to information on beneficial ownership of funds and strengthening enforcement capacity and do not address group-wide or controlling companies’ AML/CTF practices.

  275. 275.

    See the definitions in Regulation Y at 12 CFR § 225.2 (e). Regulation Y is at http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=7ca6da867eb5c16a11991c9693ecceb0&mc=true&n=pt12.3.225&r=PART&ty=HTML. For the statutory definition of BHCs in the US, see 12 USC § 1841—Definitions, at: https://www.law.cornell.edu/uscode/text/12/1841.

  276. 276.

    Reasons for the proliferation of BHCs in the US are varied. Historically, they enabled banking groups to circumvent restrictions on expansion into new geographical or product markets, to benefit from tax advantages, to get access to greater funding sources, or to take advantage of economies of scale. For a brief description of the development of BHCs in the US, as of July 2012, see https://www.newyorkfed.org/medialibrary/media/research/epr/12v18n2/1207avra.pdf.

  277. 277.

    As of 30 June 2016, there were 133 US financial/bank holding companies with reported assets exceeding $10 billion, holding total assets exceeding $17 trillion: see https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx.

  278. 278.

    12 USC § 1841 et seq. At https://www.law.cornell.edu/uscode/text/12/chapter-17.

  279. 279.

    The Banking Act of 1933, Pub.L. 73-66, 48 Stat. 162, named after the sponsors of the provisions in that Act that mandated the separation of commercial and investment banking. The Act also established the Federal Deposit Insurance Corporation (FDIC) and a federal system of bank deposit insurance which, as modified over the past 80 years, continues today.

  280. 280.

    For a list of FHCs, see https://www.federalreserve.gov/bankinforeg/fhc.htm#company_href.

  281. 281.

    By the Financial Services Modernization Act of 1999, Pub.L. 106–102, 113 Stat. 1338, known as the Gramm-Leach-Bliley Act). This Act was also supported by lobbying from the banking industry and underpinned by developments in banking products that blurred the distinction between banking and securities.

  282. 282.

    Pub.L. 111–203, 124 Stat.1376, at: https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/html/PLAW-111publ203.htm. For summaries of the statute, see: https://www.congress.gov/bill/111th-congress/house-bill/4173.

  283. 283.

    The Dodd-Frank Act has 848 pages and its title summarises its wide remit as an Act: “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail”, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes”.

  284. 284.

    Known colloquially as the “Volcker Rule”, these prohibitions are contained in Section 619 of the Dodd-Frank Act (124 Stat. 1620), amending Section 13 of the BHC Act (12 USC § 1851) The section defines hedge funds and private equity funds broadly so that they would cover venture capital funds and pooled investment vehicles, but provides a number of exceptions. See at: https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/html/PLAW-111publ203.htm.

  285. 285.

    See 12 CFR Part 248, effective 1 April 2014.

  286. 286.

    Three extensions of one year each, allowing banks to retain ownership of interests in hedge funds and private equity funds, have been granted by the Federal Reserve under Regulation Y, CFR § 225.181(a). A further extension of up to five years may be granted in respect of holdings of “illiquid funds” under CFR § 225.181(b). See also the following press reports: http://www.marketwatch.com/story/fed-extends-deadline-again-for-volcker-rule-implementation-2016-07-07; and http://www.cnbc.com/2016/08/11/reuters-america-exclusive-wall-st-banks-ask-fed-for-5-more-years-to-comply-with-volcker-rule.html.

  287. 287.

    In particular, Regulation Y (12 CFR Part 225) on Bank Holding Companies and Change in Bank Control, which regulates the acquisition of control of banks and defines the non-banking activities in which a BHC or FHC may engage directly or through a subsidiary; and Regulation K (12 CFR Part 211) on International Banking Operations which, among other things, regulates certain foreign activities of banking organisations, including BHCs.

  288. 288.

    See: https://www.federalreserve.gov/boarddocs/supmanual/bhc/bhc.pdf.

  289. 289.

    Which is one among many supervisory manuals: see: https://www.federalreserve.gov/boarddocs/supmanual/.

  290. 290.

    12 CFR § 225.4(a)(1).

  291. 291.

    12 USC § 1844 (e) and 12 CFR § 225.4 (a)(2).

  292. 292.

    In the US, primary supervisory authority and coordination responsibilities are organised as follows: the Office of the Comptroller of the Currency (US Treasury)—national banks, federal savings associations; the Federal Deposit Insurance Corporation—state non-member banks, state savings associations; and the Federal Reserve—parent BHCs, nonbank subsidiaries of BHCs, consolidated BHC, FHCs, SLHCs, and state member banks.

  293. 293.

    Regulation Y, 12 CFR § 225.11 and 12. The Federal Reserve must consider many factors required by 12 CFR § 225.13, including the financial resources and managerial competence, experience and integrity of the officers, directors and principal (i.e. more than 10 per cent) shareholders of the acquiring company.

  294. 294.

    12 USC § 1844 (a) and (c) and Regulation Y, 12 CFR § 225.5 (a)–(c).

  295. 295.

    Regulation Y, 12 CFR § 225.21–22. A list of permissible nonbanking activities is at 12 CFR § 225.28 (b).

  296. 296.

    See BHC Manual 1050.0.1 and 1050.0.2 and Federal Reserve Letter SR 08-9/CA 08-12, dated 16 October 2008 entitled “Consolidated Supervision of Bank Holding Companies and the Combined U.S. Operations of Foreign Banking Organizations”. Consolidated reporting for BHCs is required under Form FR Y-9C: see https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDal8cbqnRxZRg==.

  297. 297.

    Regulation Q Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks, 12 CFR 217, at: https://www.federalreserve.gov/bankinforeg/reglisting.htm#Y.

  298. 298.

    12 CFR § 1844 (b).

  299. 299.

    For an overview of the licensing process of a BHC, see: https://www.federalreserve.gov/bankinforeg/afi/bhcfilings.htm. The process of licensing is laid down in Regulation Y, 12 CFR 225 Bank Holding Companies And Change In Bank Control.

  300. 300.

    Sections 165(a) and (d) of the Dodd-Frank Act (12 USC § 5365) require that BHCs with total consolidated assets of $50 billion or more, and non-bank financial companies supervised by the Federal Reserve, should be subject to more stringent (enhanced) prudential requirements and should submit resolution plans (living wills) to the Federal Reserve and the FDIC, describing the company's strategy for orderly resolution in the event of material financial distress or failure. Currently, the most complex banking groups supervised by the Board are required to file resolution plans by July 1 of each year. Other affected companies are generally required to file by December 31 of each year.

  301. 301.

    For forms to be submitted by BHCs, see: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDal8cbqnRxZRc==.

  302. 302.

    In the words of the BHC Manual: “In addition to its role as consolidated supervisor of BHCs, the Federal Reserve also is responsible for the overall supervision of the U.S. operations of foreign banks that have a banking presence in the United States. This role was established by the International Banking Act of 1978, which introduced a policy of national treatment promoting competitive equality between FBOs operating in the United States and domestic banking organisations. The Foreign Bank Supervision Enhancement Act of 1991 established uniform federal standards for entry, expansion, and supervision of FBOs in the United States and increased the Federal Reserve’s supervisory responsibility and authority over the U.S. operations of FBOs. This Act also introduced the requirement that the Federal Reserve approve the establishment of all U.S. banking offices of foreign banks and, in that regard, take into account whether the foreign bank is subject to comprehensive, consolidated supervision by its home-country supervisor”.

  303. 303.

    In particular, the BHC Manual states: “Key concepts that have been part of the Federal Reserve’s approach to consolidated supervision for many years are reflected in the Basel Committee on Banking Supervision’s Minimum Standards for Internationally Active Banks (1992), capital accords (1988 and 2006), and Core Principles for Effective Banking Supervision (1997 and 2006), and are now used by the International Monetary Fund and the World Bank in connection with their assessments of countries’ bank supervisory regimes”.

  304. 304.

    In some instances, if necessary, a regulatory agency other than the entity’s primary supervisory authority will participate in a BHC examination or inspection in order to fulfil its regulatory responsibilities. The BHC Manual further states that the Federal Reserve assists relevant primary supervisors and functional regulators in performing their supervisory responsibilities with respect to regulated subsidiaries by sharing pertinent information relating to those subsidiaries.

  305. 305.

    Veerle Colaert, European Banking, Securities and Insurance Law: Cutting Through Sectoral Lines?, Common Market Law Review 52: 1579–1616, 2015.

  306. 306.

    Interactive access to the Single Rulebook can be found at EBA’s website: http://www.eba.europa.eu/regulation-and-policy/single-rulebook/interactive-single-rulebook/-/interactive-single-rulebook/main_documents.

  307. 307.

    European Banking Authority, established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, Official Journal of the European Union (OJ), No. L 331/12, 15 December 2010, as amended by Regulation (EU) No 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013, OJ No. L 287/5, 29 October 2013.

  308. 308.

    European Securities and Markets Authority, established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, OJ L 331/84, 15 December 2010, as amended; consolidated text at: https://www.esma.europa.eu/sites/default/files/library/2015/11/1095-2010_esma_regulation_amended.pdf.

  309. 309.

    European Insurance and Occupational Pensions Authority established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No. 716/2009/EC and repealing Commission Decision 2009/79/EC, OJ L 331/48, 15 December 2010.

  310. 310.

    Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, corrigenda in the Official Journal of the European Union, No. L 321/6, 30 November 2013.

  311. 311.

    Article 1 CRR speaks of “uniform” rules, whereas Article 3 stipulates that banks may go beyond these uniform requirements, implying national legislators and supervisors may not vary the exigencies. Of course, supervisors have tools at their disposal to apply the general rules in an institution-specific manner, so as to target an appropriate level of coverage for risks an individual bank runs, notably under the Supervisory Review and Evaluation Process (SREP) of Articles 104 ff. CRD IV.

  312. 312.

    Both a Risk-Weighted Approach (RWA) and a leverage ratio; see Articles 101–386 and 429–430 CRR, respectively.

  313. 313.

    The CRR regulates own funds requirements for credit risk, market risk, operational risk and settlement risk, limits on large exposures, and liquidity requirements (Article 1 CRR).

  314. 314.

    “Credit institutions” in EU parlance. Investment institutions are also covered but not discussed here.

  315. 315.

    The BCBS reports on regulatory compliance with Basel III for all affiliated jurisdictions and has been very critical, in its Regulatory Consistency Assessment Programme (RCAP), of deviations adopted by the EU, labelling the implementation “materially non-compliant”. See: Assessment of Basel III regulations—European Union, December 2014, at: https://www.bis.org/bcbs/publ/d300.pdf. For the BCBS’s most recent assessment, see: Eleventh Progress Report on adoption of the Basel regulatory framework, October 2016, at: https://www.bis.org/bcbs/publ/d388.pdf.

  316. 316.

    Article 6(1) CRR. Articles 7-10 CRR contain waivers for the individual application of prudential requirements, resulting in consolidated application of solvency or liquidity requirements.

  317. 317.

    Defined in Article 4(1)(15) CRR with reference to Article 22 of the Accounting Directive (Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC, OJ No. L 182/19, 29 June 2013, as amended, consolidated text at: http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1425994405386&uri=CELEX:02013L0034-20141211). For certain prudential purposes, the term “parent undertaking” is understood wider than as defined in the Accounting Directive, namely as “any undertaking which effectively exercises dominant influence over another undertaking” (Article 4(1)(15)(b), in fine, CRR).

  318. 318.

    See, also recitals 35-38 of the preamble to the CRR on consolidation which specify that “own funds requirements apply on an individual and consolidated basis”, and refer to the availability of capital in a group to protect savings where needed.

  319. 319.

    Pursuant to Article 4(1) (30) CRR a “parent financial holding company in a Member State” refers to a financial holding company in a Member State that is not a subsidiary of a bank or investment firm authorised in the same State, or a subsidiary of a holding company set up in this State, while under (31), the same provision identifies an “EU parent financial holding company” as a parent financial holding company that is not a subsidiary of a bank or investment firm authorised anywhere in the EU, or of a holding company set up anywhere in the EU.

  320. 320.

    Article 4(1)(21) refers to the FICOD Directive (2002/87, as amended) for the definition of a mixed financial holding company. Briefly, this is a parent undertaking of a financial conglomerate that itself is not a supervised financial sector company (bank, insurance undertaking, investment firm, asset management company, or alternative investment fund manager). The definition of a financial conglomerate includes a group with significant financial business that extends into both the banking and insurance sectors with a non-regulated entity at its head. See Article 2(14) and (15) of the FICO Directive, on which more below.

  321. 321.

    Article 11 (2) CRR.

  322. 322.

    Article 4(1)(3) CRR.

  323. 323.

    The language on prudential consolidation in Article 11 CRR leads the European Commission, in an answer on the website of the EBA (EBA Q&A 2013/521, at: http://www.eba.europa.eu/single-rule-book-qa/-/qna/view/publicId/2013_521), to conclude that the authorised institutions need to abide by the requirements of consolidated supervision incumbent on the group, including their parents. Article 12 CRR may also be held against our reading of consolidated requirements applying to a group being imposed as norms on the group’s parent. Article 12 specifies that where a holding company owns a bank and an investment firm, the consolidated requirements apply to the bank. However, this provision may also be read as indicative of the preponderance of banking supervision (over that of investment firms) and, thus, need not be decisive in determining where the obligations lie. We read them as attached to the parent company.

  324. 324.

    Several Member States include BHCs directly in their prudential regulations, including France, Germany, Italy, Spain and Belgium.

  325. 325.

    Article 11(3) CRR.

  326. 326.

    Article 13(2) CRR.

  327. 327.

    There is an exception for EU parents that are part of third-country based group subject to equivalent disclosure requirements: Article 13(3) CRR.

  328. 328.

    Article 20 CRR.

  329. 329.

    Article 19 of Regulation 1093/2010.

  330. 330.

    “Article 2—Supervisory powers For the purposes of ensuring compliance with this Regulation, competent authorities shall have the powers and shall follow the procedures set out in [CRD IV]”.

  331. 331.

    Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, Official Journal of the European Union, No. L 176/338, 27 June 2013; corrigendum in Official Journal of the European Union No. L 208/73, 2 August 2013, and addendum in No. L 60/69, 28 February 2014.

  332. 332.

    And investment firms, which we do not include here.

  333. 333.

    Also relevant are provisions on attribution of powers among supervisors, supervisory cooperation and decision-making but such institutional aspects of consolidated supervision are outside the scope of our article.

  334. 334.

    Recital 49 of the preamble to CRD IV: “Member States should be able to refuse or withdraw a credit institution’s authorisation in the case of certain group structures considered inappropriate for carrying out banking activities, because such structures cannot be supervised effectively. In that respect the competent authorities should have the necessary powers to ensure the sound and prudent management of credit institutions. (…)”.

  335. 335.

    Article 14(2) CRD IV: “The competent authorities shall refuse authorisation to commence the activity of a credit institution if, taking into account the need to ensure the sound and prudent management of a credit institution, they are not satisfied as to the suitability of the shareholders or members, in particular where the criteria set out in Article 23(1) are not met. (…)”.

  336. 336.

    Article 74(1) CRD IV: “Institutions shall have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management”. (Underlining added).

  337. 337.

    Qualifying holdings need to be reported ahead of acquisition when certain thresholds are reached or exceeded: Article 22 CRD IV.

  338. 338.

    Article 4 (1)(36) CRR.

  339. 339.

    Article 23(1) CRD IV.

  340. 340.

    Article 111–125 CRD IV.

  341. 341.

    Article 119 (1), albeit only “where appropriate”.

  342. 342.

    Article 121 CRD IV, referring to Article 91(1) CRD IV.

  343. 343.

    Article 91(2)–(8) CRD IV. The EBA and ESMA are currently consulting on guidelines on the assessment of the suitability of directors and senior management. See: draft Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders, at: https://www.eba.europa.eu/documents/10180/1639842/Consultation+Paper+on+Joint+ESMA+EBA+Guidelines+on+suitability+of+management+body+%28EBA-CP-2016-17%29.pdf. The ECB is also currently consulting on guidance for the fit and proper assessment. See: Draft guide to fit and proper assessments, at https://www.bankingsupervision.europa.eu/legalframework/publiccons/html/fap.en.html.

  344. 344.

    Article 91(2) CRD IV.

  345. 345.

    Article 91(3)–(6) CRD IV.

  346. 346.

    Article 91(7) CRD IV This provision alludes to the risks undertaken by the banking business: “The management body shall possess adequate collective knowledge, skills and experience to be able to understand the institution's activities, including the main risks”.

  347. 347.

    Article 91(8) CRD IV: “Each member of the management body shall act with honesty, integrity and independence of mind to effectively assess and challenge the decisions of the senior management where necessary and to effectively oversee and monitor management decision-making”.

  348. 348.

    EBA’s Guidelines on the assessment of the suitability of members of the management body and key function holders (EBA/GL/2012/06), 22 November 2012, at: http://www.eba.europa.eu/regulation-and-policy/internal-governance/guidelines-on-the-assessment-of-the-suitability-of-members-of-the-management-body-and-key-function-holders. A consultation is on-going on new draft guidelines on fit and proper assessment of directors; see the Joint ESMA and EBA Consultation Paper EBA/CP/2016/17, 28 October 2016, at: http://www.eba.europa.eu/documents/10180/1639842/Consultation+Paper+on+Joint+ESMA+EBA+Guidelines+on+suitability+of+management+body+%28EBA-CP-2016-17%29.pdf.

  349. 349.

    Who will have to indicate their compliance with it or explain non-compliance.

  350. 350.

    Therefore, references are to Directive 2006/48/EC, replaced by the CRD IV.

  351. 351.

    Article 3 EBA Guidelines EBA/GL/2012/06: “(…) The role of holding companies differs from the role of credit institutions, therefore the process and the criteria for the assessment of the suitability should be applied in a proportionate way, taking into account the nature, scale and complexity of the financial holding company and the particular relationship of the member of the management body or key function holder with the credit institution. (…)” (Underlining added).

  352. 352.

    Article 122 CRD IV. This provision addresses mixed-activity holding companies but we read it as evidence of the scope of supervision also of other holding companies that may be more directly supervised.

  353. 353.

    Article 123 CRD IV. This provision addresses mixed-activity holding companies but we read it as evidence of the scope of supervision also of other holding companies that may be more directly supervised.

  354. 354.

    Article 126 CRD IV.

  355. 355.

    Article 73 CRD IV.

  356. 356.

    Article 108 (3) CRD IV.

  357. 357.

    Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council, OJ L 35/1, 11 February 2003, as amended, lastly by CRD IV; consolidated version (Document 02002L0087-20130717) available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02002L0087-20130717.

  358. 358.

    Quote from: http://ec.europa.eu/finance/financial-conglomerates/supervision/index_en.htm.

  359. 359.

    Recital 2 of the preamble of Directive 2002/87, as amended (text already contained in original legal act).

  360. 360.

    Article 2 (14).

  361. 361.

    Point 15 of Article 2 of FICOD.

  362. 362.

    Point 14 of Article 2 of FICOD defines a financial conglomerate as a group with a regulated entity at the head or where at least one regulated entity is among the subsidiaries in the group and where

    (i) if there is a regulated entity at the head of the group, this entity is a parent of, or holds a participation in, or has close links with, a financial sector entity//if the entity at the head of the group is unregulated, the group’s activities mainly occur in the financial sector, meaning that more than 40% of the group’s balance sheet total is in the financial sector, whether in a regulated or unregulated business;

    (ii) at least one of the group entities is in the insurance sector and one is a bank or investment firm;

    (iii) the consolidated activities of the insurance and banking or investment sector business are both significant, meaning that more than 10% of balance sheet total and of the solvency requirements of the financial sector entities in the group are within that particular segment (insurance versus banking/investment) of the financial sector, or the balance sheet total of the smallest financial sector in the group exceeds €6 billion. Detailed elements of this complex definition are disregarded here.

  363. 363.

    Recital 3 of the preamble to FICOD.

  364. 364.

    Article 2(14) of FICOD, in conjunction with Article 3.

  365. 365.

    Supervisory rules should “require regulated entities in a financial conglomerate to ensure that own funds are available at the level of the financial conglomerate which are always at least equal to the capital adequacy requirements as calculated in accordance with Annex I”, Article 6(2) of FICOD. There may not be a negative difference between the own funds of the financial conglomerate calculated on a consolidated group basis and the own funds required at regulated entity level, i.e. the total capital of the financial conglomerate should at least be equal to that of the regulated entities together.

  366. 366.

    Annex II to FICOD. Multiple use of capital (“multiple gearing”), and inappropriate intra-group creation of own funds is to be avoided.

  367. 367.

    Article 7 of FICOD, and Annex II thereto. There should be regular (at least annual) reporting to the coordinator among the supervisors of significant risk concentration at group level; quantitative limits on group-level risk concentration may be set.

  368. 368.

    Article 8 of FICOD, as amended. These should, beyond a certain size, be notified regularly (at least annually) to the supervisor; quantitative or qualitative limits on intra-group transactions may be set.

  369. 369.

    See Commission Delegated Regulation (EU) No 342/2014 of 21 January 2014 supplementing [FICOD] and [CRR] with regard to regulatory technical standards for the application of the calculation methods of capital adequacy requirements for financial conglomerates, OJ L 100/1, 3 April 2014.

  370. 370.

    Commission Delegated Regulation (EU) 2015/2303 of 28 July 2015 supplementing [FICOD] with regard to regulatory technical standards specifying the definitions and coordinating the supplementary supervision of risk concentration and intra-group transactions, OJ L 326/36, 11 December 2015.

  371. 371.

    Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council, OJ L 173/190, 12 June 2014.

  372. 372.

    Key Attributes of Effective Resolution Regimes for Financial Institutions, at: http://www.financialstabilityboard.org/wp-content/uploads/r_141015.pdf.

  373. 373.

    Article 1(1) BRRD which expressly includes financial holding companies and parents in its scope.

  374. 374.

    See, notably, Article 2(1) sub (6), (7), (9), (15), (31), (33), (42)–(46) (48) (49), (83)–(85) BRRD.

  375. 375.

    For a clear recognition of the power to apply the sale of business tool, the bridge institution tool or the asset separation tool to parents and group entities, see Article 34(4) BRRD, and Article 63 on the resolution powers that authorities need to have not only vis-à-vis authorised institutions but, also, in respect of group entities. See, also, the special title on Cross-border group resolution: Title V BRRD (Articles 87–92).

  376. 376.

    Article 37(3) BRRD.

  377. 377.

    Article 7 BRRD: parent undertakings are to draw up, and submit to the consolidating supervisor, group recovery plans.

  378. 378.

    On the basis of information submitted by the parent undertaking (Article 13 BRRD), group-level resolution authorities are to draw up group resolution plans (Article 12 BRRD).

  379. 379.

    Group financial support arrangements that meet the conditions for early intervention (Article 27 BRRD) may be established (Article 19 BRRD), reviewed by the supervisory authorities (Article 20 BRRD), approved by shareholders (Article 21 BRRD) and shared with the resolution authorities (Article 22 BRRD). Such arrangements need to comply with free markets imperatives, and with micro-prudential and financial stability concerns (Article 23 BRRD). Supervisors may oppose (Article 25 BRRD) the decision to actually grant group financial support (Article 24 BRRD). The existence of group financial support arrangements is to be disclosed (Article 26 BRRD), applying the disclosure regime of the CRR (Articles 431–434 CRR).

  380. 380.

    Set out in Article 37 BRRD.

  381. 381.

    Article 45(8) BRRD.

  382. 382.

    Whereas the effective date of the SSM was 4 November 2014, Union-wide resolution of significant banks has become operational as of 1 January 2016.

  383. 383.

    Activating the enabling clause that had been available since the transition to monetary union: Article 127(6) TFEU.

  384. 384.

    Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ L 287/63, 29 October 2013, hereafter: SSM Regulation. The detailed arrangements are laid down in an ECB legal act: Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17), OJ L 141/1, 14 May 2014.

  385. 385.

    Article 6(1) SSM Regulation.

  386. 386.

    Article 6(5) SSM Regulation.

  387. 387.

    Articles 9–18 SSM Regulation.

  388. 388.

    In respect of all banks in the Euro Area, the ECB has become the “competent authority” for purposes of authorisation and withdrawal of authorisation and for the assessment of shareholders as fit and proper: Articles 14–15 SSM Regulation.

  389. 389.

    Articles 10–13 SSM Regulation.

  390. 390.

    Article 18 SSM Regulation.

  391. 391.

    “Significant supervised entities” in the language used in the SSM Framework Regulation.

  392. 392.

    See Article 6(4) SSM Regulation for the exact scope of supervisory powers.

  393. 393.

    Articles 8–10 and 18 of the SSM Framework Regulation specify this take-over of the role by the ECB.

  394. 394.

    EU legislation adopted after the establishment of “banking union” refers to the ECB as the competent authority. See, e.g. Articles 2 sub (21) and 4(10) BRRD.

  395. 395.

    In Article 16(1). Admittedly, paragraph 2 of this article, which mentions powers the ECB can exercise “in particular”, refers to “institutions”, a term which the SSM Regulation does not define but which the CRR, in Article 4(1)(3), defines as a credit institution or an investment firm. Because of the clear language of the first paragraph addressing [M]FHCs, we do not read this as limiting the powers the ECB can exercise as addressed to authorised subsidiaries only.

  396. 396.

    The Euro Area comprises nineteen out of the currently 28 EU Member States: Germany, France, Italy, Spain, the Netherlands, Belgium, Luxembourg, Portugal, Greece, Ireland, Finland, Austria, Slovenia, Slovakia, Estonia, Latvia, Lithuania, Cyprus and Malta.

  397. 397.

    Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, OJ L 225/1, 30 July 2014.

  398. 398.

    Recital 30 states: “The Board should act independently. It should have the capacity to deal with large groups and to act swiftly and impartially.…” (Underlining added).

  399. 399.

    As recital 42 of the preamble to SRM Regulation states: “The [SRB], the Council where relevant, and the Commission should replace the national resolution authorities designated under [the BRRD] in respect of all aspects relating to the resolution decision-making process”.

  400. 400.

    Pursuant to Article 4(1)(g) of the SSM Regulation.

  401. 401.

    in Article 5(1): “the [SRB] shall, for the application of [the SRM Regulation and the BRRD], be considered to be the relevant national resolution authority or, in the event of cross-border group resolution, the relevant group-level resolution authority”.

  402. 402.

    Article 7(2)(a) and (b) SRM Regulation.

  403. 403.

    Article 8(9)(c), in conjunction with Article 8(10) and (11) SRM Regulation.

  404. 404.

    Article 12 SRM Regulation. The level of MREL has been established EU-wide by Commission Delegated Regulation (EU) 2016/1450 of 23 May 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the criteria relating to the methodology for setting the minimum requirement for own funds and eligible liabilities, OJ L 237/1, 3 September 2016.

  405. 405.

    Article 12(6) SRM Regulation.

  406. 406.

    Article 12(8) SRM Regulation.

  407. 407.

    Either by the SRB (Article 8 SRM Regulation) or by NRAs (Article 9).

  408. 408.

    Article 8 SRM Regulation.

  409. 409.

    Article 8(8) SRM Regulation.

  410. 410.

    Article 8(9)(a) SRM Regulation.

  411. 411.

    Article 9(11)(b) SRM Regulation.

  412. 412.

    Article 9(11)(b) and 10 SRM Regulation.

  413. 413.

    Article 10(11)(a), (b), (d), (e) and (f) SRM Regulation. Such measures include requiring an entity “to revise any intragroup financing agreements or review the absence thereof”, limitations to “maximum individual and aggregate exposures”, divesting of specific assets, limitation of cessation of specific existing or proposed activities, restricting or preventing the development of new or existing business lines, or the sale of new or existing products.

  414. 414.

    Article 10(11)(g) SRM Regulation. See the earlier discussion of the transparent group structure requirement.

  415. 415.

    In French: Union Monétaire Ouest Africaine (UMOA). This group of francophone West African States which already share a single currency the CFA franc, linked to the euro (655,957 FCFA = 1 euro) comprises Benin, Burkina, Côte d’Ivoire, Guinea-Bissau, Senegal, Mali, Niger and Togo.

  416. 416.

    Communiqué de presse de la réunion ordinaire du Conseil des Ministres de l’Union Economique et Monétaire Ouest Africaine (UEMOA) tenue à Lomé, les 24 et 25 juin 2016, at: http://www.bceao.int/Communique-de-presse-de-la-reunion-ordinaire-du-Conseil-des-Ministres-de-l.html.

  417. 417.

    See: http://www.bceao.int/-BCEAO-.html.

  418. 418.

    Avis No. 004-08-2016 relatif aux dispositif prudentiel applicable aux établissements de crédit et aux compagnies financières de l’Union Monétaire Ouest Africaine (UMOA).

  419. 419.

    Dispositif Prudentiel applicable aux Etablissements de Credit et aux Compagnies Financieres de l'union Monétaire Ouest Africaine; hereafter: UMOA prudential framework.

  420. 420.

    The UMOA prudential framework specifies in Table 22 that an 8% minimal solvency ratio and a 0.625% capital conservation buffer are to be increased from 2018 to 2022 to 9 and 2.5% respectively.

  421. 421.

    Of at least 3%, variable by the supervisory authority for credit institutions according to their risk specificities: Paragraph 469 of the UMOA prudential framework.

  422. 422.

    The Commission Bancaire is the supervisory authority in the West African Monetary Union. It was established by a Convention signed among the UMOA States in Ouagadougou on 24 April 1990, replaced by a Convention signed in Lomé on 20 January 2007. See: www.bceao.int.

  423. 423.

    Loi uniforme portant réglementation bancaire, at: http://www.bceao.int/IMG/pdf/loi.pdf.

  424. 424.

    Paragraph 1(d) of the UMOA prudential framework.

  425. 425.

    At least 40% of the balance total of a group should be from the financial sector for it to qualify as a banking group: paragraph 1(a) and (k) of the UMOA prudential framework.

  426. 426.

    Paragraph 2 of the UMOA prudential framework. Paragraph 9 specifies the perimeter of consolidated supervision.

  427. 427.

    Paragraph 3 of the UMOA prudential framework. During this time, dividends, share buy-backs or discretionary bonuses are prohibited.

  428. 428.

    Paragraphs 14–58 of the UMOA prudential framework. See Paragraph 60.

  429. 429.

    Paragraphs 62–85 of the UMOA prudential framework. See Paragraph 61.

  430. 430.

    Paragraph 512 of the UMOA prudential framework.

  431. 431.

    Comprising Angola, Botswana, Democratic Republic of the Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Note that Tanzania is a member of both SADC and the EAC. The fact that Tanzania is present in both regional organisations makes it ideally placed to propose that the BHC regulations in both of these regions should be identical, or at least in harmony.

  432. 432.

    See: http://www.sadc.int/.

  433. 433.

    Consolidated Treaty of the South African Development Community, at: http://www.sadc.int/files/5314/4559/5701/Consolidated_Text_of_the_SADC_Treaty_-_scanned_21_October_2015.pdf.

  434. 434.

    Protocol on Finance and Investment, Maseru (Lesotho), 18 August 2006, at: http://www.sadc.int/files/4213/5332/6872/Protocol_on_Finance__Investment2006.pdf.

  435. 435.

    Article 2(1) of Annex 8 to the SADC Protocol on Finance and Investment: Cooperation and Co-Ordination in the Area of Banking Regulatory and Supervisory Matters.

  436. 436.

    Article 4(1)(d) Annex 8 to the SADC Protocol on Finance and Investment: Cooperation and Co-Ordination in the Area of Banking Regulatory and Supervisory Matters.

  437. 437.

    See: https://www.sadcbankers.org/Pages/default.aspx.

  438. 438.

    See the Protocol on the Establishment of the East African Monetary Union, 30 November 2013, at: http://www.eac.int/sites/default/files/docs/protocol_eac_monetary-union.pdf.

  439. 439.

    As stated in the section on the EAC in the Report for the International Law Association (ILA)’s 77th biennial conference in Johannesburg, August 2016, submitted by the ILA’s Committee on International Monetary Law (MOCOMILA), written by Professor Agasha Mugasha, whose research we consulted when writing these lines.

  440. 440.

    See: http://www.eac.int/. The EAC’s motto is: One People, One Destiny.

  441. 441.

    Article 14(4) of the Protocol on the Establishment of the East African Monetary Union lists the subsectors of the financial sector in respect of which regulatory harmonisation is to be effected.

  442. 442.

    See: http://www.eac.int/sectors/financial/banking.

  443. 443.

    EAC, EU and IMF conference on “Regional Integration in the EAC: Making the Most of the Common Market on the Road to a Monetary Union”, Arusha, Tanzania, 31 October–1 November 2016, see: http://www.eac.int/news-and-media/press-releases/20161101/arusha-conference-calls-further-integration-and-reforms-eac-road-monetary-union.

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Taylor, J.L., Smits, R. Bank holding company regulation in Kenya, Nigeria and South Africa: a comparative inventory and a call for Pan-African regulation. J Bank Regul 19, 175–210 (2018). https://doi.org/10.1057/s41261-017-0048-x

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Keywords

  • Africa
  • Kenya, Nigeria, South Africa
  • Bank holding companies
  • Comparative regulation and supervision
  • Pan-African regulation
  • EU and US BHC regulation