Articles

Bank Finance and Regulation Guide

Published on the Lex Mundi website

I. Banks and financial institutions supervision

1) Applicable laws and regulations. Provide a list of the main laws and regulations that refer to the supervision and control of banks and financial institutions. Give a brief summary of the substance of each of them.

The framework of the Romanian financial sector is represented by a series of enactments regulating the supervision and control of credit institutions (banks, including mortgage banks and savings banks for housing and credit cooperative organisations), electronic money institutions, non-banking financial institutions, payment institutions, insurance companies and other companies in the financial sector.

The banking activity is mainly subject to the provisions of Government Emergency Ordinance no. 99/2006 regarding credit institutions and capital adequacy as further amended, (the “Banking Law”) and Law no. 312/2004 regarding the Statute of the National Bank of Romania. The bankruptcy of credit institutions is regulated under Government Ordinance no. 10/2004, as amended. The legislative system in the banking sector is completed by a series of laws issued by the Parliament, and ordinances and decisions issued by the Romanian Government, as well as by the special regulations issued by the National Bank of Romania (“NBR”). The legislation is continuing the process of implementing the EU’s legislation, the banking system legislation being in this regard harmonized at a high level with the relevant acquis communautaire.

The electronic money issuance is regulated by Law no. 127/2011 regarding the electronic money issuance (“Electronic Money Law”), transposing the Electronic Money Directive 2009/110/EC (“Electronic Money Directive”) in Romania, completed by the provisions of NBR Regulation no. 8/2011 regarding the electronic money institutions.

The operation of non-banking financial institutions (“IFN”) acting in the field of granting credits (such as leasing companies and non-banking credit institutions) is mainly regulated by Law no. 93/2009 regarding non-banking financial institutions (“IFN Law”), which sets forth the main characteristics of IFN’s (legal form, scope of business, share capital requirements, NBR supervision). Certain aspects on IFNs are further detailed/ clarified/ implemented by NBR norms.

Payment services are mainly regulated by the Romanian Government Emergency Ordinance no. 113/2009 regarding payment services (“Payment Services Law”), which transposed the Payment Services Directive 2007/64/EC (“PSD”) in Romania, completed by the provisions of the NBR Regulation no. 21/2009 regarding the payment institutions.

The insurance activity is mainly subject to the provisions of Law no. 136/1995 on insurance and reinsurance in Romania, as amended and supplemented (the “Insurance and Reinsurance Law”), the Romanian Civil Code, Law no. 32/2000 on insurance activity and insurers’ supervision, as amended and supplemented (the “Insurance Regulatory Act”) and Law no. 503/2004 regarding the financial reorganisation and bankruptcy of insurance companies. The Insurance Supervisory Commission, which is the supervisory authority in the field of insurance, issues secondary legislation (i.e., norms, decisions and circulars) for the application of the abovementioned laws and for transposing into national legislation the EU provisions regarding insurance and reinsurance activities.

The main piece of legislation regulating the functioning of markets in financial instruments and related matters as well as collective investment undertakings is Law no. 297/2004 on capital markets, as amended and supplemented (the “Capital Markets Law”).

For the implementation of the provisions of Capital Markets Law and for ensuring transposition of key financial services directives into Romanian law (e.g., MiFID, Prospectus Directive), the National Securities Commission, which is the supervisory authority in this field, has enacted significant secondary legislation, among which:

• Regulation No. 1/2006 on issuers and operations with securities, as amended and supplemented, implementing e.g., MiFID Directive, Prospectus Directive, Market abuse Directive, Takeover bids Directive;
• Regulation No. 32/2006 regarding financial investment services, as amended, implementing e.g., MiFID Directive, Directive implementing Market abuse Directive, Distance marketing of consumer financial services Directive;
• Regulation No. 15/2004 regarding the authorisation and functioning of investment management firms, collective investment undertaking and depositories, as amended and supplemented, implementing UCITS Directive.

Other important legislative acts are Law no. 31/2006 regarding securitisation of receivables (the “Securitisation Law”) and Law no. 32/2006 regarding mortgage bonds (the “Mortgage Bonds Law”).

2) Entities/Authorities in charge of the control and supervision. Purposes, powers and functions of each of them-their organization and structure (i.e. public or private, independency or body of the Government to which they belong, size, etc.)

National Bank of Romania (“NBR”)

The public institution that has control and supervision attributions in respect of credit institutions, electronic money institutions, non-banking financial institutions and payment institutions is the National Bank of Romania. The current Statute of the NBR is harmonised with the provisions of the Treaty establishing the European Community, the Protocol regarding the Statute of the European System of Central Banks and of the European Central Bank, as well as with the rest of the Community regulations regarding the activity of the central banks of the member states of the European Union. NBR cooperates with the European Banking Authority, with the European Commission and with the competent authorities form the other member states.

According to the law, NBR must participate to the activities of the European Banking Authority and must comply with the guidelines, recommendations, standards and other measures agreed at the level of the European Banking Authority or otherwise to motivate its decision of non-compliance.

NBR, in its capacity of central bank, aims at ensuring and maintaining the stability of the prices on the Romanian market. For this purpose, NBR is responsible for the monetary policy, foreign exchange control, credit and payments policies, as well as for the licensing/registration of credit institutions, non-banking financial institutions and payment institutions and for their prudential supervision, on an individual and, where the case, consolidated basis. In all these fields, NBR completes a regulatory function, providing norms and principles that have to be observed by all credit institutions, non-banking financial institutions and payment institutions performing their activity on the Romanian territory.

NBR also benefits of a supervisory and control function, being able to apply sanctions and enforce remedy measures in case of non-compliance with the regulations in the banking field, the regulations concerning non-banking financial institutions and payment institutions, as well as to control the accounts of the credit institutions, non-banking financial institutions and payment institutions and any documents it deems necessary for the fulfilment of its supervisory responsibilities.

Thus, credit institutions that are under the supervision of NBR must file reports, inter alia, on credit exposure, securities portfolio, liquidity, classification of the portfolio, FX position and minimum reserves with NBR on an on-going basis, the content, form, structure, timing and manner of filing being determined by NBR.

Except for the individual supervision, NBR performs the supervision of credit institutions on a consolidated basis. The supervision on a consolidated basis applies to a Romanian credit institution in the following cases:

a) the respective credit institution is a Romanian parent credit institution or an EU parent credit institution;

b) the respective credit institution has a parent financial holding company in Romania or in another EU member state, the latter of which has no credit institutions as subsidiaries in any other Member State;

c) a credit institution authorised by the NBR the parent of which is a parent financial holding company in Romania or in another EU member state that was established in Romania and that is a parent for at least another credit institution authorised in another member state;

d) there are credit institutions authorized in two or more member states that have as parent companies several financial holding companies with the head offices in different member states and there is a subsidiary credit institution in each of these states, and of these subsidiaries, the credit institution, Romanian legal person, has the highest balance sheet total;

e) a credit institution authorised by the NBR, the parent of which is a financial holding company that is also a parent company for at least another credit institution authorised in any other member state, and none of these credit institutions has been authorised in the member state in which the financial holding company was set up, and the credit institution authorised in Romania has the highest balance sheet total; this credit institution shall be considered, for the purposes of supervision on a consolidated basis, as the credit institution controlled by an EU parent financial holding company.

Electronic money institutions, payment institutions and IFNs are also required to file reports / notifications to NBR or to obtain NBR’s prior approval, as the case may be, in relation to a number of significant matters regarding their activity (i.e. changes regarding the object of activity and head office, replacement of persons in charge with the management of the entity, changes related to significant shareholders etc.).

Insurance Supervisory Commission (“ISC”)

The insurance activity in Romania is controlled and supervised by the Insurance Supervisory Commission (in Romanian “Comisia de Supraveghere a Asigurarilor”).

The ISC is organised and functions as an autonomous public authority according to the provisions of the Insurance Regulatory Act, having a duty to present an annual report to the Parliament on the activity carried out and the financial statements. The authority has control and supervisory attributions for the insurance market in view of protecting the rights of the insured persons and promoting the stability of the insurance market in Romania. It is ISC’s duty to establish a legal and institutional framework for the insurance market and to supervise compliance of the entities providing insurance and/or reinsurance services with the insurance legislation.

The main competencies of ISC include: (i) preparing and/or approving legal provisions concerning the insurance market or which have an impact on the insurance market; (ii) authorizing insurance and/or reinsurance undertakings and brokers to conduct insurance and/or reinsurance business and insurance and/or reinsurance intermediation; (iii) supervising the activity insurance and reinsurance undertakings and insurance brokers; (iv) conducting regular inspections at the premises of the insurance/reinsurance undertakings and intermediaries and investigating their activity; (v) approving certain operations between insurance and/or reinsurance companies and brokers such as, for example, spin-offs, mergers, transfers of portfolios; (vi) acting as manager of the Guarantee Fund; (vii) receiving and solving all the notices and complains concerning the business conducted by insurers/reinsurers and intermediaries.

ISC is also entitled to enforce sanctions established by the relevant insurance legislation. Furthermore, ISC has a duty to ensure the application of the measures established by law with respect to the reorganisation and bankruptcy of insurance and reinsurance companies, as well as of the branches and subsidiaries thereof.

National Securities Commission (“NSC”)

The Romanian capital market is supervised and controlled by the National Securities Commission.

According to the Government Emergency Ordinance No. 25/2002 approving the National Securities Commission Statute (the “NSC Statute”), as further amended and supplemented, the National Securities Commission is organised and functions as an autonomous public authority.

NSC has control and supervisory attributions in the capital markets field, collaborating with the National Bank of Romania, the Insurance Supervisory Commission, the Competition Council and other public authorities and institutions.

NSC is competent: (i) to issue the secondary legislation; (ii) to supervise the institutions, market operators and transactions; (iii) to grant different authorisations to issuers of securities, to investment firms, management companies, traders, investment advisors, rating agencies, undertakings for collective investments, management companies; (iv) to authorise, control and verify any person or entity subject to its supervision based on received reports and on spot investigations with respect to registries, cash and financial instruments accounts and any other documents it considers necessary; (v) to impose sanctions in case of breach of capital markets legislation; (vi) to issue official interpretations.

3) Describe briefly the activities under supervision and give a list of the different types of licenses available.

The Banking Law draws a distinction between credit institutions and financial institutions.
Credit institutions.

In Romania, credit institutions may be set up as banks, mortgage banks, savings banks for housing and credit cooperative organisations. By means of special laws other credit institutions may be regulated.

According to the Banking Law, Romanian credit institutions require a license from NBR and may be authorized for carrying out of one or more of the following financial activities:

• acceptance of deposits and other repayable funds;
• lending (including, inter alia, consumer credit, mortgage credit, financing of commercial transactions, factoring);
• financial leasing;
• payment services;
• issuance and administration of other means of payment, such as checks, bills of exchange and promissory notes;
• guarantees and commitments;
• trading for own account or for account of clients with:
  • money market instruments;
  • foreign currency;
  • futures and options contracts;
  • exchange and interest rate instruments;
  • securities and other financial instruments;
• participation to the issuance of securities and other financial instruments by underwriting and selling them or by selling them and providing ancillary services;
• providing consultancy with regard to the capital structure, business strategy or other related aspects, consultancy with respect to mergers and acquisitions as well as other advice services;
• portfolio management and advice;
• custodial and financial management services;
• intermediation on the inter-bank market;
• credit reference services;
• safe custody services;
• electronic money issuance etc.

Credit institutions authorized in an EEA member state may provide services in Romania, either directly through cross-border services or by creating a local branch, under the freedom to provide services principle.

Electronic money institutions

The electronic money issuance may be performed by the electronic money issuers, including credit institutions, electronic money institutions, post offices which are entitled under the Romanian law to issue electronic money, the European Central Bank and national central banks when not acting in their capacity as monetary authority or other public authorities, and EU member states or their regional or local authorities when acting in their capacity as public authorities.

According to the Electronic Money Law, the electronic money institutions can perform the following activities:

• electronic money issuance;
• provision of payment services;
• provision of operational services and related ancillary services in respect of the issuing of electronic money or to the provision of payment services;
• operation of payment systems;
• business activities other than issuance of electronic money or provision of payment services, with the observance of the relevant legal framework;
• granting of credit related to certain payment services and other credits subject to the observance of the IFN law.

If the electronic money institution performs business activities other than issuance of electronic money or provision of payment services, NBR may request it to create separate entities for the issuance of electronic money or provision of payment services.

Romanian electronic money institutions must be authorized by NBR. Authorisation would require the submission of various information (including a business plan) to NBR and the relevant company would need to satisfy NBR that it has an adequate governance framework of the electronic money issuance, fit and proper management and shareholders. The electronic money institutions must have an initial capital of not less than Euro 350,000.

Electronic money institutions are registered in the Electronic Money Institutions Registry kept by NBR.

Credit institutions having in their object of activity the issuance of electronic money do not need a separate authorization to provide electronic money issuance. However, the requirements of the Electronic Money Law must be generally complied with.

An electronic money institution authorized in another EEA member state can use the EEA passport system by making a notification in its home member state in accordance with the procedures in that member state.

Non-banking financial institutions (IFNs)

IFNs are required to be notified to and registered with the IFNs registers kept by NBR. All IFNs must be registered with the General IFNs Registry, and if they comply with certain legal requirements, they are also registered with the Special IFNs Registry, both held by NBR. Note should be made that no cross-border or passporting facilities are applicable for non-banking financial institutions.

According to the IFN Law, the business of IFNs is restricted to the following credit activities:

• granting loans, including but not limited to: consumer loans, mortgage loans, real estate loans, micro credits, financing commercial transactions, factoring operations, discounting, forfeiting;
• financial leasing;
• issuing of guarantees and assumptions of undertakings, including loan undertakings;
• granting loans with receiving goods for bailment;
• granting loans towards the members of an entity without patrimonial purpose, organized on the basis of the free consent of employees or pensioners, in order to sustain its members through financial loans;
• payment services and granting loans related to the payment services activity;
• other financing forms having a similar nature.

IFNs are also qualified to carry out consultancy services connected to the activities regulated by the IFN Law and may also perform other auxiliary activities necessary for their activity (including exchange operations).

IFN Law prohibits IFNs to include in their object of activity other activities than those provided specifically for such entities. IFNs may not perform activities relating to attracting deposits or other reimbursable funds from the public and may not issue bonds except by public offer to qualified investors, as defined by the capital market regulations.

Payment institutions

Payment services may be provided by payment services providers, which include credit institutions, entities issuing electronic money and payment institutions.

Payment services providers can perform the following activities:

• Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
• Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
• Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider: execution of direct debits, including one-off direct debits, execution of payment transactions through a payment card or a similar device, execution of credit transfers, including standing orders;
• Execution of payment transactions where the funds are covered by a credit line for a payment service user: execution of direct debits, including one-off direct debits, execution of payment transactions through a payment card or a similar device, execution of credit transfers, including standing orders;
• Issuing and/or acquiring of payment instruments;
• Money remittance;
• Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

Romanian payment institutions must be authorized by NBR. Authorisation would require the submission of various information (including a business plan) to NBR and the relevant company would need to satisfy NBR that it has robust governance arrangements, effective risk management procedures, fit and proper senior management and shareholders and adequate procedures for safeguarding clients’ funds.

Provided that an entity is licensed as a deposit-taking bank, as an e-money issuer or as an IFN, a separate authorization to provide payment services seems not to be required. However, the conduct of business requirements of the Payments Services Law must be generally complied with.

A payment institution authorized in another EEA member state can use the EEA passport system under the PSD by making a notification in its home member state in accordance with the procedures in that member state.

Insurance/Reinsurance companies

The insurance activity is divided into two main categories: life insurance and general insurance. Also, distinct classes of insurance are established within each of the above mentioned categories. Reinsurance activity is divided into life reinsurance, general reinsurance and composite reinsurance activities.

Insurance companies may be authorized for carrying on only one of the two main categories of insurance activities (life insurance or general insurance), with the following exceptions:

• insurance companies authorized before 31 December 2005 to carry out both general and life insurance activities may continue to provide both;
• insurance companies authorised to offer life insurance may be granted authorisation to offer also accident and health insurance services;
• insurance companies authorised to offer general insurance for accident and health insurance may be granted authorisation to also offer life insurance services.

Romanian insurance companies and reinsurance companies are subject to authorization by ISC. Romanian intermediaries on the insurance/reinsurance market are subject to either authorization by ISC (in case of brokers) or registration with ISC (in case of insurance agents).

Insurance and/or reinsurance companies authorized in an EU/EEA member state can provide insurance/reinsurance services in Romania either on a cross-border basis, without having a local presence in Romania, based on the freedom to provide services or by opening agencies or branches in Romania based upon the freedom of establishment, by passporting the licence granted by their home member state authority. The “passporting procedure” is based on a notification process between the home member state authority and ISC, carried out at the request of the relevant insurance/reinsurance company, regarding the activities and classes of insurance that it intends to perform in Romania.

Capital Markets

Capital markets activities, are subject to the provisions of Capital Markets Law, Law no. 31/1990 regarding companies (the “Company Law”), the Securitisation Law, the Mortgage Bonds Law and secondary legislation issued by the NSC.

The regulated capital market activities include:

1. The activities carried out by intermediaries (i.e. financial investments services companies) which are subject to NSC authorization requirements. The core financial investment services include:

• reception and transmission of orders in relation to financial instruments;
• execution of orders on behalf of clients;
• dealing on own account;
• portfolio management;
• investment advice;
• underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; placing of financial instruments without a firm commitment basis;
• operation of Multilateral Trading Facilities.

2. The investment advice activity carried out by investment consultants (natural or legal persons) authorized by NSC;

3. The activity carried out by rating agencies, which are subject to authorization by NSC according to the provisions of Regulation (EC) No. 1060/2009 on credit rating agencies;

4. The activities carried out by traders, who trade on their own name and account with derivatives such as options and futures, which are subject to NSC authorization;

5. The activity carried out by asset management companies, companies who manage undertakings for collective investment and which are subject to NSC authorization;

6. The activity carried out by undertakings for collective investment in transferable securities (UCITS – “OPCVM” in Romanian), which are subject to NSC authorization (after NSC has authorized its asset management company, the prospectus and related documents)

7. Operation of markets in financial instruments, carried out by the market operation, which is subject to NSC authorization.

8. Clearing and settlement activities by a central depository, which is subject to NSC authorization.

Also, carrying our certain activities in relation to financial instruments may trigger various licensing requirements (e.g., as a rule, public offering of securities is subject to the approval of a prospectus by NSC; admission to trading on a regulated market of the shares of a company is subject to the approval of a prospectus by NSC).

4) Describe briefly non-regulated financial and banking activities.

Following the most recent additions to the financial legal framework applicable in Romania, all financial and banking activities are currently subject to a certain degree of regulation, as described under the answers to questions 3 and 5.

Carrying out other types of financial related activities than those listed in the Capital Markets section of the answer to question 3 above may be subject to various degrees of regulation and supervision from NSC. By way of example, other types of collective investment undertakings such as closed end funds, although not subject to authorization requirements may be subject to registration requirements to the NSC and to various types of regulatory constraints.

5) Describe briefly non-permitted financial and banking activities and/or government monopolies.

There are currently no government monopolies as regards the financial and banking activities referred to herein. However, as detailed under the questions above, certain competencies (such as the control and supervision and the regulatory activities) are the exclusive attributions of certain relevant public institutions.

The activity of credit institutions is generally limited to the financial services listed above, and only exceptionally may the credit institutions perform additional activities (i.e. operations relating to acquisition and/or lease of immovable properties, subject to specific restrictions). Moreover, credit institutions are expressly prevented from conducting the following types of activities: (i) creating security on its own shares, for securing credit institution’s own debt; (ii) extending loans secured by security interests on shares, other equities or bonds issued by the credit institution itself or by another entity, member of the same group; (iii) acceptance of deposits or other non-refundable funds, titles or other values, from the public, when the credit institution is insolvent. In addition to the above, the activity of raising fund from the public, conducted by mortgage banks, is restricted to raising funds by way of issuance of mortgage bonds.

The activity of electronic money institutions may consist in electronic money issuance; provision of payment services; provision of operational services and related ancillary services in respect of the issuing of electronic money or to the provision of payment services; operation of payment systems; granting of credit related to certain payment services and other credits subject to the observance of the IFN law… Electronic money institutions may perform business activities other than issuance of electronic money or provision of payment services with the observance of the relevant legal framework. However, in such case, NBR may request it to create separate entities for the issuance of electronic money and/or provision of payment services.

As mentioned in the answer to question 3 above, IFN Law prohibits IFNs to include in their object of activity other activities than those provided specifically for such entities in the IFN law. IFNs may not perform activities relating to attracting deposits or other reimbursable funds from the public and may not issue bonds except by public offer to qualified investors, as defined by the capital market regulations.

The activity of payment institutions is limited to the payment services correspondingly documented.

The outsourcing of significant activities of credit institutions (banks) and e-money issuers and outsourcing of operational functions of payment institutions are subject to prior notification to the NBR.

Insurance companies are not permitted to carry out non-insurance activities according to the provisions of Insurance Regulatory Act.

The entities authorised to carry out financial activities on Romanian capital markets are subject to specific restrictions according to applicable regulations as to their scope of business in order to ensure a stable regulated market and the protection of investors and entities acting on such market. By way of example, investment consultants are not permitted to carry out other activities than personal recommendation provided to a client, portfolio selection and the provision of opinions on the acquisition or sale of financial instruments.

The outsourcing of significant or core activities of investment firms is subject to observance of certain conditions for the purpose of ensuring effective control by the investment firm and surveillance possibility of the NSC. Outsourcing of certain investment services (such as outsourcing of asset management services for retail clients in non-EU states if certain pre-condition are not met) may be subject to prior notification obligation to the NSC.