Contributed by Popescu & Asociatii.
I. LEGAL FRAMEWORK
1.1. Which main legislative and regulatory provisions govern the banking sector in your jurisdiction?
As a member state of the European Union, Romania’s regulatory framework is based on EU directives and regulations. The most important is 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 (Directive 2013/36/EU), whose provisions are to be read together with Regulation No. 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms (Regulation (EU) 575/2013).
The provisions of these enactments are implemented into Romanian banking legislation, including in the Government Emergency Ordinance no. 99/2006 on credit institutions and capital adequacy, this being the main element of Romanian banking activity regulation, as approved and amended by Law Number 227/2007. This act provides which conditions need to be fulfilled by credit institutions in order to be granted access to the banking activity in Romania, along with prudential supervision of the credit institutions, the financial investment services companies, payment systems, and of settlement for the operations performed with financial instruments.
In 2015, a new law has been adopted in order to transpose into national law the provisions of Directive 2014/59/EU – Law Number 312/2015 on the recovery and resolution of credit institutions and investment companies, as amended by Law Number 320/2021, setting certain rules and procedures in this matter.
The legislative system in the banking sector is completed by a series of laws issued by the Parliament, ordinances, and decisions issued by the Romanian Government, as well as by the special regulations issued by the National Bank of Romania (NBR), such as NBR Regulation no. 5/2013 on prudential requirements for credit institutions and NBR Regulation no. 12/2020 on the authorization of credit institutions. In addition, NBR’s activity is regulated by Law Number 312/2004 regarding the Statute of the National Bank of Romania (The Statute of NBR).
The regulatory framework is complemented by various regulations setting out more detailed rules for specific areas of banking regulations.
Payment services are mainly regulated by Law Number 209/2019 on payment services, completed by the provisions of NBR Regulations, such as NBR Regulation no. 4/2019 regarding the payment institutions. Another important normative act in this field is Law Number 129/2019 for the prevention and combating of money laundering and terrorist financing, whose provisions are to be analyzed together with NBR Regulation no. 2/2019 on the same matter.
The activity of non-banking financial institutions acting in the field granting credits is mainly regulated by Law Number 93/2009 regarding non-banking financial institutions, which sets the main characteristics of those institutions: legal form, the scope of the business, share capital requirements, and NBR supervision. Certain aspects are further detailed and clarified by NBR norms.
The electronic money issuing institutions sector is regulated by Law Number 210/2019 on electronic money activity, completed by the provisions of NBR Regulation no. 5/2019 regarding electronic money institutions.
1.2. Which bodies are responsible for enforcing the applicable laws and regulations? What are their main competencies?
The National Bank of Romania is the public institution that has control and supervision attributions over credit institutions, electronic money institutions, non-banking financial institutions, and payment institutions, being the main authority responsible for enforcing the applicable laws and regulations.
According to the Statute of the National Bank of Romania, the NBR is an independent public institution with legal status. In its capacity as a central bank, the NBR aims at ensuring and maintaining the stability of the prices on the Romanian market. For this purpose, the NBR has the following main statutory powers:
i. to issue and implement monetary and exchange rate policy;
ii. to authorize, regulate and supervise credit institutions from a prudential perspective, as well as to promote and monitor the good functioning of payment systems in order to ensure financial stability;
iii. to issue currency as a legal means of payment in Romania, being the sole Romanian institution authorized to issue banknotes and coins;
iv. to establish the currency regime and to oversee its observance;
v. to manage the international reserves of Romania.
NBR also has international duties, such as:
vi. to participate, on behalf of the state, in international negotiations on financial, monetary, foreign currency, loan, and payment issues;
vii. to propose regulations on the supervision and control of foreign currency transactions in Romania and the issue needed authorizations in order for international transfers and other specific operations to take place.
Apart from being the central bank of Romania, Law no. 312/2015 designates the National Bank of Romania as the resolution authority for the banking sector. Being given this role, the NBR retains wide regulatory powers in the banking sector, sustaining the State’s general economic policies and the maintenance of macroeconomic stability.
Moreover, according to Law Number 128/2018 on financial instruments markets, the NBR is the competent authority that supervises compliance with the provisions of this law and with other European regulations, by exercising regulatory, authorization, supervision, and control powers over credit institutions.
Thus, in every field where it holds responsibility, the NBR provides norms and principles that must be respected by all credit institutions, non-banking financial institutions, and payment institutions which are performing their activity on Romanian territory, being able to apply sanctions and enforce remedy measures in case of non-compliance.
1.3. What are the current priorities of regulators and how does the regulator engage with the banking sector?
The National Bank of Romania, as resolution authority, prepares plans for credit institutions and other entities covered by the specific provisions of Law no. 312/2915 in order to ensure the efficiency of potential resolution actions.
The National Bank of Romania has responsibilities regarding planning and carrying out resolution actions, being the main responsible for the process of restructuring a credit institution, using the tools and the resolution powers to ensure the continuity of the critical function of the said institution, to restore its viability, wholly or partially, and to liquidate the residual part of the credit institution under normal insolvency proceedings.
Given the current state of the banking and finance sector, the main priorities of the National Bank of Romania are:
- to ensure the continuity of critical functions;
- to maintain financial stability;
- to protect public funds;
- to protect depositors and investors covered by the relevant legislation;
- to protect client funds and client assets.
The banking industry has, due to the specifics of its activity, a key role in the functioning of economic and financial mechanisms, with an impact on macroeconomic developments, the business environment dynamics, and the improvement of economic welfare.
We must take into consideration that the banking system in Romania is composed of two main structures: on one side, the National Bank of Romania, and on the other, the commercial banks and financial institutions.
In order to accomplish its objectives, the NBR must engage actively with other institutions of the banking sector. At a general level, NBR does this by using its supervisory and control functions. For this purpose, the NBR performs supervision of credit institutions, non-banking financial institutions, and payment institutions on an individual and, where needed, consolidated basis. For the exercise of this function, NBR has the possibility to request from those institutions any information that is necessary.
At a more specific level, the NBR engages with the banking sector by performing different types of operations, depending on the institutions it interacts with:
i. Operations with credit institutions:
- granting loans for credit institutions with maturities no longer than 90 days;
- opening and operating current accounts for credit institutions, the State Treasury, settlement houses, and other resident or non-resident legal entities, as per NBR’s regulations;
- setting the official discount tax and refinancing rate;
- establishing credit conditions and the regime of the minimum compulsory reserves that credit institutions need to maintain with the NBR;
- offering clearing, depository, settlement, and payment services;
- regulating, monitoring, authorizing, and supervising payment systems;
- supervising credit institutions.
ii. Operations with the State Treasury
The National Bank of Romania’s operations on the State’s account is essential to keep operating the State treasury’s current account on behalf of the Ministry of Public Finance.
iii. Monetary Market operations:
Open market operations are the most important monetary policy instrument of the NBR. They are conducted at the central bank’s initiative and play a role in steering interest rates, managing liquidity conditions in the money market, and signaling the monetary policy stance.
There is a prohibition from acquiring from the primary market receivables of the state, central or local public authorities, national companies, and other majority state-owned companies. However, according to the regulations in force, the NBR may conduct the secondary market different operations, such as repo operations/ reversible operations, direct purchases/sales, or may conduct foreign exchange swaps or issue deposit certificates, or attract deposits from the credit institutions. These open market operations will be conducted under such terms it may deem necessary in order to fulfill the monetary policy objectives.
iv. Gold and foreign assets operations:
- establishing and maintaining the State’s international reserves;
- entering transactions with gold bars, coins, and other precious metals, as well as with foreign currencies;
- open and maintain accounts with central banks and monetary authorities, banking companies, and international financial institutions;
- open and maintain accounts and perform corresponding operations with foreign central banks and monetary authorities, credit institutions or international financial institutions, foreign governments, and their agencies.
2.1. What licenses are required to provide banking services in your jurisdiction? What activities do they cover?
Credit institutions, Romanian legal entities, and branches of third-country credit institutions may be set up and operate in Romania only according to an authorization, issued by the National Bank of Romania.
The authorization process of the credit institutions implies three stages:
- the approval of the credit institution’s establishment by the National Bank of Romania;
- the registration of the credit institution at the Trade Register, according to the provisions of Law no. 31/1990 on companies;
- the authorization of the credit institution’s functioning.
Credit institutions may perform, according to their authorization, the following activities:
- accepting deposits and other repayable funds;
- lending, including consumer credit, mortgage credit, factoring with or without recourse, financing of commercial transactions, including forfeiting;
- financial leasing;
- payment services;
- issuing and administering other means of payment such as traveler’s cheques and bankers’ drafts insofar as this activity is not covered by payment services;
- issuing guarantees and payment commitments;
- trading for own account or for the account of customers, according to the law;
- participation in securities issues and other financial instruments by underwriting and selling them or by selling them and providing ancillary services;
- advice on capital structure, business strategy, and other related issues, advice and other services relating to mergers and purchase of undertakings, as well as other advice services;
- portfolio management and advice;
- safekeeping and administration of financial instruments;
- intermediation on the inter-bank market;
- credit reference services related to the provision of data and other credit references;
- safe custody services;
- issuance of electronic money;
- operations with precious metals and gems;
- acquiring participation in the capital of other entities;
- any other activities or services in the financial field, abiding by the special laws regulating those activities if required.
2.2. What is the procedure for obtaining a banking license? How long does this typically take?
The National Bank of Romania shall decide regarding a credit institution’s application for authorization, either by granting approval for the credit institution’s establishment or by rejecting the application, within four months from the receipt of the application and of the documents provided by the National Bank of Romania.
The National Bank of Romania may request in writing, in four months, but not later than three months from the moment when the application for authorization was received, any additional information or documents, if those submitted are not sufficient or relevant in carrying out the assessment.
In order to remedy the deficiencies, within one month of the aforementioned request of the National Bank of Romania, the credit institution must submit the required information and/or requested documents. During this period, the four months term shall be suspended.
If the National Bank of Romania decides to grant approval for the establishment, in order to obtain the authorization to start the business and no later than two months after receiving the National Bank of Romania’s notification on its decision, the credit institution shall submit to the National Bank of Romania the documents certifying its legal establishment, according to the legal provisions applicable and to the conditions provided by the project.
The National Bank of Romania shall make a decision regarding the authorization to start the business of the credit institution within up to four months from the moment the documents that certify the legal establishment of the credit institution were received.
The National Bank of Romania shall notify the European Banking Authority about any authorization granted so that the name of the credit institution will be entered in the list of credit institutions drawn up and updated by the European Banking Authority, which is published on its website.
The authorization granted shall be valid for an indefinite period of time and cannot be transferred to another undertaking.
2.3. Can a foreign bank operate in your jurisdiction on the basis of its domestic license?
The credit institutions which are authorized and supervised by the competent authority of another Member State may carry on activities in Romania, either by the establishment of a branch or by directly providing their services, under the condition that such activities are covered by the authorization granted by the competent authority of the Member State and, at the same time, to ensure that the Romanian legislation which protects the public interest is observed.
Additionally, for the establishment of a branch by a credit institution from another Member State, it is not necessary to obtain authorization from the National Bank of Romania or an endowment capital for the branch.
A credit institution, authorized and supervised in another Member State, may establish a branch in Romania based on the notification sent to the National Bank of Romania by the competent authority of the Member State. Before the commencement of the activity, within two months from the moment the notification was received, the National Bank of Romania shall communicate to the credit institution concerned, if the case may be, the list of Romanian legal acts which concern the protection of the public interest, stipulating the particular conditions under which certain activities may be carried on.
Credit institutions that have their registered office in third countries may perform an activity in Romania only if all the following requirements are met:
- the activity is carried on by establishing a branch;
- the branch has been authorized by the National Bank of Romania;
- the competent authority from the country of origin does not oppose the establishment of a branch in Romania;
- the provisions of Government Emergency Ordinance no. 99/2006 and the regulations issued for its application are observed.
Activities that may be performed by the branch in Romania shall be included in the authorization granted by the National Bank of Romania and may not exceed the purpose of the activity for which the competent authority of the third country of origin has authorized the concerned credit institution.
The National Bank of Romania shall grant authorization to the branch of a credit institution from a third country only if it is satisfied that the credit institution is able to ensure the safe performance of the activity within Romania’s territory and by preserving the requirements of prudent and sound management, as well as by securing that there are adequate conditions for supervision to be exercised.
2.4. What are the restrictions on ownership, including foreign ownership of banks?
The National Bank of Romania evaluates the suitability of the proposed acquirer and its financial soundness in relation to its proposed acquisition, on the basis of the following cumulative criteria:
- the reputation of the potential acquirer, respectively its integrity and professional competence;
- the reputation and experience of any person exercising managerial and/or administrative responsibilities at the credit institution as a result of the proposed acquisition;
- running responsibilities of the credit institution, as a result of the proposed acquisition;
- the financial soundness of the potential acquirer, in particular with regard to the type of business conducted and envisaged within the credit institution where the acquisition is proposed;
- whether the credit institution will be able to comply with the prudential requirements based on Government Emergency Ordinance no. 99/2006, as well with all other legal provisions applicable, in particular, whether the group of which it will become a part of has a structure which makes possible to exercise effective supervision, to effectively exchange information among the competent authorities and to determine the responsibility allocation among the competent authorities;
- whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, there has been committed an offense or an attempt of offense on money laundering or terrorist financing or that the proposed acquisition could increase the risk thereof.
The National Bank of Romania shall work in full consultation with the other supervisory local competent authorities or from other Member States involved if the proposed acquirer is one of the following:
- a credit institution, assurance undertaking, insurance undertaking, reinsurance undertaking, investment firm, or management company authorized in another Member State or in another sector of the financial system;
- the parent undertaking of an entity referred to above which is authorized in another Member State or in another sector of the financial system;
- a natural or legal person controlling an entity referred to above which is authorized in another Member State or in another sector of the financial system.
If the potential acquirer is a regulated entity situated in a third country, the National Bank of Romania shall cooperate with the involved supervisory authority, if the following conditions are simultaneously fulfilled:
- the supervisory framework of the third country can be considered equivalent by the National Bank of Romania;
- in the third country there are no laws, regulations, or administrative measures in order to preclude the exchange of information;
- the competent authority of the third country expressed its availability for concluding a cooperation agreement with the National Bank of Romania in information exchange.
2.5. What are the requirements for a proposed acquisition and acquirer of a qualified holding in a bank? Would the same requirements apply in the case of an increase of a qualifying holding?
Any natural or legal person who has made a decision to acquire qualifying holdings in a credit institution, directly or indirectly, shall notify in writing the National Bank of Romania of this decision. The National Bank of Romania shall only grant authorization if, taking into account the need to ensure the sound and prudent management of the credit institution, it is satisfied by the suitability of the persons concerned.
Any natural or legal person who has made a decision to increase qualifying holdings to the extent the proportion of the voting rights or of the capital held would exceed 20%, 30%, or 50% or to the extent that the credit institution would become a subsidiary shall notify in writing the National Bank of Romania on this decision. In this situation, the natural or legal person shall communicate to the National Bank of Romania the documents for authorization.
The legal person or the entities without legal personality that own qualifying holdings shall communicate to the National Bank of Romania the following documents:
- the registration certificate issued by the Trade Registry Office;
- the company’s articles of association;
- the criminal record and the fiscal record;
- the list of entities managed or controlled by the person who owns qualifying holdings;
- the list of the persons who manage the activity;
- the shareholding;
- the description of the group, in case the person who owns qualifying holdings is part of a financial group, subject to supervision on a consolidated basis;
- the individual annual financial statements and the consolidated financial statements;
- the description of the legal and institutional framework applicable in a third state, in case the person who owns qualifying holdings is established in a third country;
- the identity of the person who manages the activity of an entity without legal personality, which owns qualifying holdings on his own behalf;
- the survey for the persons who own qualifying holdings.
The natural persons who own qualifying holdings shall communicate to the National Bank of Romania the following documents:
- the copy of their identity document;
- a curriculum vitae, which should include information related to graduate studies and professional experience;
- the criminal record and the fiscal record;
- the survey for the persons who own qualifying holdings;
- the list of companies that the applicant has identified after rigorous analysis as being managed or controlled by the person who owns qualifying holdings.
III. REGULATORY CAPITAL AND LIQUIDITY
- Banks can request a Lombard loan from the NBR, in order to obtain very short-term liquidity;
- Banks can only lend if they meet the eligibility criteria provided by law, being required to make a written request, which will be resolved by the NBR;
- The bank receives authorization from the NBR if it has separate funds or a level of initial capital at least equal to the minimum level established by regulations, which cannot be lower than the equivalent in RON of EUR 5 million;
- Banks must have their share capital paid in full and in cash, on subscription, contributions in kind not being allowed;
- Credit institutions must have a level of own funds that is permanently at least at the level of the own funds’ requirements provided in art. 92 of Regulation (EU) no. 575/2013;
- Credit institutions must have their own funds to cover, in addition to the minimum own funds’ requirements, the capital buffers imposed by the NBR, upon the recommendation of the inter-institutional coordination structure in the field of macroprudential supervision of the national financial system;
- The Basel III framework is implemented in the European Union by Regulation no. 575/2013 and by Directive 2013/36/EU;
- In Romania, EU regulations are transposed by Government Emergency Ordinance no. 99/2006.
3.1. How are banks typically funded in your jurisdiction?
Regulation no. 1/2000 on money market operations conducted by the National Bank of Romania and standing facilities granted by it to eligible participants provides that the National Bank of Romania shall grant standing facilities to banks, mortgage banks, central offices of credit cooperatives, savings, and loan banks in the housing sector, Romanian legal entities, and branches in Romania of credit institutions from Member States of the European Union (EU), respectively from third countries, with the exception of branches in Romania of credit institutions issuing electronic money, which fulfill the following eligibility criteria:
(i) are subject to the mandatory minimum reserves regime, according to the NBR regulations;
(ii) comply with the NBR regulations on solvency indicators, in the case of banks, mortgage banks, central offices of credit cooperatives, savings, and loan banks in the housing sector, and Romanian legal entities;
(iii) comply with the provisions of the banking prudential regulations in force issued by the banking supervisory authority of the home country, in case of branches in Romania of credit institutions from Member States and respectively from third countries, except for branches in Romania of credit institutions issuing electronic money. The home country banking supervisory authorities shall certify, at least annually, that the foreign credit institution to which the Romanian branches belong complies with the prudential banking regulations in force in that country.
In order to participate in the money market operations and credit facilities of the NBR involving transactions with government securities and/or certificates of deposit, they must also be a participant in the SaFIR depository and settlement system.
Thus, banks can resort to the credit facility, called Lombard credit, to obtain very short-term liquidity from the NBR. To this end, banks make a written request to the NBR - Market Operations Directorate, which will be resolved by the end of the banking day. The Lombard lending period is overnight.
The granting of the Lombard credit is conditioned by its collateralization with eligible assets. The guarantees must be established by the time the loan is granted, and their value must cover 100% of the loan and related interest.
3.2. What capital and own funds requirements apply to banks in your jurisdiction?
According to Government Emergency Ordinance no. 99/2006 on credit institutions and capital adequacy (Government Emergency Ordinance no. 99/2006), the NBR can grant authorization to a bank only if it has separate funds or a level of initial capital at least equal to the minimum level set by regulations, which cannot be less than the RON equivalent of EUR 5 million.
Banks must have their share capital paid up in full and in cash on subscription, including in case of an increase, and contributions in kind are not allowed. At incorporation, contributions to the share capital must be paid into an account opened with a credit institution. This account is blocked until the credit institution, a Romanian legal entity is registered with the Trade Registry.
The establishment of a branch by a credit institution from a Member State does not require authorization from the NBR or the provision of endowment capital at the branch level.
The credit institution from a third country shall provide the branch with endowment capital, in monetary form, in order to ensure the initial capital of the branch, at the level prescribed by the regulations of the NBR, which may not be less than the equivalent in RON of EUR 5 million.
Credit institutions must have a level of their own funds that are permanently at least at the level of the own funds’ requirements provided in art. 92 of Regulation (EU) no. 575/2013 of the European Parliament and of the Council of June 26, 2013, on prudential requirements for credit institutions and amending Regulation (EU) no. 648/2012 (Regulation (EU) no. 575/2013).
The own funds’ requirements provided in art. 92 of Regulation (EU) no. 575/2013 are the following: (i) a core Tier 1 own funds ratio of 4.5%; (ii) a Tier 1 own funds ratio of 6%; (iii) a total own funds ratio of 8%; (iv) a leverage ratio of 3%. An institution’s Tier 1 own funds shall consist of the sum of the institution’s core Tier 1 own funds and additional Tier 1 own funds.
An institution’s core Tier 1 own funds shall consist of the core Tier 1 own funds items after the application of the adjustments, the deductions, and the derogations and alternatives provided in the provisions of the Regulation.
Institutions’ core Tier 1 own funds shall consist of: (a) capital instruments, subject to the fulfillment of the conditions stipulated in the Regulation above; (b) issue premium accounts related to the instruments mentioned in the letter (a); (c) retained earnings; (d) other elements of the accumulated comprehensive income; (e) other reserves; (f) funds for general banking risks. The elements referred to in letters (c)-(f) are considered elements of core Tier 1 own funds only if they are available to the institution for unrestricted and immediate use in order to cover risks or losses as soon as they arise.
Credit institutions must have own funds that cover, in addition to the minimum own funds’ requirements mentioned in the provisions of the Regulation, the capital buffers imposed by the NBR, upon the recommendation of the inter-institutional coordination structure in the field of macroprudential supervision of the national financial system.
3.3. Has your jurisdiction implemented the Basel III framework? Are there any major deviations?
Basel III is implemented in the EU through the legislative package on capital requirements. The capital requirements package transposes the Basel III standards into EU legislation through Regulation no. 575/2013 and by 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, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (Directive 2013/36/EU).
The package mentioned above entered into force on January 1, 2014.
EU regulations are directly applicable in Romania and transposition through an internal normative act is not necessary. Regulation (EU) no. 575/2013 establishes a single set of harmonized prudential rules that banks across the EU must comply with. This single regulatory framework aims to ensure the uniform application of global standards (Basel III) in all EU Member States.
Government Emergency Ordinance no. 99/2006 transposed Directive no. 2006/48/CE of the European Parliament and of the Council of June 14, 2006, on access to the activity and the performance of the activity by credit institutions and Directive no. 2006/49/EC of the European Parliament and of the Council of June 14, 2006, on the capital adequacy of investment firms and credit institutions. The aforementioned directives were repealed by Directive 2013/36/EU.
Government Emergency Ordinance no. 99/2006 refers both to the regulations contained in Regulation no. 575/2013, as well as Directive 2013/36/EU.
IV. REPORTING, ORGANISATIONAL REQUIREMENTS, INTERNAL GOVERNANCE, AND RISK MANAGEMENT
4.1. What key reporting and disclosure requirements apply to banks in your jurisdiction?
According to national jurisdiction, the aspects regarding the reporting and disclosure requirements applying to the banks are instituted by Regulation of the National Bank of Romania no. 2/2020 on the security measures regarding the operational and security risks and the requirements of Regulation of National Bank of Romania no. 2/2020 on the security measures regarding the operational and security risks and the requirements of the of reporting related to payment services (Regulation No. 2/2020).
Thus, according to Regulation No. 2/2020, we identify the obligation of payment service providers to submit within four hours an initial report to the National Bank of Romania, after an operational and/or security incident has been classified as major.
Subsequently, the payment service providers must submit an interim report, when the activities usually carried out have returned to normal, while informing the National Bank of Romania on this situation.
Finally, payment service providers must submit a final report when the root cause analysis has been carried out, regardless of whether the mitigation measures have already been implemented or whether the final root cause has been identified. In this respect, according to the provisions of Regulation no. 2/2020, the final report will have to be submitted within a maximum of 20 working days from the date on which the payment service providers can demonstrate that the activity has returned to normal.
4.2. What are the organizational requirements for banks, including with respect to corporate governance?
In line with the provisions of Government Emergency Ordinance no. 99/2006 on credit institutions and capital adequacy (GEO no. 99/2006), each credit institution shall have at its disposal a rigorously designed formal framework for business administration, including a clear organizational structure with well-defined, transparent and consistent lines of responsibility, effective processes for identifying, managing, monitoring and reporting the risks to which it is or could be exposed.
At the same time, according to national legislation, we find in place adequate internal control mechanisms, including rigorous administrative and accounting procedures, as well as remuneration policies and practices that promote and are consistent with sound and effective risk management.
In this context, the board of directors or, as the case may be, the supervisory board shall be responsible for ensuring effective supervision of the activities of the directors or of the members of the management of the credit institution.
Considering the provisions of Regulation of the National Bank of Romania no. 5/2013 regarding prudential requirements for credit institutions (Regulation no. 5/2013), each of the members of the management board and the directors or, where appropriate, the members of the supervisory board and of the management of a credit institution shall at all times have a good reputation, honesty, integrity, and independent thinking skills and experience appropriate to the nature, extent, and complexity of the business of the credit institution and to the responsibilities entrusted to it and must carry on its business in accordance with the rules of prudent banking practice.
Moreover, the members of the management body must have the ability to allocate sufficient time for the performance of their duties.
4.3. What are the local rules for loans to the management body and their related parties?
According to Regulation of the Financial Supervisory Authority no. 3/2014 on aspects related to the application of the GEO no. 99/2006, financial investment services companies must properly document and put to the order of the Financial Supervisory Authority, upon request, the data on the loans granted to the management body and related parties, in accordance with the provisions of Law no. 31/1990 on companies.
In this sense, an “affiliated party” shall be interpreted as:
- the spouse, child, or parent of a member of the management body;
- a commercial entity in which a member of the management body or its member of the family, within the meaning of the foregoing: (i) has a qualifying holding of at least 10% of the capital or of the voting rights; (ii) or may exercise significant influence; (iii) or hold positions relating to the senior management or are members of the management body.
Furthermore, the exposures to the parties affiliated with the credit institution are established by the provisions of Order of the National Bank of Romania no. 2/2014 regarding some reports related to Regulation no. 5/2013.
Thus, we find the obligation to complete a form that contains a series of information regarding in particular (i) the type of affiliation, (ii) the type of risk, (iii) the value of the guarantees, (iv) the granting period, (v) the behavior of the credit.
4.4. What are the main legal provisions governing risk management in the banking sector in your jurisdiction?
On a general basis, according to the provisions of Law no. 209/2019 on payment services, payment service providers establish a framework of mitigation measures and adequate control mechanisms to manage operational and security risks related to the payment services they offer.
This framework of measures requires payment service providers to establish, update and apply effective incident management procedures, including for the identification and classification of major operational and security incidents.
In order to prevent and mitigate the operational and security risks associated with the payment services provided by payment institutions, the National Bank of Romania may cooperate and participate in the exchange of information with other competent authorities, the European Central Bank and the European Banking Authority and, where appropriate, with the European Union Agency for Network and Information Security.
At the same time, according to the provisions of Regulation no. 5/2013, when implementing the internal control framework, credit institutions must establish:
- adequate separation of duties, such as entrusting to different persons the activities likely to generate conflicts of interest within the chain of operations related to the processing of transactions or in the provision of services, or entrusting to different persons the responsibilities of supervision and reporting of activities likely to generate conflicts of interest;
- barriers in the circulation of information, such as, for example, through the physical separation of certain departments.
Moreover, the internal control functions must verify that the internal control policies, mechanisms, and procedures are correctly implemented in their areas of competence. The internal control functions must periodically submit to the management body, according to internal procedures, written reports on the identified major deficiencies. These reports must include, for any new major deficiency identified, the relevant risks involved, an impact assessment, recommendations, and remedial measures to be taken. The management body must, based on a formal monitoring procedure, act promptly and effectively on the findings of the internal control functions and request the taking of appropriate remedial measures.
4.5. What are the legal requirements applicable to banks in combating money laundering and terrorist financing area?
Credit institutions and financial institutions have the obligation to appoint a compliance officer at the management level, who coordinates the implementation of internal policies and procedures for the application of Law no. 129/2019 for the prevention and combating of money laundering and terrorist financing (Law no. 129/2019).
At the same time, the reporting entities have the obligation to submit to the National Office for Prevention and Combating Money Laundering a report for suspicious transactions if they know, suspect, or have reasonable grounds to suspect that some goods derive from the commission of crimes or are related to the financing of terrorism, or the information that the reporting entity holds could be used to impose the provisions of Law no. 129/2019.
In addition, reporting entities are required to identify and assess the risks of their work relating to exposure to money laundering and terrorist financing, considering risk factors, including those relating to customers, countries or geographical areas, products, services, transactions, or distribution channels.
Evaluations drawn up for this purpose shall be documented, and updated including on the basis of national and sectoral assessment and regulations or instructions issued by the authorities, and shall be made available to the authorities responsible for supervision and control and to self-regulatory bodies upon request.
Additionally, conforming to Regulation of the National Bank of Romania no. 2/2019 regarding the prevention and combating of money laundering and terrorist financing, in accordance with the provisions of Law no. 129/2019, the institutions ensure the continuous training of the persons with responsibilities in the application of the measures provided for in the customer due diligence rules, so as to ensure that they know the legal requirements, their responsibilities according to the internal customer due diligence rules, the risks to which the institution is exposed according to their own risk assessment, the consequences of not fulfilling their respective responsibilities and the implications for the institution and the respective persons, in the event of risks, and that they have sufficient information to allow them to recognize operations that may be related to money laundering or the financing of terrorism.
4.6. Are there any legal provisions regulating banking secrecy in your jurisdiction?
Regarding professional secrecy in the banking field, we find it in close relationship with the clientele, aspects that are regulated according to GEO no. 99/2006.
Thus, according to Article 111 of GEO no. 99/2006, the credit institution shall maintain confidentiality over all facts, data, and information related to the activity carried out, as well as any fact, date, or information, at its disposal, which concerns the person, property, activity, business, personal or business relations of the clients or information regarding the clients’ accounts, respectively: balances, turnovers, operations carried out regarding the services provided or the contracts concluded with customers.
However, the obligation of professional secrecy in banking matters may not be invoked against a competent authority in the exercise of its supervisory powers at individual or, where appropriate, consolidated or sub-consolidated level.
On the other hand, information on the nature of bank secrecy can be provided, to the extent that it is justified by the purpose for which it is requested or provided, in the following situations:
- at the request of the account holder or his heirs, including legal representatives and/or statutory, or with their express consent;
- in cases where the credit institution justifies a legitimate interest;
- at the written request of other authorities or institutions or ex officio, if by special law these authorities or institutions are entitled, for the purpose of fulfilling their specific attributions, to request and/or receive such information and the information that can be clearly identified provided by credit institutions for this purpose;
- at the written request of the account holder’s spouse, when he proves that he submitted a request to the court for the division of common assets, or at the request of the court;
- at the request of the court, for the purpose of resolving various cases brought before the court;
- at the request of the bailiff, for the purpose of enforcement, for the existence of the accounts of the pursued debtors;
- at the public notary’s request, within the notarial succession procedure.
5.1. What are the main trends in the banking sector in your jurisdiction?
We are going through an intense period, with various predictions for the future. The war on the country’s borders and the energy crisis have caused uncertainty and a high degree of concern over the future, both at the level of companies and at the individual level. Rising inflation and prices have led to the permanent revision and modification, more precisely the adaptation to the context, of the initial plans.
In these circumstances, it is quite difficult to anticipate trends, in the banking sector and not only, for the next period. However, our analyses make us hope for economic recovery and a year 2023 that will bring growth. Therefore, the beach is wide, there is room for investment and for optimizing flows, in line with the evolution of the market, and the economic factors are not pessimistic, at least at the beginning of the year.
Currently, the economic players in the market have to manage a series of challenges, but also opportunities, trying to find the most appropriate solutions for all the situations they face, to show flexibility, and to adapt, quickly and as well as possible, to all changes. We are constantly nearby our clients to provide them with the necessary advice and all the support from the legal point of view, trying each time to anticipate both opportunities and risks, so that the proposed solutions be the best, taking into account a number of factors: economic context, industry, market forecasts, purchasing power of consumers, etc.
From our point of view, can be considered as main trends in the banking sector are the following: analyzing the collected data, in accordance with all legal regulations and GDPR, and using all the available data for more efficient communication, classified on the target audiences. Then, the permanent investment in Data Security and customers’ experience as consumers are expecting safety and personalized offers. As the competition continues to be at a high level this implies a better and constant harmonization between technology and attracting and maintaining the best specialists within the teams. Talking about AI, probably significant budgets will continue to be allocated to the improvement of chatbots to integrate automation as efficiently as possible, but at the same time, human involvement must remain active.
Last, but not least we consider that also ESG and cybersecurity represent important subjects in the banking sector (and not only) because the dynamics of both cyber-risks and global warming continue to evolve and these are topics that occupy an essential place on the agenda of large companies.
5.2. What are the biggest challenges in the banking sector at the moment?
Although the market may know a number of challenges and there are rumors about the possibility of a new crisis, however, up to the present, we have not noticed a decrease in investor interest. Also, we can observe a maturation of the business environment, which determines a moderate growth of the economy, even with clear opportunities in some of the areas of interest.
On the agenda of large companies, but not only, remain the major concern for the environment, and this concern means medium and long-term investments in green energy projects, in sustainable investments involving various resources: financial, human, business, and collaboration opportunities, etc.
Other challenges can be: the permanent fight against cyberattacks within the banking industry, prevention and mitigation of frauds, a permanent digital transformation which means remaining in trend with all the changes and keeping up with the competition and customer expectations, being up to date with everything related to Privacy, Security, and Compliance, efficient omnichannel integration, digital Engaging of clients and potential clients and last, but not least, the challenge of always being agile to respond to new regulations and creating added value to differentiate yourself, as a brand, in a market where expectations are increasing from one year to the next.
5.3. What’s new in fintech?
The pandemic has accelerated the digitalization process in many sectors of activity, and in the financial sector, this means innovation, but also high-level security at the same time.
In order to ensure the necessary security, it is necessary to work with the best, to allocate appropriate budgets. At the same time, within the technology industry, we are talking about high competition which leads to more and more diverse tools created to improve the lives of consumers, to have everything at a click touch.
In fintech, some trends are no longer so new, but the fact that they are constantly improving makes them look new. Also, surely consumer behaviors are the ones that dictate the changes in all industries and implicitly the changes in the market, whether we are talking at the national level or at the regional/global level.
So, what is new or rather current, can be probably the following: buy now, pay later may become the method of payment of the year, depending on how things will evolve on an economical level; innovations regarding payment as there are a lot of ways to make the payments nowadays and for sure the new generations will be an important engine for faster implementation of all the innovative solutions within the companies that are not yet so digital; Environmental, Social, and Governance (ESG) initiatives will remain in the top strategic objectives of all companies; the fintech will probably continue to improve chatbot and AI integration in the banking sector and not only and for efficient integration of all the fintech tools and services it is necessary a perfect synchronization between internal business processes, mobile apps, and institutions’ websites.