## 1. Summary Compliance of the Basel Core Principles ## Source details **Canonical URL:** [1. Summary Compliance of the Basel Core Principles](https://www.imf.org/-/media/files/publications/ofca/english/cr04272.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr04272.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr04272.pdf.json) --- ### Overall assessment — summary compliance grades - Assessment basis: Core Principles Methodology; based on the BNA’s self assessment, review of relevant laws and regulations, interviews with BNA staff, and discussions with onshore and offshore banks (IMF mission assessment). - Principles grouped by assessment grade: - Compliant: 19 — 1.1; 1.2; 1.3; 1.4; 1.5; 2; 3; 4; 5; 6; 7; 9; 10; 15; 20; 22; 23; 24; 25. - Largely compliant: 9 — 1.6; 11; 12; 13; 14; 17; 18; 19; 21. - Materially noncompliant: 2 — 8; 16. - Noncompliant: 0. - Not applicable: 0. ### Key findings by theme - Objectives, autonomy, powers, and resources (CP 1) - Assessment: compliant. - Legal/operational points: - Article 11 of the BNA Statute 1985 and the Banking Supervision Ordinance 1994 designate the BNA as the supervisory authority. - Objectives include maintenance of the Antillean guilder, liquidity and solvency of credit institutions, protection of depositors, and maintaining the reputation of the Netherlands Antilles as an international financial center (Articles 10, 11, 18 of the Ordinance). - Administrative law precludes individual civil servants from being sued for damages for actions/omissions committed in good faith; actions/omissions by BNA staff are considered actions of the BNA and the BNA can be sued if actions are wrongful. - The BNA will study explicitly including legal protection for individual staff in the Banking Supervision Ordinance. - The Harmonization Law under preparation will remove remaining restrictions in the confidentiality regime against appropriate exchange of customer names. - Licensing and structure (CPs 2–5) - Assessment: compliant. - Facts: - The BNA received 11 applications for bank licenses from 1999 through 2001; 9 were granted and 2 applications were withdrawn. - Five of the nine licenses granted were to local banks for the establishment of new international subsidiaries within the Netherlands Antilles. - No applications have been denied in the past two years. - Law adequately defines “significant ownership” and “controlling interest” and requires supervisory approval for changes in ownership and control. - BNA has criteria for reviewing major acquisitions or investments by credit institutions. - Minimum initial equity capital for each credit institution: NA f. 5 million. - Prudential regulations and requirements (CPs 6–15) - Overall: generally adequate in scope. - Specific assessments: - CP 6: compliant. - CP 7: compliant. - CP 9: compliant. - CP 10: compliant. - CP 11: largely compliant. - CP 14: largely compliant. - CP 8 (loan evaluation and loan loss provisioning): materially noncompliant. - CP 15: fully compliant. - Deficiencies and needs: - Enhance effectiveness of off-site surveillance and on-site examinations, particularly for credit risk management. - Require more frequent reviews by credit institutions of performing and nonperforming loan portfolios and improved reporting of specific provisioning for loan losses. - Require credit institutions to assess and manage interest rate risk and provide supervisory oversight at the system level. - Oversight of internal control and internal audit: largely compliant. - BNA imposes fines for late submission of the COAs (Article 46 fine for late reporting; Article 50 fine up to NA f. 500.000—or imprisonment up to four years for violation of provisions). - Methods of ongoing supervision (CPs 16–20) - Specific assessments: - CP 16: materially noncompliant. - CP 17: largely compliant. - CP 18: largely compliant. - CP 19: largely compliant. - CP 20: compliant. - Findings and recommendations: - Weaknesses in off-site surveillance and on-site supervision; on-site examinations sometimes biannual and focused heavily on COA reconciliation. - Need for improved frequency of loan portfolio reviews, loan loss provisioning, and reporting of problem loans. - BNA should be more proactive in monitoring sector-wide trends and assessing the condition of the banking sector. - Develop an action plan to assess impacts of increased risk on earnings and capital given weak economic conditions. - Implement a program of credit-risk-targeted on-site examinations for more frequent loan portfolio reviews. - Include assessments of country risk and interest rate risk in ongoing supervision. - Complete market risk survey and decide extent of market risk monitoring and management. - Information requirements (CP 21) - Assessment: largely compliant. - Requirements and practice: - Banks required to submit annually audited financial statements, generally prepared in accordance with U.S. GAAP, Dutch GAAP, or IAS. - External auditors have a legal duty to report matters of material significance to the supervisor (Article 15, paragraph 3, sub b). - Formal powers of supervisors (CP 22) - Assessment: compliant. - Powers: - BNA has authority to take corrective measures regarding solvency, liquidity, or risk management, restrict operations, and revoke licenses (Articles 21–23; Article 9 grants right to withdraw license). - Article 22, paragraph 2 authorizes appointment of a silent trustee; Article 22, paragraph 1 permits legally binding instructions. - BNA would benefit from powers to impose fines or penalties on senior management and/or directors and to remove management without threatening license revocation. - Cross-border banking (CPs 23–25) - Assessments: - CP 23: compliant. - CP 24: largely compliant. - CP 25: largely compliant. - Facts and recommendations: - BNA has MoUs with Aruba, the Netherlands, and Venezuela covering approximately 55 percent of supervised banking institutions. - There is only one branch and one subsidiary of local banks, both in Aruba. - Recommend continuing to arrange appropriate MoUs with foreign supervisory authorities and advising home country supervisors of material remedial action taken regarding offshore credit institutions. ### Detailed mechanisms, tools, and operational notes - Legal and regulatory instruments issued under Article 21 of the Banking Supervision Ordinance 1994 include: - COA manual for financial institutions; COA manual for international credit institutions; Manual for credit unions; Manual for savings and loans funds. - Supervisory Regulations (SR) I–V covering extensions of credit to insiders, restrictions on transactions with affiliates, limitations to single borrower exposure, country risk policy, and provisions for credit institutions. - Policy memoranda on sale/transfer of shares, management of computer risks, periodic filing of a management report, and change of external auditor. - Crisis and resolution powers: - BNA can appoint a silent trustee over a problem bank (Article 22, paragraph 2). - BNA can request court emergency rules to transfer deposits, liquidate, or partly liquidate an institution; can petition for bankruptcy when a bank is in negative capital (Articles 28 and 37). - Credit institutions need prior BNA approval for restructuring financial/corporate structure (Article 23). - Supervised credit institutions must follow BNA guideline in case of voluntary liquidation. - Court of First Instance must give BNA opportunity to give opinion on third-party bankruptcy petitions; BNA may intervene if it disagrees. - Operational independence, resourcing, and staff development - BNA is independent with no hierarchical relationship to government or parliament regarding supervision. - Funding and staffing: - Supervisory activities partially funded through fees charged to the supervised sector — fees are monthly fixed fees varying based on the rating, capital adequacy, and size of the supervised credit institution. - Remaining funding from the BNA’s own budget funded through profit. - Sufficient resources to hire qualified personnel. - Annual budgeting for training and equipment of the banking supervision department. - Each professional staff member receives two weeks of external training annually, usually courses offered by U.S. regulators (the Fed, FDIC, FFIEC). - Sufficient resources for computers and adequate funds for travel to allow on-site examinations. ### Priority recommendations (mission’s notable recommendations) - Strengthen off-site surveillance and on-site examination effectiveness, with emphasis on credit-risk-targeted on-site examinations. - Require more frequent reviews by credit institutions of performing and nonperforming loan portfolios and improved reporting of specific provisioning for loan losses. - Require credit institutions to assess and manage interest rate risk and provide supervisory oversight of interest rate risk at the system level. - Develop an action plan to assess the impact of increased risks on earnings and capital given weak economic conditions. - Complete market risk survey and decide the extent of market risk monitoring and management. - Consider legal provisions to explicitly protect individual supervisory staff and cover costs of defense while discharging duties (to be studied for inclusion in the Banking Supervision Ordinance). - Continue to arrange appropriate MoUs with foreign supervisory authorities and advise home country supervisors of material remedial actions concerning their offshore institutions. - Provide BNA with powers to impose fines or penalties on senior management/directors and to remove management without threatening license revocation. *Source: IMF mission assessment in coordination with the Bank of the Netherlands Antilles (BNA).* ### 1. Summary Compliance of the Basel Core Principles..............................................................5 ### 1. Summary Compliance of the Basel Core Principles ### Overall assessment — summary compliance grades - The mission assessed compliance with the Basel Core Principles for Banking Supervision using the Core Principles Methodology and based the assessment on the BNA’s self assessment, a review of relevant laws and regulations, interviews with BNA staff, and discussions with onshore and offshore banks. - Principles grouped by assessment grade: - Compliant: 19 — 1.1; 1.2; 1.3; 1.4; 1.5; 2; 3; 4; 5; 6; 7; 9; 10; 15; 20; 22; 23; 24; 25. - Largely compliant: 9 — 1.6; 11; 12; 13; 14; 17; 18; 19; 21. - Materially noncompliant: 2 — 8; 16. - Noncompliant: 0. - Not applicable: 0. ### Key findings by theme - Objectives, autonomy, powers, and resources (CP 1) - Assessment: compliant. - Legal/operational points: - Article 11 of the BNA Statute 1985 and the Banking Supervision Ordinance 1994 designate the BNA as the supervisory authority. - Objectives include maintenance of the Antillean guilder, liquidity and solvency of credit institutions, protection of depositors, and maintaining the reputation of the Netherlands Antilles as an international financial center (Articles 10, 11, 18 of the Ordinance). - Administrative law precludes individual civil servants from being sued for damages for actions/omissions committed in good faith; actions/omissions by BNA staff are considered actions of the BNA and the BNA can be sued if actions are wrongful. - The BNA will study explicitly including legal protection for individual staff in the Banking Supervision Ordinance. - The Harmonization Law under preparation will remove remaining restrictions in the confidentiality regime against appropriate exchange of customer names. - Licensing and structure (CPs 2–5) - Assessment: compliant. - Facts: - The BNA received 11 applications for bank licenses from 1999 through 2001; 9 were granted and 2 applications were withdrawn. - Five of the nine licenses granted were to local banks for the establishment of new international subsidiaries within the Netherlands Antilles. - No applications have been denied in the past two years. - Law adequately defines “significant ownership” and “controlling interest” and requires supervisory approval for changes in ownership and control. - BNA has criteria for reviewing major acquisitions or investments by credit institutions. - Prudential regulations and requirements (CPs 6–15) - Overall: generally adequate in scope. - Specific assessments: - CP 6: compliant. - CP 7: compliant. - CP 9: compliant. - CP 10: compliant. - CP 11: largely compliant. - CP 14: largely compliant. - CP 8 (loan evaluation and loan loss provisioning): materially noncompliant. - CP 15: fully compliant (no significant deficiencies found; separate AML/CFT template referenced). - Deficiencies and needs: - BNA needs to enhance effectiveness of off-site surveillance and on-site examinations, particularly for credit risk management. - Oversight of loan evaluation and provisioning would benefit from requiring more frequent reviews by credit institutions of performing and nonperforming loan portfolios and improved reporting of specific provisioning for loan losses. - BNA does not require credit institutions to assess and manage interest rate risk and does not oversee system-wide interest rate risk; mission recommended requiring institutions to address interest rate risk and providing supervisory oversight. - Oversight of internal control and internal audit: largely compliant. - BNA imposes fines for late submission of the COAs. - Methods of ongoing supervision (CPs 16–20) - Specific assessments: - CP 16: materially noncompliant. - CP 17: largely compliant. - CP 18: largely compliant. - CP 19: largely compliant. - CP 20: compliant. - Findings and recommendations: - Weaknesses in off-site surveillance and on-site supervision. - Need for improved frequency of loan portfolio reviews, loan loss provisioning, and reporting of problem loans. - BNA should be more proactive in monitoring sector-wide trends and assessing the condition of the banking sector. - BNA should develop an action plan to assess increased risk in credit institutions’ operations and impacts on earnings and capital given weak economic conditions. - Implement a program of credit-risk-targeted on-site examinations for more frequent loan portfolio reviews. - Include assessments of country risk and interest rate risk in ongoing supervision. - Complete market risk survey and decide on extent of market risk monitoring and management. - Information requirements (CP 21) - Assessment: largely compliant. - Requirements and practice: - Banks required to submit annually audited financial statements, generally prepared in accordance with U.S. GAAP, Dutch GAAP, or IAS. - External auditors have a legal duty to report matters of material significance to the supervisor. - Formal powers of supervisors (CP 22) - Assessment: compliant. - Powers: - BNA has authority to take corrective measures regarding solvency, liquidity, or risk management, restrict operations, and revoke licenses. - BNA would benefit from powers to impose fines or penalties on senior management and/or directors and to remove management without threatening license revocation. - Cross-border banking (CPs 23–25) - Assessments: - CP 23: compliant. - CP 24: largely compliant. - CP 25: largely compliant. - Facts and recommendations: - BNA has MoUs with Aruba, the Netherlands, and Venezuela and regular communication with supervisors formally and informally. - There is only one branch and one subsidiary of local banks, both in Aruba. - Mission recommended that BNA continue arranging appropriate MoUs with foreign supervisory authorities whose credit institutions maintain operations in the Netherlands Antilles. - BNA should advise all home country supervisors of any material remedial action it takes regarding the operations of their offshore credit institutions. - No formal arrangements with some other countries; recommended appropriate MoUs given the number of foreign bank operations. ### Detailed mechanisms, tools, and operational notes - Legal and regulatory instruments issued under Article 21 of the Banking Supervision Ordinance 1994 include: - COA manual for financial institutions. - COA manual for international credit institutions. - Manual for credit unions. - Manual for savings and loans funds. - Supervisory Regulation (SR) I: “Extension of credit to executive officers, supervisory directors, principal shareholders and their related interests and to employees of a credit institution.” - SR II: “Restrictions on transactions with affiliates and loans to affiliates.” - SR III: “Limitations of extensions of credit to any one borrower or group of connected borrowers.” - SR IV: “Country risk policy.” - SR V: “Regulation concerning general and specific provisions of credit institutions.” - Policy memoranda on sale/transfer of shares, management of computer risks, periodic filing of a management report, and change of external auditor. - Crisis and resolution powers: - BNA can appoint a silent trustee over a problem bank (Article 22, paragraph 2 Banking Supervision Ordinance 1994). - BNA can request court emergency rules to transfer deposits, liquidate, or partly liquidate an institution; can petition for bankruptcy when a bank is in negative capital (Articles 28 and 37). - Credit institutions need prior BNA approval for restructuring financial/corporate structure (Article 23). - Supervised credit institutions must follow BNA guideline in case of voluntary liquidation. - Court of First Instance must give BNA opportunity to give opinion on third-party bankruptcy petitions; BNA may intervene if it disagrees. - Operational independence, resourcing, and staff development - BNA is independent with no hierarchical relationship to government or parliament regarding supervision; government does not give operational direction. - No significant evidence of industry interference. - Funding and staffing: - Supervisory activities are partially funded through fees charged to the supervised sector — fees are monthly fixed fees varying based on the rating, capital adequacy, and size of the supervised credit institution. - Remaining funding from the BNA’s own budget funded through profit. - Sufficient resources to hire qualified personnel. - Annual budgeting for training and equipment of the banking supervision department. - Each professional staff member receives two weeks of external training annually, usually courses offered by U.S. regulators (the Fed, FDIC, FFIEC). - Sufficient resources for computers and adequate funds for travel to allow on-site examinations. ### Priority recommendations (mission’s notable recommendations) - Strengthen off-site surveillance and on-site examination effectiveness, with emphasis on credit-risk-targeted on-site examinations. - Require more frequent reviews by credit institutions of performing and nonperforming loan portfolios and improved reporting of specific provisioning for loan losses. - Require credit institutions to assess and manage interest rate risk and provide supervisory oversight of interest rate risk at the system level. - Develop an action plan to assess the impact of increased risks on earnings and capital given weak economic conditions. - Complete market risk survey and decide the extent of market risk monitoring and management. - Consider legal provisions to explicitly protect individual supervisory staff and cover costs of defense while discharging duties (to be studied for inclusion in the Banking Supervision Ordinance). - Continue to arrange appropriate MoUs with foreign supervisory authorities and advise home country supervisors of material remedial actions concerning their offshore institutions. - Provide BNA with powers to impose fines or penalties on senior management/directors and to remove management without threatening license revocation. *Source: IMF mission assessment in coordination with the Bank of the Netherlands Antilles (BNA).* ### 1. The head of each agency is appointed for a minimum term and can be removed from ### 1. The head of each agency is appointed for a minimum term and can be removed from office during such term only for reasons specified in law ### Appointment and removal of the head of the supervisory authority - The head of the supervisory authority (the president of the BNA) is appointed, suspended, and removed in accordance with Article 18 of the BNA Statute of 1985 by the Governor of the Netherlands Antilles on recommendation of the Board of Supervisory Directors of the BNA. - The BNA Statute does not provide for a fixed term of office for the head of the supervisory agency. - Publication of reasons for removal: - It is not a prerequisite of the BNA Statute that the reasons for removal are published. - The public can obtain the decree in which the reasons are explained for the removal of the director in accordance with the Public Policy Disclosure Law. - Assessment: Compliant ### Principle 1(3) — Legal framework: authority, prudential rules, access to information - Authority to grant and withdraw banking licenses: - Pursuant to Article 2, paragraph 1, and Article 9, paragraph 1 of the Banking Supervision Ordinance 1994, the BNA has the authority to grant and withdraw banking licenses. - Ability to set prudential rules administratively: - The BNA can set and amend prudential rules without changing the laws. - With the exception of regulations on administrative organization, including financial administration and internal controls, the BNA seeks views of representative organizations before introducing new regulations, but may introduce regulations despite objections. - Power to require information: - Article 14 of the Banking Supervision Ordinance 1994 empowers the supervisor to obtain information in the form and frequency that it desires. - Assessment: Compliant ### Principle 1(4) — Powers to address compliance, safety and soundness - Powers to ensure safety and soundness: - The law empowers the supervisor to require prompt remedial actions and/or impose sanctions, including revocation of the banking license. - Fines and criminal penalties available under the Banking Supervision Ordinance 1994: - Article 46: fine for late reporting. - Article 50: fine up to NA f. 500.000—or imprisonment up to four years for violation of provisions of the executive regulations and rules. - Article 9 grants the BNA the right to withdraw the license of a credit institution for noncompliance. - Permitted use of qualitative judgment: - The law permits the supervisor to apply qualitative judgment in forming supervisory opinions. - Unfettered access for compliance reviews: - Article 16, paragraph 2, authorizes on-site inspections; credit institutions are obliged to provide all requested information. - Range of remedial actions and sanctions: - The supervisor can: - impose fines for late reporting; - give legally binding instructions (Article 22, paragraph 1); - appoint a silent trustee who must approve all acts of managing and supervisory directors; - request the court to apply emergency measures to a bank; - withdraw a bank’s license for noncompliance. - Assessment: Compliant ### Principle 1(5) — Legal protection for supervisors - Protection against lawsuits: - No explicit statutory provision granting civil or criminal protection to the supervisory agency or its staff. - General administrative and civil law precludes lawsuits against individual civil servants based on the good faith exercise of duties; the BNA would appear in court if a third party sues for loss caused by supervisor decisions. - Protection against defense costs: - No explicit statutory mention of protection against legal defense costs for agency or staff; it is understood implicitly that the BNA is responsible for actions of employees acting reasonably and would carry legal expenses. - Institutional action: - The BNA is studying the possibility of including explicit legal protection for individual staff members as part of the Banking Supervision Ordinance. - Assessment: Compliant ### Principle 1(6) — Information sharing and confidentiality - Domestic cooperation: - As the BNA is the sole supervisory authority for banking, insurance, and pension systems, there is no need for a formal domestic cooperation system. - Cross-border cooperation: - Article 41 of the Banking Supervision Ordinance 1994 authorizes the BNA to share information with other supervisory bodies under certain conditions. - The BNA may deny information if not satisfied with foreign legal secrecy obligations or proposed use. - The BNA may not directly exchange names of customers except in specific criminal cases. - Since enactment, the BNA has concluded MoUs with Aruba, the Netherlands, and Venezuela; the MoUs cover approximately 55 percent of the supervised banking institutions. - Confidentiality safeguards: - Section 41 requires foreign supervisors not to use requested information for other purposes without explicit BNA permission and prohibits submission of individual deposit-holder names except in specific criminal cases. - The requesting supervisory body must inform the BNA of the purpose of the request. - Ability to deny demands: - The supervisory body can deny any demand for confidential information other than a court order or legislative mandate (Article 41). - Assessment: Largely compliant - Comment: - Exchange of names is possible in criminal cases. If the client or the bank has no objection, authorities may exchange information; authorities often request voluntary disclosure by the bank depending on the reason for the request. ### Principle 2 — Permissible activities - Definition and registration: - The term “bank” is not defined in law or regulations, but “credit institutions” and “international credit institutions” are defined in the Supervision Law Article 1. - Article 11 of the Banking Supervision Ordinance requires the BNA to maintain a register of licensed institutions by category (local general banks, subsidiaries of foreign banks, branches of foreign banks, specialized credit institutions, savings banks, consolidated international banks, nonconsolidated international banks). - Permissible activities: - The scope of permitted activities is set forth in admission requirements for different categories; BNA reviews articles of incorporation and verifies activities during on-site visits. - Use of the word “bank”: - Article 44 prohibits use of the words “bank,” “credit,” or “savings” and translations/forms thereof in names or business context unless clearly not a credit institution; otherwise only licensed credit institutions may use these words. - Taking deposits: - Article 45, paragraph 1 forbids parties other than registered credit institutions from approaching the public to raise funds or grant credit. - Assessment: Compliant ### Principle 3 — Licensing criteria and process - Authority to set licensing criteria: - Article 2, sub 2, of the Banking Supervision Ordinance authorizes the BNA to set criteria, restrictions, and stipulations for licensing credit institutions. - Admission policy generally permits only institutions among the world’s top 1,000 in total assets to apply for a license. - Consistency with ongoing supervision: - Article 6 requires licensed credit institutions to continue observing provisions in Article 4, sub 1, including restrictions and stipulations in the license. - Right to reject inadequate applications: - Article 3, sub 2: applications lacking required data will not be considered; licenses refused if requirements not met. - Assessment of legal and managerial structures: - Article 4, sub 3 allows denial of license if applicant intends to evade supervisory rules elsewhere or group structure impedes adequate and effective supervision. - BNA requires information during licensing and ongoing operations (Articles 3, sub 2; 23) to determine that structures do not hinder supervision. - Article 23 requires prior BNA consent to amend articles of incorporation, acquire participation, acquire assets/liabilities of other entities, transfer shares, and appoint directors. - Suitability and ownership transparency: - Article 3, sub 2 d and f: direct and indirect shareholders must not be able to exert undesirable influence or reflect negatively on reputation. - Admission requirements: all shares must be registered; sale subject to BNA prior consent; annual updated shareholders register required. - Source of initial capital: - For natural-person shareholders: personal financial statements. - For legal-entity shareholders: audited financial statements of the parent institution. - Audited financial statements of the past three years of the prospective parent institution should reflect an unqualified opinion. - Minimum initial capital: - The BNA has stipulated the minimum initial equity capital for each credit institution: NA f. 5 million. - Branches of foreign banks must provide a head-office guarantee irrevocably guaranteeing the branch’s obligations and depositing required funds upon BNA request. - Fit-and-proper evaluation of directors and senior management: - The BNA evaluates skills, experience, and integrity through personal questionnaires, curriculum vitae, integrity checks via local and international agencies and foreign supervisors, and a policy memorandum on implementation of the fit and proper test. - Fit-and-proper criteria include skills and experience commensurate with intended activities and no record of criminal activities or adverse regulatory judgments. - Business plan and operational structure requirements: - Business plan required with license application; should contain strategic and operational information. - Corporate governance principles apply to all banking institutions: annual statement of compliance reviewed by external auditors must be submitted with audited financial statements; statement includes supervisory directors’ commentary on adherence to corporate governance principles. - Operational structure requirements include adequate operational policies and procedures, internal controls, and appropriate oversight reflecting scope and sophistication of proposed activities (Article 3, paragraph 2, sub g and h). - Assessment: (implicit within descriptions) compliance with licensing criteria and ongoing supervisory alignment noted throughout. *Source: IMF/FSA assessment excerpts and the Banking Supervision Ordinance 1994 and BNA Statute of 1985 as cited in the content unit.* ### 10. The licensing authority reviews proforma financial statements and projections for the ### 10. The licensing authority reviews proforma financial statements and projections for the ### Licensing assessment of financial strength and projections - Proforma financial statements and projections for the proposed bank are included in the business plan and must: - Include projections for capitalization and liquidity sufficient to cope with the nature and volume of the planned activities and obligations. - Provide information on additional sources of capital should capital fall below minimum thresholds. - The assessment includes the adequacy of financial strength to support the proposed strategic plan and financial information on the principal shareholders of the bank. - Personal financial statements of shareholders are required if they are natural persons; audited financial statements are required if the legal entity is a corporation. - Shareholder financial information must be provided to the BNA on an annual basis. ### Shareholder and director fitness, and license revocation - The supervisor assesses the ability of shareholders to supply additional financial support if needed; the business plan must include information on additional sources of capital in case equity capital falls below the level required by the BNA. - At least one director must have a sound knowledge of each type of financial activity the bank intends to pursue. - Pursuant to Article 4, paragraph 1, sub d, of the Banking Supervision Ordinance, the BNA will not extend a license if it deems the competence of persons determining day-to-day policy to be insufficient. - Members of the Board of managing directors and the Board of supervisory directors must possess sufficient expertise in banking and have a thorough knowledge of banking activities. - If the licensing or supervisory authority determines that the license was knowingly based on false information, the license can be revoked. - Pursuant to Article 9, sub 1a, the license can be revoked if data regarding the expertise and/or probity of current directors and/or shareholders was falsely presented and mistakenly considered adequate by the BNA at that time. ### Supervisor coordination and foreign bank entry - If the licensing authority and the supervisory authority are not the same, the supervisor has the legal right to have its views considered on each specific application. - The BNA is both the licensing and supervising authority. - For foreign banks establishing a branch or subsidiary, prior consent (or a statement of “no objection”) of the home country supervisor is obtained. - Pursuant to the admission requirements, such consent or statement of no objection is required. ### Monitoring new entrants - The licensing authority monitors progress of new entrants through: - Regular reporting of financial data and annual reports such as the management report to the BNA. - Management report cut-off date: June 30; due annually by August 15. - The management report includes a comparative analysis between the financial statements to the prior year actuals and current year’s budgets. - An on-site review and/or examination of new entrants is usually planned and conducted by the BNA within a year after the new entrant started to operate. - Assessment comment: The supervisor should consider specific, more intrusive monitoring of new licensees, as appropriate. ### Principle 4 — Ownership: definitions, approvals, and disclosures - Definition of “significant” ownership: - Article 1, paragraph 1, sub f, of the Banking Supervision Ordinance defines significant ownership as a direct or indirect interest of more than 5 percent of the subscribed share capital of a company or institution exercising the business of a credit institution in the Netherlands Antilles. - Requirements to obtain supervisory approval or notification for changes: - Article 23, paragraph 2, sub b, prohibits sale or transfer of any and all shares of a supervised credit institution without prior permission of the BNA. - Authority to reject changes in significant ownership: - Pursuant to Article 23, paragraph 2, sub b, the supervisor can reject proposals for change in significant ownership or controlling interest, or prevent the exercise of voting rights, if criteria comparable to those for approving new banks are not met. - Ownership limits: - In principle, natural persons are not allowed to individually hold more than 5 percent of the outstanding stock of a bank and no more than 25 percent in aggregate. - Supervisory disclosure and beneficial ownership: - Admission requirements stipulate that the supervisor always knows the names and holdings of all significant shareholders, including the identities of the ultimate beneficial owners. - The supervisor does not, in principle, allow bank shares to be held by custodians. - Beginning in 2001, all shareholding institutions must submit their shareholding structure to supervisors and banks are required to ensure that ownership is transparent; shareholding structures are also required to be formally audited by external auditors. ### Principle 5 — Investment criteria and approvals - Types of acquisitions/investments requiring Bank approval (per Article 23, sub b through d): - Maintain, acquire, or increase participation in another corporation or institution. - Take over, in whole or for a substantial part, the assets and liabilities of another corporation or institution. - Enter into a merger with another corporation or institution. - Definition of participation (Article 1, paragraph 1, sub f): - (i) a direct or indirect interest of more than 5 percent of the subscribed share capital; (ii) the power to exercise, directly or indirectly, more than 5 percent of the voting rights; or (iii) the power to exercise, directly or indirectly, a comparable control. - Criteria for judging proposals: - Individual proposals are judged using the same criteria in Section 4 of the Supervision Law and the admission requirements for the different categories of the Register of credit institutions. - One criterion (Article 4, paragraph 3 and 4) is that group structure must not hinder effective supervision and acquisitions/investments must not be to the detriment of creditors. - The BNA determines whether the credit institution is adequately capitalized and has the organizational resources to handle the acquisition or investment. - Notification exemptions and remedial authority: - Laws or regulations do not require notification where the acquisition or investment is less than 5 percent. - If the BNA considers the investment excessively risky, it can take remedial action under Article 21 of the Banking Supervision Ordinance 1994, including prohibition, restriction, stipulation of conditions, or divestiture. ### Principle 6 — Capital adequacy: definitions, minima, and enforcement - Consistency with Basel Capital Accord: - The definition of capital in the COA Manual, the components of capital and risk weights are consistent with the Basel Capital Accord. - Minimum capital ratios: - Minimum capital ratio of 8 percent is required for offshore institutions. - Minimum capital ratio of 10.5 percent is required for onshore institutions. - The higher onshore requirement reflects higher perceived risk, due in part to lack of economic diversification. - Actions when capital falls below minimum: - Section 21 of the Banking Supervision Ordinance empowers the BNA to issue solvency and liquidity directives on both a solo and consolidated basis. - If capital falls below minimum standards, the institution is immediately requested to provide additional capital within a specified time period to restore capital to at least the minimum level; non-compliance can lead to intervention by the BNA. - Internal capital assessment and supervisory verification: - During on-site reviews the BNA verifies risk management and internal processes for assessing overall capital adequacy; where inadequate, improvements and additional capital may be required. - Adjustment of minimum requirements: - Pursuant to Article 21, the BNA can adjust minimum requirements if circumstances dictate. - Solo vs consolidated calculation: - Capital is calculated only on a consolidated basis; the BNA has authority to request solo calculations but does not require them on a routine basis. - Minimum absolute capital amount: - Banks are required to maintain a statutory minimum capital of NA f. 5 million or its equivalent, at all times. - Assessment comment: - The BNA considers consolidated calculation sufficient since it views group entities as generally facing the same risks and having similar risk profiles; capital for each entity is considered readily available. ### Principle 7 — Credit policies, governance, and supervisory access - Requirement and verification of prudent credit/investment policies: - The BNA verifies adequacy of credit policies, practices, and procedures during regular on-site examinations, including appropriate limits and authorization levels. - Credit institutions must annually submit a Statement of Compliance in which the Board confirms adoption and implementation of policies and procedures covering major areas; deviations must be explained. Statements are reviewed by external auditors and then by the BNA. - BNA Guidance Notes on Corporate Governance (August 1996; updated and reissued October 2001) require Boards to adopt, review annually, and remain responsible for policies and procedures; Boards may delegate development to management but must review and approve. - Required components of credit risk frameworks: - Policies, practices, and procedures must include: - a sound and well-documented credit granting and investment process; - maintenance of an appropriate credit administration, measurement, and ongoing monitoring/reporting process (including asset grading/classification); - adequate controls over credit risk. - Reviews of portfolio measurement, monitoring, and control are subject to regular on-site examinations. - Arm’s-length decision-making and communication: - The supervisor verifies that credit decisions are made free of conflicting interests, on an arm’s-length basis, and free from inappropriate outside pressure. - Credit assessment and granting standards must be communicated to, at a minimum, all personnel involved in credit granting activities (Guidance Note on Corporate Governance, page 7). - Supervisory access to portfolio information and staff: - Article 12 of the Supervision Law entitles the BNA to request all information from a credit institution necessary for proper exercise of supervisory tasks, including access to lending officers. - Limits and escalation for major credits: - The credit policy must prescribe that major credits or investments, exceeding a certain amount or percentage of the bank’s capital, be decided at a high managerial level, including Board approval for large or especially risky credits or investments, or those not in the mainstream of the bank’s activities. - Management information systems (MIS): - Supervised institutions are required to have MIS that allow the Board and senior management to identify and measure all material risk exposures, including: - timely reports on financial condition, operating performance, and risk exposure of the consolidated institution; - regular and sufficiently detailed reports for line managers (examples: daily or weekly balance sheets and income statements, a watch list for potentially troubled assets, a report for past due receivables, a simple interest rate risk or market risk report). *Source: IMF assessment summarizing BNA practices and the Banking Supervision Ordinance.* ### 3. The supervisor verifies that bank management monitors the total indebtedness of ### 3. The supervisor verifies that bank management monitors the total indebtedness of entities to which they extend credit. ### Overview and assessment - Banks monitor the total indebtedness of their borrowers during the annual credit review of each borrower. - Assessment: Compliant ### Principle 8. Loan Evaluation and Loan-Loss Provisioning — description and findings - Requirement: Banking supervisors must be satisfied that banks establish and adhere to adequate policies, practices, and procedures for evaluating the quality of assets and the adequacy of loan-loss provisions and reserves. - Regulatory framework: - SR V sets guidelines for general and specific provisions for lending activities. - SR V was issued pursuant to Article 21, paragraph 2, sub c, of the Banking Supervision Ordinance 1994, giving the BNA legal basis to issue directives to credit institutions. - Regulation V.4.2 permits exemption for branches of foreign banks with guarantees for all liabilities. - Key practices required by SR V and COA: - Banks required to review adequacy of general and specific provisions at least once a year. - External auditors review a sample of the loan portfolio annually; this does not replace banks’ own reviews. - The COA requires a 2.5 percent general provision for off-balance sheet items at all times. - Real estate collateral must be reappraised at least every two years; other collateral generally reviewed annually. - Classification and provisioning standards: - Specific provision percentages: substandard 0–25 percent; doubtful 50 percent; loss 100 percent. - General reserve for loan losses: from 1.5 percent to 2 percent of net loans. - BNA may require a higher general provision for particular institutions under adverse conditions. - Reporting and supervisory review: - Banks must report quarterly on the development of the General Provision for Loan Losses and the Specific Provision for Loans and Leases. - Supporting schedule details required: name of the borrower; total outstanding balances; loan classification as required by Supporting Schedule V; amount of specific provision. - Off-site surveillance: asset quality reported quarterly; may be required monthly for specific problem loans. - On-site examinations review adequacy of policies, practices, and procedures; some institutions are examined every other year (noted as insufficient). - Gaps identified: - No formal system for classification and provisioning of off-balance sheet exposures; BNA is studying the issue. - Specific provisions for off-balance sheet items are not routinely applied despite the 2.5 percent general provision requirement. - Supporting schedule for Specific Provision for Losses lacks dynamic qualitative and quantitative analysis (e.g., change since prior report, reasons for changes, prospects for repayment). - On-site examinations can be too infrequent (possible every other year); for problem credits regular reviews should be at least quarterly. - Assessment summary for Principle 8: - Assessment: Materially noncompliant - Comments and recommendations from the assessors: - Increase hands-on supervisory review of adequacy of loan loss provisions with less reliance on banks and external auditors. - Conduct more frequent on-site examinations and asset quality reviews; for problem credits regular reviews should be at least quarterly. - Develop a formal system for classification and provisioning of off-balance sheet items, paralleling on-balance sheet rules. - Improve reporting of problem loans on the supporting schedule to include changes since prior report, reasons for changes, prospects for repayment, and actions taken. - Implement a rapid program of credit-risk-focused, relatively small scale on-site inspections and thorough discussions with banks on individual risky or deteriorating credits and off-balance sheet exposures. - Include off-balance sheet items explicitly in loan classification and provisioning rules. - Under prolonged economic downturns or signs of stress (increased loan restructuring, increasing government arrears, decreased return on assets), adopt a more proactive, intrusive supervisor-driven loan review process. ### Principle 9. Large Exposure Limits — description and findings - Objective: Supervisors must ensure banks have MIS to identify concentrations and supervisors must set prudential limits to restrict exposures to single borrowers or related groups. - Definitions and thresholds: - SR III defines a “closely related group” as a “group of connected clients” with the potential for cumulated exposure to represent a single risk. - Control (SR I and II): owns or can vote 20 percent or more of any class of voting securities; controls election of majority of directors; has power to exercise controlling influence. - Criteria for interconnection include common ownership, common directors, cross guarantees, and direct commercial interdependency. - Exposure definition and limits (SR III): - “Exposure” includes on- and off-balance sheet items and relevant commitments and contingent items. - Aggregate exposure limit for all large borrowers: 600 percent of equity. - Banks must report the top 25 of their large borrowers in monthly returns to the BNA. - Additional supervisory limits and definitions: - 10 percent or more of a bank’s capital is defined as a large exposure. - 25 percent of a bank’s capital is the limit for an individual large exposure to a private sector nonbank borrower or a closely related group of borrowers. - “Large exposure” also defined as 15 percent or more of equity (Tier I capital as defined in the COA). - Exposure to any one borrower or group limited to 25 percent of equity; in exceptional cases may exceed 25 percent up to an absolute ceiling of 35 percent with solid additional collateral. - Supervisory verification: - BNA requires, via Guidance Notes for the Board of Directors, that credit institutions identify and measure material risk exposures including concentration. - BNA verifies MIS and monitoring of limits through on-site examinations. - Assessment: Compliant ### Principle 10. Connected Lending — description and findings - Objective: Prevent abuses from connected lending by requiring arm’s-length terms, effective monitoring, and appropriate risk mitigation. - Definition: - SR I defines “connected or related parties” to include executive officers, supervisory directors, principal shareholders and their related interests, affiliated companies, Board members, senior management, key staff, close family members, corresponding persons in affiliated companies, and companies controlled by insiders and shareholders. *Source: cr04272* ### 2. Laws and regulations exist that exposures to connected or related parties may not be ### 2. Laws and regulations exist that exposures to connected or related parties may not be extended on more favorable terms ### Prohibition on more favorable terms - Section I.7 of SR I: "No credit institution may extend credit to any of its directors, principal shareholders or their related interests and the related interest of executive officers unless the extension of credit is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the credit institution with other persons that are not covered parties and who are not employed with the institution." - The extension of credit "should furthermore not involve more than the moral risk of repayment or present other unfavorable features for the institution." - Credit institutions may adopt preferential lending terms only for employees and executive officers within specified lending limits; such preferential rates must be approved by the Board of Directors. ### Board approval and limits on approval authority - The supervisor requires that transactions with connected or related parties exceeding specified amounts or otherwise posing special risks are subject to approval by the bank’s Board of Directors. - Aggregation and approval threshold: "in no event may a credit institution extend credit to any one of the covered parties, in an amount that, when aggregated with all other extensions of credit to the interested party and its related interests, exceed NA f. 100,000, except with the prior Board of Directors’ approval excluding the vote of the interested party." ### Quantitative limits on extensions of credit to covered parties - Extensions of credit to executive officers, directors, principal shareholders and their related interests are limited as follows: - 50 percent of executive director’s salaries. - Reasonable current account overdraft facility as determined by Supervisory Directors and in line with established internal policy. - No more than 2.5 percent of equity for principal shareholders. - An additional 2.5 percent of equity may be extended to these parties if fully secured by adequate collateral. - Credit institutions may extend credit, in reasonable amounts, to any executive officer to finance: - his children’s education; and - the purchase, construction, or improvement of a residence (the residence must be adequately appraised and owned by the executive officer). - Extension of credit to employees is maximized in total to 10 percent of equity, of which 5 percent may be unsecured. - The regulation does not apply to branches of foreign banks. ### Procedures to prevent conflicted participation in lending decisions - Section I.8 of SR I: participation in the discussion by an interested party or any attempt to influence voting by the Board of Directors regarding an extension of credit "constitutes indirect participation in the voting on an extension of credit." - Consequence: the credit institution would be considered in noncompliance and the credit extended would have to be repaid immediately. - The supervisor requires that banks have procedures to prevent persons benefiting from the loan being part of the preparation of the loan assessment or of the decision itself. ### Limits, capital treatment, and collateralization authority - Limits for loans to connected and related parties are set under Sections I.5 and I.6 of SR I. - The BNA has the power to deduct credits to connected and related parties from capital or to require collateralization. ### Records, information systems, and reporting requirements - Section I.9 of SR I requires each credit institution to maintain records that: - identify all executive officers, directors, principal shareholders, and their related interests; and - specify the amount and terms of each extension of credit by the credit institution to these covered parties. - Each executive officer, director, or principal shareholder must, at least annually, identify in a written statement their related interests with a loan from the credit institution. These records are readily available for the BNA’s inspection at any time. - Executive officer reporting obligation: any executive officer who has a loan with a credit institution and who becomes a debtor of any other credit institution in an aggregate amount in excess of NA f. 50.000, including credit card debt, shall, within 10 days of the date the indebtedness reaches such level, make a written report to the Board of Directors of the officer’s credit institution. The report must state: - the lender’s name, - the date and amount of each extension of credit, - any security for it, and - the purposes for which the proceeds have been or are to be used. - Section I.9 requires information systems to identify individual loans to connected and related parties, as well as the total amount of such loans, and to monitor them through an independent credit administration process. ### Supervisor aggregation, review, and filing frequency - The BNA obtains on a quarterly basis Part G of the COA for international credit institutions, SR I, and the Reporting Schedule. - Commercial banks must file Supporting Schedule 7 on a monthly basis. - These reports summarize advances made to shareholders, directors, employees, and their related interests and are reviewed off-site as well as on-site. ### Definition scope and aggregate exposure limits - SR I provides a comprehensive definition of "connected or related parties," defining "covered parties" as executive officers, supervisory directors, principal shareholders, family members, and their respective related interests. SR I further defines: Interested parties; Control; Director; Executive officer; Immediate family; Principal shareholder; Persons; Related interests; Subsidiary; Extension of credit; Employees; Credit institution. - Only an aggregate limit for exposures to employees is specified in SR I: 10 percent of equity. For other covered parties, the limits of SR III apply. _Information in this summary is drawn from SR I, SR III, SR IV provisions and BNA supervisory practice as described in the source document._ ### 2. The supervisor determines that the risk management processes address liquidity risk, ### 2. The supervisor determines that the risk management processes address liquidity risk, interest rate risk, and operational risk as well as all other risks ### Liquidity risk management - Required elements include: good management information systems, central liquidity control, analysis of net funding requirements under alternative scenarios, diversification of funding sources, stress testing, and contingency planning. Liquidity management should separately address domestic and foreign currencies. - The Bank of the Netherlands Antilles (BNA) practice: - During on-site examinations, BNA bank examiners calculate the liquidity position of the bank after making necessary adjustments. - All banks submit a liquidity schedule as part of the monthly reporting requirement to the BNA. - The liquidity schedule requires specific percentages of liquidity to be held against certain balance sheet categories, based on maturity; these liquidity requirements result in minimum levels of liquidity being held by credit institutions in line with their potential liquidity needs. - Stress testing under alternative scenarios is not mandatory. - Banks are required to submit monthly liquidity reports. Liquidity requirements are set against each liability category (including contingent liabilities), according to maturity, and the sum of each category’s liquidity requirements results in a total liquidity requirement for each institution. - The BNA sets liquidity Guidelines for Banks that include allowing only truly liquid assets to be treated as such, and takes into consideration undrawn commitments and other off-balance sheet liabilities, as well as existing on-balance sheet liabilities. Liquidity is calculated and reported monthly based on Supporting Schedule 2 “liquidity report.” ### Interest rate risk management - Required elements include: good management information systems and stress testing. - BNA practice and gaps: - Based on the nature of the banking industry in the Netherlands Antilles, the BNA is assessing whether it is necessary to require stress testing with regard to interest rate risk. - A number of banks perform their own GAP analyses, but the BNA has not reviewed banks’ interest rate risk management policies and procedures. - There are no explicit interest rate risk management guidelines and interest rate risk is not examined during off-site surveillance or on-site examination. - Banks are required to submit periodic maturity reports as well as interest rate repricing schedules for assets and liabilities in monthly, quarterly, and annual time buckets. ### Operational risk management - Required elements include: internal audit, procedures to counter fraud, sound business resumption plans, procedures covering major system modifications, and preparation for significant changes in the business environment. - BNA practice: - Operational risk guidelines are set forth in the 1996 Corporate Governance Note and operational risk management is reviewed during on-site examinations. - During on-site examinations, management and organization reviews test setup, implementation, and functioning of administrative and internal controls. Examiners review business plans, management information systems, relevant policies and procedures, interview management and the Supervisory Board if necessary, and review adherence to procedures via interviews with key personnel. - Information technology, human resource management, settlement risk, and liquidity information systems are reviewed for policies, procedures, and adequacy of internal controls. ### Foreign exchange risk and open positions - There are no set limits on open foreign currency positions. - Reporting requirements: - Banks must report their exposures in foreign currencies as well as maturities of assets and liabilities in foreign currencies. - For local banks, open positions must be calculated and reported in the monthly balance sheet; there is a 2.5 percent charge against capital for open positions. - There are no reporting requirements on open foreign currency positions for international banks. - The BNA has foreign exchange licensing procedures in place; local commercial banks report their foreign currency transactions to the BNA. ### Communication, responsibilities, and verification - Limits and procedures are communicated to appropriate personnel; primary responsibility for adhering to limits and procedures is placed with relevant business units. The banks under BNA supervision are relatively small, so all units have adequate knowledge of limits and procedures. - The BNA verifies adherence to risk management processes, capital requirements, liquidity guidelines, and qualitative standards through off-site surveillance, on-site examinations, and review of external auditors’ reports. ### Additional supervisory authorities and expectations - The BNA has the authority to require a bank to hold capital against risks in addition to credit and market risk based on the Banking Supervision Ordinance 1994, Article 21, paragraph 2, sub a. - It is not mandatory to publish bank performance information. - Where banks conduct business in multiple currencies, the BNA does not consider separate stress-testing of foreign currency liquidity necessary given the limited number of banks using multiple currencies. Funding and credit activities of international banks are primarily in U.S. dollars; some Venezuelan banks operate mainly in Venezuelan Bolivares. ### Assessment and recommendations - Assessment: Largely compliant. - Key comments and supervisory recommendations: - The BNA needs to be more proactive in oversight of interest rate risk. The BNA reports little interest rate risk in the local banking sector due to very stable interest rates and wide interest rate margins, but margins are narrowing due to the weakened economy. - The BNA already receives maturity reports and interest rate repricing schedules; several banks already perform gap analysis. The BNA needs to finalize its survey of market risk and should bring all information together to oversee and supervise the management of Interest Rate Risk (IRR) in the Antillean banking sector. - The BNA should require banks to assess and manage IRR, include assessments of IRR in off-site surveillance and on-site examinations, and ensure banks manage IRR to minimize risk to earnings and capital from interest rate movements and maturity mismatches. - Supervisory oversight is needed to ensure banks have appropriate risk management knowledge and tools in place. *Source: IMF assessment of the Bank of the Netherlands Antilles (BNA).* ### 2. The supervisor determines that banks have documented and enforced policies for ### 2. The supervisor determines that banks have documented and enforced policies for identification of customers and those acting on their behalf as part of their AML program ### Customer identification, recordkeeping, and retention - Banks are bound by the National Ordinance on Identification when Rendering Financial Services of 1996 to establish the identity of customers, including those acting on their behalf, before rendering any financial service. - The Ordinance stipulates in detail the ways identity should be established and the records that must be kept on customer identification and individual transactions. - Pursuant to Article 42 of the Banking Supervision Ordinance 1994, a bank is obliged to keep all letters, documents, data carriers relevant to its business, including transaction records relating to all accounts maintained by the institution in its own name or for third parties for a period of at least ten years. - On-site BNA examiners review whether banks have a written anti-money-laundering manual covering prevention and detection of money laundering (ML), customer identification, and record keeping, and whether procedures are duly exercised. - Examiners determine if bank personnel are sufficiently and regularly trained on ML detection and prevention. ### Recognition and detection of suspicious or unusual transactions - The National Ordinance Reporting of Unusual Transactions lays down a list of subjective and objective indicators for classifying and reporting unusual transactions. - BNA examiners review whether banks have formal procedures to recognize potentially suspicious transactions, including additional authorization for large cash (or similar) deposits or withdrawals and special procedures for unusual transactions. - BNA “guidelines on the detection and deterrence of Money-Laundering” instruct institutions to utilize the Source of Funds Declaration form for large deposited or transferred transactions. - Article 6 of the National Ordinance Reporting of Unusual Transactions requires the Reporting Centre to disclose so-called suspicious transactions to authorities and officials in charge of detection and prosecution; the National Prosecutor may exchange this information with prosecutors abroad. - Future direct sharing by the Reporting Centre of unusual transactions information internationally may occur with reporting centers within the Kingdom of the Netherlands and with similar financial intelligence units outside the Kingdom based on a MoU or treaty, on an intelligence-level through the “Egmont Group” on a confidential and conditional basis. Further dissemination by a receiving authority for investigation and/or prosecution of serious crimes or evidentiary use is subject to prior consent of the Reporting Centre. ### Appointment and responsibilities of AML compliance officer(s) - The BNA requires financial institutions to appoint a compliance officer who ensures that the bank’s policies and procedures are in accordance with local statutory and regulatory AML requirements. - The compliance officer is responsible for independently analyzing suspicious transactions and reporting these, and for providing training to staff. - The June 2003 “Guidelines on the Detection and Deterrence of Money-Laundering” of the BNA prescribe designated officer(s) responsible for ML prevention procedures and set out minimal responsibilities for this function. ### Internal reporting, staff awareness, and protections - Banks must have clear procedures, communicated to all personnel, for staff to report suspicious transactions to the dedicated senior officer responsible for AML compliance; BNA examiners verify existence and staff understanding during on-site interviews. - Examiners interview key employees (e.g., verification officers, reconciliation officers, cashiers) to test knowledge and comprehension of reporting responsibilities and obligations under laws and regulations, including the National Ordinance Penalization of Money-Laundering. - If shortcomings are noted, recommendations and in some cases directives are set forth in the examination report; critical situations prompt follow-up examinations. - Paragraph II.1.2, sub c and paragraph II.3 of the “Guidelines on the Detection and Deterrence of Money-Laundering” set out internal and external reporting procedures and advise internal or external audit review at least annually. - Pursuant to Article 15, paragraph 2 of the National Ordinance Reporting of Unusual Transactions, a person who reported an unusual transaction to the Reporting Centre shall not be liable in respect of any damage suffered by a customer or a third party as a result, unless such damage proceeds from willful actions or gross negligence by that person. ### Lines of communication and escalation - Examiners review reports from staff to management and the possibility and frequency of reporting problems; personnel may be informed of the possibility to report unusual transactions directly to the Reporting Centre if bank management does not grant internal support. - It is possible to contact the BNA when complications arise and directives could be enforced. ### Reporting to supervisor and criminal authorities; role of Reporting Centre - Financial institutions are bound to report any suspicious activity that classifies as an unusual transaction to the Reporting Centre according to Article 11, paragraph 1 of the National Ordinance Reporting of Unusual Transactions. - The Reporting Centre inputs received data in its database and analyses these, requesting clarification or additional information from financial institutions when necessary. - The Centre will file a suspicious transaction report to the Public Prosecutors Office and to the police authorities when it finds a transaction suspicious. - Because institutions report unusual transactions to the Reporting Centre (not to the BNA), BNA verifies during on-site examinations through sample testing and transaction review whether institutions had reported to the Centre. - Based on Article 40 of the Banking Supervision Ordinance 1994, the BNA has the authority to report suspected criminal activity and, when summoned as witness or expert, may share confidential information that concerns a criminal case. ### Supervision, enforcement powers, and periodic checking of ML controls - BNA on-site examinations include interviews with staff and senior officers in charge of ML issues and a thorough file and transaction review through sample testing to assess whether policies and procedures promote adequate ML controls. - If evidence of fraud is detected, examiners will instruct the institution to engage a specialist (e.g., forensic accountant) or the BNA may engage the specialist directly. - The BNA treats ML as a reputational risk priority and will take necessary action to ensure compliance with guidelines and law. - Aside from judicial remedies, the BNA can issue binding instructions pursuant to Article 21 and Article 22 of the Banking Supervision Ordinance 1994 to counteract possible reputational risk or threats to solvency or liquidity. - The BNA considers increasing the frequency of inspections to monitor AML/CFT compliance would be beneficial. ### Information sharing with domestic and foreign supervisors and judicial authorities - Based on Article 41 of the Banking Supervision Ordinance 1994, the BNA can share information obtained in execution of its duty with foreign supervisory authorities engaged with supervision of institutions conducting business on financial markets. - The Reporting Centre may exchange suspicious transactions information internationally (future development described above). - The BNA has legal obligations and authority to inform relevant criminal authorities of suspicious transactions and to share information with judicial authorities in suspected criminal activity cases. ### Ethics, integrity supervision, and fit-and-proper requirements - BNA ML reviews verify documented policy statements on ethics and professional behavior that must be clearly communicated to staff; examiners analyze procedures on acceptance of gifts and other influences and ensure procedures are duly signed and staff are aware of contents. - Fit and Proper Test scrutiny of identity of shareholders and directors of credit institutions and mandatory disclosure of a “Statement of Compliance” with the "Best Practice Guidelines” on corporate governance are required. - The BNA established an “Integrity Financial Sector” (IFS) unit for integrity supervision, advisory, training, and coordination; a special Integrity Test for managers and Board members, including fit and proper criteria, was introduced by the BNA in March 2003. ### Additional findings and supervisory resources - Laws and regulations embody international sound practices, including compliance with the relevant forty Financial Action Task Force (FATF) Recommendations issued in 1990 (revised 1996). The National Ordinance Penalization of Money Laundering of 1993; the National Ordinance Identification when Rendering Financial Services; and the National Ordinance Reporting of Unusual Transactions of 1996 embody recommendations from the 40 FATF Recommendations of May 1990. - The Netherlands Antilles is founder of the Caribbean Financial Action Task Force (CFATF), which introduced 20 additional recommendations; in January 1999 the Netherlands Antilles underwent a mutual CFATF assessment and received an overall positive assessment. - Paragraph II.4 of the BNA “Guidelines on the Detection and Deterrence of Money Laundering” contains specific instructions for training plans and programs for personnel; BNA bank examiners receive extensive periodic training and expect banks to maintain a high level and high frequency of training. - The Reporting Centre is the repository of specialist expertise on AML and receives unusual transaction reports; the Financial Investigations Bureau (Bureau Financiële Onderzoeken) reports to the ministry of justice and also has specialized expertise on financial fraud. - Assessment: Compliant. - Comment: Higher frequency of inspections to monitor AML/CFT compliance would be beneficial. ### Relevant supervisory methodology and on-site supervision (Principle 16) - The BNA’s on-site examinations use the CAMEL rating system; at the end of an examination a rating on a scale of 1 through 5 (1 highest–5 lowest) is assigned to each CAMEL element (CAMEL represents capital adequacy, asset quality, management and organization, earnings, and liquidity). - Rating “1” indicates strong performance, significantly higher than average. - Rating “2” reflects satisfactory performance, performance that is average or above; this includes performance that adequately provides for the safe operation of the bank. - Rating “3” represents performance that is flawed to some degree and as such is considered fair. It is neither satisfactory nor unsatisfactory but is characterized by performance that is below average quality. - Rating “4” refers to marginal performance, significantly below average. If left unchecked, such performance might evolve into weaknesses or conditions that could threaten the viability of the institution. - Rating “5” is considered unsatisfactory; performance that is critically deficient and in need of immediate remedial action. Such performance, by itself or in combination with other weaknesses, threatens the viability of the institution. - Given the small size and simplicity of the Netherlands Antillean economy, local commercial banks are mainly engaged in traditional banking: lending (66 percent of total assets of the domestic banking sector), investments, and deposit taking activities (demand, time, and savings deposits). Off-balance activities consist mainly of guarantees, letter of credit, loan, and lease commitments. - Examiners verify reliability of data primarily by verifying accuracy of entries in the COA; in some cases verifying COAs can require 1–2 examiners for a week or 2 out of approximately 4 examiners for a 3 week examination. - Banks must maintain a 2.5 percent general provision against off-balance sheet items at all times; there is no requirement to set aside specific provisions for off-balance sheet items. - Examiners review a sample of individual loans (loans adversely classified previously, watch-listed loans, large loans, loans to employees, shareholders and related parties) to assess adequacy of loan loss provisions; however, there is no requirement for periodic review of asset quality by banks. - Examiners review external auditors’ management letters filed with annual audited financial statements; there is no on-site or off-site examination of interest rate risk management. *Source: Bank Netherlands Antilles (BNA) supervisory reports and BNA “Guidelines on the Detection and Deterrence of Money-Laundering” as summarized in the provided content.* ### 2. And uses off-site work as a primary tool to: ### 2. And uses off-site work as a primary tool to: ### Objectives and scope of off-site work - Review and analyze the financial condition of individual banks using prudential reports, statistical returns, and other appropriate information, including publicly available information. - Monitor trends and developments for the banking sector as a whole. - Off-site work objective: monitor the financial condition of the individual bank and determine whether the institution continues to meet at least the minimum required standards. - Off-site techniques: compilation of data, statistical analysis, review of submitted prudential reports, review of correspondence, publicly available information, and other information. - Prudential reports reviewed include: - audited and unaudited COAs and Supporting Schedules (solvency and liquidity report and schedules on advances to related parties, large loans listings and specific and general provisions), - annual audited financial statements, - the management letter, - the Statement of Compliance reviewed by the external auditors, - the management report. - Much of the focus of off-site work is compliance oriented; documented analysis of submitted information is required (see CP 18). ### Integration of on-site and off-site supervision - The supervisor checks compliance with prudential regulations and other legal requirements through both on-site and off-site work, including ML laws and regulations. - The appropriate mix of on-site and off-site supervision is determined by country conditions; the framework integrates both functions to maximize synergy and avoid supervisory gaps. - The BNA relies on both on-site examinations and off-site surveillance; both departments support and supplement each other. - Annual examination planning sets the examination schedule for the coming year. - Frequency and scope of on-site examinations are based on: - the risk profile and financial condition of a credit institution, - the off-site assessment, - findings from previous examinations, - other sources of information (auditors, media, clients, etc.). - On-site examinations may only be biannual; a significant portion of on-site examinations is devoted to ensuring the accuracy of the COAs. - The BNA performs follow-up examinations of limited scope as indicated and relies on external auditors and other specialists on an as-needed basis. ### Governance, legal authority, and confidentiality - Assessment procedures: - No specific procedures are in place to assess the effectiveness of on-site and off-site supervision; the BNA relies on coordinated work of both functions. - Performance of each bank supervisor is evaluated each year. - Access to auditor reports: - Pursuant to Article 15 and Article 17 of the Ordinance 1994, the BNA has the power to obtain required information; auditors’ reports are part of the prudential supervisory mix. - Risk assessment methodology: - The supervisor’s methodology is part of the annual examination planning cycle; bank risk profile, past performance, previous examinations, and other information are used to determine frequency and scope of examinations. - Confidentiality and permitted disclosures: - According to Article 40 paragraphs 1 and 2 of the Ordinance 1994, data and information provided are treated as confidential. - The BNA may report a suspicion of a punishable act for the purpose of maintaining a sound banking and credit system (Article 40). - The BNA may provide information when summoned as witness or expert in a criminal case, within the context of the investigation, inquest, or hearing. - The BNA may share information with foreign supervisory authorities engaged with supervision of institutions conducting business on the financial markets. ### Reliance on internal audit - The supervisor may reasonably rely on internal audit work that has been competently and independently performed if satisfied with positioning, independence, and functioning of internal audit. - On-site procedures for assessing internal audit: - Review position of IAD within the organization and determine independence. - Assess knowledge, skills, and experience of the internal audit department head and staff. - Review IAD working plans, programs, procedures, execution of work plan, findings, and quality of management reports. - IAD work programs should cover high risk areas in depth. - Scope and adequacy of internal audit are discussed with external auditors. - BNA will rely partially on IAD work when appropriate. ### Assessment, key weaknesses, and recommendations - Assessment: Materially noncompliant (see CP 8 and CP 18 for related weaknesses). - Key issues: - Weaknesses in implementation of loan loss classification and provisioning. - Identified weaknesses in on-site and off-site supervision. - Supervisors spend excessive supervisory time reconciling COAs during on-site examinations. - BNA role should not include reconciling audited COAs to audited financial statements and to unaudited COAs; banks should have appropriate staff to prepare COAs. - External auditors and banks should be able to reconcile audited financial information to unaudited COAs; scope should be spelled out in external auditors’ work. - No specific procedures to assess effectiveness of on-site and off-site functions. - Lack of methodology to examine and monitor interest rate risk at individual banks. - Recommendations: - Develop procedures to assess effectiveness of on-site and off-site functions and address identified weaknesses. - Ensure banks have appropriate staff to prepare accurate COAs; consider imposing fines on banks that do not provide accurate COAs. - Specify in external auditors’ scope of work reconciliation responsibilities between audited financial statements and unaudited COAs. - Develop a methodology and an interest rate monitoring mechanism to measure, monitor, and manage interest rate risk at individual banks. - Use off-site surveillance to monitor sector-wide trends and developments. ### Principle 17 — Bank Management Contact: findings and requirements - Supervisors must have regular contact with bank management and a thorough understanding of the institution’s operations. - Program of meetings: - Based on risk profile, supervisor should have regular meetings with senior and middle management (including Board, nonexecutive directors, heads of units) to discuss strategy, group structure, corporate governance, performance, capital adequacy, liquidity, asset quality, risk management systems, etc. - The BNA is embarking on a program of yearly meetings with bank management and external auditors; currently meetings are held as needed or upon request. - For international banks, parent/head-office management commonly visits the BNA annually. - Understanding bank activities: - Achieved through mix of off-site surveillance, on-site reviews, and regular meetings. - BNA sources: telephone contacts with bank staff, lawyers and notaries; review of submitted reports (COA, annual audited financial statements and management report); correspondence; contact with on-site examiners. - Notification of substantive changes: - COA general guideline 15 (local banks) and guideline 13 (international banks): a change greater than 10 percent in a single balance sheet account compared to the previous balance sheet needs to be explained in writing. - Banking Supervision Ordinance 1994 stipulates specific actions; actions taken without required prior approval may need to be reversed. - No official notification to the BNA is required for breaches of legal and prudential requirements; willful or unintentional violations of regulations in the Banking Supervision Ordinance 1994 are regarded as felony or misdemeanor and can be punished by imprisonment and/or a fine. - Management quality assessment: - Licensing depends on BNA assessment of fitness and probity of officers via personal questionnaires, background checks, review of financial information. - Criteria include sufficiency of skills, knowledge, experience, soundness of judgment, professional/social/moral integrity, criminal record, past contraventions of banking/insurance/investment legislation, and involvement in improper business practices. - Quality of management is assessed on an ongoing basis through off-site assessment of business operations; factors include administrative organization, internal controls, adherence to laws and regulations. - Assessment: Largely compliant. - Comment: Need for more regular contact with bank management; a requirement for official notification by banks in case of a breach of legal and prudential requirements would be needed for a “compliant” assessment. ### Principle 18 — Off-Site Supervision: legal authority, reporting, and surveillance framework - Legal authority to require reports: - Pursuant to Article 14 of the Ordinance, each supervised credit institution is obliged to submit reports on business operations to the BNA. - Paragraph 2: BNA decides on form, reporting period, and submission frequency after consultation with representative organizations of credit institutions; decisions are laid down in the reporting manual for each type of credit institution. - COA reporting manuals (local and international banks) stipulate basis of reporting and frequency for solo and consolidated reports. - Pursuant to Article 15, each supervised credit institution must submit an audited annual report to the BNA containing at a minimum a balance sheet, profit and loss account, and notes; BNA has not stipulated a compulsory format and allows US GAAP, IAS, and Dutch GAAP. - Consolidation and accounting norms: - Reports submitted pursuant to Article 14 are drafted based on principles, norms, and accounting techniques set forth in COA manuals for each type of credit institution. - Enforcement of timely and accurate reporting: - Article 12, paragraph 3 of the Ordinance requires timely and accurate reporting to the BNA. - Article 46 provides authority to impose a fine for noncompliance with reporting deadlines; current fine is NA f. 1,000 a day for noncompliant institutions. - Required information and supporting schedules: - Required submissions include standardized prudential and statistical reports, detailed balance sheets and income statements, and supporting schedules detailing on- and off-balance sheet activities and reserves included in capital. - Inclusion of loan classification and provisioning data is required. - Off-site analysis focuses on standardized prudential and statistical reports, detailed balance sheet, profit and loss accounts, supporting schedules, and classification and provisioning information. - Off-balance sheet information is not evaluated for classification and provisioning purposes during off-site analysis; assessed for provisioning purposes only during on-site examinations. - Class 3 "Capital accounts" on the balance sheet provides details on reserves included in capital. - Supporting schedule for specific provision for losses on loans and leases determines classification of total outstanding loans and establishes specific provision amount. - Schedule for general loan loss provision includes beginning balance, additions, subtractions, and ending balances. - Authority over related companies and consolidated supervision: - Article 12, paragraph 1 obliges every credit institution, if asked, to provide all information the BNA may deem necessary. - Article 17 authorizes BNA to request all information from any corporation or institution in which a credit institution participates, or which participates in a credit institution, for consolidated supervision. - Analytical framework and information systems: - Off-site surveillance consists of review of reports submitted by banks; compliance with solvency and liquidity requirements is main focus. - Banking Supervision Department provides management a monthly exception report containing exceptions noted during off-site surveillance. - Planning for on-site examinations takes into account off-site surveillance findings. - Off-site surveillance monitors banks’ follow-up on items noted in on-site examination reports; Off-Site Department monitors execution and sets dates for compliance when issues are important. - Management will be invited to the BNA to discuss remediation; agreements for follow-up actions are monitored by the Off-Site Department. - Bank examiners verify compliance and resolution of shortcomings in the next on-site examination. *Source: IMF assessment of the BNA and references to the Banking Supervision Ordinance 1994.* ### 7. In order to make meaningful comparisons between banking organizations, the ### 7. In order to make meaningful comparisons between banking organizations, the supervisor collects data from all banks and all other relevant entities within a banking organization on a comparable basis and related to the same dates (stock data) and periods (flow data). ### Off-site surveillance: data collection, frequency, and shortcomings - Data submission format: - Domestic banks and international banks submit data in a predefined format as set forth in the COA to enable comparison within each sector. - There is no regular comparative analysis done between banking organizations. - Frequency of data collection: - Data is collected on a monthly, quarterly, and annually basis, based on the nature, size, activities, and risk profile of the credit institutions sector. - Balance sheet, profit and loss accounts, and supporting schedules one (solvency report) and two (liquidity report) are submitted on a monthly basis. - The remaining supporting schedules are submitted on a monthly or quarterly basis. - Financial institutions must annually submit a management report detailing the nature of their business, range of activities, and major plans and expectations that would potentially affect the business. - Assessment: Largely compliant - Key findings and recommended enhancements: - Off-site surveillance framework exists but needs to be more proactive and risk focused rather than primarily compliance oriented. - Findings should be documented beyond preparing reports only when exceptions are noted; brief written reports noting key performance indicators and trends would improve oversight. - Off-site surveillance currently monitors whether banks have taken actions to address shortcomings, but examiners only verify compliance during the next on-site examinations; documented, timely follow up is needed and supervisors should hold banks to reasonable deadlines for compliance. - Delay until the next on-site examination cycle is too long and could allow weaknesses to impact safe and sound operation of banks. - Off-balance sheet information is not analyzed for classification and provisioning through off-site analysis, only during on-site examinations; banks should be required to classify and provision off-balance sheet items and report them with the same periodicity as on-balance sheet items, and supervisors should analyze adequacy of classification and provisioning. - Regular comparative analysis between banking organizations is needed to evaluate individual banks’ performance relative to peers and to assess the condition of the banking sector as a whole for proactive supervisory measures. - Reporting of problem loans on the supporting schedule for Specific Provision for Losses on Loans and Leases is insufficiently detailed (currently a static status report); banks should report changes in conditions since the prior report, reasons for changes, prospects for repayment or further deterioration, and actions being taken to collect or work out problem loans. ### Principle 19 — Validation of Supervisory Information: on-site examinations and external auditors - Legal and procedural authority: - BNA executes on-site examinations and may have them performed by external auditors or experts in accordance with Article 16 of the Ordinance. - External auditors are required to report their findings directly and in writing to the BNA. - Article 16, paragraph 2 gives the BNA legal basis to access all bank records and receive necessary cooperation from the Board, senior management, and staff. - On-site examination practices: - On-site examinations focus on CAMEL components and accounting and internal control systems, as well as compliance with rules and regulations. - A rating from one to five (one is highest and five is lowest) is assigned for each CAMEL component and each institution is also assigned a composite rating. - Examinations are conducted annually or biannually and on an as needed basis depending on financial condition and off-site analyses; preplanning includes analytical review of off-site information, objectives, scope, team assignments, pending issues, and significant current issues. - At exam conclusion: an exit meeting is held with management, a draft examination report is provided for comment two weeks after the exam; if no management response within two weeks, the examination report is issued in its final form. - Use and oversight of external auditors: - Per Article 15, institutions must submit annual audited statements with independent auditors’ report and a copy of the management letter. - External auditors are required to review banks’ Statement of Compliance with best practices. - BNA assesses quality of auditors’ work by reviewing it against applicable rules and regulations and reconciles audited COA to audited financial statements and to the unaudited COA. - Per Article 16, paragraphs 3 and 4, BNA may appoint external auditors to conduct supervisory tasks; per Article 24 any change in external auditor requires BNA approval. - Engagement letters set terms of reference for external auditor assignments; in practice BNA has infrequently relied on external auditors beyond annual audit work. - Program for periodic examination of supervisory returns: - Off-site department reviews monthly and quarterly supervisory reports; on-site examinations are conducted annually or biannually or as needed. - Pursuant to Article 14, institutions must submit balance sheet, income statement, contingent liabilities, and supporting schedules; “Solvency Report” includes capital adequacy test; “Liquidity report” includes liquidity adequacy test. - Additional supervisory interactions: - BNA can meet with external auditors and supervised institutions to discuss issues; exit meetings and separate meetings with independent Board members are possible. - BNA is considering institutionalizing annual meetings with bank management and auditors. - Assessment: Largely compliant - Key comments and improvements: - Supervisors spend excessive time reconciling COAs of banks during on-site examinations; this should be the banks’ responsibility. - BNA should ensure banks have appropriate staff to prepare COA; BNA plans to impose fines on banks who do not provide accurate COAs. - External auditors and banks should be able to reconcile audited financial information to unaudited COAs; this should be explicitly included in external auditors’ scope of work. - Nonuniform reporting hinders peer group comparison. ### Principle 20 — Consolidated Supervision: scope, authority, and practices - Awareness and information on group structure: - BNA receives information on structure at licensing stage and ongoing reporting; it may deny a license if it cannot exercise adequate and effective supervision. - Reporting requirements include an Institution Information Form every two years, annual receipt of audited statements of subsidiaries, and information from on-site exams. - MoUs with Aruba, the Netherlands, and Venezuela provide information about affiliates, branches, or subsidiaries in those jurisdictions. - Evaluation of nonbanking activities: - BNA receives information on banking and nonbanking activities through periodic off-site reporting and on-site examinations and can give directives to address risk management issues in nonbanking activities. - Legal authority for consolidated review: - Section 17 of the Ordinance authorizes BNA to obtain information from institutions in which the credit institution participates for consolidated supervision; banks are required to report on a consolidated basis. - MoUs with foreign supervisors allow review of activities of subsidiaries, branches, and affiliates operating under foreign supervision. - No impediments to supervision of affiliates and subsidiaries: - Per Section 17, BNA can request necessary information from every corporation or institution in which a credit institution has an interest; Banking Supervision Ordinance and MoUs authorize examination of subsidiaries, branches, and affiliates without impediments. - Prudential standards on a consolidated basis: - Per Section 21, BNA can issue directives to credit institutions on a consolidated basis in the interest of solvency or liquidity. - Existing directives include: - minimum capital relative to credit or market risks; - minimum liquid resources; and - the prohibition, the restriction or the stipulations of conditions for risky activities or risky commitments on- and off-balance sheet. - Specific directives: - International credit institutions must maintain a positive liquidity position and a minimum equity to total risk assets ratio of 8 percent. - Local banks must maintain a positive solvency position based on a weighted risk system and a liquidity position in line with minimum requirements. - SR II and SR III set requirements for transactions with affiliates, loans to affiliates, and extensions of credit to connected borrowers. - Consolidated financial information and coordination: - Consolidated audited financial statements are submitted on a parent (consolidated), parent (solo), and subsidiary only level. - Article 17 authorizes BNA to obtain relevant information from corporations in which credit institutions participate; policy is to only allow bank holding companies in the jurisdiction. - BNA can limit activities or overseas locations via prior permission requirements (Section 23, paragraph 1, sub b, c, d, and f) and can impose conditions or restrictions through licensing requirements. - Additional authorities related to parent companies and ownership: - Per Article 3, paragraph 2 f, BNA reviews three prior years audited statements of the parent company when considering a license. - Per Section 17, BNA receives annual audited statements of parent companies; COA requires separate balance sheets for unconsolidated subsidiaries. - Pursuant to Article 22, paragraph 1, BNA may require remedial actions if institutions do not comply with directives or show developments that could negatively impact liquidity or solvency. - Pursuant to Article 3, paragraph 2 b, c, and d and Section 23, paragraph 2, BNA requires background information on managing directors, Board of Directors, and shareholders and prior consent for appointments and share transfers; BNA’s evaluation includes a “fit and proper test.” - Assessment: Compliant ### Principle 21 — Accounting Standards: records, reporting, and enforcement - Authority and reporting requirements: - Each supervised institution must annually provide unqualified audited financial statements to the BNA based on GAAP or IAS. - Institutions are required to submit a number of monthly and quarterly reports used in off-site supervision. - Article 12, paragraph 3 states information and statements supplied to the BNA must be provided in a timely, complete and accurate manner. - Article 10 permits the BNA to send a warning or direction to a credit institution that does not meet reporting obligations. - BNA is planning to institute fines for noncompliance with the requirement that provided information should be accurate. - Key comment: - Annual statements are externally audited and therefore accurate, but periodic reporting to the BNA often contains inaccuracies that need to be reviewed and corrected; BNA is addressing this through planned enforcement measures. *Source: IMF assessment text (content unit cr04272).* ### 2. The supervisor has the authority to hold management responsible for ensuring that the ### 2. The supervisor has the authority to hold management responsible for ensuring that the management report and financial statements issued annually to the public receive proper external verification and bear an external auditor’s opinion ### External audits, verification, and communication with auditors - Each supervised institution must submit annually to the BNA its audited COA and Supporting Schedules, its financial statements along with the independent auditors’ report, and management letter (Pursuant to Article 14, paragraphs 1 and 3, sub b, and Article 15 of the Banking Supervision Ordinance 1994). - The auditors review the Statement of Compliance prepared by the Board of Supervisory Directors with their independent report attached. - The BNA performs on-site examinations in accordance with Article 16, paragraph 1 of the Ordinance to verify the accuracy of submitted information. - Pursuant to Article 25 of the Ordinance, the BNA may admit foreign supervisors responsible for consolidated supervision to carry out examinations at credit institutions established in the Netherlands Antilles; those supervisors report findings to the BNA at the end of their examinations. - Article 15, paragraph 3, sub b, grants the BNA legal authority to communicate with external auditors; the BNA contacts auditors when major issues arise during examinations or when financial figures are not fairly and accurately stated. - The BNA plans annual meetings with the Auditors Association and annual meetings with external auditors of each individual institution to deepen communication lines. ### Reporting instructions, accounting standards, and COA - Pursuant to Article 14 of the Banking Supervision Ordinance 1994, each supervised credit institution is obliged to submit statements regarding its business operations to the BNA; paragraph 2 empowers the BNA to decide on the form, reporting period, and submission date for each type of credit institution. - The COA are separate reporting manuals for local banks and international banks detailing cases for solo and consolidated report submissions; COA reports include on- and off-balance sheet items and data on capital adequacy, liquidity, and large exposures. - COA General guideline 2: reporting institutions must comply with applicable laws and regulations as well as generally accepted accounting principles, although the COA may deviate from generally accepted accounting principles because it is a supervisory tool. - Article 15 requires an audited report annually that must contain at a minimum a balance sheet, profit and loss account, and notes; the BNA has not stipulated a compulsory audited report format but allows U.S. GAAP, IAS, and Dutch GAAP as allowable accounting principles. ### Valuation, provisions, and audit scope - Supervised banks must follow COA manuals consistently; institutions should set up and record necessary general and specific provisions; assets are reported at net realizable value; reported profits are net of provisions. - Per Article 16, the BNA can assign an external auditor to perform targeted investigations; the BNA can give directives to the auditor regarding scope and issues to be investigated, and the auditor reports findings directly to the BNA. - The BNA is working on a standard for publication of financial statements of individual institutions; institutions remain free to publish their financial statements without prior BNA approval at present. ### Confidentiality and auditor duties - Article 40 of the Ordinance: the BNA has a legal obligation to preserve professional secrecy; all data and information obtained from financial institutions are to be kept secret. - Article 15, paragraph 3, sub b: external auditors have a legal duty to report to the BNA matters of material significance. - Article 16, paragraphs 3 and 4: when the BNA assigns an external auditor to perform a special investigation, the auditor is required to report findings directly to the BNA. - The BNA can direct a supervised institution to contract another auditor if external auditors have provided unreliable information or have not complied with Article 15, paragraph 3 auditor reporting obligations to the BNA. ### Assessment findings and targeted improvements (from the IMF assessment) - Assessment: Largely compliant. - Comments: - The BNA needs to enforce the accuracy of submitted prudential reports; COAs submitted by credit institutions often contain inaccuracies requiring BNA resources to correct. - A significant portion of on-site examination time is devoted to reconciling institutions’ accounting systems with submitted COAs. - The BNA is moving toward instituting fines for submission of inaccurate COAs to improve reporting accuracy and examiner productivity. - Recommendation: The BNA should make public issuance of individual bank financial statements subject to its prior approval to ensure minimum standards are met. --- ### Principle 22. Remedial Measures — supervisory powers and sanctions ### Range of remedial measures and legal basis - The BNA may send a warning or an order based on Article 10 of the Banking Supervision Ordinance 1994; the bank has an obligation to obey the warning and comply with the order within 30 days after receipt of the letter; the BNA can extend the 30 day term by no more than 60 days. - If a bank does not obey or follow the warning or direction within the term, pursuant to Article 9, paragraph 1, sub e, the BNA can withdraw the bank’s license. - Article 9: the BNA can withdraw a license if a bank: - does not carry on the business for which a license has been granted; - violated the restrictions or conditions connected to the license or the provisions of the Banking Supervision Ordinance 1994; and - has an independent auditors’ report with other than an unqualified opinion. - Article 21 empowers the BNA to give binding instructions to prohibit, restrict, or set conditions against unsafe and unsound activities or on- and off-balance sheet commitments; paragraph 2, sub e permits binding instructions on conduct of management regarding administrative accounting, financial accounting, and internal control. - Article 22, paragraph 1: if a bank does not comply with Article 21 or there are signs of development jeopardizing liquidity or solvency, the BNA shall request by registered letter (directive) that the bank undertake necessary measures to remedy the situation. - Article 22, paragraph 2: if the request is not complied with within the specified term, the BNA can serve a notice appointing a silent trustee, which takes immediate effect and specifies actions requiring trustee approval as of a specified date. - Article 23, paragraph 4: when a bank performs an act without BNA approval, the institution shall be obliged to reverse the action unless the BNA grants approval thereafter. - The BNA can petition the court for imposition of “emergency measures” and file for bankruptcy under Articles 27 through 38 when a bank has a solvency or liquidity deficit; the court can authorize transfer commitments and liquidation in the best interest of depositors and other creditors. - Article 46: the BNA can impose a fine upon banks that have not complied with reporting deadlines. - Article 50: willful violation of the Ordinance shall be regarded as a felony punishable by imprisonment for a term not exceeding four years. ### Additional remedial options described - Possible actions include restricting current activities, withholding approval of new activities or acquisitions, restricting or suspending payments to shareholders or share repurchases, restricting asset transfers, barring individuals from banking, replacing or restricting powers of managers, directors, or controlling owners, arranging takeover/merger with a healthier institution, and imposing conservatorship. - Article 22, paragraph 4, sub e: persons who, as an organ of the institution, perform activities that could jeopardize liquidity and solvency shall be individually liable towards the bank. - The BNA can remove managers and directors at any time if they are not found to be fit and proper. ### Timeliness, documentation, and legal safeguards - The BNA specifies time frames in directives for required remedial measures; if noncompliant within the term, it can take further remedial actions such as appointment of a silent trustee pursuant to Article 22, paragraph 2. - All requests for remedial action must be in writing pursuant to Article 10 and Article 22. - Examination conclusions requesting remedial actions and for which an exception report is required must be directed to the bank in writing. - Additional: - Laws/regulations mitigate against the supervisor unduly delaying corrective actions; corrective actions do not delay other measures; emergency measures and bankruptcy annul other actions. - The supervisor addresses significant remedial actions in written documents to the Board of directors and requires progress reports in writing. ### Assessment findings and targeted improvements (from the IMF assessment) - Assessment: Compliant. - Comments: - The BNA would benefit from the ability to impose fines and/or penalties on senior management and/or directors; such powers have compelled timely remedial action in other jurisdictions. - The BNA needs clear powers to remove credit institutions’ management without having to threaten license withdrawal. --- ### Principle 23. Globally Consolidated Supervision — oversight of overseas activities ### Authority and consolidation powers - Pursuant to Article 18 of the Ordinance, the BNA supervises all credit institutions, including overseas activities of locally incorporated banks. - Under Article 17, the BNA has authority to request all information from any corporation or institution in which the supervised institution participates, or from any corporation or institution participating in a credit institution, as necessary for consolidated supervision. - Per Article 21, the BNA can give binding instructions to credit institutions in the interest of good conduct of business and their solvency or liquidity. ### Oversight of foreign branches, subsidiaries, and management competence - Based on Article 12, the BNA requires a Management Report that is management’s qualitative assessment of the institution’s business and performance, including overseas operations. - The BNA meets with institutions’ management to discuss Management Reports at least once every 18 months. - The BNA receives annually audited consolidated financial statements from supervised institutions along with audited financial statements of any overseas subsidiaries. - The BNA satisfies itself that local management of overseas offices has the necessary expertise to manage operations in a safe and sound manner. - Under MoUs in place, BNA directors and staff have regular contact with supervisory authorities of Aruba, the Netherlands, and Venezuela to discuss status and expertise of local management of foreign banking operations and evaluate oversight. *Source: IMF assessment of supervisory practices and the Banking Supervision Ordinance 1994, as implemented by the Bank of the Netherlands Antilles (BNA).* ### 3. The supervisor determines that bank management’s oversight includes (a) information ### 3. The supervisor determines that bank management’s oversight includes (a) information reporting on its overseas operations that is adequate in scope and frequency and is periodically verified; (b) assessing in an appropriate manner compliance with internal controls; and (c) ensuring effective local oversight of foreign operations ### Management oversight requirements and practices - The Guideline on Corporate Governance requires the Board of Directors to establish adequate information, documentation, and reporting systems to monitor all operations and performance of an institution and to oversee the sound business performance of the institution’s operations as a whole. - The BNA receives and reviews: - audited consolidated financial statements of the financial institution (including parent-only and subsidiary-only statements); - the auditor’s management letter. - If major issues arise, the BNA follows up with bank management. ### Home supervisor powers over overseas offices - Pursuant to Article 22 of the Ordinance, the BNA has authority to undertake necessary measures (such as closing the foreign office) or pursue a particular policy if supervision is inadequate or could jeopardize the liquidity or solvency of the institution. - Pursuant to Article 4, paragraph 5 of the Ordinance, the BNA may withhold a license if it is of the opinion that the home country supervisor cannot exercise adequate and effective supervision on a consolidated basis. ### On-site examinations and supervisory resources - The BNA has authority to perform on-site examinations in accordance with Article 16 of the Ordinance. - Examination frequency: examinations are conducted at the institution annually or biannually depending on financial condition, prior findings, and Off-Site Department analyses. ### Determining adequacy of management’s local oversight of foreign operations - The supervisor uses regular prudential reports (consolidated and individual), audited consolidated and nonconsolidated financial statements, the Management Report, and the Statement of Compliance to determine whether foreign activities differ fundamentally from home-country activities. - During on-site examinations examiners assess the level of oversight by management; oversight is also discussed during meetings between institution management and the BNA. ### Supervisor visits to offshore locations and MoUs - The BNA maintains contact with foreign authorities by means of regular visits. - The BNA has entered into Memoranda of Understanding (MoUs) with Aruba, the Netherlands, and Venezuela to supervise institutions adequately on a consolidated basis; the MoUs allow the BNA to conduct examinations of foreign operations. - The number of local and international banks with offshore foreign operations is described as very limited. - Comment: This is not a significant risk area for the Netherlands Antilles. The overseas operations of local institutions is limited. There is only one branch and one subsidiary of local banks, both in Aruba. ### Assessment of quality of foreign supervision - The BNA assesses quality of supervision based on: - current knowledge of relevant foreign supervisory laws and regulations; - contacts with the supervisors. - Assessment: Compliant ### Principle 24 — Host Country Supervision (information exchange and arrangements) - Article 41 of the Banking Supervision Ordinance allows the BNA to provide information and data obtained in performance of its duty to foreign supervisory authorities responsible for supervision of institutions and corporations operating on the financial markets. - The MoUs with Aruba, the Netherlands, and Venezuela stipulate, on a best-efforts basis, that home and host supervisors shall provide information on credit institutions and their affiliates when requested or when deemed necessary, including: - whether operations are conducted in a safe and sound manner and in conformance with prudential standards; - whether there has been evidence of a material violation of law; - events that could have a material adverse effect on financial stability of institutions in the home or host country. - The BNA can withhold permission to establish affiliates, branches, or offices without its prior approval (Article 23, paragraph 1, sub f). - The BNA may provide confidential information to foreign supervisory authorities under Article 41 and under the MoUs; there are informal contacts and plans to establish additional MoUs. - Additional practices: - The BNA has consulted foreign supervisory authorities prior to taking consequential action on information received from them; the MoUs include stipulations to this effect. - For less-than-significant overseas operations, the BNA exchanges appropriate information with host supervisors and has provided declarations of no objection for share transfers when requested. - Assessment: Compliant - Comment: Given the number of foreign bank operations in the Netherlands Antilles, the BNA is encouraged to continue to enter into MoUs with foreign supervisory authorities. ### Principle 25 — Supervision Over Foreign Banks’ Establishments - Prudential supervisory provisions of the Ordinance apply to all credit institutions operating in the Netherlands Antilles, both foreign and domestic; thus local branches and subsidiaries of foreign banks are subject to the same prudential, inspection, and regulatory reporting requirements as domestic banks. - Pursuant to Article 4, paragraph 5, the BNA may withhold a license if the supervisory authority in the country of origin cannot exercise adequate and effective consolidated supervision. - Admission requirements differentiate between: - consolidated international banks (subject to adequate consolidated supervision by a foreign supervisory authority through their parent company); - nonconsolidated international banks (for which the BNA acts as the primary supervisory authority). - The BNA may reclassify banks based on adequacy of consolidated supervision; some international banks were reclassified last year due to improved consolidated supervision by their foreign supervisory authority. - Prior to issuing a license, the BNA requires a statement from the supervisory authority of the head office or parent company indicating no legal impediments and how supervision will be exercised. - Article 41, paragraph a, allows the BNA to provide information to foreign authorities provided secrecy is preserved by law in the foreign country and preservation of secrecy is real and sufficiently guaranteed. - The MoUs stipulate confidentiality and permit sharing information only as necessary to carry out supervisory functions. - Article 25 permits the BNA, within prudential supervision, to permit foreign supervisory authorities to carry out investigations at credit institutions established in the Netherlands Antilles that are under consolidated supervision of foreign authorities; the BNA may stipulate conditions or directions for such activities. MoUs state home supervisors may inspect on-site provided adequate notification and result-communication procedures are established. - The BNA’s rules do not explicitly require advising home supervisors of material remedial action taken against foreign banks, but the MoUs provide for timely exchange of information on material remedial action. - The BNA requests information from home supervisors on an as-needed basis or in case of material shareholder changes. Per Article 4, paragraph 3, the BNA may decide not to grant a license if the group structure prevents adequate supervision. The MoUs allow exchange of information on relevant banking groups. - Assessment: Compliant ### Recommended action plan (selected entries and implementation dates) - Legal Protection of Supervisors (CP 1 (5)) - The BNA should study the possibility of including explicit legal protection for individual staff members as part of the Banking Supervision Ordinance. The Antillean legal system implicitly provides protection. The BNA will study the possibility of including it explicitly; this will require time consuming amendments of the law. - Information Sharing (CP 1 (6)) - The limitation on exchanging names of individual deposit holders should be eliminated to facilitate information exchange for AML/CFT investigations domestically and with foreign supervisory requests. As stated in Article 40 of the Banking Supervision Ordinance, in criminal cases this information can be submitted. So no immediate need for action. - Licensing (CP 3) - The supervisor should consider specific, more intrusive monitoring of new licensees, as appropriate. Implementation status: Ongoing. - Credit Policies (CP 7) - The Guidance Note states standards should be communicated “preferably” in writing; to ensure consistency, standards should be required to be communicated in writing. Implementation: Already adapted in guidance notes of October 2001 that are an update of the old ones. - Loan Evaluation and Loan Loss Provisioning (CP 8) - For problem credits regular reviews should be at least quarterly. Banks should be required to review all performing loans at least annually. - Need for better reporting of problem loans by banks to the supervisory authority on the supporting schedule for Specific Provision for Losses on Loans and Leases. - Need to develop a system for classification and provisioning of off-balance sheet items. - Recommend rapid implementation program of credit-risk-focused, relatively small scale on-site inspections and thorough discussions with banks on individual risky or deteriorating credits and off-balance sheet exposures. - Amend Regulation V 4.2 to eliminate the exemption from loan loss provisioning guidelines for branches of foreign banks for which the bank has received a guarantee for all liabilities. - Implementation dates noted in the plan: Introduced November 2002; Introduced March 2003; Introduced December 2002; Introduced January 2003; Introduced November 2002. - Country Risk (CP 11) - The BNA should implement its plan for periodic reporting of and provisioning for country risk exposures. Introduced August 2003. - Market Risk (CP 12) - The BNA should complete its survey among credit institutions to identify and quantify market risk levels and decide whether to change reporting requirements. Introduced December 2002. - Other Risks (CP 13) - The BNA should require banks to assess and manage interest rate risk and include assessments of IRR in off-site surveillance and on-site examinations. Introduced January 2003. - Internal Control and Audit (CP 14) - The BNA should have the capacity to impose fines and penalties for noncompliance with the requirement to prepare and submit accurate COAs. Introduced June 2003 (it requires a law change). - On-Site and Off-Site Supervision (CP 16) - Enhance effectiveness of supervision (see CP 8 and CP 18 actions). - Ensure external auditors and banks can reconcile audited financial information to unaudited COAs. Introduced January 2003. - Use off-site surveillance to monitor trends and sector developments. Introduced January 2003. - Bank Management Contact (CP 17) - Increase regular contact with bank management. Introduced October 2003. - Require official notification to the BNA by banks in case of breach of legal and prudential requirements. Introduced October 2003. - Off-Site Supervision (CP 18) - Incorporate brief written reports noting key performance indicators and trends into off-site surveillance. Introduced January 2003. - Document follow up of banks’ compliance with remedial requirements. Introduced December 2003. - Implement regular comparative analysis between banking organizations for peer evaluation. Introduced March 2003. - Use statistics gathered by supervisors to assess sector condition as a whole. Introduced March 2003. - Accounting Standards (CP 21) - The BNA should make public issuance of individual bank financial statements subject to its prior approval to ensure they meet minimum standards. Introduced October 2002. - Remedial Measures (CP 22) - The BNA would benefit from ability to impose fines and/or penalties on senior management and/or directors. Introduced December 2003. - The BNA needs clear powers to remove credit institutions’ management without threatening license withdrawal. Introduced December 2003. - Host Country Supervision (CP 24) - Given the number of foreign bank operations, the BNA is encouraged to continue entering into MoUs with foreign supervisory authorities. Introduced September 2003. *Assessment of supervisory framework and recommended actions for the Bank of the Netherlands Antilles (BNA) and the Netherlands Antilles banking system.* ### 9. The main comments of the authorities concern the assessment of the interrelated ### 9. The main comments of the authorities concern the assessment of the interrelated ### Authorities’ main comments and supervisory priorities - The authorities focused on the assessment of the interrelated principles 8 and 16, on credit policies and on-site inspections, noting that some work remained on asset quality monitoring and on-site work in this field. - The BNA indicated work is underway to increase the frequency of targeted inspections. - The BNA considered the suggestion that insufficient inspection frequency will lead banks to not review their portfolio on a regular basis, and that more intrusive monitoring is necessary, to be too harsh. - The BNA contested any implication that insufficient frequency of on-site work implies inspectors cannot adequately monitor banks’ portfolios. - The BNA considered asset quality issues to be primarily relevant for domestic institutions and less for international banks in the Netherlands Antilles; the domestic situation is considered to be under control. - The BNA requested a more balanced rating than “materially noncompliant.” ### Interest rate risk and problem-loan monitoring - Interest rate risk was not considered a major risk by the BNA, in light of: - the stability of interest rates, - the breadth of spreads, - repricing possibilities. - The BNA will look into interest rate risk and develop a monitoring mechanism. - The BNA considers more proactive monitoring of how banks deal with problem loans would be more labor intensive than warranted given limited staff resources. ### Context of the IAIS Insurance Core Principles assessment - The assessment was conducted in the context of the Module II Offshore Financial Center Assessment by a joint MAE/LEG mission in January and April 2002 and based on updated information provided by the BNA through September 2003. - The assessment used IAIS standards and methodology; assessor: Mr. Steve Butterworth, Director for Insurance of the Guernsey Financial Services Commission. - The assessor enjoyed full cooperation of the authorities. ### Summary observance counts (Table 4) - Observant: 5 — Principles 1, 10, 13, 14, 17 - Broadly observant: 11 — Principles 2, 3, 4, 5, 6, 7, 8, 9, 12, 15, 16 - Materially nonobservant: 1 — Principle 11 - Nonobservant: 0 - Not applicable: 0 ### Key findings and recommendations by thematic area - Organization of an insurance supervisor (Principle 1) - Assessment: Observant. - Findings: - BNA operationally and financially independent from government although capitalized by government. - Staff is high quality and trained on an ongoing basis. - Procedures for on-site and off-site supervisory work in place and well documented; some newer ones await completion. - New staff hired (including an actuary); additional staff are being interviewed. - Recommendation: - Continue to evaluate resources needed to implement planned on-site examinations and new rules/regulations and associated workload. - Complete new regulations as soon as possible. - Licensing (Principle 2) - Assessment: Broadly observant. - Findings: - Legal provisions entrust BNA to regulate and license the insurance sector. - Rigorous licensing arrangements are in place; formal refusals are rare as applicants are often persuaded to withdraw. - New Integrity Unit created to assist assessment of fit and proper criteria and able to exchange information with the public prosecutor’s office. - Reliance on foreign supervisors is integral and will be strengthened as more MoU’s are concluded. - Recommendation: - Where an insurer is incorporated abroad (captives or professional reinsurers), licensing should wait until satisfactory cooperation arrangements with foreign supervisor are in place. - Exclude licensing of composites. - Changes in control (Principle 3) - Assessment: Broadly observant. - Findings: - BNA monitors changes in control; requirements need to be explicit in legislation. - Prior approval for changes should be required; dealt with in Licensing Manual (legal basis: Article 17 of the Insurance Ordinance and Article 4 of the Special Insurance License Decree). - Example: a six month negotiation preceded BNA approval of a change in control of a large company; BNA recently refused a nonlife insurer permission to acquire shares in a newly incorporated life insurer. - Corporate governance (Principle 4) - Assessment: Broadly observant. - Findings: - Board guidelines in “Guidance Notes” should be given binding status and made applicable to captives and professional reinsurers. - Not mandatory for captives and professional reinsurers to have a Supervisory Board, though most do in practice. - Internal controls (Principle 5) - Assessment: Broadly observant. - Findings: - Internal controls are standard in off-site analysis and on-site inspections. - Guidance notes should be given more binding legal status. - Assets (Principle 6) - Assessment: Broadly observant. - Findings: - Supervisory control of assets is outlined in supervisory procedures and the new Annual Report Automated Statements (ARAS) system, but not in regulations. - Procedures need more binding status. - Supervision over assets held abroad may require strong cooperation with foreign supervisors. - Liabilities (Principle 7) - Assessment: Broadly observant. - Findings: - Financial statements and asset valuation follow GAAP or international standards relevant to the Netherlands Antilles. - Technical provisions described in ARAS and examined annually. - Recommendation: - BNA should develop its own standards for valuation of liabilities. - A new valuation manual is expected to be issued in December 2003, taking into account IAS. - Capital adequacy and solvency (Principle 8) - Assessment: Broadly observant. - Findings: - Current supervision advances toward capital adequacy requirements that reflect size, complexity, and risks. - IAIS has not developed standards in this area. - Solvency requirement for professional reinsurers seems low. - Captives should be subjected to more risk-based capital requirements. - Recommendation: - Revise solvency requirements and implement rules to achieve a higher level of compliance. - Derivatives and “off-balance sheet” items (Principle 9) - Assessment: Broadly observant. - Findings: - Based on a survey a few years ago, none of the insurers use these instruments; no rules in place though a regulation is in development based on IAIS guidance. - Draft asset valuation guide includes valuation guidelines for derivatives in “other investments.” - Recommendation: - Give guidance paper binding status if derivatives activity develops. - Reinsurance (Principle 10) - Assessment: Observant. - Findings: - BNA reviews all reinsurance agreements prior to hurricane season and during desk and field exams. - Only one reinsurance specialist at BNA; training needed for all staff members in the department. - Recommendation: - Give more reinsurance rules binding status. - Market conduct (Principle 11) - Assessment: Materially nonobservant. - Findings: - Proposed National Ordinance on the Insurance Brokerage Business not yet enacted; market conduct guidelines not published. - Proposed Ordinance only deals with insurance brokers. - Government setting up an independent alternative dispute resolution body. - BNA currently handles customer complaints. - Recommendation: - Consider supervising all persons providing insurance advice from within the Netherlands Antilles. - Give market conduct guidelines more binding status. - Financial reporting (Principle 12) - Assessment: Broadly observant. - Findings: - Similar comments as for liabilities (Principle 7) regarding developments in insurance accounting promulgated by IASB. - Current practice of late submission of audited statements should be remedied immediately. - Introduction of ARAS and more aggressive monitoring improved reporting performance. - On-site inspection (Principle 13) - Assessment: Observant. - Findings: - BNA has a well established on-site inspection program and a comprehensive procedures manual finalized and to be updated periodically. - BNA follows standards of the Society of Financial Examiners; several staff are Certified Financial Examiners. - Recommendation to extend on-site inspections to insurance brokers with attention to AML and market conduct; more structured meetings with external auditors recommended. - BNA has field examination procedures for captives and professional reinsurers and will resume inspection program not only when financial information is missing. - Statistics: - Per end June 2003, the BNA has conducted 18 inspections of which 4 were general scope inspections. - Sanctions (Principle 14) - Assessment: Observant. - Findings: - Legislation contains a full menu of enforcement actions, including powers to issue binding directions. - Recommendations: - Consider including within legislation different specific types of directions as well as retaining an all-encompassing power. - Enable imposition of a range of civil money penalties (not criminal fines) against individuals and the insurer/intermediary. - Cross border business operations (Principle 15) - Assessment: Broadly observant. - Findings: - All insurers operating in the Netherlands Antilles need to be licensed; incidental cross-border business permitted on direct provision of services basis. - Minister of finance can prohibit or impose rules on specific inwards cross-border business if not in interests of local policyholders. - BNA can require brokers to submit annual details of insurers with whom business has been placed. - BNA has been more proactive in consulting with overseas supervisors. - Legislation should be changed so that a licensed insurer needs specific approval to operate cross-border. - Home supervisors of branch offices must officially communicate with BNA when planning an examination of or visit to the branch. - BNA has conducted joint examinations with Aruban and Netherlands authorities. - Coordination and cooperation (Principle 16) - Assessment: Broadly observant. - Findings: - BNA should expedite remaining planned MoU’s (taking into account IAIS Core Principle 16) with other relevant jurisdictions. - Implement legislative changes to ensure reciprocity is not mandatory when providing information to other authorities. - Confidentiality (Principle 17) - Assessment: Observant. - Findings: - Insurance legislation requires confidentiality and provides a gateway for the bank to share information with other insurance supervisors. - Recommendation: - Broaden the gateway so it is not subject to reciprocity. ### Anti-money laundering (AML) and supervisory actions - Antillean AML legislation and regulation covers ML through life insurance companies or brokers. - Revised AML/CFT guidelines for all insurance companies were introduced by the BNA in June 2003. - BNA has on-site procedures to test adoption and implementation of guideline recommendations. - On-site visitations to verify compliance were started by the BNA in March 2003. - The authorities have drawn up a plan of recommended actions and an action plan outlined in Table 7. ### Operational capacity, staffing, and documentation - Staffing and qualifications: - The department staff includes two actuaries. - Other staff members have at least bachelor’s degrees in business administration or accounting. - Most staff members have between 10–15 years’ insurance supervision experience. - Offers were made to an actuary and an auditor; one new staff has already taken up duties. - Documentation and systems: - The BNA has well documented and updated desk and field supervision procedures; some updates are very new. - No single definitive public document summarizes methods and procedures; recommendation to prepare and publish an all-encompassing “Guide to Insurance Supervision,” including on the BNA website. - New ARAS reporting system introduced; expected valuation manual due December 2003 (taking into account IAS). *Source: IMF assessment of observance of the IAIS Insurance Core Principles and related BNA comments and action plans.* ### Part 2: Assessment of the suitability of key functionaries, and of the business plan. Legal ### Part 2: Assessment of the suitability of key functionaries, and of the business plan. Legal ### Legal provisions, fit and proper, and application requirements - Legal provisions, supported by guidelines on fit and proper and corporate governance aspects, and prescribed application forms (including comprehensive personal questionnaires) are in place to enable the BNA to assess the suitability of: - the business plan; and - key functionaries, which include shareholders, directors, and senior management. - The BNA may refuse to issue a license if the interests of future policyholders or beneficiaries are likely to be jeopardized. - Under the National Ordinance, the BNA may only, on the basis of general reciprocity and upon request, provide another insurance supervisor with relevant information. - The BNA has developed a new Integrity Unit to assist investigations into compliance with fit and proper criteria; the Integrity Unit can exchange information with the Public Prosecutor and the Unusual Transactions Reporting Unit. - Applicant submission requirements include: - a comprehensive business plan; - product details; - documents of incorporation; - actuary details; and - auditor details. - There are no minimum share capital requirements in the insurance legislation; the BNA considers the requirement for a minimum margin of solvency to be sufficient. - An older requirement by the Central Bureau of Juridical Affairs stipulates an issued share capital of NA f. 200,000. - Decisions of the BNA are open to appeal before administrative and judicial bodies. *Assessment: Broadly observant. To be assessed “observant,” the BNA would need to strengthen its licensing process as described in the action plan recommendations.* ### Reliance on supervisors in other jurisdictions - Reliance on insurance supervisors in other jurisdictions by requesting certificates of good standing is an integral part of the application process. - Reliance practices will be strengthened as the BNA completes memoranda of understanding (MoU’s) with other jurisdictions (there are MoU’s with the Netherlands and Aruba) and becomes more proactive in seeking information from overseas authorities. ### Principle 3 — Changes in Control - Expected supervisor actions: - require notification of change in control and/or approval of proposed changes; and - establish criteria to assess appropriateness of changes, including suitability of new owners, new directors and senior managers, and soundness of any new business plan. - Description of current regime: - The BNA monitors changes in control and has a manual prescribing policies, but the Law does not: - specifically require changes in control to be notified to the BNA; - define changes in control (including substance over form); nor - set precise powers to reject proposed changes in control. - Most aspects are contained in the Licensing Procedures Manual (management requirements and change in control section). - Article 17 of the Ordinance provides an indirect power: identity of policymakers (including shareholders) should not give the BNA reason to believe policyholder interests will be jeopardized. - If the BNA believes a proposed change is not in policyholders’ interests, it may not accept the change or may withdraw the license on grounds that the institution no longer meets licensing requirements. - Practical examples: - A lengthy six-month negotiation on a major group takeover concluded with BNA approval of the change in control in April of the year referenced. - The BNA disapproved a nonlife insurer becoming shareholder of a newly incorporated life insurer. *Assessment: Broadly observant.* ### Principle 4 — Corporate Governance - Expected standards where supervisor sets requirements: - roles and responsibilities of the Board of directors; - reliance on other supervisors for companies licensed elsewhere; and - distinction between standards for domestically incorporated companies and branch operations. - Current framework: - Corporate governance aspects covered in October 2001 “Guidance Notes for the Supervisory Board of Supervised Financial Institutions,” but without specific legal backing. - Under Article 31 of the Ordinance, the BNA can give a motivated instruction to companies that do not comply with guidance notes; instructions can be published. - Sanctions under the guidance notes have not been tested in courts; to date, institutions have complied. - Majority of captives have a Supervisory Board and adhere to Corporate Guidelines issued by the BNA. - Special comment: - Dangers exist in allowing captives and professional reinsurers to be managed in the Netherlands Antilles by only one natural person. *Assessment: Broadly observant.* ### Principle 5 — Internal Controls - Supervisor powers should include: - review of internal controls approved and applied by the Board and management, and request strengthening; and - require Board to provide suitable prudential oversight (standards for underwriting risks, qualitative and quantitative standards for investment and liquidity management). - Description: - The BNA has a well-established and comprehensive program of field supervisory examinations (on-site visits) and a specialist on-site team. - On-site visits address internal control matters; deficiencies are followed up by motivated instructions. - Recommendation: associate guidance notes on internal control matters with legislation and include sanctions for noncompliance. *Assessment: Broadly observant.* ### Principle 6 — Assets - Expected asset standards should apply at least to an amount equal to total technical provisions and address: - diversification by type; - limits/restrictions on holdings in financial instruments, property, receivables; - basis for valuing assets included in financial reports; - safekeeping of assets; - appropriate asset–liability matching; and - liquidity. - Current regime: - Supervision over asset quality outlined in supervisory procedures manuals and the ARAS system (2000), but not in legislation. - Asset valuation guidelines are being prepared. - Existing legislation states adequate technical provisions must be maintained and covered by assets that currency-match liabilities (exemption possible if in interest of policyholders). - BNA has power to direct insurers to change the nature and valuation of assets. - No legal provisions for: - mixture and diversification by type of asset; - restrictions on amounts held in financial instruments, property, and receivables; - basis for valuing assets; - safekeeping of assets; - appropriate matching of assets; and - liquidity. - Some aspects are covered by guidelines, the field examination manual, supervisory procedures manual, ARAS, and other documents; others are not. *Assessment: Broadly observant.* ### Principle 7 — Liabilities - Supervisor should set standards on liabilities including: - inclusions such as claims incurred but not paid/reported, amounts owed (including disputed), premiums received in advance, policy liabilities/technical provisions; - standards for establishing technical provisions; and - credit allowed for reinsurance recoverables with provision for ultimate collectability. - Current regime: - Financial statements for insurers are prepared under acceptable GAAP, which lay down standards for establishing technical provisions. - Technical provisions are described in detail in ARAS and are examined annually during desk and field examinations by the BNA’s actuaries and examiners. - The BNA has commenced examination of valuation of liabilities. - ARAS implementation initially impeded timely reporting by many companies; the BNA initiated visits and workshops to assist institutions that had problems with ARAS, resulting in companies starting to submit annual statements on time. *Assessment: Broadly observant.* ### Principle 8 — Capital Adequacy and Solvency - Capital adequacy requirements should reflect size, complexity, and business risks of the company. - Current requirements: - Capital adequacy differs for life and property/casualty (P&C) insurers. - Decree 52/1992, based on Article 22 and Article 36 of the Ordinance, requires: - a minimum capital margin of NA f. 400,000 (US$220,000) for life insurance companies, unless actuarially calculated technical reserves augmented by 4 percent of the technical reserves (as required by Article 36) are higher; in that case the company must maintain the higher solvency reserve; and - for P&C companies, a floor of NA f. 300.000 (US$165,000) unless reserves for unearned premiums, pending claims and expected claims augmented with a 15 percent additional reserve (as required by Article 36) are higher; in that case the higher amount applies. - Decree 52 of 1992 specifies permissible assets that count towards technical reserves. - The IAIS has not developed standard methods or percentages for minimum solvency; the Netherlands Antilles should draw on past experience and other jurisdictions. - Current status and changes: - There are currently no statutory minimum capital requirements in the Insurance Ordinance; the BNA relies on the requirements described above. - Solvency requirements are under review to assess adjustments to reflect risks, size, and complexity. - The Central Legal Bureau of the Netherlands Antilles has issued statutory minimum capital requirements pending revision of the Ordinance of NA f. 200,000 (US$110,000). - A higher level of observance could be achieved once revised solvency requirements are introduced. *Assessment: Broadly observant.* ### Principle 9 — Derivatives and Off-Balance Sheet Items - Supervisor should set requirements on: - restrictions on use of derivatives and off-balance sheet items; - disclosure requirements; and - internal controls and monitoring of derivative positions. - Current regime: - The BNA surveyed insurers and believes none of the licensed insurers use these instruments. - No legislation on derivatives currently exists, although one is under preparation based upon the IAIS guidance paper. - The asset valuation guide developed by the BNA includes valuation of derivatives in anticipation of possible use. *Assessment: Broadly observant.* ### Principle 10 — Reinsurance - Supervisor responsibilities include reviewing reinsurance arrangements and assessing reliance and collectability of recoverables. - Current practices: - In June, prior to hurricane season, the BNA requests copies of all reinsurance agreements to calculate exposures and relate them to each insurer’s financial position. - These checks are also performed during desk and field examinations. - ARAS and the asset valuation guide address reinsurance cover and valuation. - The BNA currently has one reinsurance specialist and seeks additional training for other staff. *Assessment: Observant.* ### Principle 11 — Market Conduct - Expected conduct standards for insurers and intermediaries include: - act honestly and straightforwardly; - act with due skill, care, and diligence; - conduct business prudently; - pay regard to customers’ information needs and treat customers fairly; - seek reasonably expected customer information before advising or concluding contracts; - avoid conflicts of interest; - deal openly and cooperatively with regulators; - support complaints handling systems; and - organize and control affairs effectively. - Current developments and gaps: - A proposed National Ordinance on the Insurance Brokerage Business has been drafted and is in an advanced state but has not been enacted; market conduct guidelines have not yet been published. - The proposed Ordinance deals only with insurance brokers; it could be expanded to cover all persons providing insurance advice from within the Netherlands Antilles to level the playing field among agents, subagents, brokers, and insurer employees who give advice. - The government is setting up an independent alternative dispute resolution body to handle complaints effectively and affordably. - Current BNA complaint handling: complaints are entered into a complaints file; desk staff analyze and may request additional information; warranted actions lead to letters to the insurer, possible motivated instructions, and ultimately license withdrawal for serious noncompliance. - No consumer compensation scheme exists. *Assessment: Materially nonobservant.* ### Principle 12 — Financial Reporting - Supervisory information regime should establish: - scope and frequency of reports (financial, statistical, actuarial, other information); - accounting requirements for financial reports; - standards ensuring external audits are acceptable; and - standards for establishing technical provisions or other liabilities included in financial reports. - Distinctions to be made: - between supervisory reports and those for disclosure to policyholders/investors; and - between companies incorporated in the jurisdiction and branch operations of foreign-incorporated companies. - Description: (Section begins description of supervisory reporting needs and processes; details in preceding sections include ARAS implementation, annual examination of technical provisions, and GAAP-based financial statement preparation.) *Assessment: Broadly observant.* *Source: IMF assessment of the BNA’s legal framework and supervisory practices as presented in Part 2: Assessment of the suitability of key functionaries, and of the business plan. Legal.* ### Introduction of the automated reporting system ARAS, combined with more aggressive ### Introduction of the automated reporting system ARAS, combined with more aggressive monitoring ### Reporting and Financial Reporting (CP 12) - Introduction of the automated reporting system ARAS, combined with more aggressive monitoring, has greatly improved reporting. - In the past, some audited financial statements were submitted over 18 months after the due date. - The BNA will be amending current legislation to include fines for late reporting. - Compliance actions and timing: - The industry has become more familiar with the new ARAS and reporting behavior has improved. - Date set for completion of related legislative changes: December 2004. - New valuation standards for assets and liabilities are being drafted in the “New Valuation Guide.” - Date set for completion of the New Valuation Guide: December 2003. ### On-Site Inspection (CP 13) - Roles and capabilities: - The insurance supervisor should be able to carry out on-site inspections, including inspection of books, records, accounts, and other documents (limited to operations in the jurisdiction unless supervisors agree otherwise). - The supervisor should be able to request and receive any information from licensed companies. - Description and practice: - The bank has been executing field examinations (on-site inspections) for over eight years and has developed a comprehensive procedures manual; the manual is finalized and will be reviewed periodically. - Market conduct rules are not yet included in the on-site procedures manual; market conduct examination procedures have been drafted but are yet to be introduced. - The bank keeps to the standards of the U.S. based Society of Financial Examiners and several staff are Certified Financial Examiners. - Assessment: Observant - Recommended and implemented actions: - Extend on-site inspections to insurance brokers with attention to AML and market conduct. - Compliance: Market Conduct Guidelines will include procedures for agents and brokers; on-site examinations of agents and brokers are currently being conducted using a provision in the Insurance Supervision Ordinance. - Date set for completion: December 2003. - Formalize field examination program for captives and professional reinsurers and complete the first program (two-thirds finished). - Compliance: The bank has resumed field examinations of captives and professional reinsurers. ### Sanctions (CP 14) - Statutory powers recommended: - Power to restrict business activities, direct remedial action, revoke licenses, impose remedial measures. - Specific directions recommended: changes in Board composition, independent checks on foreign data, limitation on dividend payments, removal/disqualification of external auditors, retention of special auditors at insurer expense. - Ability to impose civil money penalties (daily application), suspend malfeasant directors/officers (with court approval), and impose conditions on insurers or classes of insurers. - Description and practice: - Article 31 permits refusals, revocations, penalties, legally binding instructions, and withdrawal of license in serious noncompliance. - Examples of enforcement: - Instructed an insurer conducting both life and nonlife business to transfer life business to another legal entity. - Instructed all insurance companies to periodically publish names of intermediaries after an intermediary conducted business without a license; the case was turned over to the Public Prosecutor per Article 122 of the Ordinance. - Silent trustees have been appointed on different occasions; currently one company under silent trusteeship. - Licenses of companies not complying with licensing conditions have been revoked. - Assessment: Observant - Recommended and implemented actions: - Pursue a range of money penalties (fines) and include criminal penalties as provided in the Insurance Supervision Ordinance. - Date set for completion of related legislative work: December 2004. ### Cross-Border Business Operations (CP 15) - Supervisory objectives: - Ensure no foreign insurance establishment escapes supervision. - Ensure effective supervision of international insurance groups. - Consultation between host and home supervisors for cross-border establishments. - Ensure foreign insurers providing cross-border services are subject to effective supervision. - Description and practice: - All insurers operating in the Netherlands Antilles, including subsidiaries and branches of overseas insurers, need to be licensed; incidental cross-border business is permitted on a services basis. - The minister of finance may prohibit or impose rules on specific inwards cross-border business if not in the interests of local policyholders. - The bank requires brokers to submit annual details of all insurers with whom business has been placed. - Consideration of a register of overseas insurers permitted to cover local risks by class and possible temporary licenses. - Assessment: Broadly observant - Recommended and implemented actions: - Be more proactive in consulting with overseas supervisors on cross-border issues, including licensing. - Compliance: The bank has become more proactive (examples: contacts with Trinidad & Tobago and Jamaican supervisors; frequent contacts with Dutch and Aruban supervisors). - Date: Continuous process (already started). - Amend legislation so licensed insurers need specific approval to operate cross-border. - Date set for completion: December 2004. - Legislation to accept notified on-site inspections of local branches of overseas insurers, subject to confidentiality and information sharing. - Compliance: Practice already exists; bank will pursue enactment of appropriate legislation. - Date set for completion: December 2004. ### Coordination and Cooperation (CP 16) - Recommended capabilities: - Ability to enter into agreements/understandings with other supervisors and other sectors (banking, securities) to share information and cooperate. - Permission to share information with foreign supervisors, possibly limited to those able to treat information confidentially. - Notification of findings from other investigative bodies (fraud, ML). - Specify types and basis for sharing information obtained by the supervisor. - Description and practice: - MoU’s have been concluded with Aruba, the Netherlands, and Venezuela. - Rules on exchange of information on captives and reinsurers with relevant authorities will be considered in the insurance law revision scheduled for December 2004. - Insurance companies covered by new AML/CFT guidelines issued by the BNA in June 2003; guidelines applicable to all categories except nonlife insurers (operational at a later date). Captives and professional reinsurers are covered. - Assessment: Broadly observant - Recommended and implemented actions: - Expedite remaining planned MoU’s and amend legislation so reciprocity is not mandatory in individual cases of information exchange. - Compliance: MoU’s with relevant jurisdictions are in place. - Date set for completion: December 2003. - Expressly include comprehensive exchange of information provisions in legislation relating to captives and professional reinsurers if that legislation remains separate. - Date set for completion: December 2004. - Extend AML controls for life and nonlife insurance to encompass all captives, professional reinsurers, and offshore intermediaries; establish reporting lines between management, law enforcement, investigatory authorities, and the insurance supervisor. - Compliance: Implemented through new AML/CFT guidelines for insurers issued in June 2003; BNA introduced updated AML indicators applicable to all categories and to become operational at a later date. ### Confidentiality (CP 17) - Requirement: - Supervisors subject to professional secrecy constraints regarding information obtained, including during on-site inspections. - Confidentiality of information received from other supervisors, except where law constrains or provider authorizes release. - Description and practice: - Article 78 of the Insurance Ordinance provides for confidentiality of supervisory information but allows exchange on a reciprocal basis with other supervisors provided the other jurisdiction maintains confidentiality. - Assessment: Observant ### Key Recommendations and Implementation Milestones (selected items) - ARAS and reporting: - ARAS version 2.8 comprehensive filings to be introduced in latter part of 2003; includes 228 series filings with triangular developments on indemnity groups for nonlife insurers. - Date set for completion: December 2003 for ARAS-related filings and New Valuation Guide components. - Licensing, segregation, and composites: - Article 9 prohibits exercise of life and nonlife business within one licensed entity in principle; exceptions require careful motivation. - BNA policy: not to license composite reinsurance companies; BNA will issue a regulation to prohibit composites pending change of law. - Date set for completion: December 2004. - Staffing, inspections, and training: - In January 2003 BNA prepared a tight schedule for on-site inspections including AML inspections. - Per end June 2003, the BNA conducted 18 inspections of which 4 were general scope inspections; the remainder were targeted inspections including AML and investment portfolio inspections. - BNA has conducted interviews and made offers to an actuary and an auditor; one new staff has already taken up duties. - Staff qualifications: department includes two actuaries; other staff members have at least bachelor’s degrees in business administration or accounting; most staff have between 10–15 years’ insurance supervision experience. - Capital adequacy and solvency: - Bank will research solvency requirements of different jurisdictions and consider changes during revision of the Insurance Ordinance. - Tentative date to finalize revision of the Insurance Ordinance: December 2004. - Reporting frequency and supervisory reporting: - Bank considering introducing quarterly reports for insurance companies; annual statements are required and material changes must be explained. - Date set for completion (regulatory direction to industry): July 2004. *Source: Recommended Action Plan and BNA compliance responses in the IMF assessment.* ### 32. The comments of the authorities to the recommendations have been incorporated in ### 32. The comments of the authorities to the recommendations have been incorporated in ### Incorporation of authorities' comments - The comments of the authorities to the recommendations have been incorporated in the action plan in Table 6. - - 101 - ### Assessment of rules and policies against AML/CFT — Section header - III. ASSESSMENT OF RULES AND POLICIES AGAINST AML/CFT - A. Information and Methodology Used for the Assessment *cr04272 - 32. The comments of the authorities to the recommendations have been incorporated in* ### 33. The assessment was performed in April 2002, based on study of the AML/CFT laws ### 33. The assessment was performed in April 2002, based on study of the AML/CFT laws ### Assessment scope and methodology - The assessment was performed in April 2002, based on study of the AML/CFT laws and regulations of the Netherlands Antilles, as detailed in Attachment I. - Discussions were held with the Deputy Director of the BNA for Policy and International Relations, the Head of International Relations, the Heads of the Banking and Insurance Supervision Departments of BNA, Head and staff of the Unusual Transactions Reporting Center (UTRC), the Attorney General of the Netherlands Antilles, and the Head of the Customs Service. - The February 2002 draft AML/CFT Methodology was used as the basis for the assessment. - Since the mission, a new methodology and criterion-by-criterion assessment worksheet was developed and agreed between the IMF, World Bank, and the FATF; these materials were not available at the time of the missions. - The AML/CFT assessment was updated through July 2003, in consultation with the authorities, to take into account recent developments including issuance in June 2003 of new AML/CFT Guidelines for Banks and insurance companies. - The new assessment methodology agreed in October 2002 recognizes jurisdictional differences in legislative, institutional, and supervisory frameworks and calls for taking into account stage of economic development, administrative capacities, and cultural and legal conditions. ### Client Due Diligence — legal requirements and practice Findings: - Financial intermediaries are prohibited from engaging in a financial transaction before verifying client identity on the basis of an official identifying document (Identification Ordinance, Articles 2, 3, 6, 7, 8). - Financial intermediaries must keep evidence of client identity, records of correspondence, review outdated identification, keep records to enable reconstruction by the UTRC, and report unusual transactions to the UTRC. - Banks: identification documents must be maintained for 10 years and held available for inspection (Banking Ordinance, Article 42). - General obligation: all companies to hold documents for 10 years (Civil Code, Book 3, Article 15(a)(3); Code of Commerce, Article 4). - Other intermediaries (life insurance companies, MTs): required to maintain client transaction records for at least five years from termination of agreement or execution of transaction (Identification Ordinance Articles 1(b), 6(c),(d), 7). - All financial intermediaries must identify complex or unusual transactions, examine background/purpose, and file prompt reports to the UTRC (Ministerial Decree Appendices A, B, C; Reporting Ordinance Article 11). - Reporting thresholds: report all transactions over NA f. 250,000 (US$140,000) and other transactions over NA f. 20,000 (US$11,000) that exhibit specified indicators (Ministerial Decree Appendix A(1)). - Financial intermediaries and officials are protected from criminal or civil prosecution for reporting suspicious transactions in good faith (Reporting Ordinance Articles 14, 15). - Tipping-off is prohibited; secrecy obligations apply to information submitted to the UTRC (Reporting Ordinance Article 21(1)). - FATF Special Recommendation VII on wire transfers must be followed; originator information to remain with transfer; enhanced scrutiny and reporting required where originator information missing (BNA letter March 2002; AML Guidelines for Banks p. 6). - New Ministerial Decrees on financing of terrorism adopted October 4, 2002; FT added as criterion for reporting to the UTRC; Decrees 119, 120, 121 of October 4, 2002 require FT transactions reported to law enforcement and to UTRC. - Banks and life insurance companies required to implement internal procedures, designate a compliance officer at management level, and make employees aware of AML/CFT laws (AML Guidelines for Banks p. 8; Insurance Companies p. 8). - No explicit statutory requirement to screen employment applicants from an AML/CFT angle; revised March 2003 BNA Policy Rule on Integrity Testing includes assessment of criminal records for prospective managers and qualifying shareholders. - Sanctions for violations: - Intentional violation of identification/record-keeping: imprisonment up to four years, or fine up to NA f. 500,000 (US$280,000), or both (Identification Ordinance Article 9(1)). - Unintentional violation: imprisonment up to one year, or fine up to NA f. 250,000 (US$140,000), or both (Identification Ordinance Article 9(2)). - Intentional violation of reporting/tipping-off: imprisonment up to four years, or fine up to NAf 500,000 (US$280,000), or both; unintentional: imprisonment up to one year, or fine up to NAf 250,000 (US$140,000) (Reporting Ordinance Article 23). - MTs: imprisonment not exceeding two years, and fine not exceeding NAf 25,000 (US$14,000) (Foreign Exchange Ordinance Article 28). - Assessment: Compliant for client due diligence overall; comments note gaps in coverage of nonlife insurers, lawyers, notaries, accountants, consultants, real estate agents, dealers in high-end goods, and need for administrative penalty powers and explicit statutory employment screening. Policy recommendations (Client Due Diligence): - Consider amending laws to allow BNA, CSPs Board, and Gaming Control Boards to impose money penalties or administrative fines directly or via court order. - Adopt an explicit statutory requirement that financial institutions screen employment applicants from an AML/CFT angle and include explicit statutory fit and proper criteria for directors, senior officers, and shareholders; screening of applicants covered by new AML/CFT Guidelines for Banks and insurance companies (BNA, June 2003). ### Fit and Proper test and financial transparency Findings: - Relevant laws mention general screening of antecedents but do not explicitly refer to lack of criminal record as fit and proper criterion. - BNA replaced fit and proper with revised March 2003 Policy Rule on Integrity Testing including screening of all antecedents; police records extract required certifying no criminal record. - BNA practice: a criminal record taken as disqualification for managers or key functionaries (Banking Ordinance Sections 4(1)(e),(f); 23(2)(a)). Section 23(2)(b) prohibits transfers of control without BNA approval. - Life insurance: BNA approval required for senior officials and shareholders (Insurance Ordinance Article 17); approval of changes in managing and supervisory directors required (Article 32). - MTs: managing and supervisory board members and shareholders subject to integrity/fit and proper tests (MT Admission Requirements pp. 2–3). - For banks, life insurers, and MTs, adequate sanctions provided for failures to comply. - Formation of corporate entities requires a declaration of no objection from ministry of justice certifying activities not contravene law. - Assessment: Largely compliant. - Comment: Pending legislative proposal to adopt stricter licensing procedures for MTs should be adopted immediately. ### Criminalization of Money Laundering and Terrorism Finance Findings: - Money laundering criminalized under Article 1 of the National Ordinance on the Prevention of Money Laundering (AML Ordinance). - Financing of terrorism (FT) not explicitly termed but covered in Criminal Code as accessory or participation in crimes set forth in conventions; FATF considers coverage satisfactory for Special Recommendation II. - International conventions: Kingdom of the Netherlands party to and ratified the Vienna Convention; Suppression of Terrorism Convention signed but not ratified; Palermo Convention signed December 12, 2000 but not ratified. - ML offense covers predicate offense and laundering as well as only laundering (AML Ordinance Articles 1, 3; Criminal Code Article 38e). Conviction of predicate offense not necessary to convict for ML (AML Ordinance Articles 1, 2, 3). - All crimes are considered predicate offenses for ML (AML Ordinance Article 1). - ML offense extends to all assets representing proceeds of crime (AML Ordinance Article 1, as amended by National Ordinance of August 3, 2001 (No. 7, 2001)). - Predicate offenses extend to extraterritorial crimes, subject to domestic-law equivalence requirement (AML Ordinance Article 1). - ML requires element of knowing, including knowledge from objective factual circumstances (AML Ordinance Article 1; Article 3(1)(b)). - Legal entities punishable for ML (Article 5 AML Ordinance). Penalties: - Intentional ML: imprisonment up to 12 years or fine up to NA f. 1,000,000 (approximately US$560,000), or both (AML Ordinance Article 1). - Repeat offenders: imprisonment up to 16 years or fine up to NA f. 1,250,000 (approximately US$700,000), or both (AML Ordinance Article 2). - Individuals guilty by default: imprisonment up to 4 years or fine up to NA f. 250,000 (approximately US$140,000), or both (AML Ordinance Article 3). - Administrative penalties for violations of the AML Ordinance are not provided in law. - Assessment: Compliant. - Comment: Authorities received technical assistance from the Netherlands for drafting implementation legislation to ratify the 1999 U.N. Convention on FT; consider expanding authority for administrative penalties. ### Confiscation of proceeds and assets used to finance terrorism Findings: - Criminal Code and Criminal Procedure Code, as amended by National Ordinance 255 of December 1998 on Forfeiture of Illegally Obtained Gains, provide for seizure and forfeiture of proceeds and protection of third party rights (Criminal Code Articles 38e, 119, 119a). - Palermo Convention signed December 12, 2000 but not ratified; Strasbourg Convention signed and ratified in 1999. - Confiscation of assets of organizations primarily criminal in nature is allowed. - No provision for confiscation of property of equivalent value. - Seizure/freeze measures during investigation require a court order (Criminal Code Article 38e(3)); legal safeguards for owners of frozen/seized assets (Criminal Procedure Code Article 47). - Civil confiscation not permissible in Netherlands Antilles legal system. - Orders to identify and trace assets permitted (Criminal Procedure Code Articles 120–129). - Third party rights are deducted when assessing value of illegally obtained advantage (Criminal Code Article 38e(6)), but nature/extent and proof mechanisms not explicitly defined. - Authority exists to void contracts that prejudice authorities’ recovery (Criminal Procedure Code Article 119(d)). - Assessment: Compliant. - Comment: Consider adopting statutory provision to permit confiscation of property of equivalent value. ### Financial Intelligence Unit (UTRC) — structure, powers, and performance Findings: - The UTRC is the centralized FIU in the Netherlands Antilles (Reporting Ordinance Article 2) responsible for receiving and analyzing financial transaction reports (Reporting Ordinance Article 3(a)). - Decrees 129, 130, 131 of October 11, 2002 confirm ministerial decrees of October 4, 2002: transactions suspected of being related to terrorism should be reported to UTRC. - Reporting parties required to report any unusual transaction to UTRC (Reporting Ordinance Article 11(1)); ministers of finance and justice in consultation with UTRC issue guidelines on identification of unusual transactions (Reporting Ordinance Article 10(1)). - UTRC obliged to report to investigative and prosecuting authorities information that may indicate ML or terrorism or provide leads (Reporting Ordinance Article 3). - UTRC authorized to determine manner of reporting and may require additional documentation from reporting parties (Reporting Ordinance Articles 3(b),(c); Article 12). - UTRC may request BNA assistance regarding entities regulated by BNA, implying BNA-UTRC information sharing; no explicit legal provision for information sharing between UTRC and BNA for non-BNA regulated entities. - UTRC cannot itself impose ex parte temporary freezing/blocking but may request public prosecutor to do so. - UTRC lacks authority to audit compliance; BNA performs compliance audits for entities it supervises (Procedures Manual). - Noncompliance with reporting obligations is punishable under Reporting Ordinance; UTRC may request prosecution. - UTRC authority: collect, register, process, analyze data to determine importance for prevention/detection of ML (Reporting Ordinance Article 3(a)); access to business/corporate registries (on-line), real property registries, vehicle registries, police charge sheets/criminal records, immigration and customs records, and credit reporting records (not applicable). - UTRC required to disseminate information/intelligence domestically when reasonable grounds to suspect ML or terrorism financing (Reporting Ordinance Article 6); confidentiality safeguards in dissemination (Reporting Ordinance Article 20). - UTRC may exchange information with foreign FIUs subject to a MoU and adequate safeguards (Reporting Ordinance Article 7(2); National Decree Official Gazette 2001, No. 69, Article 4). - UTRC authorized to undertake investigations into ML developments, conduct research, devise/conduct training, provide information on phenomenon and prevention, and advise government/parliament (Reporting Ordinance Article 3(d),(f); Article 3(g)). - UTRC established as independent governmental authority operating under ministry of finance (Reporting Ordinance Articles 2, 8, 9, 16–18); annual report to minister of finance (Article 3(g)). - No explicit statutory protection against lawsuits for UTRC officials, though considered adequately protected by general civil/administrative law if duties performed responsibly. Assessment and operational comments: - Assessment: Largely compliant. - Filing of UTRs by banks and other reporting entities is uneven; some reporting entities underreport. - On-site inspections of reporting entities are neither frequent enough nor uniform; BNA on-site AML inspections occur every two years — considered too infrequent. - Recommendations: - Increase frequency of BNA on-site AML inspections (mission considers annual inspections more appropriate). - Encourage other regulators (CSP Supervisory Board, Gaming Control Boards) to conduct AML inspections and target institutions that appear to underreport. - Amend laws to permit information sharing between regulators and UTRC and to give UTRC authority to obtain court orders to enter premises of reporting parties or require regulators to inspect on request by UTRC. - Consider empowering UTRC to impose civil penalties or administrative fines on reporting parties for failure to report timely and other AML violations. - Reform UTRC budget process: replace requirement of prior approval for each purchase and monthly projected expenditures with a budgetary allocation and yearly audit; minister of finance is addressing the problem. - UTRC should ensure written procedures clearly reflect policies and practices. ### International cooperation in AML/CFT matters Findings: - UTRC may exchange information with other FIUs based on an MoU, without need for a treaty (Reporting Ordinance, Official Gazette 2001, No. 69 amendment). - Mutual legal assistance possible pursuant to treaty and may be initiated if ML or predicate crime committed in Netherlands Antilles by a person under foreign criminal investigation (Criminal Code Articles 579(a), 579(*b), 579(c)). - Procedures exist to provide legal assistance in identification, freezing, seizure, confiscation of proceeds (Criminal Code Articles 579(b), 579(c)). - Assistance may be provided if individual charged with ML or FT only, or with both predicate and ML/terrorism. - International cooperation primarily via bilateral treaties represented by Kingdom of the Netherlands (Criminal Code Article 579(a)(1)), including treaties with the United States and Australia; Strasbourg Convention ratified by Kingdom. - Controlled delivery accepted and regularly used. - Sharing of confiscated property with other countries determined by treaty (e.g., United States). - Extradition permitted for crimes punishable by imprisonment of more than one year (Extradition Decree Article 2). - Assessment: Compliant. ### Controls and monitoring of cash transactions Findings: - Cross-Border Ordinance (Official Gazette 2002, No. 74, March 25, 2002): all exports and imports of cash above NA f. 20,000 (US$11,000) must be reported to Customs. - Reporting form developed by Customs Office and UTRC. - Under Article 4 of Cross-Border Ordinance, UTRC manages information received by Customs. - No system established to collect and process information on noncash domestic and international currency transactions above a fixed amount performed by financial institutions unless considered suspicious under Reporting Ordinance. - Financial intermediaries required to identify, record, and report all cash transactions over NA f. 250,000 (US$140,000) and most transactions over NA f. 20,000 (US$11,000) (Implementation Decree to Unusual Transaction Reporting Ordinance Official Gazette 1997, No. 253). - BNA monitors and verifies these reports through on-site inspections of banks, life insurance companies, and MTs. - Information on international currency and monetary instruments transactions (but not precious metals, gems, etc.) provided monthly to IMF and quarterly to BIS. - Factors influencing use of cash: banks promote credit/debit cards, direct deposit of salary checks, and book-entry recording of securities. ### AML/CFT in the banking sector — supervisory arrangements and customer identification Organizational and administrative arrangements — findings and recommendations: - BNA verifies banks’ policies and procedures to identify customers and detect unlawful use during on-site examinations; AML forms part of on-site inspections every two years. - BNA uses an AML Inspection Checklist and conducts interviews with bank staff and senior officers during on-site exams; deficiencies are included in examination reports with directives to correct. - Ongoing AML training for BNA personnel conducted locally and internationally through multiple programs. - BNA requires banks to issue formal policy statement from Board of Directors/senior management expressing commitment to prevent ML (AML Guidelines Section II). - BNA established Financial System Integrity Unit to assist supervision departments and to coordinate integrity risk prevention; instruments include Register Integrity Financial Sector, August 2002 Covenant on Information Exchange with Public Prosecutor’s Office, MoUs, and new Policy Rule on Integrity Testing. - BNA reviews documented training plans and AML training during on-site exams; noncompliance can result in revocation of license (Banking Ordinance Article 9(1)(f)). - BNA can instruct banks to take necessary measures for AML compliance (Banking Ordinance Article 22(1),(2)); BNA lacks power to impose fines but can impose administrative sanctions and file reports with Public Prosecutor (Banking Ordinance Article 40). Assessment and recommendations: - Assessment: Largely compliant. - Comments/recommendations: - Given sector size, BNA should carry out on-site reviews more frequently than every two years; mission considers annual inspections more appropriate. - Enhance BNA enforcement powers via amendment of Banking Ordinance to grant authority to level fines for AML violations and to take prompt action against a bank, its management, and directors. Customer identification and due diligence — findings: - BNA verifies compliance with Identification Ordinance and AML Guidelines during on-site inspections, including: - Prior due diligence on resident and nonresident individuals and legal entities before rendering any financial service (Identification Ordinance Articles 2, 3, 8). - Verification of procedures to determine ultimate beneficial owner of account/transaction including trustees, foundations, corporate vehicles (Identification Ordinance Article 5(1)–(4); AML Guidelines Section II.1.1(A)). - Appropriate records of identification documents and regular updating (Identification Ordinance Articles 3(3), 6, 7; AML Guidelines Section II.1.1). - AML guidelines advise on higher-risk customers such as corporate customers and nominee accounts (AML guidelines Section II.1.1(A)). *Assessment contents drawn from the April 2002 assessment and updates through July 2003 by the IMF in consultation with Netherlands Antilles authorities.* ### Section II.1 of the AML Guidelines for Banks provides more detailed guidance on the ### Section II.1 of the AML Guidelines for Banks provides more detailed guidance on the ### Identification of customers - Guidance covers identification of resident and nonresident personal customers, corporate customers, clients with nominee accounts, and transactions with nonaccount customers or occasional customers (Section II.1). - Section II.1.1 (A) provides additional guidance on identification of corporate customers and identification of clients with nominee accounts. - The AML guidelines require that a “Source of Funds” form be filled out by the client. The form is used when funding a new account and when carrying out a transaction. - The form does not explicitly require ascertaining that the customer’s source of wealth is not from illegal activities. ### Numbered accounts and the Identification Ordinance - There are no specific provisions regulating numbered accounts; such accounts fall under the Identification Ordinance. - Anonymous accounts or accounts with fictitious names are effectively prohibited by the Identification Ordinance (Article 2). - According to the BNA, there are no numbered accounts in the Netherlands Antilles. ### Private banking, high-risk customers, and FATF-list countries - The updated BNA AML/CFT guidelines issued in June 2003 instruct banks to conduct more extensive due diligence for private banking activities or high-risk customers; this will be verified during subsequent on-site inspections. - By letter of March 2003, the BNA instructed all financial institutions subject to the AML/CFT framework to give special attention to business relations and transactions with persons from countries on the FATF list of non cooperative countries and territories. - If necessary, these relations and transactions are to be reported to the UTRC. - Assessment comment: The AML guidelines need to be amended to provide specific guidance on the enhanced scrutiny needed in private banking activities and transactions with high-risk customers, such as politically exposed persons. - Assessment comment: The AML guidelines should make specific reference to enhanced and special attention to correspondent banking services from banks without physical presence in their jurisdiction or when the jurisdiction is known to have an inadequate AML framework. ### Wire transfers, originator information, and related obligations - BNA Circular No. SH/rp/2002-04.845, dated March 22, 2002, requires banks to ensure that electronic money transfer information includes the sender’s full name, address, and account number before executing the transaction. - The circular advises that this matter will be verified during the next on-site review. - The Circular instructs banks that transfers without full originator information (name, address, and account number) should not be executed, consistent with FATF Special Recommendation VII. - National Decree of August 7, 2000 (Official Gazette 2000, No. 121) made the electronic transfer of money subject to the Identification Ordinance, requiring proper identification and registration of the identity of customers. - AML guidelines instruct banks to be watchful when accepting funds wire-transferred from noncustomers and noncorrespondent banks for subsequent transfer to other unknown parties. - If such funds are accepted, suitable identification of the new depositor and knowledge of the source of funds must be required (Section II.1.2 BNA AML guidelines). - During on-site inspections, examiners confirm whether, when performing wire transfers, the bank requires the originator to fill a “Source of Funds” declaration when accepting funds from nonregular customers and noncorrespondent banks (Section II.1.2 and Appendix “A” of AML guidelines). - The guidelines require the bank to refuse the transaction when it is reasonable to believe that a wire transfer is related with criminal or terrorist activity, or if the client refuses to sign the form (Appendix “A” of AML guidelines). - Examiners check that the bank keeps a record of the information used to identify the originator, the amount involved in the transaction and the corresponding account number (Article 6 (a), (b), (c), and Article 7 of the Identification Ordinance). ### Correspondent banking - There are no specific legal provisions related to enhanced attention to correspondent banking services from banks without physical presence in their jurisdiction or when the jurisdiction is known to have an inadequate AML framework. - The AML guidelines should explicitly address enhanced and special attention to such correspondent banking relationships (assessment comment). ### Industry awareness and typologies - The BNA regularly sends FATF typologies reports to the Bankers Association to maintain industry awareness of ML threats inherent in new or developing technologies that favor anonymity, and to encourage measures to prevent their use in ML schemes. ### Monitoring and reporting of suspicious activities; UTRC interaction - The supervisor determines that banks have formal procedures to recognize and report potentially suspicious transactions. - Banks and competent authorities should establish and regularly revise systems for detection of unusual or suspicious patterns of activity that provide managers and compliance officers with timely information needed to identify, analyze and effectively monitor customer accounts. - The UTRC provides banks with specific instructions for filing UTRs. - Compliance with relevant legislation is tested during on-site inspections. - Banks are required to identify complex or unusual transactions, and complex and unusual patterns of transactions that have no apparent or visible economic or lawful purpose, to examine as far as possible the background and purpose of such transactions, and report the information promptly to the UTCR (Appendices A, B, and C of the Ministerial Decrees containing the indicators to detect unusual transactions; Article 11 of the Reporting Ordinance). - The verification procedure consists of the examination of policies, procedures, and significant samples of client files. - Inspections include verification of the existence of an adequate filing system for unusual transactions detected at the bank, kept by the compliance officer (Section II.1.2 (C) of the AML guidelines). - The BNA verifies during on-site examinations that bank management has adopted formal statements of policy including internal control procedures for reporting unusual transactions and keeping adequate records for the competent authority and compliance officers (Sections II and II.2 of AML guidelines). - The AML guidelines require the prompt disclosure of unusual transactions to the UTRC (Section II.2 (B)), consistent with Article 11 of the Reporting Ordinance. - Any person filing a UTR to the UTRC is bound to secrecy on the matter (Reporting Ordinance, Article 21 (1)). - Decrees issued in October 2002 (Government Decrees 129, 130, and 131) require reporting of transactions that could be related to FT. - Reporting is mandatory when there is cause to presume that the transaction may relate to monies derived from criminal activities (Ministerial Decree on indicators to detect unusual transactions, Appendix A). *International Monetary Fund — cr04272 (Section II.1 of the AML Guidelines for Banks)* ### Section II.1). ### Section II.1) ### Record Keeping, Compliance and Audit - Assessment: Compliant - Findings: - Guidance on measures for compliance is provided in the AML Guidelines for Banks; banks must detect and report unusual transactions to the UTRC, including proposed, uncompleted transactions (Section II.1.2). - The supervisor (BNA) confirms designation of a senior officer(s) in banks responsible for ML deterrence and detection (AML guidelines, Section II.2). - Examiners verify that client transaction records are maintained and held available for inspection for at least five years, either from the termination of the agreement or the execution of the transaction (Article 6(c), (d) and Article 7 of the Identification Ordinance). - Frequency and sufficiency of updating customer information for identification and due diligence are verified during on-site examination (Section II.1.1 of the AML guidelines). - On-site examinations include review of internal control systems for customer due diligence and reporting of unusual transactions. - Banks’ AML policies must cover independent testing of procedures, at least annually, by internal audit, compliance, or a competent third party (AML guidelines, Sections II.2, II.3, and II.4). - Deficiencies detected by internal audit or a competent third party must be reported to management or the compliance officer with a suggested corrective action and deadline (AML guidelines, Section II.3). - BNA may file a complaint with the Public Prosecutors Office against a bank and its management and directors if it believes a criminal act has been committed (Banking Ordinance, Article 40). - Enforcement of compliance with the Identification Ordinance is mandated to criminal justice authorities; the BNA has no authority to impose administrative or civil sanctions specifically for noncompliance with the Identification Ordinance regarding maintenance for at least five years of identification records and availability for inspection (Article 6(b) and Article 7 of the Identification Ordinance). - BNA is empowered to engage a silent trustee to assist in correcting detected compliance deficiencies (Article 21(1) of the Banking Ordinance). - Under Article 22 of the Banking Ordinance, if noncompliance with AML provisions might endanger liquidity or solvency, BNA can request corrective measures and may subject the exercise of powers by departments of the bank to prior approval by persons appointed by the central bank. ### Cooperation with Supervisors and Competent Authorities - Assessment: Largely compliant - Findings: - The supervisor can share, directly or indirectly (including through a FIU), information related to suspected or actual criminal activities with domestic and foreign financial sector supervisory authorities. - BNA may share any information obtained in executing its supervisory duties with foreign supervisory authorities engaged in supervision of financial markets (Banking Ordinance, Article 41); submitted information must not contain names of individual depositors. - BNA is a member of the UTRC Guidance Committee but is restricted in sharing information directly with the UTRC; BNA can provide evidence in criminal proceedings. - The UTRC may exchange information with foreign FIUs subject to a MoU and may share information/intelligence only if adequate safeguards are provided, including that exchanged information: - (i) shall be used only for the specific purpose for which it was sought or provided; - (ii) shall not be shared with a third party without the UTRC’s prior consent; - (iii) shall not be used in an administrative, prosecutorial, or judicial purpose without its prior consent (National Decree 2001, No. 69, Article 4). - Although the UTRC may share information with foreign FIUs only under confidentiality conditions, there are no mechanisms to establish whether exchanges with foreign counterparts would be secure. - On on-site review, examiners verify that the bank’s compliance officer maintains records of all dealings with the UTRC and that compliance officers keep an adequate filing system of UTRs within the bank (Section II.1.2 (C) of the AML guidelines). - Comments: - Exchange of names is always possible in the Netherlands Antilles if it regards a criminal case. - If the client or the bank has no objection, authorities can exchange information; authorities usually request voluntary disclosure by the bank depending on the reason. ### Licensing and Authorizations - Assessment: Compliant - Findings: - Licensing requirements conform to FATF Recommendation 29; competent authorities take legal/regulatory measures to ensure fit and proper persons control financial institutions and to prevent control or material participation by criminals or confederates. - Law establishes required information for BNA to determine fit and properness of major shareholders, transparency of ownership, directors and senior management, and source of initial capital (Article 3 of the Banking Ordinance). - BNA may request additional information during licensing analysis (Article 5 of the Banking Ordinance). - Evaluation data are obtained via police records from country of origin, personal questionnaires, and curriculum vitae to ascertain knowledge and experience. - Fit and proper test criteria are outlined in the revised March 2003 Policy Rule on Integrity Testing by the BNA. - BNA can instruct domestic banks to apply safeguards or close overseas establishments to prevent reputational risk (Article 21.1 of the Banking Ordinance). - BNA may condition approval for opening foreign branches/subsidiaries on observance of Netherlands Antilles AML legislation by the overseas establishment (Article 23(1)(3) of the Banking Ordinance); noncompliance may lead to withdrawal of approval. - At assessment date, only two domestic banks had a foreign operation; BNA is satisfied with that jurisdiction’s AML framework and has close contacts with foreign counterparts. - BNA can inquire into unauthorized banking business and order cessation (Article 8.1–8.4 of the Banking Ordinance); failure to comply can lead to filing charges with the Public Prosecutors Office (Article 50 of the Banking Ordinance). ### Module 2 — AML/CFT in the Insurance Sector #### Organizational and Administrative Arrangements - Assessment: Largely compliant - Findings: - BNA issued the Guideline on the Detection and Deterrence of Money Laundering in Life Insurance Companies in June 2003 (the “AML Guidelines for Insurance Companies”) emphasizing customer identification, appointment of compliance officers, training, and reporting of unusual transactions. - BNA prepared a procedures manual for its staff in January 2001 and started on-site inspection program of insurance companies in January 2003. - AML is covered in off-site and on-site supervision of life insurers; staff needs more training on ML trends and patterns in insurance. - Corporate Governance Guidance Notes apply to all insurance companies; institutions must send an annual compliance report to BNA, certified by external auditor. - During on-site exams, supervisors verify Supervisory Board carries out what is stated in the annual “Statement of Compliance.” - Board of Directors and senior management must issue a “Statement of Policy” including training programs (Section II.1 of AML Guidelines for Insurance Companies). - UTRC issued a revised instruction manual on reporting unusual transactions in January 2002 applicable to life insurers; additional guidance in Section II.1 (A.2) of AML Guidelines for Insurance Companies. - BNA may issue binding instructions to insurers; noncompliance can lead to conditioning company management to approval by BNA-appointed persons (Article 31(3)(a) of the Insurance Ordinance). - If instructions are not followed, BNA may appoint a silent trustee or file charges with the Public Prosecutors Office; noncompliance with BNA instructions is punishable under criminal law (Article 122.1 of the Insurance Ordinance). - Comments: - More AML training is needed for BNA staff and industry. - Only life insurers are bound by the Reporting and Identification Ordinances; nonlife insurers, reinsurance, captive insurers, brokers, and agents are not fully covered and thus not subject to BNA sanctions for inadequate controls or nonreporting. - BNA revised AML Guidelines for Insurance Companies in June 2003 to align with IAIS Anti-Money Laundering Guidance Notes (January 2002). - An AML committee was installed in the BNA; a schedule of on-site inspections including AML/CFT aspects started in January 2003. #### Customer Identification and Due Diligence (Insurance) - Assessment: Largely compliant - Findings: - Life insurers must establish customer identity before rendering financial services using an official identifying document (Article 2 and Article 3 of the Identification Ordinance). - Life insurers must keep identity records (Article 6 and Article 7) and review identification when data appear no longer valid (Article 3(3)). Life insurers are prohibited from rendering a financial service if identity not established (Article 8). - AML guidelines direct life insurers on policies/procedures to ensure proper identification and discourage illegitimate transactions (Section II.1, Ad. (A) of AML guidelines). - BNA issued a procedures manual in January 2001 to guide examiners verifying prevention, detection, and reporting systems. - On-site examinations targeting AML compliance began in early 2003. - Adequacy of AML policies in nonlife insurers is not assured because Identification and Reporting Ordinances do not bind them. - No specific guidance exists on establishing the true nature of the relationship between the insured risk and a policyholder. - Life insurance companies and brokers must determine true identity of policyholders before contracts and develop a centralized record keeping system for identification/transaction information (Section II.1 Ad. (A) of AML guidelines). - Brokers are required to perform due diligence by the guidelines but are not covered by the Identification or Reporting Ordinances. - Internal Control Policy for identification is in Section II.1 (A.1) of AML guidelines, including guidance for key personnel policies and additional information for companies established abroad (Section II.1 (A.1)(iv)). - Reporting thresholds and conditions: - Report applications when initial premium payment or purchase sum exceeds NA f. 25,000 (approximately US$14,000) if policyholder resides outside the Netherlands Antilles or initial premium/payment originates from a bank outside the Netherlands Antilles, and two or more additional indicators are met (Ministerial Decree Appendix B (II)(2)(a) and (c)). - Reporting obligatory for any payment over NA f. 100,000 (approximately US$55,000) into an account with a bank outside the Netherlands Antilles within five years from signing of the policy (Ministerial Implementation Decree, Official Gazette 1997, No. 253, Appendix C (i)(2)). - Verification is not specifically required when claims, commissions, or other monies are to be paid to persons other than the policyholder; reporting is obligatory if insurer has cause to presume the insurance is related to ML (Ministerial Decree, Appendix C (II)(1)). - Comments: - Identification Ordinance needs amendment to cover all nonlife insurance and reinsurance companies, captive insurers, insurance brokers, and agents; authorities consider requesting technical assistance to draft provisions. - June 2003 AML Guidelines for Insurance Companies also cover nonlife insurance companies. - BNA should focus on more AML training for the industry; prior training: July 2002 training completed for 193 financial sector staff including insurers; course repeated November 2002 with an auditing company. - Attention needed on ML threats inherent in new or developing technologies that favor anonymity. - AML guidelines need amendment to include guidance on establishing the true nature of relationship between insured risk and policyholder. - BNA should issue specific guidance for transactions with customers based in jurisdictions with inadequate AML frameworks. - Per June 2003, BNA revised AML Guidelines for Insurance Companies to conform with IAIS Guidance Notes. #### Monitoring and Reporting of Suspicious Activities (Insurance) - Assessment: Largely compliant - Findings: - Procedures manual for insurance examiners provides guidance to verify adequacy of systems for detection and internal reporting of unusual/questionable transactions; manual does not cover nonlife insurers, life reinsurers, and nonlife reinsurers. - Guidance for internal control systems to deter unusual transactions is provided in Section II.1 (A) and (A.2) of AML guidelines. - Guidance for evaluating and reporting unusual transactions is in regulation (Section II.2, A.2(i) and (iii)(a) and (b) of AML Guidelines for Insurance Companies) and by UTRC's “Reporting Procedure for Unusual Transactions.” - AML guidelines provide procedure for internal reporting to compliance officer (Section II.2 (A.2)(iii)(a)); compliance officer must prepare external report to UTRC (Section II.2 (A.2)(iii)(b)). - Insurers are bound to comply with BNA instructions (Article 31.2 of Insurance Ordinance) and with Public Prosecutor instructions during investigations. - Decrees 119, 120, and 121 of October 4, 2002 require reporting of transactions suspected to relate to FT; reporting is mandatory when there is cause to presume transaction may relate to ML (Ministerial Decree, Appendix B, II, 1). - Comments: - Reporting Ordinance needs amendment to cover all nonlife insurance and reinsurance companies, captive insurers, insurance brokers, and agents. #### Record Keeping, Compliance, and Audit (Insurance) - Assessment: Largely compliant - Findings: - Procedures manual for verification of AML guideline compliance is suitable to determine whether life insurers have appointed compliance officers and whether AML policy manuals contain measures for: - keeping records of questionable policyholders and transactions; - maintaining an audit trail for questionable funds; - a formal system of internal control to identify clients and prospective clients; - ability to keep adequate records and inquire into source of funds for transactions (Section II.1, Ad. (A) and (B)). - Comments: - (Assessment commentary continues in source beyond provided excerpt.) *Source: cr04272 - Section II.1).* ### Section II.1.2 and Appendix “A” of AML guidelines). ### cr04272 - Section II.1.2 and Appendix “A” of AML guidelines ### Compliance functions, internal audit, and AML procedures in life insurance companies - The compliance officers in life insurance companies are required to review the observance of the company’s policy and procedures (Section II.1, Ad (B) of the AML Guidelines for Insurance Companies). - The guidelines require a yearly independent testing system of the policies and procedures by the internal audit department or by a third party, such as the company’s external auditors (Section II.1, Ad (C) of the AML Guidelines for Insurance Companies). - Life insurance companies are required to establish an internal audit function independent from management and reporting directly to the Supervisory Board or an Audit Committee appointed by the Supervisory Board (Section IV.1 (c) and (i) of the Corporate Governance Guidelines). - The internal audit mandate includes ongoing focus on control issues and periodic review of all aspects of the institution’s operations to ensure compliance with all applicable policies and procedures and to review whether the insurer’s policies and practices are implemented. - In practice, companies either have an internal audit department or outsource the internal audit function to local accounting firms. - Reporting systems to alert senior management and/or the Board of directors to noncompliance or inadequate execution of AML procedures are not specifically required by law, but insurance examiners verify the existence and adequacy of such systems in practice for life insurance companies. - Close working relationships between underwriters and claims investigators are not specifically required. Assessment: Largely compliant - Comment: The BNA started implementing the on-site inspection program for life insurers in January 2003. ### Information sharing and supervisory cooperation - The insurance supervisor is able, directly or indirectly (including through a FIU), to share with domestic and foreign financial sector supervisory authorities information related to suspected or actual criminal activities. - The BNA is authorized to exchange information with foreign insurance supervisors (Article 78 of the Insurance Ordinance). Assessment: Compliant ### Licensing, fit and proper testing, and corporate governance - The competent authorities should take measures to authorize fit and proper persons to control insurers and/or sell insurance products; measures should prevent control or acquisition of a material participation in an insurance company by criminals or their confederates. The licensing requirements also conform to FATF Recommendation 29. - The BNA applies fit and proper tests to all shareholders, directors, and senior management of supervised institutions and can block the appointment of any of these persons. - Article 17 of the Insurance Supervision Ordinance: persons who determine the insurer’s day-to-day policies should, to the judgment of the BNA, be sufficiently qualified to operate the insurance business; actions and records of such persons shall not give the BNA reason to believe that the interests of policyholders and other interested parties could be jeopardized. - The BNA issued revised personal questionnaires, covering areas related to integrity, which must be completed by all candidates for policy level positions in the insurance industry every two years. On the basis of these questionnaires, the BNA decides on integrity and acceptability of candidates every two years. - Policies on corporate governance are set out in the BNA’s “Guidance Notes for the Supervisory Board of Supervised Financial Institutions.” - The ML element of the on-site review includes verification of documented policy statements on ethics and professional behavior and its clear communication to staff. - Life insurers send a compliance report to the BNA at least once a year that has to be certified by their external auditor. - Shareholders and directors must pass the fit and proper test established in the BNA’s “Policy Rule on Integrity Testing” and must disclose a “Statement of Compliance” with the Corporate Governance Guidelines. - The BNA staff is aware of reputational risk from operations in some countries; there are some foreign branches controlled by companies for which the BNA is the home supervisor. The other jurisdiction exercises supervision in a way considered adequate by the BNA, and the BNA has regular contacts with that supervisor. - The Integrity Financial Sector Unit of the BNA assists the insurance supervision department with respect to integrity issues. - Causes for revocation of an insurance license include ceasing to meet the requirements set for obtaining the license (Article 55.c of the Insurance Ordinance) and serious defaults in complying with statutory regulations (Article 55.e of the Insurance Ordinance). The BNA is authorized to issue directives and take action when needed (Article 31 of the Insurance Ordinance). - The BNA has not taken measures to ensure compliance by foreign branches and subsidiaries. - There is one life insurance company with branch operations in another jurisdiction, i.e., Aruba. The BNA considers Aruban insurance supervision to be adequate and has regular contacts with the Aruban supervisory authorities. - The law does not specifically require that insurers should inform the BNA when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures of the Netherlands Antilles. - The BNA is authorized to file charges with the Public Prosecutors Office against engaging in unauthorized insurance business; infringement of the express prohibition of carrying out the insurance business without authorization in Article 9.1a is considered a felony (Article 122.1 of the Insurance Ordinance). Assessment: Compliant ### Recommended action plan to improve AML/CFT implementation (selected items) Part 1: AML/CFT in the Legal and Institutional Framework - All financial intermediaries should be covered by AML/CFT framework. - Issue: Nonlife insurance companies, underwriters, brokers, and agents are not currently covered. - Recommended action: Remedy with an amendment to the relevant laws or ministerial decrees. - Recommended Implementation By: January 1, 2004; with the introduction of the June 2003 AML/CFT guidelines, this and many of the following recommendations are covered on a temporary basis until legislative changes are made. - Consideration should be given to providing regulatory bodies with the full range of enforcement penalties, including civil or administrative penalties. - Recommended action: Amend relevant laws to allow the BNA and other regulatory bodies, including the CSP Board and the local Gaming Control Board, to impose administrative fines on institutions and their employees. - Recommended Implementation By: January 1, 2004. - All financial institutions should be licensed. - Recommended action: Adopt pending legislative proposal to introduce stricter licensing requirements for MTs. - Recommended Implementation By: January 1, 2004. - Confiscation of property of equivalent value is recommended. - Recommended action: Adopt amendment to the confiscation provisions of the Criminal Code. - Recommended Implementation By: January 1, 2004. - Sufficiently frequent on-site inspections of reporting entities are recommended. - Recommended action: The BNA should conduct on-site AML inspections more frequently than once every two years; other regulators should do likewise and target AML inspections to underreporting institutions. Amend relevant laws to (i) permit information sharing between each of the regulators and the UTRC; (ii) provide the UTRC with authority to obtain a court order to allow the UTRC to gain entry to premises of reporting parties; and (iii) authorize the UTRC to require the BNA, the CSP Supervisory Board, and other regulators to inspect a regulated entity at the request of the UTRC. - Recommended Implementation By: September 2003. - The UTRC should have adequate powers to enforce reporting requirements and impose sanctions against other violations of AML laws and regulations. - Recommended action: Empower the BNA to impose administrative fines on reporting parties for failure to file timely reports and against other violations of AML laws and regulations. - Recommended Implementation By: January 1, 2004. - The autonomy of UTRC is diminished by micromanagement by the ministry of finance of UTRC purchases of goods and services. - Recommended action: Replace the system with a budgetary allocation and yearly audit by the ministry of finance or other appropriate government agency. - Recommended Implementation By: September 2003. Part 2: AML/CFT in Prudentially Regulated Sectors - Banking Sector: Banks should conduct more extensive due diligence for private banking activities and high risk customers. - Recommended action: The BNA needs to require and provide specific guidance for enhanced scrutiny needed in private banking activities and transactions with high-risk customers, such as politically exposed persons. - Recommended Implementation By: June 2003. - Insurance Sector: Establishment of internal policies, procedures, and audit and training programs to deter ML. - Recommended action: More AML training is needed for BNA insurance supervision staff and for the industry. - Recommended Implementation: Ongoing. - Insurance Sector: Verification in respect of the parties entering into the insurance contract. - Recommended action: Amend the AML guidelines to include specific guidance for establishing the true nature of the relationship between principals and the policyholder. - Recommended Implementation By: June 2003. Authorities’ response - The authorities are broadly in agreement with the assessment. - The authorities consider that many suggested actions for the legal and regulatory framework and for prudentially regulated sectors have been addressed, pending legislative changes by the June 2003 AML/CFT Guidelines for Banks, insurance companies, and other financial intermediaries. - The authorities stressed the continuous nature of the process to adapt policies and rules to new international rules. ### Attachment I — Laws, regulations, and related instruments (selected chronology) - 1993, No. 52 National Ordinance Penalization of Money Laundering. - 1996, No. 21 National Ordinance Reporting of Unusual Transactions (MOT Ordinance). - 1996, No. 23 National Ordinance Identification When Rendering Financial Services. - 1997, No. 252 Enactment National Ordinance Reporting of Unusual Transactions. - 1997, No. 253 Ministerial Decree with General Operations, September 30, 1997 laying down the indicators. (Indicators stipulated on the basis of Official Gazette 1996, No. 21) - 1997, No. 258 Ministerial Decree Enactment of the Reporting Center Register Code. - 1997, No. 259 Ministerial Decree Empowering the Head of the Reporting Center to exercise the actual management of the register. - 1997, No. 269 National Decree Enacting the National Ordinance identification when Rendering Financial Services. - 1997, No. 294 National Ordinance Modification of the National Ordinance indemnification when Rendering Financial Services. Article 3.4 and 9 of the Official Gazette 1996, No. 23 were modified. - 1998, No. 19 Ministerial Decree with General Operations Implementing the National Ordinance Identification when Rendering Financial Services. Article 1, Article 2, Article 3, and Article 4 were implemented. (Official Gazette 1996, No. 23.) - 1998, No. 134 Ministerial Decree With General Operations, June 7, 1998 of laying down the Indicators. Indicators stipulated on the basis of MOT Ordinance. (Official Gazette 1996, No. 21.) - 1998, No. 255 National Ordinance Amending the Penal Code and the Code of Criminal Procedure on Freezing, Seizing and Forfeiture of Assets, Derived from Crime. - 2000, No. 64 National Decree Enacting the National Ordinance on Freezing, Seizing and Forfeiture of Assets, Derived from Crime. - 2000, No. 120 National Decree- Containing General Measures, August 7, 2000, in Implementation of Article I, Section a, under 90, of the National Ordinance on Reporting of Unusual Transactions. Implementation of the reporting obligation re credit cards and money remitters (Western Union, DHL, Money Gram) whereby these transactions were appointed as financial services. (Official Gazette 1996, No. 21.) - 2000, No. 121 National Decree Containing General Measures, August 7, 2000 Executing Article 1, Section b, under 90 of the National Ordinance Identification when Rendering Financial Services. - 2000, No. 127 Ministerial Decree With General Operations. September 7, 2000 laying down the Indicators with reference to transactions Using Financial Services, by means of credit cards and money transfers. - 2000, No. 128 National Decree Containing General Measures, September 15, 2000 Approving the Indicators, as established by Ministerial Decree indicator Unusual Transactions using credit cards and money transfers. - 2001, No. 46 Ministerial Decree With General Operations, April 4, 2001 Establishing the Indicators used to judge whether a transaction shall be considered an unusual transaction (Decree Indicators Unusual Transactions). - 2001, No. 47 National Decree Containing General Measures, April 11, 2001 Containing approval of the Indicators, as stipulated in the Decree Indicators Unusual Transactions. (National Decree approval Indicators Unusual Transactions.) (This Decree allows the indicators to remain valid for more than 6 months.) - 2001, No. 48 Ministerial Decree With General Operations, April 11, 2001 Modifying the Decree Indicators Unusual Transactions (Hereby, the “A” attachment to the Decree Indicators Unusual Transactions, Official Gazette (PB) 2001, No. 46 was replaced). - 2001, No. 49 National Decree Containing General Measures, April 11, 2001 Approving the Indicators as per Ministerial Decree with General Operations Modifying Decree Indicators Unusual Transactions, (PB) 2001, No. 48. (Hereby the Indicators in the “A” attachment referred to in PB 2001, no. 48 remains valid for more than 6 months). - 2001, No. 58 National Decree Containing General Measures, April 20, 2001 Modifying the National Decree (PB) 2000, No. 120 appointing Gaming Transactions as Financial Services to be reported. - 2001, No. 59 National Decree Containing General Measures, April 20, 2001, by which Identification is required (PB) 2000. No. 121 with regard to gaming. - 2001, No. 60 Ministerial Decree With General Operations, April 27, 2001 Establishing Indicators for all forms of gaming. - 2001, No. 61 National Decree Containing General Measures, May 2, 2001 Containing Approval of the Indicators, as stipulated in the Decree Indicators Unusual Transactions concerning gaming. (National Decree approval indicators Unusual Transactions concerning gaming.) - 2001, No. 69 National Decree Containing General Measures, July 13, 2001 in implementation of Article 7, first paragraph of the National Ordinance Reporting of Unusual Transactions. Implementation of Article 7, first paragraph makes it possible to exchange information within and outside the Kingdom of the Netherlands. - 2001, No. 77 National Ordinance, August 3, 2001 Containing Modification of the National Ordinance Penalization of Money Laundering. (This Ordinance extends Money Laundering through the use of money, securities or claims to also include valuable goods.) - 2001, No. 78 National Ordinance, August 3, 2001 containing modifications of the National Ordinance Reporting of Unusual Transactions. Article 7, second paragraph was modified. From August 18, besides a Treaty, an administrative agreement (MoU) is also sufficient to exchange information outside the Kingdom of the Netherlands. - 2001, No. 81 National Ordinance on the Supervision of Fiduciary Business. - 2001, No. 147 National Decree of December 19, 2001, No. 65, enacting the National Ordinance on the Supervision of Fiduciary Business. - 2001, No. 114 Ministerial Decree implementing Article 4a (1) of the Foreign Exchange Transactions Ordinance. - 2002, No. 27 National Decree of January 10, 2002 implementing Article 4 (1) of the Foreign Exchange Transactions Ordinance. - 2002, No. 58 Decree of March 6, 2002, Proclaiming the Royal Decree of December 20, 2001, on the Approval of the International Treaty of New York of December 9, 1999, with regard to the Combating of the Financing of Terrorism. - 2002, No. 33 National Decree Containing General Measures, December 19, 2001 Modifying the National Decree appointing unusual transactions as financial services (PB) 2000, No. 120. - 2002, No. 34 National Decree Containing General Measures, December 19, 2001 Modifying the National Decree identification when Rendering Financial Services (PB) 2001, No. 121. - 2002, No. 119 Ministerial Decree of October 4, 2002, Modifying the Decree on Indicators of Unusual Transactions. - 2002, No. 120 Ministerial Decree of October 4, 2002, Modifying the Decree on Indicators of Unusual Transactions, Concerning Credit Cards and Money Transfers. - 2002, No. 121 Ministerial Decree of October 4, 2002, Modifying the Decree on Indicators of Unusual Transactions, Concerning Gaming. - 2002, Nos. 129, 130, 131 National Decrees of October 11, 2002, Approving the Indicators Modified by Ministerial Decrees 119, 120 and 121. - 2003, No. 7 Ministerial Decree of December 11, 2002, Modifying the National Decree Freezing the Assets of the Afghanistan Taliban c.s. and Usama Bin Laden c.s. (Official Gazette 2002, No. 27). Other sources and instruments (selected) - Central Bank of the Netherlands Antilles: July 1998 Policy Memorandum on the Implementation of the Fit and Proper Test. - Central Bank of the Netherlands Antilles: October 2002 Letter to the Banks on FATF Special Recommendation VII on Banks’ Policies and Procedures to Deter and Detect Money Laundering and Terrorist Financing. - Central Bank of the Netherlands Antilles: February 2003 Policy Rule of the Central Bank of the Netherlands Antilles on Integrity Testing. - Central Bank of the Netherlands Antilles: (..) Admission Requirements for Money Transfer Companies Operating in the Netherlands Antilles. - Central Bank of the Netherlands Antilles: March 21, 2003 Letter to the Banks on Dealings with Jurisdiction Classified as Non Cooperative Countries and Territories. - Central Bank of the Netherlands Antilles: June 2003 Guidelines on the Detection and Deterrence of Money Laundering (Banks). - Central Bank of the Netherlands Antilles: June 2003 Guidelines on the Detection and Deterrence of Money Laundering (Insurance Companies). - Government of the Kingdom of the Netherlands: November 30, 2001 Joint Declaration on Greater Cooperation Between the Territories of the Kingdom of the Netherlands for Combating International Terrorism. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr04272.pdf_