## cr07221

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**Canonical URL:** [cr07221](https://www.imf.org/-/media/files/publications/ofca/english/cr07221.pdf)

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---

### Executive summary — overview and economic context
- The assessment evaluates supervision of Samoa’s banking system against the Basel Core Principles for Effective Banking Supervision (BCPs).
- Economic and financial indicators cited:
  - Remittances: about 24 percent of GDP in 2004.
  - Real per capita income increased by about 3 percent per annum over the past decade and a half.
  - Population: estimated at about 179,186 in 2006.
  - Per capita GDP: US$ 2,300 in 2005/06.
  - Private sector credit growth: about 30 percent year-on-year (end-September 2006).
  - Official reserves: at end-September 2006 declined to just below four months of import cover.
  - Offshore sector contribution: roughly 1.1 percent of GDP in 2005; total financial sector (domestic and offshore) was 9.5 percent of GDP in 2005.
  - Offshore sector fiscal contribution: 3.9 percent of fiscal revenue in 2005/06.
  - Employment: 36 persons directly employed in the offshore sector (end-February 2007); total employment in the financial sector: 1,142 persons in 2005.

### Legal and institutional framework
- Samoa International Finance Authority (SIFA):
  - Established in 2005 by the SIFA Act 2005, replacing the Office of the Registrar of International and Foreign Companies (established 1988).
  - Administered by a Board of Directors and managed by a Chief Executive Officer (CEO); Board includes the Governor of the Central Bank of Samoa (CBS) as chair, the CEO of the Ministry of Finance, the Attorney General, the CEO of SIFA, and three private sector Directors.
  - SIFA may set fees and charges and transfers surplus funds to the budget.
- International Banking Act 2005 (IBA):
  - Enacted May 2005; replaced the Offshore Banking Act 1987.
  - Regulation and supervision of international banks shared between the Minister of Finance and the Inspector of International Banks (appointed by the Minister and also the chief executive of SIFA).
  - The Minister has exclusive legal powers to license international banks, impose additional license conditions, revoke licenses, impose corrective measures, and apply to the court for an international bank to be wound up.
  - The Inspector handles day-to-day supervision and makes recommendations to the Minister on licensing.
  - Under the IBA all licensees must establish a physical presence in Samoa (fixed address with one or more full-time employees and maintenance of operations and banking related records).
  - An international bank must have not less than two directors, at least one of whom must be a resident of Samoa; there is no requirement that mind and management must reside in Samoa.
- Other legislative developments:
  - AML/CFT framework updated with the Money Laundering Prevention Act 2007, the Mutual Legal Assistance on Criminal Matters Act 2007, and the Proceeds of Crime Act 2007; supporting regulations and guidance are being prepared and expected later the same year.
  - Domestic financial services supervised by the CBS under the CBS Act 1984 and the Financial Institutions Act 1996 (FIA).
  - CBS supervises domestic nonbank financial services following a 2001 amendment to the FIA; a new draft Insurance Act could be enacted as early as April 2007 to provide the CBS with legislative framework to license and supervise the domestic insurance industry.

### Offshore financial sector — size, structure, and activities
- Number and type of institutions:
  - Six international (offshore) banks at end-2006 (down from a peak of 18 in 1997).
  - Licensing vintages: two banks first licensed in 1993-94, two in 1996, and two in 2004-05.
  - License types: three hold a B1 license and three a B2 license; none accepts deposits from the nonresident public.
  - Total assets of offshore banks: $112 million at end-2005.
- Character and activities:
  - All six international banks are restricted operations limited to providing services to persons or entities listed in the license application.
  - Primary uses: tax planning and in-house treasury functions for parent organizations; risks borne by owners and affiliates.
- Trust and company service providers (TCSPs) and IBCs:
  - Seven TCSPs; 20,806 companies registered as of end-2006.
  - Average annual company registrations over 2004-06: about 4,700.
  - Six of seven TCSPs are wholly owned subsidiaries of foreign groups; services include incorporation, registered office, nominee corporate directors/secretaries; one TCSP provides additional value-added services.
  - Limited information exists on the nature and scale of registered companies’ activities.
- Offshore insurance:
  - Offshore insurance activity limited: three offshore insurance companies at end-2005 (five in 2002); one nonlife insurer and two captive insurers.

### Domestic banking sector — structure and performance
- Sector structure:
  - Four commercial banks dominated the domestic financial sector; their assets equaled almost 50 percent of total sector assets (including the central bank) at end-2006.
  - Ownership: two commercial banks foreign owned and two locally owned.
- Asset composition and lending:
  - Loans and advances comprised 80.3 percent of banks’ assets at end-September 2006.
  - Main lending areas: construction (notably related to the South Pacific Games), mortgages, transportation; lending for consumption increased, mirrored in imports.
  - Foreign currency exposure and open positions are strictly limited; all foreign currency lending requires prior approval of the central bank.
- Capital adequacy and asset quality (end-September 2006):
  - All banks comply with the minimum risk-weighted capital adequacy ratio of 15 percent.
  - Total capital to risk-weighted assets: 23.8 percent.
  - Tier-one capital to risk-weighted assets: 17.7 percent.
  - Non-performing loans to total loans: 3.1 percent (edged down from 5.4 percent a year earlier).
  - Total provisions to total loans: 3 percent.

### Compliance, supervision, and AML/CFT
- Compliance with BCPs:
  - Compliance with the BCPs for supervision of international and domestic banks has improved considerably since the 2002 assessment.
  - Current supervisory arrangements are adequate given the limited scale of international banking, but additional measures needed to fully align with international standards to counter reputation risk.
  - Supervision of domestic banks should be strengthened via additional guidance on banks’ risk-taking activities and corporate governance.
- SIFA operational independence and conflicts:
  - Consideration should be given to enhancing the operational independence of SIFA in supervising international banks.
  - Although no evidence of governmental interference in day-to-day supervision by SIFA was found, the exclusive legal powers of the Minister of Finance to grant licenses and take other supervisory measures create room for possible governmental interference.
  - The potential conflict between SIFA’s promotional and supervisory roles should be addressed.
- AML/CFT:
  - The updated AML/CFT legislative framework (Money Laundering Prevention Act 2007; Mutual Legal Assistance on Criminal Matters Act 2007; Proceeds of Crime Act 2007) requires implementation through supporting regulations and guidelines, which should be issued expeditiously.
  - Relevant implementing agencies include the CBS, SIFA, the Financial Intelligence Unit (FIU) established within the CBS, the police, customs, the attorney general’s office, and the judiciary.

### Main findings and priority recommendations — selected
- General issues / institutional:
  - Consider enhancing the operational independence of SIFA in supervising international banks.
  - Address the potential for conflict between the promotional and supervisory roles of SIFA.
  - Consider disseminating aggregate data on the activities of the offshore sector.
  - SIFA should put in place a comprehensive business continuity plan.
- International banking supervision:
  - Continue and expand monitoring of banks’ activities and risk exposures through on-site examinations.
  - Introduce minimum capital requirements for each bank based on its risk profile.
  - Issue guidance on banks’ policies, procedures, and systems related to risk management, and on corporate governance.
- Domestic banking supervision:
  - Issue more detailed guidance on banks’ credit policies.
  - Strengthen monitoring and compliance on connected lending and large exposures.
  - Introduce a requirement that banks have in place comprehensive risk management policies to control non-credit risks (interest rate, market, operational, and country risks).
  - Provide guidance to banks on establishment of corporate governance policies and procedures.
  - Amend legislation to provide the central bank with the authority to effect change in banks’ Boards of Directors and senior management.
  - Implement the new AML/CFT legislative framework by issuing supporting regulations and guidelines.

### Nonbank sector — structure, activity, and separation of domestic/offshore
- Nonbank institutions and counts (as of end-2006 unless otherwise noted):
  - National Provident Fund: sole pension fund; participation mandatory for public and registered private sector entities.
  - Development Bank of Samoa: fully state-owned; finances priority sectors; assets: 2006: 118.9 (millions of tala).
  - Money transfer agents increased from 5 to 15 since the last assessment.
  - 18 credit unions.
  - 4 insurance companies.
  - 4 insurance agents.
  - 6 money changers.
  - 6 money lenders.
- Separation of sectors:
  - Domestic financial sector separated from the offshore sector; offshore entities are not permitted to transact business with Samoan residents.
  - The IBA allows international banks to apply to the Minister of Finance for permission to conduct business with residents, but none has applied.
  - All international banks are foreign owned and not owned by financial institutions.
  - Domestic commercial banks may conduct offshore business but none has pursued this aggressively; some provide limited services to IBCs and international banks to enable payment of local fees.
  - The IBA 2005 compelled international banks to establish physical presence and maintain all business records in Samoa, though local mind and management is not required.

### Coordination, governance, information sharing, and prudential preconditions
- Coordination and governance:
  - The Chief Executive Officer of the Ministry of Finance has ex officio membership on the board of the CBS.
  - SIFA’s board is chaired by the Governor of the CBS.
  - CBS and SIFA have legal gateways permitting disclosure of confidential information to each other and to foreign bank supervisors.
  - The Financial Institutions Department (FID) of the CBS functions as the Central Bank’s supervisory unit and as the country’s FIU responsible for collecting and processing AML/CFT reports.
  - CBS publishes a Statistical Bulletin and an Annual Report.
  - No legal requirements for the CBS or SIFA to review their performance or report publicly on the discharge of their supervisory responsibilities.
- Preconditions:
  - Land tenure: freehold land about four percent of total land; customary land about eighty percent; remainder government-owned; customary land inalienable and not usable as collateral.
  - Legal and judicial environment: laws and courts allow banks to take possession of real property security on default except customary land; system exists for motor vehicle ownership registration; court system regarded as sound.
  - Financial reporting and market infrastructure: nascent credit information and debt collection service; availability and reliability of financial data varies; new Companies Act encourages timely financial statements; accounting/auditing standards generally align with international norms.
  - Deposit protection: no deposit insurance; depositors treated as general creditors.

### Prudential and supervisory gaps, action plans and CP-specific recommendations (selected)
- Licensing and structure (CPs 2–5):
  - Robust criteria and procedures for licensing domestic and international banks, permitted activities and investments, and controlling changes of ownership.
- Prudential regulations (CPs 6–15):
  - Prudential requirements for domestic banks generally aligned with international standards; comprehensive standards for banks’ risk management still lacking.
  - Specific supervisory requirements needed for credit risk policies, connected lending, operational risk, interest rate risk, and (not currently material) market and country risks.
  - Prudential requirements for international banks remain lacking in nearly all relevant areas; authorities should analyze risk activities and introduce appropriate requirements.
  - Supervision of AML/CFT in line with international standards, but regulations and guidelines to implement the Money Laundering Prevention Act 2007 should be expedited.
- Ongoing supervision (CPs 16–20):
  - Supervisory methods generally satisfactory; CBS and SIFA need to develop examination programs further and use them systematically to verify supervisory reports and obtain more information on classified assets, connected lending, and country exposures.
- Information requirements (CP 21):
  - Accounting and auditing requirements sound.
  - International banks are not required to make any public disclosure of their performance or financial condition.
  - CBS and SIFA should issue standards on corporate governance.
- Formal powers (CP 22):
  - Supervisors’ powers to take remedial measures generally adequate.
  - CBS should seek amendments to the FIA to limit court involvement in certain administrative remedial measures (current FIA requires court order before the CBS may take complete control of a bank’s business, appoint another person to advise a bank, take control of a bank, liquidate a bank, or place a bank in receivership; the court must also approve the specific powers of the CBS or such other appointed persons).

### Recommended action plan — selected domestic banking measures (preserve wording and numeric thresholds)
- CP 1(2) Adequate Resources:
  - Increase human resources available to the FID in view of the increased volume of on-site examinations.
- CP 5 Investment Criteria:
  - Amend the FIA to limit the proportion of the equity of an individual non-financial enterprise which a bank may acquire (within the existing aggregate limit of 10 percent of its capital plus unimpaired reserves).
  - Such investments should be limited to a maximum of 15 percent of the share capital or voting rights in a non-financial enterprise.
- CP 6 Capital Adequacy:
  - Consider introducing straightforward specific capital charges for market price risk and foreign exchange risk.
- CP 7 Credit Policies / CP 8 Loan Evaluation and Provisions:
  - Issue more detailed guidance to banks on standards expected in their individual credit policies and require mechanisms for regularly valuing collateral and assessing strength of guarantees.
- CP 9 Large Exposures:
  - Strengthen assessment of banks’ internal systems for identifying groups of related borrowers and controlling credit concentrations.
  - Require banks to report all single exposures which exceed 10 percent of capital.
  - Note: the present quarterly return of each bank’s 10 largest borrowers may not capture all single exposures which exceed 25 percent of capital.
- CP 10 Connected Lending:
  - Provide CBS with specific discretionary power to make judgments on connected lending and validate compliance through off-site surveillance and on-site examination.
- CP 13 Other Risks:
  - Issue appropriate PS guidance on Operational Risk and Interest Rate Risk.
- CP 14 Internal Controls and Audit:
  - Amend the FIA to include authority for the CBS to change a bank’s board of directors and/or senior management in appropriate circumstances and require prior approval of proposed changes.
  - Issue guidelines on corporate governance.
- CP 15 Money Laundering:
  - As the Money Laundering Authority, the CBS should expeditiously complete drafting of required new regulations and guidance.
- CPs 16–19 Supervision:
  - Diligently pursue full implementation of the on-site examination program; formalize timely notification requirements for substantive changes; expand periodic reporting to include detailed information on classified assets, connected lending, and country exposures; expand on-site examinations to validate supervisory information.
- CP 21 Accounting Standards:
  - Issue appropriate guidelines on corporate governance.
- CP 22 Remedial Measures:
  - Consider amendments to the FIA to limit the involvement of the Court in taking remedial actions.

### Recommended action plan — selected international banking measures (preserve wording and numeric thresholds)
- CP 5 Investment Criteria:
  - Amend the IBA to limit the proportion of the equity of an individual non-financial enterprise which an international bank may acquire (within the existing aggregate limit of 60 percent of its capital plus unimpaired reserves).
  - Each investment in a non-financial enterprise should be limited to a maximum of 15 percent of the share capital or voting rights in that enterprise.
- CP 6 Capital Adequacy:
  - Each international bank should be subject to minimum capital requirements which reflect its individual risk profile.
- CP 7 Credit Policies / CP 8 Loan Evaluation and Provisions:
  - The Minister and Inspector should develop and issue a regulatory code requiring internal systems for regularly reviewing loans and other exposures, classifying these and making necessary provisions on a timely basis; cooperation with the CBS is suggested.
- CP 9 Large Exposures:
  - Issue a regulatory code addressing concentration risk, including a definition of closely related groups, a requirement to report all individual exposures exceeding 10 percent of capital, and a prohibition on single exposures exceeding 25 percent of capital without prior permission of the Inspector.
- CP 10 Connected Lending:
  - Amend the IBAA to prevent connected lending on more favorable terms than to unconnected parties and to require board approval with the affected director excluded from decision-making; require independent information systems for such exposures.
- CPs 11–13 Market/Country/Other Risks:
  - Inspector to issue guidance on country risk, market risk, liquidity risk, operational risk, and interest rate risk and collect periodic information on exposures.
- CP 14 Internal Controls and Audit:
  - Inspector to issue specific guidance on internal controls, audit, and corporate governance and fully implement the on-site examination program.
- CP 15 Money Laundering:
  - Inspector to participate in drafting required new regulations and guidelines.
- CPs 16–19 Supervision:
  - Inspector to diligently pursue full implementation of on-site examinations, expand coverage comprehensively, hold more frequent meetings with overseas directors and senior management, expand periodic reporting to include classified assets, country exposure, liquidity, and interest rate risk, and expand on-site examinations to validate supervisory information.
- CP 21 Accounting Standards:
  - Provide for public disclosure of information on international banks that accept deposits from the general public, when applicable, and provide corporate governance guidance.

### FIU, MLPA 2007, legal privilege, and related AML/CFT measures
- FIU establishment and operationalization:
  - FIU established within the MLA in the CBS with staff to receive, analyse and maintain systems.
  - An AML/CFT mentor seconded to the MLA under PALP awaited.
  - AUSTRAC provided an FIU-in-the-box data system.
  - Operational manuals and guidelines for the FIU have been developed.
- FIU powers and functions under the MLPA 2007:
  - Powers include receipt of reports and information from foreign/state agencies; collection of publicly available information; analysis and assessment of reports; requests for information from agencies; entry into MOUs with national authorities including Police, Customs, Immigration, CBS and SIFA; spontaneous disclosure to foreign agencies; provision of reports to law enforcement and supervisory authorities; provision of information leading to license review; destruction of an STR received 5 years after receipt if no further activity.
- Anti–tipping-off, protections and privilege:
  - MLPA 2007 Part III (sections 16–22) sets obligations on customer identification, verification and record keeping; mandatory reporting of suspicious transactions under specified grounds.
  - Section 27 anti–tipping-off provisions widened to prevent disclosure that a report to the FIU had been made, that a suspicion was formed, or any information that can reasonably form a suspicion.
  - Protections include strengthened safeguards for identification information in STRs and immunity from civil, criminal, administrative or disciplinary proceedings for persons acting in good faith or per FIU directions.
  - Privileged communications between a lawyer and client remain protected; confidential legal privilege defined in Section 30 of the Act.
- Forfeiture and mutual legal assistance:
  - Two new Acts enacted on 7 February 2007: the Proceeds of Crime Act and the Mutual Legal Assistance in Criminal Matters Act 2007.
  - Proceeds of Crime Act 2007 definitions:
    - "proceeds of crime" (section 6) means “any property wholly or partly derived or realised whether directly or indirectly from a serious offence whether situated within or outside Samoa. Property can be proceeds of crime even if no person has been convicted of an offence.”
    - "serious offence" (section 2) defined to include offences punishable for a maximum period of not less than 12 months; references to laws of Samoa or foreign states are all embracing.

### Company service providers, trustee companies and supervision
- Trustee companies are “financial institutions” under section 16 and must identify and verify customers under section 17, keep records for 5 years under section 18, monitor transactions and examine background/purpose of unusual or large transactions and transfers with jurisdictions with inadequate AML/CFT systems.
- Draft Trustee Companies Bill 2005 and a Draft Regulatory Code (compiled in May 2006) include powers for regulatory review of trustee companies’ AML policies and detailed fit and proper criteria.
- SIFA and MLPA have conducted on-site visits to trustee companies, banks and money changers; one trustee company lost its license in 2006 following on-site inspection findings.
- Recommendation: conduct regular on-site visits to trustee companies and consider specific exchange of information agreements with host country supervisors; response: SIFA has implemented preparatory training sessions with IMF assistance.

### Other regulatory actions and legislative developments
- Insurance:
  - Insurance Bill 2007 through second reading in Parliament in early February 2007; at Parliamentary Committee stage for final review before seeking Parliament approval around end June 2007.
  - Policy adopted to require international insurance applicants to comply with laws of other countries where products are sold; license application form to be amended accordingly.
  - SIFA is a member of OGIS and IAIS and has information sharing provisions in the International Insurance Act 1988.
- Investment and collective investment schemes:
  - Amendments to the FIA have been prepared to regulate investment and securities business under the CBS.
  - An International Mutual Funds Bill drafted in 2004 is at the Attorney General’s Office awaiting approval before referral to Cabinet.

### Key statistics — Structure of the Domestic Financial System, 2002–06 (In millions of tala; end of period)
- Total assets:
  - 2002: 1,018.3
  - 2003: 1,107.3
  - 2004: 1,247.3
  - 2005: 1,345.7
  - 2006: 1,463.5
- Central Bank of Samoa:
  - 2002: 147.2
  - 2003: 145.5
  - 2004: 196.3
  - 2005: 196.9
  - 2006: 184.5
- Commercial Banks:
  - 2002: 449.9
  - 2003: 502.0
  - 2004: 571.6
  - 2005: 636.3
  - 2006: 729.6
  - ANZ:
    - 2002: 276.1
    - 2003: 305.4
    - 2004: 314.4
    - 2005: 316.2
    - 2006: 380.1
  - Westpac Bank Samoa Ltd:
    - 2002: 127.8
    - 2003: 133.3
    - 2004: 147.9
    - 2005: 170.1
    - 2006: 175.1
  - National Bank of Samoa:
    - 2002: 46.0
    - 2003: 51.1
    - 2004: 64.6
    - 2005: 88.4
    - 2006: 100.7
  - Samoa Commercial Bank:
    - 2002: 0.0
    - 2003: 12.2
    - 2004: 44.7
    - 2005: 61.6
    - 2006: 73.7
- Nonbank financial institutions:
  - 2002: 421.2
  - 2003: 459.8
  - 2004: 479.3
  - 2005: 512.5
  - 2006: 549.4
  - Insurance sector:
    - 2002: 58.3
    - 2003: 62.2
    - 2004: 68.0
    - 2005: 70.4
    - 2006: 70.5
    - Samoa Life Assurance Corporation:
      - 2002: 27.6
      - 2003: 30.0
      - 2004: 29.8
      - 2005: 30.8
      - 2006: 31.9
    - National Pacific Insurance Corporation:
      - 2002: 30.7
      - 2003: 32.2
      - 2004: 31.1
      - 2005: 30.8
      - 2006: 33.8
    - Colonial Life Insurance:
      - 2002: 0.0
      - 2003: 0.0
      - 2004: 2.1
      - 2005: 3.6
      - 2006: 4.8
    - Progressive Insurance 1/:
      - 2002: 0.0
      - 2003: 0.0
      - 2004: 0.0
      - 2005: 5.0
      - 2006: 5.2
      - (Note: 1/ Data for end-June.)
  - National Provident Fund:
    - 2002: 261.7
    - 2003: 284.3
    - 2004: 300.7
    - 2005: 320.2
    - 2006: 328.8
  - Development Bank of Samoa:
    - 2002: 74.6
    - 2003: 84.4
    - 2004: 83.3
    - 2005: 92.4
    - 2006: 118.9
  - Public Trust Office:
    - 2002: 10.2
    - 2003: 11.1
    - 2004: 9.9
    - 2005: 9.4
    - 2006: 9.4
  - Housing Corporation:
    - 2002: 16.4
    - 2003: 17.8
    - 2004: 17.4
    - 2005: 20.1
    - 2006: 21.8

*IMF OFC Assessment of Samoa’s financial system (IMF mission: 27 February–8 March 2007).*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and economic context
- The report assesses supervision of Samoa’s banking system based on the Basel Core Principles for Effective Banking Supervision (BCPs).
- Samoa’s economy: main contributors are manufacturing, construction, and tourism; remittances amounted to about 24 percent of GDP in 2004.
- Recent macro and financial indicators cited by the report:
  - Real per capita income increased by about 3 percent per annum over the past decade and a half.
  - Population estimated at about 179,186 in 2006.
  - Per capita GDP of US$ 2,300 in 2005/06.
  - Private sector credit growth about 30 percent year-on-year (end-September 2006).
  - Official reserves at end-September 2006 declined to just below four months of import cover.
  - Offshore sector contribution in 2005: roughly 1.1 percent of GDP; the total financial sector (domestic and offshore) was 9.5 percent of GDP in 2005.
  - Offshore sector contributed 3.9 percent of fiscal revenue in 2005/06.
  - Employment: 36 persons directly employed in the offshore sector (end-February 2007); total employment in the financial sector stood at 1,142 persons in 2005.

### Legal and institutional framework
- Samoa International Finance Authority (SIFA):
  - SIFA was established in 2005 as an autonomous agency by the SIFA Act 2005, replacing the Office of the Registrar of International and Foreign Companies (established 1988).
  - SIFA is administered by a Board of Directors and managed by a Chief Executive Officer (CEO). The Board includes the Governor of the Central Bank of Samoa (CBS) as chair, the CEO of the Ministry of Finance, the Attorney General, the CEO of SIFA, and three private sector Directors.
  - SIFA may set fees and charges and transfers surplus funds to the budget.
- International Banking Act 2005 (IBA):
  - Enacted May 2005; replaced the Offshore Banking Act 1987.
  - Responsibility for regulation and supervision of international banks is shared between the Minister of Finance and the Inspector of International Banks (appointed by the Minister and also the chief executive of SIFA).
  - The Minister of Finance has exclusive legal powers to license international banks, impose additional license conditions, revoke licenses, impose corrective measures, and apply to the court for an international bank to be wound up.
  - The Inspector is charged with day-to-day supervision and making recommendations to the Minister on licensing matters.
  - Under the IBA all licensees must establish a physical presence in Samoa (defined as a fixed address with one or more full-time employees and maintenance of operations and banking related records).
  - An international bank must have not less than two directors, at least one of whom must be a resident of Samoa; there is no requirement that mind and management must reside in Samoa.
- Other legislative developments:
  - AML/CFT legislative framework updated with the Money Laundering Prevention Act 2007, the Mutual Legal Assistance on Criminal Matters Act 2007, and the Proceeds of Crime Act 2007; supporting regulations and guidance are being prepared and expected later the same year.
  - Domestic financial services are supervised by the CBS under the CBS Act 1984 and the Financial Institutions Act 1996 (FIA).
  - The CBS supervises domestic nonbank financial services following a 2001 amendment to the FIA; a new draft Insurance Act was submitted to parliament and could be enacted as early as April 2007 to provide the CBS with appropriate legislative framework to license and supervise the domestic insurance industry.

### Offshore financial sector: size, structure, and activities
- Number and type of institutions:
  - Six international (offshore) banks at end-2006 (down from a peak of 18 in 1997).
  - Two banks first licensed in 1993-94, two in 1996, and two in 2004-05.
  - Three hold a B1 license and three a B2 license; none accepts deposits from the nonresident public.
  - Total assets of offshore banks amounted to $112 million at end-2005.
- Character of offshore banks:
  - All six international banks are restricted operations limited to providing services to persons or entities listed in the license application.
  - They are primarily used for tax planning and in-house treasury functions for parent organizations; risks are borne directly by owners and affiliates.
- Trust and company service providers (TCSPs) and International Business Companies (IBCs):
  - Seven TCSPs; as of end-2006, 20,806 companies were registered.
  - Average annual company registrations over 2004-06 were about 4,700.
  - Six of seven TCSPs are wholly owned subsidiaries of foreign groups; services include incorporation, registered office provision, nominee corporate directors/secretaries; one TCSP provides additional value-added services.
  - Limited information exists on the nature and scale of activities performed by the registered companies.
- Offshore insurance:
  - Offshore insurance activity limited: three offshore insurance companies at end-2005 (five in 2002); one nonlife insurer and two captive insurers.

### Domestic banking sector: structure and performance
- Sector structure:
  - Four commercial banks dominated the domestic financial sector; their assets equaled almost 50 percent of total sector assets (including the central bank) at end-2006.
  - Two commercial banks foreign owned and two locally owned.
- Asset composition and lending:
  - Loans and advances comprised 80.3 percent of banks’ assets at end-September 2006.
  - Main lending areas: construction (notably related to the South Pacific Games), mortgages, transportation; lending for consumption increased, mirrored in imports.
  - Foreign currency exposure and open positions are strictly limited; all foreign currency lending requires prior approval of the central bank.
- Capital adequacy and asset quality (end-September 2006):
  - All banks comply with the minimum risk-weighted capital adequacy ratio of 15 percent.
  - Total capital to risk-weighted assets: 23.8 percent.
  - Tier-one capital to risk-weighted assets: 17.7 percent.
  - Non-performing loans to total loans: 3.1 percent (edged down from 5.4 percent a year earlier).
  - Total provisions to total loans: 3 percent.

### Compliance, supervision, and AML/CFT
- Compliance with Basel Core Principles:
  - The report finds that compliance with the BCPs for supervision of international and domestic banks has improved considerably since the 2002 assessment.
  - Current supervisory arrangements are described as adequate given the limited scale of international banking, but additional measures are needed to fully align with international standards to counter reputation risk.
  - Supervision of domestic banks should be strengthened via additional guidance on banks’ risk-taking activities and corporate governance.
- SIFA operational independence and potential conflicts:
  - Consideration should be given to enhancing the operational independence of SIFA in supervising international banks.
  - Although no evidence of governmental interference in day-to-day supervision by SIFA was found, the exclusive legal powers of the Minister of Finance to grant licenses and take other supervisory measures create room for possible governmental interference.
  - The potential conflict between SIFA’s promotional and supervisory roles should be addressed.
- AML/CFT:
  - The updated AML/CFT legislative framework (Money Laundering Prevention Act 2007; Mutual Legal Assistance on Criminal Matters Act 2007; Proceeds of Crime Act 2007) requires implementation through supporting regulations and guidelines, which the report recommends be issued expeditiously.
  - Relevant implementing agencies include the CBS, SIFA, the Financial Intelligence Unit (FIU) established within the CBS, the police, customs, the attorney general’s office, and the judiciary.

### Main findings and priority recommendations
- General issues
  - Consider enhancing the operational independence of SIFA in supervising international banks.
  - Address the potential for conflict between the promotional and supervisory roles of SIFA.
  - Consider disseminating aggregate data on the activities of the offshore sector.
  - SIFA should put in place a comprehensive business continuity plan.
- International banking supervision
  - Continue and expand monitoring of banks’ activities and risk exposures through on-site examinations.
  - Introduce minimum capital requirements for each bank based on its risk profile.
  - Issue guidance on banks’ policies, procedures, and systems related to risk management, as well as on their corporate governance.
- Domestic banking supervision
  - Issue more detailed guidance on banks’ credit policies.
  - Strengthen monitoring and compliance on connected lending and large exposures.
  - Introduce a requirement that banks have in place comprehensive risk management policies to control their non-credit risks (e.g., interest rate, market, operational, and country risks).
  - Provide guidance to banks on establishment of corporate governance policies and procedures.
  - Amend legislation to provide the central bank with the authority to effect change in banks’ Boards of Directors and senior management.
  - Implement the new AML/CFT legislative framework by issuing supporting regulations and guidelines.

*Source: IMF assessment (Executive Summary).*

### 19.      In the nonbank sector the National Provident Fund and the Development Bank

### 19.      In the nonbank sector the National Provident Fund and the Development Bank

### Nonbank sector structure and activity
- The National Provident Fund is the sole pension fund and participation is mandatory for all public and registered private sector entities.
- The Development Bank of Samoa is fully state-owned and provides financing for projects in priority sectors, such as fishing and tourism.
- The number of money transfer agents increased from 5 to 15 since the last assessment as a result of the CBS promoting remittances through formal channels by licensed remitters while minimizing transaction costs.
- As of end-2006 there were:
  - 18 credit unions;
  - 4 insurance companies;
  - 4 insurance agents;
  - 6 money changers;
  - 6 money lenders.

### Separation of domestic and offshore sectors
- The domestic financial sector in Samoa is separated from the offshore sector; offshore entities are not permitted to transact business with Samoan residents.
- The IBA contains provision for international banks to apply to the Minister of Finance for permission to conduct banking business with residents, but so far none has applied.
- All international banks are foreign owned and are not owned, either directly or indirectly, by any financial institutions.
- Domestic commercial banks are permitted to conduct offshore business but none has pursued this aggressively; some domestic banks provide limited services to IBCs and international banks to enable payment of local fees.
- The IBA 2005 compelled international banks to establish a physical presence in Samoa and to maintain all business records there, though local mind and management is not required.

### Findings from the 2002 assessment and authorities' response
- 2002 assessment identified significant weaknesses in supervision of both offshore and domestic banks and recommended:
  - offshore banks establish physical presence with mind and management;
  - permit supervisors adequate access to customer information;
  - apply due “fit and proper” criteria for licensing;
  - effectively implement on-site supervision;
  - apply same supervisory standards as for domestic banks;
  - develop capacity to undertake on-site examinations and more in-depth off-site analysis for domestic banks;
  - strengthen legislative powers related to licensing and supervision;
  - introduce prudential regulation covering various risks related to lending and other activities;
  - establish closer links with other supervisors.
- Authorities’ actions since 2002:
  - Prohibited shell banks and introduced physical presence requirements for all international banks.
  - Require maintenance of all international banks’ records in Samoa with supervisor access to those records, including individual customer accounts, and power to enforce compliance.
  - Fit and proper vetting is required for new applications and ongoing supervision, though no requirement that decision-making management be located in Samoa.
  - On-site examinations of international banks have been undertaken, limited to physical presence and AML/CFT compliance; prudential guidelines have not yet been issued.
  - For domestic banks the CBS has developed on-site examination capacity, uses a risk-based approach combining off-site surveillance and qualitative judgments, and strengthened relationships with external auditors; CBS is considering expanding supervisory guidelines and legislative changes.

### Governance and institutional recommendations
- Potential issues:
  - Operational independence of SIFA could be compromised by shared responsibility with the Minister of Finance for supervision and regulation of international banks, creating scope for governmental interference.
  - SIFA performs both supervisory and promotional functions, creating potential conflicts of interest.
- Recommendations:
  - Keep institutional arrangements under review and consider transferring the Minister’s licensing and other powers under the IBA to SIFA (or the Inspector of International Banks) at an opportune time.
  - Consider mechanisms to resolve conflicts between supervision and promotion functions or transfer promotional function to another body.

### Cross-border cooperation and information exchange
- Samoa participates in:
  - Association of Supervisors of Pacific Countries;
  - Offshore Group of Banking Supervisors (observer);
  - Offshore Group of Insurance Supervisors;
  - International Association of Insurance Supervisors.
- Samoa does not have Memorandums of Understanding with supervisors in other countries, but this has not hindered cooperation; a sample of foreign supervisors indicated timely information sharing.
- CBS communicates and exchanges information with the Australian Prudential Regulation Authority regarding Samoan-licensed subsidiary banks.
- The FIA and the IBA authorize disclosure of confidential supervisory information to foreign supervisors performing corresponding functions.

### Transparency and business continuity
- Samoa is participating in the IMF’s Information Dissemination and Monitoring Framework initiative; SIFA has provided most of the minimum requested data.
- SIFA does not yet publish or otherwise disseminate data on the offshore sector; SIFA is strongly encouraged to consider disseminating aggregate data on offshore activities.
- SIFA has some basic business continuity plans for natural shocks (e.g., cyclone) but is recommended to develop a comprehensive business continuity plan in consultation with other agencies and the finance industry, including procedures for events such as an avian flu outbreak.

### Banking supervision — Offshore banks (international banks)
- Compliance with the BCPs for bank supervision has improved considerably since the previous assessment for supervising international banks.
- The International Banking Act 2005 provides powers to supervise and regulate all aspects of international banking operations; legal protection and information sharing provisions are fully compliant.
- On-site examinations have been initiated; a working draft of an on-site examination manual has been prepared.
- On-site examinations of AML/CFT and physical presence requirements have been conducted in all banks; examinations of other risk areas are being considered.
- Given the size and scope of international banking activity in Samoa:
  - Supervision for depositor protection is largely unnecessary.
  - Risk of adverse developments in international banks impacting the domestic financial system or wider international financial system is not material.
  - Samoa remains exposed to reputation risk if supervisory standards are perceived as lower than acceptable international levels.
- Recommended further steps to strengthen supervision of international banks:
  - continue on-site examinations to obtain fuller understanding of operations, risks to owners, effectiveness of risk controls, and identify reputation risks for Samoa;
  - introduce a minimum capital requirement for each international bank (based on Basel standards) reflecting its individual risk profile;
  - issue a regulatory code providing guidance on minimum standards banks are expected to meet in policies, procedures, and systems covering counterparty evaluation, loan review and provisioning, large exposures, connected lending, country risk, market risk, liquidity risk, operational risk, interest rate risk, internal controls and accounting systems, and corporate governance;
  - amend the IBA to control more effectively banks’ transactions with connected parties.

### Banking supervision — Domestic banks
- Supervision of domestic banks has improved considerably since the previous assessment.
- Key developments:
  - Introduction of an on-site-examination program complementing off-site surveillance.
  - Adoption of a comprehensive on-site examination manual with a risk-based approach.
  - On-site examinations of credit risk management and AML/CFT have been conducted in all banks.
  - Targeted examinations of other significant risk areas are planned on a two-year cycle.
- CBS recommended actions to further strengthen supervision of domestic banks:
  - issue more detailed guidance to banks on standards expected in their individual credit policies and use these to evaluate effectiveness of banks’ systems and controls for managing credit risk;
  - collect information on connected lending; use off-site surveillance and examinations to monitor compliance with restrictions on such exposures; seek legal power to rule, as needed, on specific instances of connected lending;
  - introduce requirement for banks to have comprehensive risk management policies, approved at Board level, to identify, evaluate, monitor and control all material non-credit risks (interest rate, market, country, operational risks) and assess adequacy during ongoing supervision;
  - seek amendment of the FIA to have authority to control the establishment of subsidiary companies by banks within the existing aggregate ceiling of 60 percent of capital and reserves;
  - require banks to report all single exposures which exceed 10 percent of capital since the present quarterly return of each bank’s 10 largest borrowers may not capture all significant large exposures and does not provide sufficient information for fully effective monitoring of concentration risk; ensure banks’ internal systems identify groups of related borrowers and control credit concentrations;
  - seek amendment of the FIA to have authority to effect changes in banks’ Boards of Directors and senior management;
  - provide guidance to banks on establishment of corporate governance policies and procedures;
  - expeditiously complete and gain approval of new regulations and guidance to implement the new AML/CFT legislative framework.

### Key statistics — Structure of the Domestic Financial System, 2002-06 (In millions of tala; end of period)
- Total assets:
  - 2002: 1,018.3
  - 2003: 1,107.3
  - 2004: 1,247.3
  - 2005: 1,345.7
  - 2006: 1,463.5
- Central Bank of Samoa:
  - 2002: 147.2
  - 2003: 145.5
  - 2004: 196.3
  - 2005: 196.9
  - 2006: 184.5
- Commercial Banks:
  - 2002: 449.9
  - 2003: 502.0
  - 2004: 571.6
  - 2005: 636.3
  - 2006: 729.6
  - ANZ:
    - 2002: 276.1
    - 2003: 305.4
    - 2004: 314.4
    - 2005: 316.2
    - 2006: 380.1
  - Westpac Bank Samoa Ltd:
    - 2002: 127.8
    - 2003: 133.3
    - 2004: 147.9
    - 2005: 170.1
    - 2006: 175.1
  - National Bank of Samoa:
    - 2002: 46.0
    - 2003: 51.1
    - 2004: 64.6
    - 2005: 88.4
    - 2006: 100.7
  - Samoa Commercial Bank:
    - 2002: 0.0
    - 2003: 12.2
    - 2004: 44.7
    - 2005: 61.6
    - 2006: 73.7
- Nonbank financial institutions:
  - 2002: 421.2
  - 2003: 459.8
  - 2004: 479.3
  - 2005: 512.5
  - 2006: 549.4
  - Insurance sector:
    - 2002: 58.3
    - 2003: 62.2
    - 2004: 68.0
    - 2005: 70.4
    - 2006: 70.5
    - Samoa Life Assurance Corporation:
      - 2002: 27.6
      - 2003: 30.0
      - 2004: 29.8
      - 2005: 30.8
      - 2006: 31.9
    - National Pacific Insurance Corporation:
      - 2002: 30.7
      - 2003: 32.2
      - 2004: 31.1
      - 2005: 30.8
      - 2006: 33.8
    - Colonial Life Insurance:
      - 2002: 0.0
      - 2003: 0.0
      - 2004: 2.1
      - 2005: 3.6
      - 2006: 4.8
    - Progressive Insurance 1/:
      - 2002: 0.0
      - 2003: 0.0
      - 2004: 0.0
      - 2005: 5.0
      - 2006: 5.2
      - (Note: 1/ Data for end-June.)
  - National Provident Fund:
    - 2002: 261.7
    - 2003: 284.3
    - 2004: 300.7
    - 2005: 320.2
    - 2006: 328.8
  - Development Bank of Samoa:
    - 2002: 74.6
    - 2003: 84.4
    - 2004: 83.3
    - 2005: 92.4
    - 2006: 118.9
  - Public Trust Office:
    - 2002: 10.2
    - 2003: 11.1
    - 2004: 9.9
    - 2005: 9.4
    - 2006: 9.4
  - Housing Corporation:
    - 2002: 16.4
    - 2003: 17.8
    - 2004: 17.4
    - 2005: 20.1
    - 2006: 21.8

*Assessment carried out during an IMF mission to Samoa from February 27 to March 8, 2007.*

### 37.      Co-ordination between the CBS and SIFA is ensured through the ex officio

### 37.      Co-ordination between the CBS and SIFA is ensured through the ex officio

### Co-ordination, governance and information sharing
- The Chief Executive Officer of the Ministry of Finance has ex officio membership on the board of the Central Bank of Samoa (CBS).
- SIFA’s operations are directed by a board chaired by the Governor of the CBS.
- Both the CBS and SIFA have legal gateways permitting them to disclose confidential information to each other and to foreign bank supervisors.
- The Financial Institutions Department (FID) of the CBS functions as the Central Bank’s supervisory unit and as the country’s Financial Intelligence Unit (FIU) responsible for collecting and processing AML/CFT reports.
- The CBS publishes a Statistical Bulletin and an Annual Report.
- There are no legal requirements for the CBS or SIFA to:
  - review their performance, or
  - report publicly on the discharge of their supervisory responsibilities.

### General preconditions for effective banking supervision
- Land tenure and collateral:
  - Freehold land accounts for only about four percent of total land.
  - Customary land accounts for about eighty percent of total land.
  - The remainder is government-owned.
  - Customary land is inalienable and therefore not usable as collateral.
- Legal and judicial environment:
  - Laws and the court system allow banks to promptly take possession of real property security on defaulting loans, except customary land.
  - A system exists for registration of banks’ ownership interests in motor vehicles.
  - The court system is regarded as sound with legal firms of sufficient quality.
- Financial reporting and market infrastructure:
  - A nascent credit information and debt collection service has been established.
  - Availability and reliability of financial data varies greatly.
  - The new Companies Act encourages businesses to prepare financial statements within a specified time.
  - There is an active professional body of accountants; international accounting and auditing standards are generally the norm.
- Deposit protection:
  - There is no deposit insurance in Samoa and depositors are treated as general creditors.

### Main findings of the IMF assessment
- Improvements since 2002:
  - Considerable improvement in compliance with the Basel Core Principles since the previous assessment in 2002.
  - In no case has compliance deteriorated.
  - Following enactment of the International Banking Act 2005, the legal framework for supervising both domestic and international banks is now fully compliant.
- Supervisory practice:
  - Substantial improvements in supervisory techniques, including introduction of on-site bank examinations for both domestic and international banks and moves towards greater analysis of banking risks.
  - Considerable strengthening still required in supervision of banks’ risk management and monitoring of the financial condition of international banks.
- Resources and legal authority:
  - FID present staff resources appear adequate, but more frequent on-site examinations and development of a more risk-based approach are likely to necessitate increased staff numbers.
  - Samoa’s legal framework complies with international standards but requires improvement:
    - Introduce a legal definition of a large exposure for reporting purposes.
    - Strengthen CBS powers to control banks’ investments in non-financial enterprises.
    - It is recommended the CBS acquire legal authority to carry out supervision on a consolidated basis (although not currently required in practice).

### Prudential and supervisory gaps (by thematic CPs)
- Licensing and structure (CPs 2–5):
  - Samoa has robust criteria and procedures for licensing domestic and international banks, permitted activities and investments, and controlling changes of ownership.
- Prudential regulations (CPs 6–15):
  - Prudential requirements for domestic banks generally aligned with international standards.
  - Comprehensive standards for banks’ risk management are still lacking.
  - Specific supervisory requirements needed for: credit risk policies, connected lending, operational risk, interest rate risk, and (not currently material) market and country risks.
  - Prudential requirements for international banks remain completely lacking in nearly all relevant areas; authorities should analyze risk activities and introduce appropriate requirements.
  - Supervision of AML/CFT for both domestic and international banks is in line with international standards, but authorities are recommended to expedite issuing regulations and guidelines to implement the Money Laundering Prevention Act 2007.
- Ongoing supervision (CPs 16–20):
  - Supervisory methods are generally satisfactory for both domestic and international banks.
  - CBS and SIFA need to develop examination programs further and use them more systematically to verify supervisory reports and obtain more information on classified assets, connected lending, and country exposures.
- Information requirements (CP 21):
  - Accounting and auditing requirements for both domestic and international banks are sound.
  - International banks are not required to make any public disclosure of their performance or financial condition.
  - Both the CBS and SIFA should issue standards on corporate governance.
- Formal powers (CP 22):
  - Supervisors’ powers to take remedial measures are generally adequate.
  - The CBS should initiate an amendment to the FIA to limit court involvement in certain administrative remedial measures:
    - Currently the FIA requires a court order before the CBS may take complete control of a bank’s business, appoint another person to advise a bank, take control of a bank, liquidate a bank, or place a bank in receivership; the court must also approve the specific powers of the CBS or such other appointed persons.

### Cross-border banking (CPs 23–25)
- Applicability:
  - None of the domestic or international banks has any subsidiary inside or outside Samoa; therefore CPs 23 and 24 are not applicable at present.
  - Two of the four domestic banks are subsidiaries of foreign banks; supervision of these foreign-owned banks is the same as for Samoan-owned banks and follows best international practice.
  - The CBS has a gateway to disclose information and uses this to co-operate actively with home country supervisors.
  - None of the international banks is the affiliate of a foreign bank.

### Recommended action plan — selected domestic banking measures (preserve wording and numeric thresholds)
- CP 1(2) Adequate Resources:
  - In view of the increased volume of on-site examinations the CBS should increase the human resources available to the FID.
- CP 5 Investment Criteria:
  - The FIA should be amended to limit the proportion of the equity of an individual non-financial enterprise which a bank may acquire (within the existing aggregate limit of 10 percent of its capital plus unimpaired reserves).
  - Such investments should be limited to a maximum of 15 percent of the share capital or voting rights in a non-financial enterprise.
- CP 6 Capital Adequacy:
  - The CBS should consider introducing some straightforward specific capital charges for market price risk and foreign exchange risk.
- CP 8 Loan Evaluation and Provisions:
  - The CBS should require banks to have in place mechanisms for regularly valuing collateral and assessing the strength of guarantees.
- CP 7 Credit Policies:
  - The CBS should issue more detailed guidance to banks on the standards it expects in their individual credit policies and use these to evaluate effectiveness of banks’ credit risk controls.
- CP 9 Large Exposures:
  - During examinations the CBS should strengthen its assessment of banks’ internal systems for identifying groups of related borrowers and controlling credit concentrations.
  - Banks should be required to report all single exposures (as currently defined) which exceed 10 percent of capital.
  - The present quarterly return of each bank’s 10 largest borrowers may not capture all single exposures which exceed 25 percent of capital and does not provide sufficient information for effective monitoring.
- CP 10 Connected Lending:
  - The CBS should have specific discretionary power to make judgments on connected lending.
  - The CBS should validate compliance with the law and CP6 through off-site surveillance and on-site examination and periodically collect information on connected lending exposures.
- CP 11 Country Risk:
  - The PS should be appropriately amended to address country and transfer risk.
  - The CBS should periodically collect information on country and transfer risk exposures.
- CP 13 Other Risks:
  - The CBS should issue appropriate PS guidance on Operational Risk and Interest Rate Risk.
- CP 14 Internal Controls and Audit:
  - The FIA should be amended to include authority for the CBS to change a bank’s board of directors and/or senior management in appropriate circumstances and require specific prior approval of proposed changes in directors and senior management.
  - The CBS should issue appropriate guidelines on corporate governance.
- CP 15 Money Laundering:
  - The CBS, as the Money Laundering Authority, should expeditiously complete the drafting of required new regulations and guidance.
- CP 16 On-Site and Off-Site Supervision:
  - The CBS should diligently pursue full implementation of its on-site examination program.
- CP 17 Bank Management Contact:
  - The CBS should formalize the requirement for timely notification of substantive changes and material developments.
- CP 18 Off-Site Supervision:
  - The CBS should expand periodic reporting requirements to include detailed information on classified assets, connected lending, and country exposures.
- CP 19 Validation of Supervisory Information:
  - The CBS should expand its on-site examination program to include validation of supervisory information.
- CP 21 Accounting Standards:
  - The CBS should issue appropriate guidelines on corporate governance.
- CP 22 Remedial Measures:
  - The CBS should consider possible amendments to the FIA to limit the involvement of the Court in taking remedial actions.

### Recommended action plan — selected international banking measures (preserve wording and numeric thresholds)
- CP 5 Investment Criteria:
  - The IBA should be amended to limit the proportion of the equity of an individual non-financial enterprise which an international bank may acquire (within the existing aggregate limit of 60 percent of its capital plus unimpaired reserves).
  - Each investment in a non-financial enterprise should be limited to a maximum of 15 percent of the share capital or voting rights in that enterprise.
- CP 6 Capital Adequacy:
  - Each international bank should be subject to minimum capital requirements which reflect its individual risk profile.
- CP 7 Credit Policies:
  - The Minister and Inspector should develop a regulatory code for standards expected of international banks’ individual credit policies; cooperation with the CBS is suggested.
- CP 8 Loan Evaluation and Loan Loss Provisions:
  - The Minister and Inspector should issue a regulatory code requiring internal systems for regularly reviewing loans and other exposures, classifying these and making necessary provisions on a timely basis.
- CP 9 Large Exposures:
  - The Minister and Inspector should issue a regulatory code addressing concentration risk, including a definition of closely related groups, a requirement to report all individual exposures exceeding 10 percent of capital, and a prohibition on single exposures exceeding 25 percent of capital without prior permission of the Inspector.
- CP 10 Connected Lending:
  - The IBAA should be amended to prevent connected lending on more favorable terms than to unconnected parties and to require board approval with the affected director excluded from decision-making.
  - The Inspector should require independent information systems for such exposures.
- CP 11 Country Risk:
  - The Inspector should issue guidance on country risk management and related information systems and collect periodic information on country and transfer risk exposures.
- CP 12 Market Risk:
  - The Inspector should assess market risk levels and issue appropriate risk management, internal control, information systems requirements and limitations, and periodically collect information on market risk exposures.
- CP 13 Other Risks:
  - The Inspector should issue guidance on liquidity risk, operational risk, and interest rate risk.
- CP 14 Internal Controls and Audit:
  - The Inspector should issue specific guidance on internal controls, audit, and corporate governance and fully implement the on-site examination program.
- CP 15 Money Laundering:
  - The Inspector should take part, as necessary, in drafting required new regulations and guidelines.
- CP 16 On- and Off-Site Supervision:
  - The Inspector should diligently pursue full implementation of on-site examinations and expand coverage comprehensively.
- CP 17 Bank Management Contact:
  - The Inspector should hold more frequent meetings with overseas directors and senior management of international banks.
- CP 18 Off-Site Supervision:
  - The Inspector should expand periodic reporting to include classified assets, country exposure, liquidity, and interest rate risk.
- CP 19 Validation of Supervisory Information:
  - The Inspector should expand on-site examinations to validate supervisory information.
- CP 21 Accounting Standards:
  - The Inspector should provide for public disclosure of information on international banks that accept deposits from the general public, when applicable, and provide corporate governance guidance.

### Authorities’ response to the assessment
- The assessment referenced is the IMF OFC Assessment of Samoa’s financial system undertaken by the IMF from 27 February to 8 March 2007.
- The assessment recognizes considerable improvements in prudential oversight achieved by the Central Bank of Samoa (CBS) and the Samoa International Finance Authority (SIFA) over past years.
- These improvements bring Samoa’s financial system significantly in line with the Basel Core Principles compared to the previous IMF assessment.
- Domestic front:
  - Several recommendations to further improve the regulatory role of the CBS have been noted; future efforts will focus on legislative changes, prudential statements, regulations, guidelines and staff capacity to manage supervisory responsibilities.
- International finance sector:
  - SIFA notes the recommended action plan and will review current legislation and prevailing prudential requirements to further improve supervision of international banks per international standards.

### Actions taken by Samoan authorities on AML/CFT and related recommendations (selected)
- Inclusion of offshore entities:
  - All offshore entities are caught under the Money Laundering Prevention Act 2007 by virtue of activities deemed to be financial institutions under Schedule 1.
  - International banking business as defined in the International Banking Act 2005 (no. 19) is expressly included in the Schedule in addition to Trustee Company business as defined in the Trustee Companies Act 1987.
  - Activities of Insurance Companies and trusts are also caught under the Act.
- Broadened MLPA scope for customer due diligence and record keeping:
  - The MLPA 2007 Part III “Obligations To Keep Records and Verify Identity” explicitly outlines substantive requirements relating to customer identification, verification, record keeping, maintenance, and suspicious transaction reports.
  - Referenced sections of the Act: sections 16, 17, 18, 19, 20, 21 and 22.
  - Mandatory obligation for all financial institutions to report suspicious transactions where there are reasonable grounds to suspect or information that a transaction or attempted transaction may be:
    - i. relevant to an investigation/prosecution of a person for a serious offence, a money laundering offence or an offence of terrorist financing, or
    - ii. of assistance to the enforcement of Proceeds of Crime Act, or
    - iii. related to the commission of a serious offence, a Money Laundering or terrorist financing offence, or
    - iv. preparatory to an offence of terrorist financing.
- Anti–tipping-off and protections:
  - Section 27 anti–tipping-off provisions have been widened to clarify that a supervisory authority, its officers, employees or agents, or auditor shall not disclose:
    - i. that a report to the FIU had been made,
    - ii. that a financial institution, supervisory authority or auditor has formed a suspicion relative to a transaction, or
    - iii. any information from a person that can reasonably be expected to form a suspicion.
  - Protection for information reported is strengthened to include identification information regarding persons who handled, prepared, or made an STR and any information contained in an STR.
  - No person is required to disclose any information (except for investigation/prosecution of a serious offence, a Money Laundering offence or terrorist financing offence or enforcement of the Proceeds of Crimes Act) in judicial proceedings unless the judge is satisfied disclosure is necessary in the interests of justice.
  - No civil, criminal, administrative or disciplinary proceedings can be taken against a financial institution (including officers, employees or agents), an auditor, supervisory authority, or any of their actions taken in good faith or in compliance with directions of the FIU.
  - Privileged communications between a lawyer and his client remain protected.

*IMF OFC Assessment of Samoa’s financial system (IMF mission: 27 February–8 March 2007)*

### Section 30 of the Act.

### Section 30 of the Act

### Legal privilege and confidential information
- Confidential information defined as oral or written communication:
  - i. between lawyers in their professional capacity
  - ii. between a lawyer and his client in a professional capacity either directly/indirectly through an agent and either
  - iii. made or brought into existence for the purpose of obtaining legal advise or assistance
  - iv. not made or brought into existence for committing/furthering commission of some illegal or wrongful act

### Establishment, governance, and operationalization of the FIU
- Administrative and operational steps were put in place toward establishing the FIU, providing governance and oversight structure for the FIU.
- The FIU has been physically established with staff dedicated to receive, analyse and maintain systems.
- An AML/CFT mentor seconded to the MLA under the auspices of the PALP initiative is awaited.
- AUSTRAC provided assistance with a specialized data based computer system (FIU-in-the-box) for proper storage and analysis of information received from financial institutions, for instance, Suspicious Transaction Report (STR).
- Operational manuals and guidelines for the operation and management of the FIU have been developed.

### FIU powers and functions under the MLPA 2007
- The MLPA 2007 establishes an FIU within the MLA in the CBS with a wide range of functions and powers including:
  - a. to receive reports and information by any agency of a foreign state, law enforcement agency, government institution or agency regarding suspicions of a serious offence, money laundering offence or a terrorist financing offence.
  - b. to collect information that is publicly available including commercially available databases or information that is collected or maintained by government that is relevant to a serious offence, money laundering or terrorist financing offence.
  - c. to analyse and assess all reports and information
  - d. to request information from any law enforcement agency, government agency or supervisory agency for purposes of the Act.
  - e. to enter into an MOU agreement with national authorities including non governmental agencies and authorities including Police, Customs, Immigration, CBS and SIFA to ensure close liaison, cooperation and secure exchange of information.
  - f. can spontaneously provide information on a serious money laundering or terrorist financing offence to foreign agencies concerned with the prevention, investigation of ML/TF
  - g. provide any report, information to appropriate law enforcement and supervisory authorities if the FIU has reasonable grounds to suspect a suspicious transaction.
  - h. can provide information to a regulatory authority, government, or law enforcement agency of an alleged breach by a financial institution, with a request for a license to be reviewed.
  - i. must destroy an STR received 5 years after the date of its receipt if there has been no further activity since receipt of a report.

### Forfeiture, mutual legal assistance, and proceeds definitions
- Recommendation: Amend the MLPA to include comprehensive forfeiture of proceeds of crime and confiscation of benefits provisions, as well as the power to make penalty orders where forfeiture is not possible.
- Response: Two (2) new pieces of legislation were enacted on 7 February 2007: the Proceeds of Crime Act and the Mutual Legal Assistance in Criminal Matters Act 2007.
- Recommendation: Amend the MLPA to extend the scope of the mutual assistance provisions to cover all criminal offences.
- Response: Provisions to facilitate Mutual Assistance on ML matters are now contained in the Proceeds of Crimes Act 2007.
- Definitions in the Proceeds of Crime Act 2007:
  - "proceeds of crime" (section 6) means “any property wholly or partly derived or realised whether directly or indirectly from a serious offence whether situated within or outside Samoa. Property can be proceeds of crime even if no person has been convicted of an offence.”
  - "serious offence" (section 2) means an offence:
    - a. against any law of Samoa that would constitute unlawful activity or
    - b. against the law of a foreign state that if the relevant act or omission occurred in Samoa would be an offence that constitutes unlawful activity.
  - "unlawful activity" means any act or omission that constitutes an offence that is punishable under the laws of Samoa for a maximum period of not less than 12 months.
  - A reference in the Act to the law of Samoa or any foreign state includes reference to a written or unwritten law in force in any part of Samoa or a foreign State; the definition is all embracing and conceivably covers all criminal offences.

### Company service providers — trustee companies: duties and supervision
- Recommendation: Trustee companies should conduct an enhanced level of due diligence, especially with regard to all new business transferring to the jurisdiction under redomiciliation.
- Responses and requirements under the Money Laundering Prevention Act 2007:
  - Trustee companies are “financial institutions” under section 16 and must identify and verify the identity of a customer and obtain satisfactory evidence of identity when:
    - a. establishing a business relationship or
    - b. conducting any transaction or
    - c. there is suspicion of a ML/TF offence or
    - d. the financial institution has doubts about the veracity or adequacy of customer identification, verification of documentation or information previously obtained.
  - Under section 17, if a trustee company is not able to obtain satisfactory evidence of the identity of a customer, it must not proceed any further and must report the attempted transaction to the FIU.
  - Under section 18, a trustee company is obliged to keep records for 5 years of all business transactions and correspondence including identification records of customers, and enquiries to and from the FIU.
  - Trustee companies are obliged to monitor transactions and examine as far as possible the background and purpose of unusual or large transactions, electronic transfers and any transactions with persons in jurisdictions with inadequate AML/CFT systems.
- Draft legislative and regulatory developments:
  - The draft Trustee Companies Bill 2005 specifies as a statutory duty of the Regulator (Inspector of Trustee Companies) the review of activities of trustee companies including AML policies and procedures for “Know Your Customer” and anti Money Laundering.
  - The Authority is empowered under clause 6 of the Bill to make Regulatory Codes for the conduct of trust company business, Know Your Customer and Customer due diligence procedures.
  - A Draft Regulatory Code compiled by an IMF Technical Expert in May 2006 includes Detailed Fit and Proper Criteria for applications from new companies.
- Recommendation: Conduct regular on-site visits to trustee companies and consider entering into specific exchange of information agreements with the host country supervisors.
  - Response: SIFA has implemented preparatory training sessions, with the assistance of the IMF, for conducting such on-site inspections.
  - In late 2005 and early 2006, SIFA staff jointly with Money Laundering Prevention Authority (MLPA) personnel conducted several onsite visits on trustee companies, banks and money changers.
  - One of the trustee companies lost their license in 2006 as a result of the findings of the on-site inspection visits.

### Other issues: insurance, investment, and collective investment schemes
- Recommendation: Modernize the insurance legislation to establish the CBS as the licensing and supervisory entity of the domestic insurance companies.
  - Response: The Insurance Bill 2007 has been through its second reading in Parliament in early February. The Bill is now at the Parliamentary Committee stage for final review before seeking Parliament’s approval at its next Sitting around end June 2007.
- Recommendation: In licensing general insurance business, require that international insurance companies be in compliance with other country’s laws where the insurance products are sold.
  - Response: The Samoan authorities have adopted the recommended policy in dealing with all future international insurance applications. The license application form will be amended to reflect this change.
- Recommendation: Establish close communication and information sharing with insurance regulators in other countries.
  - Response: As a member of the Offshore Group of Insurance Supervisors (OGIS) and the International Association of Insurance Supervisors (IAIS), SIFA has established close communication with other insurance regulators.
  - Provision is made in the International Insurance Act 1988 for sharing of information between regulators.
- Recommendation: Introduce a basic investment business and securities legislation to regulate fraudulent provision of financial advice and product sales to both domestic and international markets.
  - Response: Amendments to the Financial Institutions Act have been prepared to regulate investment and securities business under the CBS.
- Recommendation: Introduce legislation on collective investment schemes while prohibiting the establishment of unlisted collective investment schemes.
  - Response: An International Mutual Funds Bill that had been drafted in 2004 is at the Attorney General’s Office and awaits approval before being referred to Cabinet.

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_Source: https://www.imf.org/-/media/files/publications/ofca/english/cr07221.pdf_