## Detailed Assessment of Compliance with the Basel Core Principles ## Source details **Canonical URL:** [Detailed Assessment of Compliance with the Basel Core Principles](https://www.imf.org/-/media/files/publications/ofca/english/cr07222.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr07222.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr07222.pdf.json) --- ### Information and methodology - The mission assessed compliance with the Basel Core Principles for Banking Supervision using the October 1996 Core Principles Methodology to allow comparison with the previous assessment conducted in 2002. - Assessors: Messrs. Ronald MacDonald (formerly Bank of England) and Timothy Sullivan (formerly Office of the Comptroller of the Currency of the United States). - Assessment basis: - Examination of relevant laws and regulations including: Financial Institutions Act 1996, International Banking Act 2005, International Companies Act 1987, Central Bank of Samoa Act 1984. The Money Laundering Prevention Act 2007 was taken into account but not reviewed in detail. - Interviews and discussions with management and staff of the Central Bank of Samoa (CBS), the Samoa International Financial Authority (SIFA), the Money Laundering Authority (MLA), the Inspector of International Banks, the Attorney General, the Chief Executive Officer of the Ministry of Finance, and representatives from domestic and international banks. - Note: The mission identified material new issues in the October 2006 Core Principles Methodology for CBS and the Inspector to address in subsequent assessments. ### Institutional framework — Domestic banking sector (findings and key statistics) - Structure and participants: - Four licensed commercial banks, all locally incorporated. - Two largest banks are subsidiaries of major Australian banks; two are locally owned. - One development bank (does not take deposits). - National Provident Fund and insurance companies active in the financial sector. - 18 credit unions registered with the Credit Union League and licensed with the domestic Registrar of Companies. - Four insurance companies operating in Samoa. - Key balance-sheet and performance figures (as reported): - Total assets of commercial banks at end September 2006: SAT 700.6 million. - Loans and advances at end September 2006: SAT 562.9 million (80.3 percent of total assets). - Deposits at end September 2006: SAT 530.8 million. - Loan-to-deposit ratio: 106 percent. - Liquid assets represented 4.4 percent of domestic deposits at the end of September 2006. - Average risk-weighted capital ratio at end September 2006: 23.8 percent. - Required minimum capital ratio: 15 percent. - Total past due loans represented 3.0 percent of the loan portfolio. - Total provisions represent 94.8 percent of non-performing loans. - System profits for the nine months ending September 2006: annual return on net worth of approximately 22 percent and return on assets of 3.8 percent. - Other institutions: - Development Bank assets at end-December 2006: SAT 118.9 million. - National Provident Fund assets at end-December 2006: SAT 328.8 million. - Observations: - Liquidity has been of concern to the system recently. - The Development Bank, National Provident Fund, and insurance companies were brought under CBS supervision in 2001. - No deposit insurance; depositors are treated as general creditors. - Freehold land accounts for about four percent of total land; customary land about eighty percent; the land-tenure system constrains enterprise financing, though laws and courts allow banks to promptly take possession of real property security on defaulting loans. - Availability and reliability of financial data varies; the new Companies Act encourages timely financial statements preparation. - An active professional body of accountants exists; international accounting and auditing standards are generally the norm. ### Institutional framework — International banking sector (findings and key statistics) - Licensees and operations: - Six international banks operating in Samoa (all operate with a B1 or B2 class license). - IBA allows B1, but not B2, licensees to accept deposits from the public; in practice none of the three B1 licensees engages in public deposit-taking. - International banks are primarily used for tax planning purposes and to carry out in-house treasury functions for parent organizations. - All international banks maintain a physical presence in Samoa (records, accounts, clerical employees) but lack significant local mind-and-management presence; trustee companies and company service providers maintain offices and provide local directors. - Key balance-sheet figure: - Total assets of international banks at end 2005: US$111.9 million. - Legal and supervisory framework: - Regulation and supervision responsibility is shared between the Minister of Finance and the Inspector of International Banks (the Inspector), chief executive of SIFA. - IBA assigns licensing powers to the Minister (section 14) and day-to-day supervision duties to the Inspector (section 5). - Section 6 of the IBA empowers the Minister to issue regulatory codes; to date no such codes have been issued. - SIFAA sections 4(a) and 4(j) set out SIFA’s coordination and advisory roles; the SIFA Board (chaired by the Governor of the CBS) advises the Minister. - Legislation does not include a specific role for SIFA or the Inspector when the Minister exercises powers in relation to problem banks; in practice SIFA participates through Board advice. - SIFA was actively involved in applying the physical presence requirement in the IBA which resulted in some international banks losing their licenses. ### General preconditions for effective banking supervision (findings) - Legal and judicial environment: - Court system regarded as sound; legal firms of sufficient quality. - System for registration of banks’ ownership interests in motor vehicles exists. - Market infrastructure: - No deposit insurance. - Companies Act encourages businesses to prepare financial statements within a specified time. - Human resources and capacity: - CBS employees received a 45 percent increase in remuneration phased over 3 years, to be completed in the assessment year, improving competitiveness and retention. - Feedback indicated CBS staff are held in high regard for professionalism and integrity. - FID staffing: 3 supervisors work on the four domestic banks; two other supervisors work on the Development Bank and the National Provident Fund. - CBS plans to hire several more mid-level supervisors. - Donor assistance and training have been used (IMF, PFTAC, ADB, Australia, New Zealand Registry of Companies, APRA). - FID has adequate computers and equipment for operations. ### Principle-by-Principle assessment — selected principles, findings, and recommendations - Principle 1 — Objectives, Autonomy, Powers, and Resources - Method: qualitative five-part scale: compliant; largely compliant; materially noncompliant; noncompliant; not applicable. - Domestic banks: - Legal bases: Section 3 of the FIA; section 4(f) of the CBSA. - FIA provides licensing (section 6), revocation (section 7), reporting powers (section 9), on-site examinations (section 11), cease and desist and corrective measures (section 13), and court petitioning for winding up (section 14(e)). - Assessment: Compliant. - Comment: CBS should include topics in the proposed revision of the FIA; new legal powers to limit banks’ lending to connected parties should be given high priority. - International banks: - Regulation shared between Minister and Inspector; Section 6 empowers Minister to issue regulatory codes (none issued). - Assessment: Compliant. - Operational independence and resources: - CBS Board composition and appointment/removal provisions: appointments for 3 years; removal by Head of State acting on Cabinet advice (CBSA section 11). - FID resource constraints noted; CBS staff remuneration increase of 45 percent phased over 3 years. - SIFA operating budget for 2006-07, including the banking supervision department, is approximately SAT 2,000,000 (about US$900,000). - Training budget and donor assistance: SAT375,000 (USD$143,000) allocated for training and attendance at seminars and conferences in 2006-2007. - Assessments: Compliant for both domestic and international. - Comment: CBS should ensure FID has adequate staff resources given increased examination work. - Licensing and ownership (CP3 and CP4) - Domestic licensing procedures: - Two-stage application procedure; Stage 1 requires business plan and 3-year financial projections; Stage 2 within 6 months requires office, confirmation of minimum required capital, incorporation documents, affidavits for directors and principal officers, organization chart, draft accounting and internal control manual. - Minimum initial capital required: - SAT 2.5 million for a locally-owned bank; - SAT 5.0 million for a foreign-owned bank. - Assessment: Compliant. - International licensing: - Sections 9 and 10 of the IBA prescribe minimum capital requirements: - USD$10 million for A class banks - US$ 2 million for B1 class banks - US$ 250,000 for B2 class banks - Section 14 empowers the Minister to reject an application if criteria not fulfilled. - Assessment: Compliant. - Ownership transfers: - Domestic: transfer of control defined as acquisition of twenty percent or more of voting stock (FIA section 18); prior written CBS approval required. Assessment: Compliant. - International: transfer of control defined in IBA section 17(1); prior written approval of the Minister and Inspector required. Assessment: Compliant. - Capital adequacy (Principle 6) - Domestic banks: - CBS PS sets minimum CAR and method consistent with Basel Capital Accord. - Required minimum risk-weighted capital ratio: 15 percent. - Statutory minimum capital: - SAT 2.5 million for locally owned banks - SAT 5.0 million for foreign owned banks - Assessment: Largely Compliant. - Recommendation: Introduce capital charges for market price risk and FX risk; e.g., weight holdings of marketable government or central bank securities at 10 or 20 percent instead of zero; treat aggregate FX open positions exceeding a specified threshold (for example, 2 percent of total assets) as add-on to risk-weighted assets. - International banks: - Required to maintain at all times the minimum capital requirements they had to meet in order to be licensed. - Assessment: Largely Compliant. - Credit policies and loan evaluation (Principles 7–8) - Principle 7 — Credit Policies: - Domestic banks: Assessment: Materially noncompliant. - No prudential statement sets minimum standards for banks’ credit policies (PS4 addresses credit concentrations only). - Recommendation: CBS should develop a PS setting minimum standards for banks’ credit policies; include internal limits for exposures and procedures for connected-person exposures. - International banks: Assessment: Noncompliant. - Recommendation: Minister and Inspector should develop a regulatory code for international banks’ credit policies and consider collaboration with CBS/SIFA. - Principle 8 — Loan Evaluation and Loan-Loss Provisioning: - Domestic banks: Assessment: Largely compliant. - PS 7 guidelines for asset quality and provisioning; provisioning scheme implied: - Standard — Required Provision: 0 - Substandard — 20 - Doubtful — 50 - Loss — 100 - Recommendation: Require banks to have mechanisms for regularly valuing collateral and assessing strength of guarantees. - International banks: Assessment: Noncompliant. - Recommendation: Minister and Inspector should issue a regulatory code requiring periodic loan review, classification, and provisioning. - Large exposures and connected lending (Principles 9–10) - Principle 9 — Large Exposure Limits: - Domestic banks: Assessment: Largely compliant. - Section 12 of the FIA limits exposure to a single person or group to 25 percent of capital. - Recommendation: Require reporting of all single exposures exceeding 10 percent of capital. - International banks: Assessment: Noncompliant. - Recommendation: Issue regulatory code defining closely related groups, require reporting of exposures exceeding 10 percent of capital, and prohibit single exposures exceeding 25 percent of capital without prior Inspector permission. - Principle 10 — Connected Lending: - Domestic banks: Assessment: Materially noncompliant. - Section 12(c) and PS 6 address director and connected-party facilities but CBS lacks discretion to judge connections in special circumstances and lacks periodic reporting on connected lending. - Recommendations: Grant CBS discretionary power to judge connections; collect periodic connected-lending data; require banks’ information systems to identify/monitor connected exposures. - International banks: Assessment: Materially noncompliant. - IBA section 23(2)(c) limits unsecured advances to connected parties but lacks prohibitions on more favorable terms, board-approval rules, and independent monitoring requirements. - Recommendations: Inspector to address preferential terms, require board approval with exclusion of beneficiaries, and require independent information systems. - Risk management and other risks (Principles 11–13) - Principle 11 — Country Risk: - Domestic banks: Assessment: Largely compliant. - PS 4 does not specifically address country/transfer risk; exchange control requires CBS approval for foreign loans/investments. - Recommendation: Amend PS 4 and PS 7; collect specific country exposure data periodically. - International banks: Assessment: Noncompliant. - Recommendation: Inspector to issue requirements for risk management, internal control, information systems, and provisioning after analysis. - Principle 12 — Market Risks: - Domestic banks: Assessment: Not applicable. - No securities market; 15 percent CAR intended to cover risks; PS 9 addresses foreign currency risk and internal limits; weekly Foreign Currency Position Report required. - International banks: Assessment: Noncompliant. - Recommendation: Inspector to analyze exposures and issue guidance and monitoring. - Principle 13 — Other Risks (operational, interest-rate, liquidity): - Domestic banks: Assessment: Materially noncompliant. - PS 5 addresses liquidity; no specific operational or interest-rate risk requirements; limited on-site reviews beyond credit risk. - Recommendations: Issue guidance on operational and interest-rate risk management and verify via on-site reviews. - International banks: Assessment: Noncompliant. - Recommendation: Inspector to analyze exposures and issue guidance, collect periodic data, and undertake on-site examinations. - Internal control, audit, and accounting (Principles 14 and 21) - Principle 14 — Internal Control and Audit: - Domestic banks: Assessment: Largely compliant. - PS 8 sets expectations; CBS lacks express authority to require changes to board/management; recommend CBS obtain internal audit reports, update FIA to require bank approval for proposed board/management changes, and issue a PS on corporate governance. - International banks: Assessment: Materially noncompliant. - Inspector relies on external auditors; on-site examinations to date limited; recommendations include issuing guidance on corporate governance and fully implementing on-site examination program. - Principle 21 — Accounting Standards: - Domestic banks: Assessment: Largely compliant. - PS 8 requires accounting systems; FIA section 10 requires audited financial statements within three months and publication within four months of financial year end. - Recommendation: More specific guidelines on corporate governance and board responsibilities. - International banks: Assessment: Largely compliant. - Audited accounts required to international accounting standards (IBA section 35); auditors must report immediately under IBA section 36 (2) in specified circumstances. - Comment: No requirement for public disclosure or annual publication of audited accounts by licensees; if deposit-taking were permitted, Inspector should consider disclosure requirements. - On-site and off-site supervision, validation, and remedial measures (Principles 16–20, 22, 18–19) - On-site and off-site supervision: - Domestic banks: Assessment CP16: Largely compliant. - CBS initiated on-site program focusing on credit risk and AML; two-year cycle of targeted on-site examinations anticipated; staffing and training constraints remain. - International banks: Assessment CP16: Largely compliant. - Inspector has on-site authority (IBA section 5(4)(b)); initiated on-site exams in 2005–2006 focused on AML and physical presence; an on-site manual tailored to international banks exists. - Off-site supervision and validation: - Domestic banks (CP18 and CP19): Largely compliant. - Weekly, monthly, quarterly returns provide broad coverage; detailed asset classification, connected lending, and country exposures not fully collected; legal powers under FIA section 9 to require returns. - CBS uses external auditors for validation in some instances; FIA section 11 allows delegation of inspection powers. - International banks (CP18 and CP19): Largely compliant. - Quarterly returns from A and B1 banks; semi-annual returns from B2 banks; failure to comply with filing requirements is an offence with a maximum fine of US$1,000 for every day the offence continues (IBA section 28 (4)). - Inspector has full access rights to records (IBA section 34(3)) and may require auditors to expand audit scope (IBA section 36). - Remedial measures and penalties (CP22): - Domestic banks: Assessment: Largely compliant. - CBS powers under FIA sections 13, 14, 15, 23; Attorney General powers under section 26; section 29 permits regulations by the Head of State on Cabinet advice. - Section 16 of the Act provides for monetary and imprisonment penalties for misleading or obstructive conduct by directors, officers, or employees. - Comment: Consider limiting Court involvement to speed remedial actions. - International banks: Assessment: Compliant. - Minister’s powers under IBA Sections 43 and 44 include requiring measures, imposing conditions, removal/replacement of directors/officers, appointing adviser/receiver/manager, petitioning for winding up, or cancelling the license. Section 23(3) imposes a continuing fine of US$1,000 for each day an offence continues. ### Key recommended action plan (selected recommendations and exact numeric limits preserved) - Domestic Banking Sector selected actions: - CP 1(2) Adequate Resources: 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. - CP6 Capital Adequacy: The CBS should consider introducing some straightforward specific capital charges for market price risk and Foreign Exchange risk. - CP8 Loan Evaluation and Provisions: The CBS should require banks to have in place mechanisms for regularly valuing collateral and assessing the strength of guarantees. - CP9 Large Exposures: Banks should be required to report all single exposures (as currently defined) which exceed 10 percent of capital (i.e. including many exposures which fall below the 25 percent ceiling). - CP22 Remedial Measures: The CBS should consider possible amendments to the FIA to limit the involvement of the Court in taking administrative remedial actions. - International Banking Sector selected actions: - CP5 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. - CP6 Capital Adequacy: Each International bank should be subject to a minimum capital requirements which reflect its individual risk profile. - CP9 Large Exposures: Require reporting of all individual exposures which exceed 10 percent of capital and a prohibition on incurring single exposures which exceed 25 percent of capital without the prior permission of the Inspector. - CP10 Connected Lending: The IBAA should be amended to prevent connected lending on more favorable terms and require board approval with exclusion of affected directors; the Inspector should require independent information systems for such exposures. - CP16 On-Site and Off-Site Supervision: The Inspector should diligently pursue full implementation of its on-site examination program and expand coverage. - CP21 Accounting Standards: The Inspector should provide for the public disclosure of information on international banks that accept deposits from the general public, when applicable, and provide guidance on corporate governance. ### Authorities’ response and planned follow-up - The IMF OFC Assessment of Samoa’s financial system (assessment period: 27 February to 8 March 2007) recognizes considerable improvements over past years in prudential oversight by the Central Bank of Samoa (CBS) and the Samoa International Finance Authority (SIFA). - Authorities noted progress bringing Samoa’s financial system significantly in line with Basel Core Principles compared to the previous IMF assessment. - Planned follow-up: - Domestic: incorporate necessary changes in legislation, prudential statements, regulations, guidelines, and staff capacity to strengthen CBS supervisory responsibility. - International finance sector: SIFA will review current legislation and prevailing prudential requirements and the recommended action plan to further improve supervision of international banks. *IMF OFC Assessment of Samoa’s financial system (assessment period: 27 February to 8 March 2007).* ### 1. Detailed Assessment of Compliance with the Basel Core Principles....................................6 ### 1. Detailed Assessment of Compliance with the Basel Core Principles ### Information and methodology - The mission assessed compliance with the Basel Core Principles for Banking Supervision using the October 1996 Core Principles Methodology to allow comparison with the previous assessment conducted in 2002. - Assessors: Messrs. Ronald MacDonald (formerly Bank of England) and Timothy Sullivan (formerly Office of the Comptroller of the Currency of the United States). - The assessment was based on examination of relevant laws and regulations; interviews with management and staff of the Central Bank of Samoa (CBS), the Samoa International Financial Authority (SIFA), the Money Laundering Authority (MLA), and the Inspector of International Banks; and discussions with the Attorney General, the Chief Executive Officer of the Ministry of Finance, and representatives from domestic and international banks. - Laws reviewed included: Financial Institutions Act 1996, International Banking Act 2005, International Companies Act 1987, and Central Bank of Samoa Act 1984. The Money Laundering Prevention Act 2007 was taken into account but not reviewed in detail. - The mission noted material new issues in the October 2006 Core Principles Methodology that CBS and the Inspector should give special attention to in subsequent assessments. ### Institutional framework — Domestic banking sector (findings and key statistics) - Structure and market participants: - Four licensed commercial banks, all locally incorporated. - Two largest banks are subsidiaries of major Australian banks; two are locally owned. - One development bank (does not take deposits). - National Provident Fund and insurance companies active in the financial sector. - 18 credit unions registered with the Credit Union League and licensed with the domestic Registrar of Companies. - Four insurance companies operating in Samoa. - Key balance-sheet and performance figures (as reported): - Total assets of commercial banks at end September 2006: SAT 700.6 million. - Loans and advances at end September 2006: SAT 562.9 million (80.3 percent of total assets). - Deposits at end September 2006: SAT 530.8 million. - Loan-to-deposit ratio: 106 percent. - Liquid assets represented 4.4 percent of domestic deposits at the end of September 2006. - Average risk-weighted capital ratio at end September 2006: 23.8 percent. - Required minimum capital ratio: 15 percent. - Total past due loans represented 3.0 percent of the loan portfolio. - Total provisions represent 94.8 percent of non-performing loans. - System profits for the nine months ending September 2006: annual return on net worth of approximately 22 percent and return on assets of 3.8 percent. - Other institutions: - Development Bank assets at end-December 2006: SAT 118.9 million. - National Provident Fund assets at end-December 2006: SAT 328.8 million. - Observations: - Liquidity has been of concern to the system recently. - The Development Bank, National Provident Fund, and insurance companies were brought under CBS supervision in 2001. - No deposit insurance; depositors are treated as general creditors. - Freehold land accounts for about four percent of total land; customary land about eighty percent; the land-tenure system constrains enterprise financing, though laws and courts allow banks to promptly take possession of real property security on defaulting loans. - Availability and reliability of financial data varies; the new Companies Act encourages timely financial statements preparation. - An active professional body of accountants exists; international accounting and auditing standards are generally the norm. ### Institutional framework — International banking sector (findings and key statistics) - Licensees and operations: - Six international banks operating in Samoa (all operate with a B1 or B2 class license). - IBA allows B1, but not B2, licensees to accept deposits from the public; in practice none of the three B1 licensees engages in public deposit-taking. - International banks are primarily used for tax planning purposes and to carry out in-house treasury functions for parent organizations. - All international banks maintain a physical presence in Samoa (records, accounts, clerical employees) but lack significant local mind-and-management presence; trustee companies and company service providers maintain offices and provide local directors. - Key balance-sheet figure: - Total assets of international banks at end 2005: US$111.9 million. - Legal and supervisory framework: - Responsibility for regulation and supervision of international banks is shared between the Minister of Finance and the Inspector of International Banks (the Inspector), who is appointed by the Minister and is the chief executive of SIFA. - The IBA assigns licensing powers to the Minister (section 14) and day-to-day supervision duties to the Inspector (section 5). - Section 6 of the IBA empowers the Minister to issue regulatory codes; to date no such codes have been issued. - SIFAA section 4(a) and section 4(j) set out SIFA’s coordination and advisory roles; the SIFA Board (chaired by the Governor of the CBS) advises the Minister. - The legislation does not include a specific role for SIFA or the Inspector when the Minister exercises powers in relation to problem banks; in practice SIFA participates through Board advice. - SIFA was actively involved in applying the physical presence requirement in the IBA which resulted in some international banks losing their licenses. ### General preconditions for effective banking supervision (findings) - Legal and judicial environment: - Court system regarded as sound; legal firms of sufficient quality. - System for registration of banks’ ownership interests in motor vehicles exists. - Market infrastructure: - No deposit insurance. - Companies Act encourages businesses to prepare financial statements within a specified time. - Human resources and capacity: - CBS employees received a 45 percent increase in remuneration phased over 3 years, to be completed in the assessment year, improving competitiveness and retention. - Feedback indicated CBS staff are held in high regard for professionalism and integrity. - FID staffing: 3 supervisors work on the four domestic banks; two other supervisors work on the Development Bank and the National Provident Fund. - CBS plans to hire several more mid-level supervisors. - Donor assistance and training have been used (IMF, PFTAC, ADB, Australia, New Zealand Registry of Companies, APRA). - FID has adequate computers and equipment for operations. ### Principle-by-Principle assessment — Principle 1 (Objectives, Autonomy, Powers, and Resources) - Methodology: - Compliance assessed qualitatively using a five-part scale: compliant; largely compliant; materially noncompliant; noncompliant; not applicable. - Principle 1 overview: An effective system of banking supervision should have clear responsibilities and objectives, operational independence, adequate resources, and a suitable legal framework including powers for authorization, supervision, enforcement, and information sharing. - Principle 1(1) — Clear responsibilities and objectives - Domestic banks - Description: - CBS is the sole agency responsible for supervising domestic banks. - Legal bases: Section 3 of the FIA (CBS responsible for licensing and prudential supervision of financial institutions); section 4(f) of the CBSA (function to supervise and regulate banking business). - CBS supervises Development Bank, National Provident Fund, and domestic insurance companies. - FIA and Prudential Statements (PS 1 to 9) provide guidelines and minimum prudential standards on capital, asset quality, credit concentration, connected lending, liquidity, internal control systems, and risk exposure. - FIA provides licensing powers (section 6), revocation powers (section 7), powers to require reports (section 9), on-site examinations (section 11), cease and desist orders and corrective measures (section 13), and options including court petitioning for winding up (section 14(e)). - CBS is considering revisions to the FIA and CBSA to account for developments in monetary policy and supervision; in particular, amendments to the FIA to facilitate supervision of banks’ operations in securities. - Assessment: Compliant. - Comments: CBS should include a number of topics in the proposed revision of the FIA; new legal powers to limit banks’ lending to connected parties should be given high priority. - International banks - Description: - Under the IFA, regulation and supervision responsibility is shared between the Minister of Finance and the Inspector; the Inspector is also SIFA’s chief executive. - The Minister has legal power to license international banks (section 14) and exclusive powers under section 44(1) to impose additional conditions, revoke licenses, impose corrective measures, and apply to the court for winding up. - The Inspector carries out day-to-day supervision and makes licensing recommendations (section 5). - Section 6 empowers the Minister to issue regulatory codes for international banks (none issued to date). - SIFA’s mandate includes coordination among public sector agencies concerned with international financial services and advising the Government (SIFAA, section 4(a) and section 4(j)). - SIFA Board composition: chaired by Governor of the CBS; members include the Chief Executive Officer of the Ministry of Finance, the Attorney General, SIFA’s chief executive, and 3 private-sector appointees. - SIFA participates in decisions on problem banks in practice via Board advice to the Minister. - The Offshore Banking Act 1987 was replaced by the IBA in 2005; the Samoa Financial Authority Act 2005 established SIFA. - Assessment: Compliant. - Comments: None. - Principle 1(2) — Operational independence and adequate resources - Domestic banks - Description: - CBS Board of Directors is the decision-making body: Chairman (Governor) plus 3 appointed directors and the Chief Executive Officer of the Finance Ministry (ex officio). - Appointment and removal provisions: members (other than ex officio) appointed for 3 years, removable by Head of State acting on Cabinet advice for limited causes (CBSA section 11). - No significant evidence of governmental interference in supervision despite ex officio government representation; directors of banks are ineligible for appointment to the Board (CBSA section 10). - CBS staff remuneration increase of 45 percent phased over 3 years has made employment terms competitive. - Staffing remains tight; FID has limited supervisors as noted above; CBS plans additional mid-level hires. - FID has adequate computers and equipment; donor support is used for training and technical assistance. - Assessment: Compliant. - Comments: In view of increased examination work, CBS should ensure that FID has adequate staff resources. - International banks - Description: - Day-to-day supervision performed by SIFA employees; responsibility shared between Minister and Inspector. - No significant evidence of governmental interference in SIFA’s ongoing supervision. - SIFA supervision of international banks is a relatively small part of its overall supervision and is financed from its General Fund (registration and licensing fees paid into the General Fund). - SIFA operating budget for 2006-07, including the banking supervision department, is approximately SAT 2,000,000 (about US$900,000). - Staff paid according to the CBS salary scale; training budget and donor assistance: SAT375,000 (USD$143,000) allocated for training and attendance at seminars and conferences in 2006-2007. - SIFA received IMF technical assistance in 2003, 2005 and 2006. - Assessment: Compliant. - Comments: None. - Principle 1(3) — Suitable legal framework for authorization and ongoing supervision - Domestic banks - Description: - Section 3 of the FIA provides that CBS is responsible for licensing and prudential supervision of banks; section 14 authorizes revocation of licenses where banks are insolvent or detrimental to depositors. *Source: Detailed Assessment of Compliance with the Basel Core Principles (assessment conducted by the mission for Samoa).* ### Section 3 empowers the CBS to issue prudential statements and guidelines in connection with ### cr07222 - Section 3 empowers the CBS to issue prudential statements and guidelines in connection with ### Legal powers to issue prudential statements and regulations - Section 3 empowers the CBS to issue prudential statements and guidelines in connection with the implementation of the Act, including requirements for the licensing, ownership and management of banks. - Section 29 provides a backup power allowing the Head of State, acting on the advice of the Cabinet, to issue regulations needed to give full effect to the Act; this backup power has not been used to date. - Assessment: Compliant. ### Supervisory reporting and on-site examination powers - Section 9 of the FIA empowers the CBS to require banks to submit any returns and information it requires for supervisory purposes. - Section 11 authorizes the CBS to conduct on-site examinations and obliges a bank under examination to provide all information CBS examiners may require. - Assessment: Compliant. ### Regulatory framework for international banks - Section 14 of the IFA: Minister of Finance responsible for granting licenses to international banks; section 44 permits the Minister to revoke licenses. - Section 6 of the IFA empowers the Minister to issue regulatory codes covering: - the conduct of any business carried on by international banks; - the financial resources of international banks; - assets, liabilities and other matters to determine financial resources for code purposes; - arrangements for the settlement of disputes; - the keeping of accounts and other records, their form, content, inspection and audit; - the form and content of advertisements in respect of any business carried on by international banks; - the giving of notice to the Minister or the Inspector of specified events; - the form and content of any information required to be produced by international banks to the Minister or the Inspector; - the financial statements and returns to be submitted to the Minister or the Inspector; and - the display of notices and provision of information about international banks to the public at offices and places of business. - Assessment: Compliant. ### Enforcement powers over domestic banks - Section 13 of the FIA: where CBS considers a bank to be following unsafe or unsound practices, contravening its license conditions or FIA provisions, CBS may issue a cease and desist order or require corrective action, including enforcement actions against individuals. - Section 14 of the FIA: if CBS considers a bank detrimental to depositors or unlikely to meet obligations, it may: - direct the bank to take specified measures; - appoint a qualified person to advise the bank on conduct of its business; - revoke the license; and - petition the court for the bank to be wound up. - Assessment: Compliant. ### Enforcement powers over international banks - Section 5 of the IBA: Inspector must conduct off- and on-site supervision of international banks and report as necessary to the Minister of Finance, advising on corrective measures. - Section 43(1) of the IBA: if the Minister considers an international bank detrimental to depositors, insufficiently asset-backed, or contravening the IBA, the Minister may: - (a) require the licensee to take measures the Minister considers necessary; - (b) impose, amend or revoke license conditions; - (c) require removal and replacement of any director or officer; - (d) appoint an experienced person to advise the licensee and fix remuneration payable by the licensee; - (e) appoint a person to assume control of the licensee’s affairs with powers mutatis mutandis of a receiver or manager under the Companies Act 1955 and fix remuneration payable by the licensee; or - (f) make an order under section 44 canceling the license unless satisfied adequate measures are being taken. - Assessment: Compliant. ### Legal protection for supervisors - Domestic banks: - Section 25 of the FIA confers immunity on the Board of the CBS, and any officer or person duly appointed or authorized by the CBS, for acts done in good faith in exercising powers or performing duties under the Act. - A similar provision exists under Section 17A of the CBSA. - Samoa applies the doctrine of vicarious liability to employers for actions of their employees. - Assessment: Compliant. - International banks: - Section 56(1) of the IBA: no action shall lie against the Government or any statutory body or authority of Samoa, the Minister, the Inspector or any person acting pursuant to authority conferred by the Minister or the Inspector, in respect of acts or omissions done in good faith exercising or purporting to exercise functions under the Act or regulations. - Section 56(2) of the IBA: legal costs of defending any action against the Minister, the Inspector or any person acting pursuant to authority conferred by the Minister or the Inspector shall be borne by the Government of Samoa. - Assessment: Compliant. ### Information sharing and confidentiality - Domestic banks: - Finance Ministry CEO sits on the CBS Board, ensuring sharing of information on individual banks and overall domestic financial stability with the government. - Section 24 of the FIA permits the CBS, its directors and employees to disclose prudential information in confidence to a supervisory authority in another country for functions corresponding to those of the CBS. - Section 24 of the FIA and section 17 of the CBSA prohibit the CBS, its directors and employees from disclosing confidential information unless required by a Court or permitted by law. - The CBS has not signed formal MoUs with foreign supervisors; in practice it uses the legal gateway and ad hoc exchanges. - Assessment: Compliant. - International banks: - Licensed international banks conduct business with non-residents only; Section 12 of the IBA permits an international bank to apply to conduct business with residents, but none has done so. - International banks’ relations with domestic banks are limited to maintaining accounts for local payments; principal risk to domestic system is reputational. - The Inspector must report to the Minister of Finance on threats to the domestic system from international banks; the SIFA Board (with CBS and Finance Ministry representation) provides an additional information-sharing mechanism. - IBA allows the Inspector to deny requests for confidential information; Section 37(3) permits disclosure to foreign or domestic bank supervisors or AML/CFT authorities where information is subject to adequate confidentiality safeguards and required for bank or AML/CFT purposes. - None of the international banks is affiliated with a bank outside Samoa; the Section 37(3) gateway has not been used and no MoUs have been considered necessary to date. - Assessment: Compliant. ### Permissible activities and use of the word “bank” - Domestic banks: - Section 2 of the CBSA defines “bank” as “a financial institution whose operations include the acceptance of deposits subject to withdraw[al] or transfer by check or other means of third party transfer”. - Section 19(2) of the FIA confines use of the word “bank” in a name or description to banks licensed under the Act. - “Banking business” (section 2 of the CBSA) defined as “any customary banking operation and includes the business of accepting deposits of money ... and the use of such funds ...for loans or investments for the account and at the risk of the person doing such business”. - Section 12 of the FIA prohibits banks from trading in goods (except when realizing security) or investing more than 10 percent of their paid up capital and unimpaired reserves in the equity of commercial, agricultural or industrial undertakings. - PS 6 expresses the CBS view that a bank’s ownership interests should normally be in financial intermediation. - Only licensed banks may accept deposits from the public; section 4 of the FIA makes it a criminal offence to carry on banking business without a license (credit unions exempt). - Assessment: Compliant. - International banks: - The IBA does not define the word “bank”; section 48 permits use of “bank” or “international bank” in the name under which a licensed international bank carries on business from Samoa; unauthorized use is a criminal offence. - Section 2 of the IBA defines “banking business” broadly, including accepting deposits, making loans, trading in financial instruments, precious metals and currencies, issuing guarantees and managing property. - International banks may be given permission by the Minister of Finance to carry on activities outside the “customary scope” of banking. - Specific activities permitted to an international bank are limited by its license terms; IBA provides for 3 classes of license: A, B1 and B2. - An A or B1 license is required for acceptance of deposits from the public; a B2 license may accept deposits only from persons specified in its license. - At present there are three B1 and three B2 licenses in issue but no A license. - In the case of a B1 license, the number of currencies in which the bank may transact business is specified in its license. - Assessment: Compliant. ### Licensing criteria and procedures (domestic) - Section 6 of the FIA enables the CBS to set licensing criteria and requires the CBS to have regard to: - the economic advantage to Samoa; - the need for and viability of the proposed bank; - its spread of ownership; - the financial capacity, history and qualifications of the applicant, promoters, substantial shareholders and management; - the character and experience of the same persons; - the proposed accounting and internal control systems; - the adequacy and structure of the capital; - the business activities the bank proposes to undertake; and - in the case of foreign applicants, regulatory requirements in the applicant’s country of incorporation. - The CBS requires written confirmation that the home supervisor has no objection and written confirmation from the applicant that it will provide support, as necessary, to its establishment in Samoa. - The CBS uses a two-stage application procedure: - Stage 1: applicant submits an application letter with: - a notarized copy of the promoters’ agreement detailing proposed name, principal office location, directors, amount of authorized share capital and its composition, amount of capital to be subscribed and when, and names of subscribers; - biographical information on promoters, substantial shareholders and directors with independent character and financial references and long-term financial commitments to the bank; - a business plan indicating proposed activities; - financial projections for 3 years ahead; - a list of principal officers with details of qualifications and experience. - If satisfied, CBS issues an “Authority to Organize”. - Stage 2 (within 6 months): applicant must prepare a suitable office and submit confirmation of minimum required capital; certified copies of Certificate of Incorporation, Memorandum and Articles of association; affidavits for each director and principal officer confirming no involvement with a liquidated or revoked bank, no conviction of dishonesty and no personal bankruptcy; organization chart; draft accounting and internal control manual. - When satisfied with stage 2, CBS issues the license. - The CBS reserves the right to investigate correctness of any information during both stages. - Minimum initial capital required: - SAT 2.5 million for a locally-owned bank; - SAT 5.0 million for a foreign-owned bank. - Section 7 empowers the CBS to revoke a license obtained by materially false or misleading information. - CBS has issued Guidelines for establishing a bank in Samoa. - Assessment: Compliant. ### Licensing criteria and procedures (international) - Minimum licensing requirements contained in the IBA (Sections 8-13). - Section 13 requires applicants to submit information about: - the nature and character of the company’s business; - the financial standing of the company; - its ultimate beneficial ownership; - evidence that every person who is to be a shareholder, controller or director is “fit and proper”; - any other information or documents the Minister or Inspector may require. - Fit and proper test (section 3) requires regard to: - (a) honesty, integrity and reputation; - (b) competence and capability; and - (c) financial soundness. - Officers and directors complete a comprehensive Personal Questionnaire subject to detailed vetting; due diligence includes criminal record checks and evaluation of expertise and integrity. - Where the proposed owner or parent organisation is a foreign bank, prior consent of the home country supervisor must be obtained. - None of the present international banks is the subsidiary of a foreign bank included in consolidated supervision performed by a foreign bank supervisor. - The criteria for issuing licenses are consistent with those applied in ongoing supervision. - Assessment: Compliant. *Source: cr07222 (IMF).* ### Section 14 of the IBA empowers the Minister to reject an application if any of the criteria is ### cr07222 - Section 14 of the IBA empowers the Minister to reject an application if any of the criteria is ### Licensing and application review - Section 14 of the IBA empowers the Minister to reject an application if any of the criteria is not fulfilled or if the information provided is inadequate. - Under section 13, the Minister and the Inspector have unfettered discretion in seeking additional information from license applicants. - Sections 9 and 10 of the IBA prescribe minimum capital requirements: - USD$10 million for A class banks - US$ 2 million for B1 class banks - US$ 250,000 for B2 class banks - The Inspector (IBA section 5(4) (e)) is required to examine and make recommendations to the Minister with respect to applications for licenses or license renewals. - A license can be revoked if it was obtained on the basis of false information (section 33 IBA) and the Minister may revoke a license under section 44(1) in such an event. - The criteria for issuing licenses are consistent with those applied in ongoing supervision. - Assessment: Compliant. - Comments: None. ### Ownership (Principle 4) — Domestic banks - Section 18(3) of the FIA defines “transfer of control” as any event that results in a person acquiring ownership or exercising power over twenty percent or more of the voting stock of a domestic bank. - Under section 18(1) all such transfers of control require the written approval of the CBS before implementation, and the CBS has the right to reject transfers. - Any bank effecting a transfer of control without CBS approval commits a criminal offence and any purported transfer may be declared null and void. - Assessment: Compliant. - Comments: None. ### Ownership (Principle 4) — International banks - Section 17(1) of the IBA defines “transfer of control” as any transfer of shares in an international bank or other event which has the effect of transferring the "effective ownership, management and control” of the bank; the definition includes any event occurring in any holding company of the bank. - A transfer of control so defined requires the prior written approval of the Minister of Finance, who has discretion to refuse approval. - No shares in, or beneficial interest in the shares of, an international bank may be transferred without the prior written approval of the Inspector (IBA section 18). - In the Annual Report filed by every licensee in accordance with IBA section 127 the names of all beneficial owners of an international bank must be confirmed. - Assessment: Compliant. - Comments: None. ### Investment criteria (Principle 5) — Domestic banks - Section 12 of the FIA places an aggregate limit of 10 percent of paid-up capital and unimpaired reserves on a domestic bank’s ownership of the share capital of commercial, agricultural, industrial or other undertakings. - Exceptions: - Investments in undertakings formed to conduct nominee/trustee functions subject to the prior approval of the CBS. - Interests acquired through security enforcement (which the FIA requires to be disposed of at the earliest suitable opportunity). - PS 6 indicates the CBS expects banks’ direct ownership within the 10 percent statutory limit to be normally in financial intermediation; investments in non-financial areas should be confined to those of substantial relevance to banking operations. - Because of the aggregate limit, the CBS does not assess individual equity investment proposals in practice (except those related to nominee/trustee/executor functions) and receives information after the event in banks’ regular reports. - Assessment: Largely compliant. - Comments: - The CBS should consider amending the FIA by introducing a legal limit on the proportion of the equity of an individual non-financial enterprise (perhaps 10 or 15 percent) which a bank may acquire within the existing aggregate limit of 10 percent of the bank’s capital. - Although such investments are discouraged by PS 6, current rules allow banks to acquire non-financial subsidiaries through which they could incur additional risks outside the scope of supervision. ### Investment criteria (Principle 5) — International banks - The scope of international banks to make investments is limited by restrictions in sections 21 and 23 of the IBA. - The Minister has authority under IBA section 6 to issue a regulatory code specifying criteria for reviewing major acquisitions or investments but has not done so to date. - Under section 21 of the IBA, A and B1 class banks must obtain prior written approval of the Minister or Inspector before opening a subsidiary bank, branch office or agency outside Samoa. - Aggregate investment limits for international banks: - Investments in other companies may not in aggregate exceed 15 percent of their own paid up capital and reserves without prior written approval of the Inspector. - Section 23(2) places an absolute aggregate limit on such permitted investments of 60 percent of own paid up capital and reserves. - IBA section 23(2)(d) prohibits A and B1 class banks from acquiring an interest in any property, chattels or real estate for any purpose other than carrying on their international banking business. - Assessment: Largely compliant. - Comments: - Consideration should be given to introducing a limit on the proportion of the equity of an individual non-financial enterprise (e.g., 10 or 15 percent) which an international bank may hold to prevent establishment of non-financial subsidiaries. ### Capital adequacy (Principle 6) — Domestic banks - The CBS has issued a PS setting the required minimum level and method of computation of the capital adequacy ratio (CAR); the definition of capital and the method are consistent with the Basel Capital Accord. - Market risk is not included in the CAR computation because the securities market in Samoa is not developed; FX open positions are small. - Required capital ratios are not set in relation to individual banks’ risk profiles; all banks must observe a minimum risk weighted capital ratio of 15 percent of risk-weighted exposures. - At present all banks have ratios which comfortably exceed the required minimum. - Currently none of the domestic banks has any subsidiaries; the CBS therefore does not apply the ratio on a consolidated basis. Risk-weighted exposures of those banks which are subsidiaries of foreign banks are included in the consolidated capital ratios of their parents. - The statutory required minimum capital is: - SAT 2.5 million for locally owned banks - SAT 5.0 million for foreign owned banks - Assessment: Largely Compliant. - Comments: - The CBS should consider introducing specific capital charges for market price risk and FX risk. - Suggested approaches include weighting holdings of marketable government or central bank securities at 10 or 20 percent instead of zero to reflect price fluctuation risk. - Aggregate FX open positions exceeding a specified threshold (for example, 2 percent of total assets) could be added to risk-weighted assets for CAR calculation. ### Capital adequacy (Principle 6) — International banks - International banks are required to maintain at all times the minimum capital requirements they had to meet in order to be licensed (as described under CP3). *Source: cr07222 (IMF).* ### Section 6 of the IBA empowers the Minister to issue regulatory codes concerning, inter alia, ### cr07222 - Section 6 of the IBA empowers the Minister to issue regulatory codes concerning, inter alia, ### Regulatory framework for international banks (Section 6 of the IBA) - Assessment: Noncompliant. - Findings: - Section 6 empowers the Minister to issue regulatory codes on international banks’ financial resources, assets, liabilities, and other matters for determining financial resources. - To date, no code has been issued imposing minimum capital adequacy requirements on international banks. - All international banks are restricted B class banks that do not accept deposits from the public and are used primarily for tax planning and in-house treasury functions. - Given their limited banking activities and atypical risks, the added value of treating them as conventional banks (for example, by imposing capital ratios) is questioned; the principal justification for such treatment would be to mitigate reputational risk to Samoa’s domestic financial system. - Recommendation: - Consider issuing regulatory codes addressing capital adequacy and other prudential requirements for international banks to mitigate reputational risk. ### Principle 7 — Credit Policies - Domestic banks - Assessment: Materially noncompliant. - Findings: - CBS requires banks to establish prudent credit-granting and investment systems as a licensing requirement. - No prudential statement (PS) sets minimum standards for banks’ credit policies (PS4 addresses credit concentrations only). - No specific requirements for periodic review by management/boards or dissemination of credit procedures to relevant staff. - CBS expanded examinations focusing on credit risk practices and AML procedures and identified prohibited conflicts of interest. - External auditors may have evaluated credit policies as part of statutory audits, but CBS has not obtained specific assurances. - Preliminary discussions on establishing a credit bureau have taken place. - Recommendation: - CBS should develop a PS setting minimum standards for banks’ credit policies. - Review banks’ policies against the PS and verify adherence during examinations. - Banks’ credit policies should include internal limits for exposures to single counterparties, groups of closely related borrowers, economic sectors, and geographical areas; procedures for approving exposures to persons connected with the bank; and internal limits for such exposures. - International banks - Assessment: Noncompliant. - Findings: - No regulatory code issued for international banks’ credit policies. - Inspector’s onsite inspections have not addressed credit-granting or investment policies/procedures. - Recommendation: - Minister and Inspector should develop a regulatory code for international banks’ credit policies. - CBS and SIFA could collaborate to develop a single body of standards and issue them separately to their licensed banks. ### Principle 8 — Loan Evaluation and Loan-Loss Provisioning - Domestic banks - Assessment: Largely compliant. - Findings: - CBS issued guidelines in PS 7 for asset quality and loan-loss provisions. - Foreign-owned banks may follow parent credit review procedures and are exempted from following guidelines in every detail. - Loans defined to include direct and indirect credit extensions, accounts receivable, property acquired in settlement, and equity investments. - Asset classification and provisioning scheme (implied for locally owned banks): - Standard — Required Provision (percentage of value): 0 - Substandard — 20 - Doubtful — 50 - Loss — 100 - Definitions and treatment of collateral recognition, interest suspension, and rescheduled loans align with international practice. - CBS analyzes past-due loans and provisioning data off-site and strengthened on-site credit review examinations. - Recommendation: - CBS should require banks to have mechanisms for regularly valuing collateral and assessing strength of guarantees. - International banks - Assessment: Noncompliant. - Findings: - No rules require international banks to periodically review outstanding loans, classify loans, or make provisions. - Under section 28 of the IBA, A and B1 class banks file quarterly returns including loans; B2 class banks file every six months. - Inspector may require auditors to report on asset quality and adequacy of provisions under section 36 (4) of the IBA. - Recommendation: - Minister and Inspector should issue a regulatory code requiring internal systems for periodic loan review, classification, and timely provisioning. ### Principle 9 — Large Exposure Limits - Domestic banks - Assessment: Largely compliant. - Findings: - Section 12 of the FIA limits exposure to a single person or group to 25 percent of capital. - PS 4 details standards for compliance and provides a general test for "closely related groups". - Credit exposure definition includes loans, overdrafts, direct/indirect obligations, commercial paper, equity, and off-balance-sheet credit substitutes. - Banks provide a quarterly schedule of their ten largest borrowers; sectoral loan information obtained monthly; no geographical breakdown collected. - Feedback suggested clarifying that the Top Ten schedule should be based on credit facilities extended to a group of closely related borrowers. - Recommendations: - CBS should strengthen assessment of banks’ internal systems for identifying related-borrower groups and controlling concentrations during examinations. - Recommend banks report all single exposures exceeding 10 percent of capital to improve monitoring (current ceiling is 25 percent of capital). - International banks - Assessment: Noncompliant. - Findings: - No laws or rules govern international banks’ large exposures. - Quarterly/half-yearly financial statements filed with the Inspector contain a schedule of twenty (20) single largest exposures. - Recommendations: - Minister and Inspector should issue a regulatory code requiring international banks to address concentration risk, including: - a definition of closely related groups treated as single borrowers; - a requirement to report all individual exposures exceeding 10 percent of capital; and - a prohibition on incurring single exposures exceeding 25 percent of capital without prior Inspector permission. ### Principle 10 — Connected Lending - Domestic banks - Assessment: Materially noncompliant. - Findings: - Section 12(c) of the FIA requires director credit facilities to be substantially on the same terms as comparable transactions with the public; PS 6 extends principle to other connected parties and provides a comprehensive definition. - PS 6 requires board approval (majority excluding interested director) for proposed connected exposures and excludes benefiting directors/officers from decisions. - Limit for connected lending exposures is 25 percent of capital, same as unconnected lending. - Neither law nor PS 6 allows CBS discretion to judge existence of connections in special circumstances or require deduction of connected exposures from eligible capital for capital adequacy purposes. - No specific PS requirements on information and monitoring systems to independently identify, monitor, and administer connected exposures. - No reporting to CBS enabling monitoring of connected lending or aggregate exposures; disclosures appear in audited annual reports. CBS is revising periodic information collection and expects to include this. - Recommendations: - Grant CBS discretionary power to judge connections between banks and parties in special circumstances. - CBS should collect periodic individual and aggregate connected-lending information and validate compliance via on-site inspections. - Require banks’ information systems to independently identify, monitor, and administer connected exposures. - International banks - Assessment: Materially noncompliant. - Findings: - Section 23(2)(c) of the IBA prohibits unsecured advances/credit facilities/guarantees or other unsecured liabilities in aggregate exceeding US$5,000 or 1 percent of paid-up capital and unimpaired reserves, whichever is greater, to connected parties. - Section 23(2)(c)(i)–(iii) contains a comprehensive definition of connected parties including affiliated companies, shareholders, beneficial owners, directors, senior management, and close family. - Inspector collects information on connected-party loans and advances quarterly. - Recommendations/Issues for Inspector to address: - No specific prohibition on granting more favorable terms to connected parties than to unconnected parties. - No explicit requirement that board approve transactions with connected parties or that beneficiaries be excluded from assessment/decision-making. - Inspector does not require bank information systems to independently identify, monitor, and administer such exposures. ### Principle 11 — Country Risk - Domestic banks - Assessment: Largely compliant. - Findings: - PS 4 expects banks to be aware of various risks and have internal systems for measurement, control, approval, and monitoring, but PS 4 does not specifically address country or transfer risk. - No specific minimum requirements for country/transfer risk; banks expected to set their own policies and controls. - On-site examinations have reviewed internal control systems including country and transfer risk. - Exchange control regulations require prior CBS approval for any foreign loan or investment with detailed borrower and terms information. - CBS collects monthly information on aggregate foreign asset exposures and liabilities but not by individual countries. - No specific country-risk provisioning requirements beyond general PS 7. - Recommendations: - Amend PS 4 and PS 7 to specifically address country and transfer risk characteristics. - Periodically collect information on specific country and transfer risk exposures. - International banks - Assessment: Noncompliant. - Findings: - Inspector has not issued guidance to international banks on risk management, internal control, or information systems. - No on-site examinations have been conducted on risk management, internal control, or information systems in international banks. - Inspector does not monitor or collect information on country and transfer risk; no minimum provisioning requirements for these risks. - Recommendations: - After analyzing international banks’ risk exposures, Inspector should issue requirements for risk management, internal control, and information systems, including provisioning, and monitor implementation via periodic data collection and on-site examinations. ### Principle 12 — Market Risks - Domestic banks - Assessment: Not applicable. - Findings: - No specific market risk requirements; a 15 percent minimum capital adequacy requirement is intended to cover banks’ full range of risks. - No domestic securities market; foreign exchange trading exists but net open positions are small. - PS 9 outlines CBS approach to measuring/monitoring foreign currency risk and internal intra-day and end-of-day exposure limits agreed with CBS. - Weekly Foreign Currency Position Report required; banks must report exceeding agreed internal limits for three consecutive trading days. - FIA gives CBS power to impose specific capital charges and/or limits on various risks. - International banks - Assessment: Noncompliant. - Findings: - Inspector does not monitor international banks for market risk control and has not imposed market-risk-related risk management, controls, or capital charges. - Materiality of market risk impact in international banks is unknown due to lack of information on activities. - Recommendation: - After further analysis, Inspector should issue guidance and monitor implementation through data collection and on-site examinations as necessary. ### Principle 13 — Other Risks (operational, interest-rate, liquidity) - Domestic banks - Assessment: Materially noncompliant. - Findings: - CBS requires comprehensive risk management processes; PS 5 addresses liquidity risk, PS 9 addresses foreign exchange risk. - No specific requirements for operational risk or interest-rate risk management systems. - CBS has not undertaken comprehensive on-site reviews (except credit risk) of other risk management processes. - CBS has powers under the FIA to impose capital requirements for risks beyond credit and market risk. - Off-site monitoring includes weekly liquidity reports and monthly interest-rate risk reports, but no on-site verification of reporting quality. - No requirement for banks to include a statement on risk management policies in publicly available accounts. - Recommendations: - CBS should issue specific guidance on operational risk and interest-rate risk management and control. - Note: November 2006 BCP revision separated these risks into distinct CPs. - International banks - Assessment: Noncompliant. - Findings: - Inspector does not monitor international banks for operational, interest-rate, or liquidity risks and has not imposed related requirements or collected liquidity information. - No comprehensive reviews or guidance issued; materiality of such risks is unquantified due to lack of operational information. - Recommendation: - Inspector should analyze risk exposures and issue guidance for risk management, internal controls, and monitoring, and implement periodic collection and on-site examinations. ### Principle 14 — Internal Control and Audit - Domestic banks - Assessment: Largely compliant. - Findings: - Companies Act assigns management responsibilities to directors; PS 2 defines fit and proper directors/principal officers and CBS assesses these during licensing. - CBS requires notification of proposed changes in directors/senior management for fit and proper determinations but FIA lacks specific authority for CBS to require changes in board/management. - PS 8 sets expectations for accounting and internal control systems commensurate with banks’ business. - Limited comprehensive on-site reviews of internal control, accounting, and auditing systems (except credit risk and AML); both locally-owned banks have on-site internal audit staff; foreign-owned banks rely on parent/regional internal auditors and supervisory authorities. - No supervisory requirements for Audit Committees or requirement for experienced non-executive directors; availability of qualified directors in Samoa is limited. - Recommendations: - CBS should obtain and review internal audit reports during on-site examinations. - Update FIA to: - grant CBS authority to require changes to a bank’s board or management where appropriate; and - require bank approval for proposed changes in board or senior management. - Consider issuing a PS on corporate governance responsibilities of boards and senior management. - International banks - Assessment: Materially noncompliant. - Findings: - IBA section 19 requires at least two directors (natural persons), one Samoan resident, and Inspector approval for appointments; section 3 defines "fit and proper"; section 44 allows Minister to require removal/replacement of directors/officers in specified circumstances. - Inspector relies heavily on external auditors; auditor duties under IBA section 36 include opinions on solvency, irregularities, criminal offences, and losses materially reducing capital. - With physical presence established, Inspector can now assess internal controls and audits, but on-site examinations to date have only covered AML and physical presence requirements. - No comprehensive review of internal control, accounting, and audit systems for offshore banks; Inspector has not promoted corporate governance for directors and managers. - No requirement for experienced non-executive directors or audit committees; internal audit function generally unnecessary due to operation size. - Recommendations: - Inspector should provide guidance on risk management, internal controls, and accounting systems. - Issue guidance on corporate governance responsibilities of directors and management. - Fully implement on-site examination program with comprehensive coverage of risk management, internal control, and audit systems. ### Principle 15 — Money Laundering - Domestic banks - Assessment: Largely compliant. - Findings: - Money Laundering Prevention Act 2000 (MLPA2000) previously governed AML; functions carried out by Governor of CBS with FID support. - Money Laundering Prevention Act 2007 (MLPA2007) repealed MLPA2000 and implementation is beginning. - MLPA2007 designates supervisory functions of the Money Laundering Authority (MLA) to the Governor of CBS (delegated to Deputy Governor and Manager, FID); FIU to be formed by MLA to receive/analyze STRs. - Obligations on financial institutions for recordkeeping, verification, and monitoring are now in the Act. - MLPA2007 aims to meet FATF 40 plus 9 recommendations and address key recommendations of the Asia/Pacific Group mutual evaluation. - Banks have been following MLPA2000 regulations/guidelines and submitting reports to FID; new regulations/guidelines under MLPA2007 expected completed by May/June 2007 after consultation and approvals. - Section 29 of MLPA2007 provides protection for good-faith reporters; sections 8 and 9 provide for information sharing by FIU. - CBS has conducted on-site AML examinations of all banks under MLPA2000 standards. - Money Laundering Prevention Task Force chaired by Governor (or designee) advises MLA and ensures inter-agency coordination. - Recommendation: - MLA should expeditiously complete new regulations and guidelines to fully implement MLPA2007. - International banks - Assessment: Largely compliant. - Findings: - International banks defined as "financial institutions" under MLPA2000 and MLPA2007; subject to due diligence, recordkeeping, reporting, and other obligations. - Inspector is a supervisory authority required to file STRs with FIU and is a member of the Money Laundering Prevention Task Force. - Inspector has conducted on-site examinations of international banks’ AML systems under MLPA2000. - New MLPA2007 regulations/guidelines expected completed by May/June 2007. - Recommendation: - MLA should expeditiously complete required regulations and guidelines to fully implement MLPA2007. ### Principle 16 — On-Site and Off-Site Supervision - Domestic banks - Assessment: Largely compliant. - Findings: - CBS initiated on-site examination program focusing on credit risk management and AML; all banks examined; most recent visits in late 2006; two-year cycle of targeted on-site examinations anticipated. - Capacity constraints and staff training limit full implementation. - CBS previously conducted a single on-site examination in 2000; CBS uses external auditors sometimes to confirm statistical information. - CBS adopted an on-site inspections manual with a risk-based approach covering credit, investment, liquidity, operating, interest rate, foreign exchange, off-balance-sheet, solvency, information systems, accounting, internal controls, and audit activities. - Regular reporting by banks (weekly, monthly, quarterly, semi-annual, annual) used for off-site monitoring and analysis. - Recommendations: - CBS should continue full implementation of on-site examination program, including staff augmentation and training. - International banks - Assessment: Largely compliant. - Findings: - IBA section 5(4)(b) gives Inspector authority for on-site and off-site supervision with full access to bank records. - Inspector initiated on-site examinations in 2005–2006 addressing AML and physical presence requirements; with physical presence established, broader on-site examinations are feasible. - Inspector adopted an on-site examination manual addressing international banks’ unique characteristics and focusing on know-your-client, client money/assets, disclosure, dealing, advice, administration, compliance, and record-keeping. - Off-site supervision relies on analysis of periodic returns and audited accounts and on external auditors whose responsibilities are specified in IBA sections 35 and 36. - All licensees must maintain accounting records in Samoa; Inspector’s Accounts department analyzes returns and audited accounts. - Recommendations: - Inspector should continue full implementation of on-site examination program, including staff training. - Expand on-site examination program and manual to comprehensively cover all operations and validate supervisory information while maintaining relationships with external auditors. ### Principle 17 — Bank Management Contact (excerpt conclusions) - Domestic banks - Findings: - CBS meets with key bank executives quarterly to discuss supervision and operational matters; FID management has more frequent contacts; closing meetings held with bank management at examinations. _The assessment and recommendations above are drawn from the report._ ### conclusion of each on-site examination to discuss the examinations findings, followed-up by a ### conclusion of each on-site examination to discuss the examinations findings, followed-up by a ### Off-site surveillance, on-site examinations, and ongoing contacts - Off-site surveillance and reviews, on-site examinations, and ongoing regular contacts with bank management have provided the CBS with a good understanding of all of the activities that banks undertake. - CBS senior officials responsible for analysis and collation of financial/prudential reports have developed a good working relationship with bank reporting officials, which greatly improves the CBS’s understanding of major activities and financial performance of the banks. - There is no specific legal requirement that banks provide timely notification to the CBS on substantive changes or material adverse developments, including breach of legal and prudential requirements; however, the requirements of PS 8, paragraph 4, imply such reporting will occur. - In regular practice, all banks keep the CBS informed of substantive and material changes and developments and understand they are expected to do so. - Assessment: Largely compliant. - Comment: The CBS should formalize their requirement that banks provide them with timely notification of substantive changes and material developments. ### International banks — Inspector interactions and physical presence - The Inspector has regular communication with resident directors/managers of offshore banks and meets with overseas directors of licensees at least annually. - Off-site surveillance reviews, establishment of banks’ physical presence in Samoa, and regular meetings/contacts have provided the Inspector with sufficient information to understand general activities of licensees; expansion of on-site examinations should enhance this knowledge. - Full “mind and management” of the banks is still not present in Samoa, limiting the Inspector’s ability to obtain a detailed understanding of all banks’ activities. - Section 19 of the IBA requires proposed changes in directors or chief executive to be presented to the Inspector for “fit and proper” vetting and written approval. - Assessment: Largely compliant. - Comment: The Inspector should consider requiring more frequent meetings with overseas directors and/or senior management of the international banks to develop a more complete and detailed understanding of their activities, policies, procedures, systems, and controls. ### Principle 18. Off-Site Supervision — Domestic banks - Weekly, monthly and quarterly prudential returns provide the CBS with information on on- and off-balance sheet assets and liabilities, profit and loss, capital adequacy, liquidity, large exposures, loss provisioning and non-performing assets, interest rate risk, and deposit sources. - Detailed information is not collected on asset classification, connected lending, or country exposures. - Further review of required reporting is being undertaken to address other relevant information and align with latest detailed IMF financial sector reporting requirements. - FIA, section 9 (2) gives CBS power to require periodical returns and other information in prescribed time and form. - No domestic or foreign subsidiaries of banks licensed in Samoa exist; CBS could rely on CBSA, section 38, and FIA, section 8, for consolidated data and consolidated capital ratio determination. - PS 8 requires bank systems to provide information based on generally accepted accounting principles; financial statements for public disclosure must follow international accounting and auditing standards. - Section 9 of the FIA gives CBS discretion to impose an administrative fine for delaying submission or willfully submitting false or inaccurate information. - The FID analyzes returns, follows up with banks for clarification, and provides information to senior CBS management. - Assessment: Largely compliant. - Comment: The CBS should consider expanding periodic reporting requirements to include detailed information on classified assets, connected lending, and country exposures. ### Principle 18. Off-Site Supervision — International banks - Section 30 of the IBA requires licensees to furnish information in respect of international banking business as directed by the Minister or the Inspector. - Inspector’s powers include requiring licensees to take measures, imposing conditions, removal/replacement of directors and officers, appointing an adviser, appointing a receiver/manager, petitioning for winding up, or cancelling the license (sections 43 and 44). - During implementation of physical presence requirements, several licenses were revoked when licensees refused to maintain records in Samoa. - All annual audited accounts must be prepared according to international accounting standards; quarterly/semi-annual returns provide detailed balance sheets, profit and loss statements, and data on loan classifications, connected lending, contingent liabilities, large exposures, provisioning, and large deposit sources. - Quarterly returns are received from A and B1 banks; returns from B2 banks are received semi-annually. - Failure to comply with filing requirements is an offence under IBA, section 28 (4), with a maximum fine of US$1,000 for every day the offence continues. - Under section 29 of the IBA, the Inspector’s inspection rights are authorized subject to reasonable belief of necessity. - Available reports are reviewed by Accounts staff of the Inspector and information is provided to Inspector’s senior management; information is shared with the IMF pursuant to its Information Dissemination Project. - Assessment: Largely Compliant. - Comment: The Inspector should consider expanding periodic reporting requirements to include detailed information on classified assets, country exposures, liquidity, and interest rate risk. ### Principle 19. Validation of Supervisory Information — Domestic banks - CBS is implementing an on-site examination program intended to include banks’ overall operations; on-site examinations of credit risk management and anti-money laundering systems have been conducted in all banks. - Program expansion is planned; staff resources and training remain issues. Technical assistance and staff training programs are ongoing from external sources. - CBS has used external auditors for independent validation in some instances and meets with external auditors and banks following statutory audits for briefings on significant findings. - FIA, section 10 requires external auditors to hold a current certificate of public practice and be acceptable to the CBS; CBS can require auditor reports on matters it determines. - Section 11 allows CBS to delegate inspection powers to designated examiners. - Legal right of access to all bank records for on-site examination is provided in FIA, section 11; without going on-site, access to specific documents can be obtained under FIA, section 9. - No specific reference to access to bank directors, senior management, and staff is made but such access is reasonably implied under section 11. - CBS meets with audit firms from time to time to discuss supervisory issues. - Assessment: Largely compliant. - Comment: The CBS should continue expansion of its on-site examination program to achieve more comprehensive coverage of all banks’ operations and activities, including validation of supervisory information, while maintaining working relationships with external auditors. ### Principle 19. Validation of Supervisory Information — International banks - With implementation of section 11 of the IBA and Practice Note No. 2 requiring international banks to establish a physical presence in Samoa completed, the Inspector is developing on-site examination capacity; a regular program of on-site examinations has not yet commenced. - To date, on-site examinations have focused on physical presence requirements and anti-money laundering systems; the Inspector continues to rely on external auditors to validate supervisory information. - Under section 35 of the IBA, auditors must report whether licensees carry on business in accordance with license terms and whether returns filed have been completed correctly. - Inspector’s staff have participated in CBS on-site inspections of licensees in conjunction with external auditors to verify supervisory information. - Inspector can monitor the quality of external auditors’ work; audits may be performed only by auditors approved by the Inspector and registered under section 10 of the International Companies Act 1987. - Inspector may appoint an approved auditor if a bank fails to fill an auditor vacancy. - Section 36 of the IBA allows the Inspector to require auditor reports on adequacy of accounting and control systems, scope enlargement of audits, or other procedures. - Under section 34(3) of the IBA, Inspector has legal right of full access to all bank records, including customer account information, and oral information concerning the licensee’s business. - The Inspector regularly meets with local audit firms to discuss supervisory issues. - Assessment: Largely compliant. - Comment: The Inspector should expand its on-site examination program to achieve more comprehensive coverage of all banks’ operations and activities, including validation of supervisory information, while maintaining working relationships with bank external auditors. ### Principle 20. Consolidated Supervision — Domestic banks - There are currently no subsidiaries of Samoan banks operating within or outside Samoa and no branches operating outside Samoa. - FIA, section 20 requires a bank to obtain written CBS approval to open additional places of business, including branches or subsidiaries, outside Samoa. - Samoan banks that are subsidiaries of foreign banks are subject to consolidated supervision by their home country supervisory authority. - Assessment: Not applicable. - Comment: The planned update of the FIA should clarify that the CBS has authority to apply all supervisory requirements on a consolidated basis. ### Principle 20. Consolidated Supervision — International banks - There are no subsidiaries of Samoan-licensed international banks operating within or outside Samoa engaged in banking-related business. - IBA, section 21(1)(a) requires an international bank to obtain the Inspector’s approval to open a subsidiary bank, branch office, agency, or representative office outside Samoa. - Minister and Inspector have powers to compel provision of information, reports, and returns from licensees, including subsidiaries located outside Samoa; overseas operations information is included in quarterly/semi-annual returns and annual audited accounts. - Section 26 of the IBA requires all accounting records to be maintained in Samoa. - Assessment: Not applicable. - Comments: None. ### Principle 21. Accounting Standards — Domestic banks - PS 1 states that ultimate responsibility for a bank’s affairs resides in its board of directors and management; Companies Act requires boards to maintain accounting records. - PS 8 requires banks to have adequate and effective accounting systems able to produce reports required by the CBS. - No specific guidelines issued or review conducted on the scope of external audit work to date; no specific guidelines define role and responsibilities of a bank’s board of directors and management (corporate governance). - For the two largest banks, parent bank/group accounting policies adopted and external auditors believe they are consistent with international standards; accounting policies of two locally-owned banks are within international accounting standards and subject to external audit using international auditing standards. - CBS has no express power to revoke appointment of a bank’s auditor, but annual appointment of auditors must be acceptable to the CBS pursuant to FIA, section 10 (1). - FIA, sections 10 (3) and (4) require every bank, within three months of the close of its financial year, to submit audited balance sheet and profit and loss accounts and auditor’s report to the CBS; within four months of the close of its financial year, the bank must publish audited financial statements in a newspaper circulating in Samoa. - PS 7 specifies realistic valuation of assets and prudent recognition of income and expense; valuation rules specified for credit portfolio with broad guidelines on qualitative classification and minimum provisioning levels for classified and non-classified loans. - FIA, section 10 (5) requires auditors to report immediately to the CBS if they opine that a bank is insolvent or likely unable to meet obligations; if a criminal offence involving fraud or dishonesty has been committed; if serious irregularities have occurred; if losses substantially reduce capital; or if they cannot confirm creditors’ claims are likely covered by assets. No civil or criminal proceedings may be taken against an auditor who discloses information in good faith to the CBS. - Assessment: Largely compliant. - Comment: More specific guidelines on role and responsibilities of a bank’s board of directors and management (corporate governance) are needed to clarify important areas of their mandate. ### Principle 21. Accounting Standards — International banks - Section 35 of the IBA requires audited accounts of international banks to be prepared to international accounting standards. - Under section 35, auditors must report whether proper books have been kept, whether balance sheet and accounts agree with company books, whether balance sheet is full and fair, whether information obtained from officers and agents is satisfactory, whether licensee is carrying on business in accordance with license terms related to financial or accounting matters, and whether quarterly/semi-annual returns have been completed correctly and accurately reflect management accounts. - Under section 36 (1) of the IBA, auditors have a statutory duty to enlarge or extend scope of audit where necessary and disclose any such procedure or action. - Under section 36 (2), auditors must report immediately to the Inspector, without notifying the licensee, where: the licensee is insolvent or in serious financial difficulties; a criminal offence involving fraud or dishonesty has been committed; serious irregularities have occurred jeopardizing depositors or creditors; losses have been incurred that substantially reduce capital funds; or the auditor is unable to confirm creditors’ claims are covered by licensee’s assets. - Every auditor must be approved by the Inspector and registered as a company auditor under the International Companies Act 1987. “Approved auditor” means a chartered accountant, certified public accountant, or other professionally-qualified accountant approved by the Inspector and registered as a company auditor under the International Companies Act 1987. - If concerns exist about any auditor, application can be made to the Registrar of International Companies for revocation of company auditor registration; the Inspector does not have specific powers to revoke an auditor’s appointment. - Under IBA, sections 35 (1) and 36 (2), auditors must report to the Inspector any matters of material significance; auditors are protected in making such disclosures under section 36 (5). - Auditor must report possible criminal offence involving money laundering and, as necessary, file STRs with the FIU under IBA and MLPA2007 provisions. - Neither the IBA nor the Inspector require disclosure or annual publication of audited accounts by licensees; currently no international bank licensee accepts deposits from the general public pursuant to license limitations. - Assessment: Largely compliant. - Comments: - There is no requirement for public disclosure of information relating to international banks and they are not required to publish annual accounts or reports. - If licenses are granted or amended to permit acceptance of deposits from the general public, the Inspector should consider requiring those affected licensees to provide disclosures and audited financial accounts to their depositors. - More specific guidelines on the role and responsibilities of a bank’s board of directors and management (corporate governance) are needed to clarify important areas of their mandate. ### Principle 22. Remedial Measures — Domestic banks - CBS has broad powers under FIA, sections 13, 14, 15, and 23, including revocation of the license. - Under FIA, section 26, the Attorney General can institute proceedings to prevent and restrain breaches of the Act and prosecute offences. - Under section 29, the HOS, acting on the advice of Cabinet, may make regulations for giving full effect to the Act. - FIA, section 14 powers include directing a bank to take specified actions in relation to its business. - No specific power to arrange a takeover of a bank exists, but CBS can take control of a bank with court approval. - Under sections 14 and 15 of the FIA, CBS may, with court approval, appoint a qualified person to advise, manage, liquidate, or place the bank in receivership; the court must approve powers of the CBS or the appointed person in such situations. - FIA, section 23 allows action against directors or officers for noncompliance or aiding/abetting violations; penalties range from a monetary fine to imprisonment for up to one year or both. *International Monetary Fund* ### Section 16 of the Act provides for monetary and imprisonment penalties for misleading or ### cr07222 - Section 16 of the Act provides for monetary and imprisonment penalties for misleading or obstructive conduct by directors, officers, or employees ### Remedial measures, penalties, and timeliness - Section 16 of the Act provides for monetary and imprisonment penalties for misleading or obstructive conduct by directors, officers, or employees. - Remedial actions are, whenever possible, taken in a timely manner; however, certain actions require application to and approval by a Court, possibly causing delay and allowing conditions to deteriorate further. - Assessment: Largely compliant. - Comment: Discussions on possible updates to the FIA should include consideration on limiting the level of involvement of the Court in the process of effecting remedial action, in order to provide for more timely resolution of problems. - Under IBA, Section 23 prohibits a licensee from transacting any business otherwise than in accordance with the terms and conditions of its license and the Act. Every person who acts in contravention of Section 23 commits an offence and is liable to a continuing fine of US$1,000 for each day that the offence continues [Section 23(3)]. - Assessment (Section 23): Compliant. ### Supervisory powers under IBA (International Banks) and intervention options - The Inspector and the Minister have a broad range of supervisory measures available to bring about timely corrective action, under IBA, Part V. - Under Sections 43 and 44, the Minister can: - require licensees to take such measures as he considers necessary; - impose conditions upon the licensee; - remove and replace any directors and officers of the bank; - appoint an adviser to the bank; - appoint a receiver/manager of the bank; - present a petition to the Court for the winding up of the licensee in appropriate circumstances; or, - cancel the license. - Under Section 45, the Minister can also intervene in the winding up proceedings before the Court, if the winding up is not being conducted in the best interests of the depositors or creditors. - There are no specific legislative requirements for remedial action to be taken within a specified timeframe. - Any decision to institute remedial action is communicated to the bank, its controllers, and its management. ### Principles 23–25: assessments and descriptions - Principle 23 (Globally Consolidated Supervision): Banking supervisors must practice global consolidated supervision over their internationally active banking organizations. - Domestic Banks: There are currently no branches or subsidiaries of Samoan banks operating outside of Samoa. - Assessment: Not applicable. - International Banks: There are currently no branches or subsidiaries of Samoan-licensed international banks operating outside of Samoa. - Assessment: Not applicable. - Principle 24 (Host Country Supervision): Establishing contact and information exchange with host country supervisors. - Domestic Banks: No branches/subsidiaries outside Samoa. Establishment of all overseas subsidiaries and branches of Samoan banks require prior written approval from the CBS under Section 20 of the FIA. - Section 24 of the FIA permits the confidential disclosure of supervisory information to foreign supervisors for the purpose of exercising supervisory functions corresponding to or similar to those of the CBS. - Assessment: Not applicable. - International Banks: No branches/subsidiaries outside Samoa. Establishment of overseas subsidiaries and branches of Samoan-licensed international banks require prior written approval from the Inspector under Section 21(1)(a) of the IBA. - Pursuant to section 37(1)(3), the Inspector may disclose information about the banking license to a foreign banking supervisory authority if the Inspector is satisfied that the foreign authority is subject to adequate legal restrictions and provides an undertaking of confidentiality, and the information provided is to be used for bank supervisory purposes. - Assessment: Not Applicable. - Principle 25 (Supervision Over Foreign Banks’ Establishments): Local operations of foreign banks must meet the same high standards as domestic institutions. - Domestic Banks: Local operations of foreign-owned banks are carried out through subsidiaries and are subject to the same supervisory regime as domestically-owned banks. Licensing requirements and ongoing supervision take into account Basel Committee standards. - Two Samoan-licensed banks are subsidiaries of Australian banks; CBS takes into account that the parent banks are subject to the consolidated global supervision of the Australian Prudential Regulation Authority. - Section 6 of the FIA requires the CBS to obtain written confirmation of no objection from a supervisor in the applicant’s country of incorporation before a license is granted. - FIA Section 24 permits disclosure in confidence to a supervisory authority in any country for the purposes of the exercise of functions corresponding to or similar to those conferred on the CBS under the Act. - There are no prohibitions on parent bank supervisors conducting on-site examinations of subsidiary operations in Samoa; none have occurred to date. - Assessment: Compliant. - International Banks: No operations in Samoa licensed as international banks. For any such subsidiaries, the home supervisor would be contacted during licensing to determine position on consolidated supervision. - Assessment: Not applicable. ### Summary of compliance (selected table highlights) - Domestic Banking Sector: Summary of Compliance with the Basel Core Principles (selected entries preserved as assessed) - CP 22 Remedial Measures: Largely compliant. - CP 23 Globally Consolidated Supervision: Not applicable. - CP 24 Host Country Supervision: Not applicable. - CP 25 Supervision Over Foreign Banks’ Establishments: Compliant. - International Banking Sector: Summary (selected entries) - CP 22 Remedial Measures: Compliant. - CP 23 Globally Consolidated Supervision: Not applicable. - CP 24 Host Country Supervision: Not applicable. - CP 25 Supervision Over Foreign Banks’ Establishments: Not applicable. ### Recommended action plan (selected recommendations and exact numeric limits) - Domestic Banking Sector recommended actions (selected): - CP 1(2) Adequate Resources: 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. - CP6 Capital Adequacy: The CBS should consider introducing some straightforward specific capital charges for market price risk and Foreign Exchange risk. - CP8 Loan Evaluation and Provisions: The CBS should require banks to have in place mechanisms for regularly valuing collateral and assessing the strength of guarantees. - CP9 Large Exposures: Banks should be required to report all single exposures (as currently defined) which exceed 10 percent of capital (i.e. including many exposures which fall below the 25 percent ceiling). - CP22 Remedial Measures: The CBS should consider possible amendments to the FIA to limit the involvement of the Court in taking administrative remedial actions. - International Banking Sector recommended actions (selected): - CP5 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. - CP6 Capital Adequacy: Each International bank should be subject to a minimum capital requirements which reflect its individual risk profile. - CP9 Large Exposures: Require reporting of all individual exposures which exceed 10 percent of capital and a prohibition on incurring single exposures which exceed 25 percent of capital without the prior permission of the Inspector. - CP10 Connected Lending: The IBAA should be amended to prevent connected lending on more favorable terms and require board approval with exclusion of affected directors; the Inspector should require independent information systems for such exposures. - CP16 On-Site and Off-Site Supervision: The Inspector should diligently pursue full implementation of its on-site examination program and expand coverage. - CP21 Accounting Standards: The Inspector should provide for the public disclosure of information on international banks that accept deposits from the general public, when applicable, and provide guidance on corporate governance. ### Authorities’ response to the IMF assessment - The assessment (IMF OFC Assessment of Samoa’s financial system, 27 February to 8 March 2007) recognizes considerable improvements over past years in prudential oversight by the Central Bank of Samoa (CBS) and the Samoa International Finance Authority (SIFA). - The assessment notes progress bringing Samoa’s financial system significantly in line with Basel Core Principles compared to the previous IMF assessment. - Authorities’ planned follow-up: - Domestic front: Future efforts will focus on incorporating necessary changes in legislation, prudential statements, regulations, guidelines, and staff capacity to strengthen CBS supervisory responsibility. - 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 as per international standards. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr07222.pdf_