## 1. Detailed Assessment of Compliance with the Basel Core Principles ## Source details **Canonical URL:** [1. Detailed Assessment of Compliance with the Basel Core Principles](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07222.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07222.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07222.pdf.json) --- ### Information and methodology - Assessment conducted with the concurrence of the Central Bank of Samoa (CBS) and the Samoa International Financial Authority (SIFA). - Assessors: Messrs. Ronald MacDonald and Timothy Sullivan. - Basis of assessment: - Examination of relevant laws and regulations. - Interviews with management and staff of the CBS, SIFA, the Money Laundering Authority (MLA), and the Inspector of International Banks. - Discussions with the Attorney General, the Chief Executive Officer of the Ministry of Finance, and representatives from domestic and international banks. - Consideration of self-assessments by the CBS and the Inspector. - Methodology: - Used the October 1996 Core Principles Methodology to allow comparison with the 2002 assessment. - Noted that subsequent assessments will use the October 2006 Core Principles Methodology and identified material new issues in that methodology requiring attention. - Laws reviewed include: Financial Institutions Act 1996; International Banking Act 2005; International Companies Act 1987; Central Bank of Samoa Act 1984; Money Laundering Prevention Act 2007 (taken into account but not reviewed in detail). ### Institutional framework — Domestic banking sector (key statistics at end September 2006 unless stated otherwise) - Structure and ownership: - Four licensed banks operating in Samoa; all locally-incorporated. - Two largest are subsidiaries of major Australian banks; two are locally-owned. - Sector aggregates: - Total assets of commercial banks: SAT 700.6 million. - Loans and advances: SAT 562.9 million (80.3 percent of total assets). - Deposits: SAT 530.8 million. - Loan-to-deposit ratio: 106 percent. - Liquid assets represented 4.4 percent of domestic deposits. - Average risk-weighted capital ratio: 23.8 percent (all banks complied with the required 15 percent minimum). - Total past due loans: 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 3.8 percent on assets. - Other institutions (as of end-December 2006 unless stated otherwise): - Development Bank (does not take deposits): assets SAT 118.9 million. - National Provident Fund: assets SAT 328.8 million. - Credit unions: 18 registered with the Credit Union League. - Four insurance companies; several foreign exchange dealers and money lenders. - Development Bank, National Provident Fund, and insurance companies brought under CBS supervision in 2001. ### Institutional framework — International banking sector - Numbers and licensing: - Six international banks operating in Samoa. - These banks 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 current B1 licensees engages in public deposit-taking. - Business purpose and presence: - Primarily used for tax planning and in-house treasury functions for parent organizations. - All maintain a physical presence in Samoa (offices hold records and accounts and have clerical employees) but do not appear to have local mind-and-management presence. - Offices maintained by trustee companies who also provide local directors. - Sector aggregate: - Total assets of international banks at end of 2005: US$111.9 million. ### General preconditions for effective banking supervision - Land tenure: - Freehold land ~ four percent; Customary land ~ eighty percent; government-owned remainder. - Banks can promptly take possession of real property security on default under law and court practice. - Legal and institutional environment: - Registration system for ownership interests in motor vehicles exists. - Court system regarded as sound; availability/reliability of financial data varies. - Active professional body of accountants; international accounting and auditing standards generally the norm. - No deposit insurance in Samoa; depositors treated as general creditors. ### Assessment approach and scale - Assessment scale: compliant; largely compliant; materially noncompliant; noncompliant; not applicable. - Definitions for each rating provided in the assessment. ### Selected principle findings and specific assessments (highlights) - Principle 1 — Objectives, Autonomy, Powers, and Resources - Domestic banks: Compliant. Comment: CBS should give high priority to new legal powers to limit banks’ lending to connected parties in proposed FIA revisions. - International banks: Compliant. - CBS and SIFA roles, licensing powers, and supervisory arrangements described; Section 3 empowers CBS to issue prudential statements and guidelines; Section 6 of the IBA empowers the Minister to issue regulatory codes (no codes issued to date). - Legal protection for supervisors: Domestic and international supervisory immunity provisions assessed as Compliant. - Principle 2 — Permissible activities and use of the word “bank” - Domestic banks: Compliant. - International banks: Compliant. - Principle 3 — Licensing criteria and procedures - Domestic banks: Compliant. - Two-stage application; minimum initial capital: SAT 2.5 million (locally-owned), SAT 5.0 million (foreign-owned). - International banks: Compliant. - Minimum capital requirements (IBA Sections 9–10): USD$10 million for A class; US$ 2 million for B1; US$ 250,000 for B2. - Principle 4 — Ownership (transfer of control) - Domestic banks: Compliant. Transfer defined as acquiring 20 percent or more; CBS approval required. - International banks: Compliant. Prior written approval of the Minister and Inspector required for transfers of control. - Principle 5 — Investment criteria - Domestic banks: Largely compliant. - Section 12 places aggregate limit of 10 percent of paid-up capital and unimpaired reserves on ownership of share capital of commercial/agricultural/industrial undertakings. - Comment: CBS should consider legal limit on proportion of equity of an individual non-financial enterprise (suggested 10 or 15 percent) within the aggregate limit. - International banks: Largely compliant. - A and B1 banks limited to aggregate investments not exceeding 15 percent of own paid up capital and reserves without Inspector approval; absolute aggregate limit 60 percent. Comment: consider limit on proportion of equity of individual non-financial enterprise. - Principle 6 — Capital adequacy - Domestic banks: Largely Compliant. - CBS PS sets minimum risk-weighted capital ratio of 15 percent for all banks; definition consistent with the Basel Capital Accord. Recommendations to introduce capital charges for market price risk and FX risk. - International banks: Required to maintain licensing minimums; Section 6 codes not issued—Assessment: Noncompliant where no code set (ministerial power to impose codes exists but unused). - Principle 7 — Credit policies - Domestic banks: Materially noncompliant. - No PS setting minimum standards for banks’ credit policies beyond PS4 (credit concentrations). Recommendation: CBS to develop PS for minimum credit policy standards. - International banks: Noncompliant. Recommendation: Minister and Inspector to develop regulatory code for credit policies; possible cooperation with CBS. - Principle 8 — Loan evaluation and loan-loss provisioning - Domestic banks: Largely compliant. - PS 7 prescribes asset classification and provisioning: Standard 0; Substandard 20; Doubtful 50; Loss 100 (percent of value). - Comment: CBS should require regular collateral valuation and guarantee assessment. - International banks: Noncompliant. Recommendation: issue regulatory code requiring periodic loan review, classification, and provisioning. - Principle 9 — Large exposure limits - Domestic banks: Largely compliant. - Section 12 limit: exposure to a single person/group 25 percent of capital; PS 4 defines credit exposure broadly. - Recommendation: require reporting of single exposures exceeding 10 percent of capital. - International banks: Noncompliant. Recommendation: issue code defining closely related groups, require reporting of exposures > 10 percent of capital, prohibit single exposures > 25 percent of capital without Inspector permission. - Principle 10 — Connected lending - Domestic banks: Materially noncompliant. - Section 12(c) requires director facilities substantially on same terms as comparable transactions; PS 6 extends to other connected parties but CBS cannot require deduction of connected exposures from eligible capital; CBS not validating compliance via inspections/reporting. - Recommendation: CBS to obtain discretionary power to judge connections and require bank information systems to identify/monitor connected exposures. - International banks: Materially noncompliant. - IBA limits unsecured connected advances in aggregate to US$5,000 or 1 percent of paid up capital/unimpaired reserves (whichever greater); Inspector collects quarterly information but lacks certain prohibitions/board approval requirements and bank information systems oversight. - Principles 11–13 — Country, Market and Other Risks - Country risk (CP 11): Domestic banks Largely compliant; international banks Noncompliant (Inspector has not issued guidance or monitored exposures). - Market risk (CP 12): Domestic banks Not applicable (no domestic securities market; FX positions small); international banks Noncompliant. - Other risks (operational, interest-rate, liquidity) (CP 13): Domestic banks Materially noncompliant (guidance lacking on operational and interest-rate risk); international banks Noncompliant. - Recommendations: CBS and Inspector to issue guidance on country, market, liquidity, operational, and interest-rate risk, and collect periodic data. - Principle 14 — Internal control and audit - Domestic banks: Largely compliant. - PS 8 sets accounting/internal control requirements; CBS should obtain and review internal audit reports; planned FIA updates should include authority to require changes in board/management where appropriate. - International banks: Materially noncompliant. - Inspector relies on external auditors; on-site exams have focused on AML and physical presence; recommendation to provide guidance on internal controls, corporate governance, and extend on-site examinations. - Principle 15 — Money laundering (AML/CFT) - Domestic banks: Largely compliant. - MLPA2007 repealed MLPA2000; MLPA2007 designates MLA supervisory functions to Governor of CBS (delegated); FIU to receive/analyze STRs; new regulations/guidelines expected by May/June 2007. - CBS has conducted on-site AML examinations of all banks. - Recommendation: MLA to complete new regulations/guidelines expeditiously. - International banks: Largely compliant. Inspector files STRs with FIU; on-site AML examinations conducted; new regulations/guidelines expected by May/June 2007. - Principle 16 — On-site and off-site supervision - Domestic banks: Largely compliant. - On-site exam program initiated covering credit risk and AML; two-year cycle of targeted on-site examinations anticipated; constraints on capacity/training. - CBS receives regular returns at weekly, monthly, quarterly, semi-annual, and annual frequencies. - Recommendation: continue full implementation, staff augmentation, training. - International banks: Largely compliant. - Inspector initiated on-site program in 2005–2006 focused on AML and physical presence; on-site exam manual adopted; reliance on off-site returns and auditors. - Recommendation: expand on-site program to comprehensively cover operations and validate supervisory information. - Principle 17 — Bank management contact - Domestic banks: Largely compliant. CBS meets key bank executives quarterly; more frequent contacts by FID; closing meetings held after on-site exams. - International banks: Largely compliant. Inspector maintains regular communication with resident directors/managers and meets overseas directors at least annually; recommendation to consider more frequent meetings with overseas directors/senior management. - Principle 18 — Off-site supervision: data collection and reporting - Domestic banks: Largely compliant. - Weekly/monthly/quarterly returns cover assets/liabilities, profit and loss, capital adequacy, liquidity, large exposures, provisioning, non-performing assets, interest rate risk, deposit sources. - Detailed information not collected on asset classification, connected lending, or country exposures. - Recommendation: expand periodic reporting to include classified assets, connected lending, and country exposures. - International banks: Largely compliant. - Quarterly returns for A and B1; B2 banks file semi-annually. Annual audited accounts to international accounting standards. Failure to file returns is an offence with maximum fine of US$1,000 per day. - Recommendation: Inspector to expand periodic reporting to include classified assets, country exposure, liquidity, and interest rate risk. - Principle 19 — Validation of supervisory information - Domestic banks: Largely compliant. - CBS expanding on-site program to validate supervisory information; external auditors used for independent validation. - Recommendation: continue expanding on-site examinations. - International banks: Largely compliant. - Inspector developing on-site capacity; external auditors relied upon; recommendation to expand on-site coverage for validation. - Principle 20 — Consolidated supervision - Domestic banks: Not applicable (no subsidiaries/branches). - FIA section 20 requires CBS approval for places of business outside Samoa. - Comment: planned FIA update should clarify CBS authority to apply supervisory requirements on a consolidated basis. - International banks: Not applicable (no subsidiaries conducting banking-related business outside Samoa). - Principle 21 — Accounting standards and audit responsibilities - Domestic banks: Largely compliant. - PS 8 and FIA sections require audited financial statements within specified timeframes; auditors must report immediate concerns to CBS; auditors protected for disclosures in good faith. - Recommendation: more specific corporate governance guidelines to clarify board and management responsibilities. - International banks: Largely compliant. - IBA sections 35–36 set auditor duties, reporting obligations, and protections; auditors must be approved by the Inspector and registered under the International Companies Act 1987. - No current requirement for public disclosure of audited accounts by international banks; recommendation: if permits public deposit-taking in future, consider requiring disclosure and audited accounts to depositors and guidance on corporate governance. - Principle 22 — Remedial measures and enforcement - Domestic banks: Largely compliant. - CBS wide remedial powers under FIA sections 13–14 and 23; Section 16 provides monetary and imprisonment penalties for misleading/obstructive conduct. - Some remedial actions require Court approval which can delay action; recommendation: consider limiting Court involvement to provide more timely resolution of problems. - International banks: Compliant. - Minister and Inspector have broad remedial powers under IBA Parts V (Sections 43–45); no specific statutory timeframes for remedial action. - Principles 23–25 (Globally consolidated supervision, Host country supervision, Supervision over foreign banks’ establishments) - Mostly Not applicable for domestic and international sectors due to absence of branches/subsidiaries operating abroad; where relevant, provisions exist to require prior approval and permit confidential disclosure to foreign supervisors. ### Compliance summary (selected entries) - Domestic Banking Sector (selected): - CP 1: LC - CP 2: C - CP 6: LC - CP 7: LC - CP 8: LC - CP 16: LC - CP 22: LC - CP 23: NA - CP 24: NA - CP 25: C - International Banking Sector (selected): - CP 1: C - CP 6: MNC - CP 7: MNC - CP 8: MNC - CP 10: LC / C (international variant) - CP 16: C - CP 22: X (Compliant) - CP 23: NA ### Recommended action plan (selected, Domestic banking sector) - CP 1(2) Adequate Resources: CBS should increase human resources available to the FID for increased on-site examinations. - CP 5 Investment Criteria: Amend FIA to limit proportion of equity of an individual non-financial enterprise (suggested maximum 15 percent) within the aggregate 10 percent limit. - CP 6 Capital Adequacy: Consider introducing capital charges for market price risk and Foreign Exchange risk; weight marketable government/central bank securities at 10 or 20 percent instead of zero; consider threshold treatment for FX open positions (example threshold 2 percent of total assets). - CP 7 Credit Policies: Issue detailed guidance on expected standards in individual credit policies and evaluate effectiveness. - CP 8 Loan Evaluation and Provisions: Require mechanisms for regular collateral valuation and guarantee strength assessment. - CP 9 Large Exposures: Strengthen assessment of systems identifying related-borrower groups; require reporting of single exposures exceeding 10 percent of capital. - CP 14 Internal Controls and Audit: Amend FIA to allow CBS to require changes to board/senior management in appropriate circumstances and require prior approval for proposed changes; issue corporate governance guidelines. - CP 15 Money Laundering: Complete drafting of required new regulations and guidance under MLPA2007 expeditiously. - CP 16 On-Site and Off-Site Supervision: Pursue full implementation of on-site examination program. - CP 18 Off-Site Supervision: Expand periodic reporting to include classified assets, connected lending, and country exposures. - CP 19 Validation: Expand on-site examinations to validate supervisory information. - CP 22 Remedial Measures: Consider amendments to limit Court involvement in administrative remedial actions to enable timelier resolutions. ### Recommended action plan (selected, International banking sector) - CP 5 Investment Criteria: Amend IBA to limit proportion of equity of an individual non-financial enterprise (suggested maximum 15 percent) within existing aggregate limit (60 percent). - CP 6 Capital Adequacy: Subject each international bank to minimum capital requirement reflecting its individual risk profile. - CP 7 Credit Policies: Minister and Inspector should develop a regulatory code for international banks’ credit policies, potentially jointly with the CBS. - CP 8 Loan Evaluation and Provisions: Issue regulatory code requiring systems for loan review, classification, and timely provisioning. - CP 9 Large Exposures: Issue regulatory code addressing concentration risk (definitions of related groups; report exposures > 10 percent of capital; restrict single exposures > 25 percent of capital without Inspector permission). - CP 10 Connected Lending: Amend IBAA to prevent connected lending on preferential terms; require board approval with interested directors excluded; Inspector to require independent information systems. - CP 11–13 Risk Guidance and Data Collection: Issue guidance and collect periodic data on country, market, liquidity, operational, and interest-rate risk. - CP 14 Internal Controls and Audit: Issue guidance on internal controls, audit, corporate governance; fully implement on-site program. - CP 16 On-Site and Off-Site Supervision: Implement and expand on-site examinations. - CP 17 Bank Management Contact: Hold more frequent meetings with overseas directors/senior management. - CP 18 Off-Site Supervision: Expand periodic reporting to include classified assets, country exposure, liquidity, and interest-rate risk. - CP 19 Validation: Expand on-site examinations to validate supervisory information. - CP 21 Accounting Standards: Provide for public disclosure for international banks if they accept deposits from the general public; provide corporate governance guidance. ### Authorities’ response - Recognized improvements in prudential oversight by CBS and SIFA over past years. - Improvements bring Samoa’s financial system significantly in line with Basel Core Principles compared to the previous IMF assessment. - Authorities note recommendations and will focus on incorporating necessary legislative, prudential, regulatory, guideline, and staff capacity changes. - SIFA will review legislation and prevailing prudential requirements for international banks with a view to further improving supervision. *Source: IMF detailed assessment chapter — "1. Detailed Assessment of Compliance with the Basel Core Principles".* ### 1. Detailed Assessment of Compliance with the Basel Core Principles....................................6 ### 1. Detailed Assessment of Compliance with the Basel Core Principles ### Information and methodology - Assessment conducted with the concurrence of the Central Bank of Samoa (CBS) and the Samoa International Financial Authority (SIFA). - Assessors: Messrs. Ronald MacDonald (formerly Bank of England) and Timothy Sullivan (formerly Office of the Comptroller of the Currency of the United States). - Basis of assessment: - Examination of relevant laws and regulations. - Interviews with management and staff of the CBS, SIFA, the Money Laundering Authority (MLA), and the Inspector of International Banks. - Discussions with the Attorney General, the Chief Executive Officer of the Ministry of Finance, and representatives from domestic and international banks. - Consideration of self-assessments by the CBS and the Inspector. - Methodology: - Used the October 1996 Core Principles Methodology to allow comparison with the 2002 assessment. - Noted that subsequent assessments will use the October 2006 Core Principles Methodology and identified material new issues in that methodology requiring attention. - Laws reviewed: - 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. ### Institutional framework — Domestic banking sector - Number and ownership: - Four licensed banks operating in Samoa; all locally-incorporated. - Two largest are subsidiaries of major Australian banks; two are locally-owned. - Sector aggregates (at end September 2006 unless stated otherwise): - Total assets of commercial banks: SAT 700.6 million. - Loans and advances: SAT 562.9 million (80.3 percent of total assets). - Deposits: SAT 530.8 million. - Loan-to-deposit ratio: 106 percent. - Liquid assets represented 4.4 percent of domestic deposits. - Average risk-weighted capital ratio: 23.8 percent (all banks complied with the required 15 percent minimum). - Total past due loans: 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 3.8 percent on assets. - Other financial institutions (as of end-December 2006 unless stated otherwise): - Development Bank (does not take deposits): assets SAT 118.9 million. - National Provident Fund: assets SAT 328.8 million. - Credit unions: 18 registered with the Credit Union League and licensed with the domestic Registrar of Companies. - Four insurance companies operating in Samoa. - Several foreign exchange dealers and money lenders. - Development Bank, National Provident Fund, and insurance companies brought under CBS supervision in 2001. ### Institutional framework — International banking sector - Number and licenses: - Six international banks operating in Samoa. - These banks 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 current B1 licensees engages in public deposit-taking. - Business purpose and presence: - All six international banks are primarily used for tax planning purposes and to carry out in-house treasury functions for their parent organizations. - All international banks maintain a physical presence in Samoa (offices hold records and accounts and have clerical employees) but do not appear to have local mind-and-management presence. - Offices maintained by trustee companies (company service providers) who also provide local directors. - Sector aggregate: - Total assets of international banks at end of 2005: US$111.9 million. ### General preconditions for effective banking supervision - Land tenure constraints: - Freehold land accounts for about four percent of total land. - Customary land accounts for about eighty percent of total land. - Government-owned land comprises the remainder. - Banks can promptly take possession of real property security on defaulting loans under law and court practice. - Legal and institutional environment: - System for registration of banks’ ownership interests in motor vehicles exists. - Court system regarded as sound; legal firms of sufficient quality. - Availability and reliability of financial data varies; new Companies Act encourages timely financial statement preparation. - Active professional body of accountants; international accounting and auditing standards are generally the norm. - No deposit insurance in Samoa; depositors are treated as general creditors. ### Principle-by-Principle Assessment — Overview of assessment approach - Assessment scale: compliant; largely compliant; materially noncompliant; noncompliant; not applicable. - Definitions: - Compliant: all essential criteria generally met without significant deficiencies. - Largely compliant: minor weaknesses exist but not so significant as to raise serious doubts. - Materially noncompliant: shortcomings raise doubts about ability to achieve compliance though substantive progress made. - Noncompliant: no substantive progress or insufficient information to determine progress. - Not applicable: principle not relevant for Samoa. ### Principle 1 — Objectives, Autonomy, Powers, and Resources - Principle 1 summary: - Effective supervision requires clear responsibilities and objectives, operational independence, adequate resources, suitable legal framework for licensing and supervision, powers to address compliance and safety-and-soundness concerns, legal protection for supervisors, and arrangements for information sharing and confidentiality. Principle 1(1) — Clear responsibilities and objectives - Domestic Banks — Description: - CBS is sole agency responsible for supervising domestic banks. - FIA section 3: “Bank [is] to be responsible for the licensing and prudential supervision of financial institutions”. - CBSA section 4(f): function of the CBS “to supervise and regulate banking business”. - CBS also supervises the Development Bank, the National Provident Fund and domestic insurance companies. - FIA and PS 1 to 9 provide general guidelines and, in some cases, detailed minimum prudential standards including requirements on capital, asset quality, credit concentration, connected lending, liquidity, internal control systems and risk exposure. - FIA powers include licensing (section 6), revoking licenses (section 7), requirement of reports (section 9), on-site examinations (section 11), cease and desist orders and corrective measures (section 13), and actions including petitioning the court for winding up (section 14(e)). - CBS considering revisions to the FIA and CBSA to reflect developments in monetary policy and banking supervision; amendments to the FIA to facilitate supervision of banks’ operations in securities are under consideration. - Domestic Banks — Assessment: - Compliant. - Domestic Banks — Comments: - CBS could usefully 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 IBA (referred to as IFA in the source text) 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. - IFA assigns legal power to license international banks to the Minister of Finance (section 14) and exclusive powers under section 44(1) to impose additional conditions on licensees, revoke licenses, impose corrective measures and apply to the court for winding up. - Duty of the Inspector: day-to-day supervision and recommendations to the Minister on license applications and renewals (section 5). - Section 6 of the IFA empowers the Minister to issue regulatory codes governing conduct of business, financial resources, assets and liabilities, accounting and records, financial statements, audit and supervisory reporting; to date no such codes have been issued. - Legislation provides for cooperation between the Minister and SIFA; all license applications must be submitted to the Inspector (IFA section 13). - SIFAA section 4(a) and 4(j) tasks include coordination among public sector agencies concerned with international financial services and advising the Government on international financial services. - Practical cooperation: SIFA Board advises the Minister. Board chaired by the 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. - Legislation does not include a specific role for SIFA or the Inspector when the Minister decides to exercise powers in relation to problem banks; in practice SIFA participates through Board advice. - SIFA was actively involved in applying the new physical presence requirement in the IFA, which led to some international banks losing their licenses. - Offshore Banking Act 1987 replaced by the IBA in 2005; Samoa Financial Authority Act 2005 established SIFA as statutory body replacing the Samoa Offshore Financial Centre. - International Banks — Assessment: - Compliant. - International Banks — Comments: - None. Principle 1(2) — Operational independence and adequate resources - Domestic Banks — Description: - CBS decision-making body: Board of Directors consisting of the Chairman (Governor) and 3 other directors appointed by the Head of State on advice of Cabinet, plus the Chief Executive Officer of the Finance Ministry (ex officio). - Quorum: three members, one must be the Chairman or the Chief Executive Officer. - Members of Parliament and directors or employees of banks are ineligible for appointment to the Board (CBSA section 10). - Board members (other than ex officio) appointed for 3 years and may be reappointed; removal by Head of State on Cabinet advice for specified reasons (CBSA section 11). - No significant evidence of governmental interference in supervision despite ex officio government representative on Board. - No prohibition on owners of banks being appointed as Board members; given ownership structure this omission is of little material significance. No evidence of interference by the banking industry. - CBS employees are benefiting from a 45 percent increase in remuneration phased in over 3 years and to be completed this year; effect: CBS employment terms competitive with private sector and generally sufficient supervisory personnel. - Staffing remains tight; FID has 3 supervisors who work on the four domestic banks and two others who work on the Development Bank and the National Provident Fund. CBS plans to hire several more mid-level supervisors during coming months. - Feedback indicates CBS staff are held in high regard for professionalism and integrity. - Training and technical assistance sourced from IMF, PFTAC, ADB, Australia, etc. FID equipped with adequate computers and other equipment. - Domestic Banks — Assessment: - Compliant. - Domestic Banks — Comments: - In view of increased examination work, CBS should ensure the FID has adequate staff resources. - International Banks — Description: - Responsibility shared between the Minister of Finance and the Inspector; day-to-day supervision performed by SIFA employees. - No significant evidence of governmental interference in ongoing supervision performed by SIFA. - SIFA’s supervision of international banks is a relatively small part of its supervision and is financed out of its General Fund. Registration and licensing fees collected from all licensees are paid into the General Fund and used to defray supervision costs of both SIFA and the Minister. - SIFA’s operating budget for 2006-07, including the banking supervision department, is approximately SAT 2,000,000 (about US$900,000). - Staff are paid according to the CBS salary scale; the 45 percent increase made CBS salary scale fully competitive. - Budget provision for training is supplemented by assistance from donor agencies such as the New Zealand Registry of Companies, PFTAC and the Australian Prudential Regulatory Authority (APRA). - In 2006-2007 SAT375,000 (USD$143,000) was allocated for training and attendance at Seminars and Conferences. - SIFA received technical assistance from the IMF (2003, 2005 and 2006) providing local training on banking supervision (onsite inspections) and updates on AML/CFT standards promulgated by the FATF. - International Banks — Assessment: - Compliant. - International Banks — Comments: - None. Principle 1(3) — Suitable legal framework for authorization and ongoing supervision - Domestic Banks — Description: - FIA section 3: CBS responsible for licensing and prudential supervision of banks. - FIA section 14: authorizes CBS to revoke licenses where banks have become insolvent or behave detrimentally to depositors’ interests. *Source: IMF detailed assessment chapter — "1. Detailed Assessment of Compliance with the Basel Core Principles".* ### 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 ### 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 of the Act allows the Head of State, acting on the advice of the Cabinet, to issue regulations which may be needed to give full effect to the Act; use of this power has not been required to date. ### Supervisory information and 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 of banks and places an obligation on a bank under examination to provide all the information CBS examiners may require. - Assessment: Compliant. - Comments: None. ### Regulatory codes and scope for international banks (Section 6 of the IFA) - Section 14: Minister of Finance responsible for granting licenses to international banks; section 44 permits the Minister to revoke licenses. - Section 6 empowers the Minister to issue regulatory codes governing a wide range of international banks’ activities, including: - the conduct of any business carried on by international banks; - the financial resources of international banks; - the assets, liabilities and other matters to be taken into account in determining an international bank’s financial resources for the purposes of the code; - 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 the occurrence of such events as may be specified in the code; - 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 which are to be submitted to the Minister or the Inspector; and - the display of notices and the provision of information about the affairs of international banks to the public at its offices and places of business. - Assessment: Compliant. - Comments: None. ### Enforcement powers — Domestic banks (Sections 13–14 of the FIA) - Section 13: where the CBS is of the opinion that a bank is following unsafe and unsound practices or has contravened or failed to comply with license conditions or the FIA, the CBS may issue a cease and desist order or require the bank to take appropriate corrective action, which may include enforcement actions against individuals. - Section 14: if the Central Bank considers a bank is carrying on its business in a manner detrimental to depositors or unlikely to meet obligations as they fall due, it may: - direct the bank to take specified measures; - appoint a qualified person to advise the bank on the conduct of its business; - revoke the license; and - petition the court for the bank to be wound up. - Assessment: Compliant. - Comments: None. ### Enforcement powers — International banks (Section 5 and section 43(1) of the IBA) - Section 5: Inspector to conduct off- and on-site supervision of international banks; reports to the Minister of Finance and advises on corrective measures. - Section 43(1): if an international bank is detrimental to depositors, has insufficient assets, or is contravening the IBA, the Minister may: - (a) require the licensee to take such measures as the Minister considers necessary; - (b) impose conditions, or further conditions, upon the license and amend or revoke any such condition; - (c) require the removal and replacement of any director or officer of the licensee; - (d) appoint a person to advise the licensee in the proper conduct of its business and fix the remuneration to be paid by the licensee to such person; - (e) appoint a person to assume control of the licensee’s affairs who shall mutatis mutandis have all the powers of a person appointed as receiver or manager of a business under the Companies Act 1955 and fix the remuneration to be paid by the licensee to such person; or - (f) unless satisfied that the licensee is taking adequate measures, make an order under section 44 canceling the license. - Assessment: Compliant. - Comments: None. ### Legal protection for supervisors (Principle 1(5)) - 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, in respect of any liability arising as result of anything done in good faith in the exercise of any power or the performance of any duty under the Act. - Similar provision under Section 17A of the CBSA. - Samoa applies the doctrine of vicarious liability to employers for the actions of their employees. - Assessment: Compliant. - Comments: None. - 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 any authority conferred by the Minister or the Inspector, as the case may be, in respect of any act or matter done or omitted to be done in good faith in the exercise or purported exercise of their respective functions conferred by or under this Act or any regulations made there under.” - Section 56(2): “the legal costs of defending any action instituted against the Minister, the Inspector or any person acting pursuant to any authority conferred by the Minister or the Inspector shall be borne by the Government of Samoa”. - Assessment: Compliant. - Comments: None. ### Information sharing and confidentiality (Principle 1(6)) - Domestic banks: - Chief Executive Officer of the Finance Ministry on the Board of the CBS ensures sharing of information concerning the soundness of individual banks or the overall stability of the domestic financial system with government. - Section 24 of the FIA permits the CBS, its directors and employees to disclose prudential information in confidence to a supervisory authority in any other country for corresponding supervisory purposes. - The CBS has not signed formal MoUs for information-sharing; in practice it uses the legal gateway for ad hoc exchanges. - Section 24 of the FIA (and section 17 of the CBSA) prohibits disclosure of confidential information unless required by a Court or permitted by law. - Assessment: Compliant. - Comments: None. - International banks: - International banks are licensed to conduct banking business with non-residents only; section 12 permits application to conduct business with residents but no such application has been made. - Principal domestic risk is reputational contagion from international bank failure or adverse publicity. - Inspector reports to the Minister of Finance on threats emerging from international banks; SIFA Board (with CBS and Finance Ministry representation) provides additional information-sharing. - IBA enables the Inspector to deny demands for confidential information; Section 37(3) permits disclosure to foreign or domestic supervisory or AML/CFT authorities provided adequate confidentiality safeguards exist and information is required for bank (or AML/CFT) purposes. - No international banks are affiliated with a bank outside Samoa; section 37(3) gateway has not been used; no MoUs signed. - Assessment: Compliant. - Comments: None. ### Permissible activities and use of the word “bank” (Principle 2) - 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” defined in section 2 of the CBSA includes “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: CBS expresses view that a bank’s ownership interests should normally be in the field of financial intermediation. - Section 4 of the FIA makes it a criminal offence for a person to carry on banking business without a license; credit unions are exempt. - Assessment: Compliant. - Comments: None. - International banks: - IBA does not define “bank”; section 48 permits use of “bank” or “international bank” in the name under which a person carries on a licensed international banking business from Samoa; misuse is a criminal offence. - Section 2 of the IBA defines “banking business” broadly to include 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 to carry on activities outside the “customary scope” of banking. - Individual international banks’ permitted activities are limited to those specified in their license. - IBA provides for 3 classes of license for international banks: A, B1 and B2. An A or B1 class license is required for the acceptance of deposits from the public; a B2 class license may accept deposits only from those persons specified in its license. - Presently: 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. - Comments: None. ### Licensing criteria and procedures (Principle 3) - Domestic banks: - Section 6 of the FIA enables the CBS to set criteria for licensing domestic banks. In considering license applications, the CBS is obliged 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 to the proposal and written confirmation from the applicant that it will provide support, as necessary, to its establishment in Samoa. - Two-stage application procedure: - First stage: applicant submits application letter with: - a notarized copy of the promoters’ agreement to establish the bank (detailing the proposed name, location of principal office, directors, amount of authorized share capital and its composition, the amount of capital to be subscribed and when, and names of subscribers); - biographical information on the promoters, substantial shareholders and directors (accompanied by independent character and financial references and long-term financial commitments to the bank); - a business plan indicating the bank’s proposed activities; - financial projections for 3 years ahead; - a list of the principal officers with details of their qualifications and experience. - If satisfied, CBS issues an “Authority to Organize”. Applicant then has a period of 6 months to prepare a suitable office and submit confirmation that the bank has the minimum required capital; certified copies of its Certificate of Incorporation, Memorandum and Articles of association; affidavits for each director and principal officer confirming non-involvement with a liquidated or revoked bank, no conviction of dishonesty and not personally bankrupt; the organization chart; and draft accounting and internal control manual. - CBS may investigate the correctness of any information provided 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 if obtained on the basis of materially false or misleading information. - CBS has issued Guidelines for establishing a bank in Samoa. - Assessment: Compliant. - Comments: None. - International banks: - Minimum licensing requirements contained in the IBA (Sections 8-13). - Section 13 requires applicants to submit information on: - 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 of the bank is “fit and proper” for his position; and - any other information or documents that the Minister or Inspector may require. - Fit and proper test (Section 3) considers: - a). honesty, integrity and reputation; - b). competence and capability; and - c). financial soundness. - Officers and directors must complete a comprehensive Personal Questionnaire subject to detailed vetting; due diligence checks include criminal record checks and evaluation of expertise and integrity. - Prior consent of the home country supervisor required where the proposed owner or parent organisation is a foreign bank. None of the present international banks is the subsidiary of a foreign bank and included in consolidated supervision performed by a foreign bank supervisor. - The criteria for issuing licenses are consistent with those applied in ongoing supervision. *Source: _cr07222 - Section 3 empowers the CBS to issue prudential statements and guidelines in connection with* ### 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 criteria and application process - 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 a minimum capital requirement of USD$10 million for A class banks, US$ 2 million for B1 class banks and 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, since providing false information is an offence (section 33 IBA) and in the event of such an occurrence the Minister may revoke a license under section 44(1). - The criteria for issuing licenses are consistent with those applied in ongoing supervision. - Assessment: Compliant. - Comments: None. ### Principle 4 — Ownership (transfer of control) - 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 which 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. - 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 defined in this way requires the prior written approval of the Minister of Finance who has discretion to refuse his 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. ### Principle 5 — Investment criteria - 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, and interests acquired through security enforcement (which the FIA also requires to be disposed of at the earliest suitable opportunity). - PS 6 indicates that the CBS expects banks’ direct ownership of other institutions, within the 10 percent statutory limit, to be normally in the field of financial intermediation; and that investments in non-financial areas should be confined to those which are of substantial relevance to banking operations. - The CBS does not assess individual equity investment proposals (except those related to nominee/trustee/executor functions) or establish criteria for approving them in advance, and does not do so in practice. It receives information about such investments 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, the present rules allow banks to acquire non-financial subsidiaries through which they could incur additional risks outside the scope of supervision. - 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 the authority under the IBA section 6 to issue a regulatory code which would specify the criteria to be used in reviewing major acquisitions or investments but has not done so to date. - Under section 21 of the IBA, both A and B1 class banks are required to obtain the prior written approval of the Minister or Inspector before they may open a subsidiary bank, branch office or agency outside Samoa. - These banks are free to make any investments in other companies provided these do not in aggregate exceed 15 percent of their own paid up capital and reserves. - Investments above this limit require the prior written approval of the Inspector, while section 23(2) of the IBA places an absolute aggregate limit on such permitted investments of 60 percent of own paid up capital and reserves. - In addition, A and B1 class banks are prohibited from acquiring an interest in any property, chattels or real estate for any purpose other than the carrying on of their international banking business (IBA section 23(2) (d)). - Assessment: Largely compliant. - Comments: - The legal limits on international banks’ aggregate permitted investments are in line with international standards (such as those for EU banks). - However, as in the case of domestic banks, 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 should be considered to prevent the establishment by international banks of non-financial subsidiaries. ### Principle 6 — Capital adequacy - Domestic banks: - The CBS has issued a PS which sets out the required minimum level and method of computation of the capital adequacy ratio (CAR). - The definition of capital and the method of calculation of the CAR are consistent with the Basel Capital Accord. - Market risk is not included in the CAR computation as the securities market in Samoa is not developed, while FX open positions are small. - Required capital ratios are not set in relation to individual banks’ risk profiles. Instead, all banks are required to 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 and consequently the CBS has no need to apply the ratio on a consolidated basis. - The 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 and SAT 5.0 million for foreign owned banks. - Assessment: Largely Compliant. - Comments: - The CBS should consider introducing some straightforward specific capital charges for market price risk and FX risk. - Holdings of marketable government or central bank securities could be weighted at 10 or 20 percent instead of zero to reflect price fluctuation risk. - Aggregate FX open positions which exceed a specified threshold (for example, 2 percent of total assets) could be added to risk-weighted assets for the calculation of the CAR. - International banks: - International banks are required to maintain at all times the minimum capital requirements (described under CP3 above) they had to meet in order to be licensed. *Source: _cr07222 - Section 14 of the IBA empowers the Minister to reject an application if any of the criteria is* ### 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 codes and international banks - Section 6 of the IBA empowers the Minister to issue regulatory codes concerning international banks’ financial resources, and the assets, liabilities and other matters to be taken into account in determining their financial resources. - To date, no code has been issued imposing minimum capital adequacy requirements on international banks. - Assessment: Noncompliant. - Comments: 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 that these institutions do not function as conventional banks and do not incur typical banking risks, the added value of imposing capital ratios is questionable. The strongest argument for conventional treatment would be to mitigate reputational risk to Samoa’s domestic financial system. ### Principle 7 — Credit Policies - Domestic banks: - Description: CBS requires banks to establish a prudent credit-granting and investment system as part of licensing but has not issued a prudential statement (PS) setting out standards for banks’ credit policies (PS4 deals with credit concentrations only). No specific requirements for periodic review by management/boards or dissemination of credit procedures to staff. - Assessment: Materially noncompliant. - Comments: CBS should develop a PS setting minimum standards for banks’ credit policies and then review adequacy and verify adherence during examinations. Bank credit policies should include internal limits for exposures to single counter-parties, 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: - Description: The Minister has not issued any regulatory code setting standards for international banks’ credit policies; Inspector onsite inspections have not addressed granting of loans or investments. - Assessment: Noncompliant. - Comments: Minister and Inspector should develop a regulatory code for international banks’ credit policies; efficient if CBS and SIFA develop a single body of standards each issues to its licensed banks. ### Principle 8 — Loan Evaluation and Loan-Loss Provisioning - Domestic banks: - Description: CBS issued guidelines (PS 7) for asset quality and loan loss provisions. Foreign-owned banks may follow parent procedures and are exempted in detail. Guidelines require regular loan review, define loans broadly, and prescribe an asset classification and provisioning scheme: - Standard: Required Provision (percentage of value) 0 - Substandard: Required Provision (percentage of value) 20 - Doubtful: Required Provision (percentage of value) 50 - Loss: Required Provision (percentage of value) 100 - Assessment: Largely compliant. - Comments: CBS should require banks to have mechanisms for regularly valuing collateral and assessing strength of guarantees. - International banks: - Description: No rules require international banks to periodically review loans, classify loans, or make necessary provisions. Section 28 of the IBA requires A and B1 banks to file quarterly returns including loans; B2 class banks file every six months. Under section 36(4) Inspector may require auditor report on asset quality and provisions. - Assessment: Noncompliant. - Comments: 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: - Description: Section 12 of the FIA limits exposure to a single person or group to 25 percent of capital; PS 4 details standards and defines credit exposure broadly. Banks provide quarterly schedule of ten largest borrowers; monthly sectoral loan information is obtained. No geographical breakdown return. - Assessment: Largely compliant. - Comments: CBS should strengthen assessment of banks’ internal systems for identifying related-borrower groups and controlling concentrations. Recommend banks report all single exposures exceeding 10 percent of capital. - International banks: - Description: No laws or rules govern large exposures for international banks. Quarterly/half-yearly financial statements filed with Inspector contain schedule of twenty (20) single largest exposures. - Assessment: Noncompliant. - Comments: Minister and Inspector should issue a regulatory code requiring international banks to address concentration risk, including: - a definition of closely related groups to be treated as single borrowers; - a requirement to report all individual exposures which exceed 10 percent of capital; and - a prohibition on single exposures which exceed 25 percent of capital without prior permission from the Inspector. ### Principle 10 — Connected Lending - Domestic banks: - Description: Section 12(c) of the FIA requires director credit facilities to be substantially on the same terms as comparable transactions. PS 6 extends principle to other connected parties and provides a comprehensive definition of connected exposures; PS 6 requires board approval (excluding interested directors). The 25 percent of capital limit applies to connected lending but law/PS 6 do not allow CBS to require deduction of connected exposures from eligible capital. No specific requirements for information and monitoring systems or reporting of aggregate connected exposures; disclosure occurs in audited annual reports. - Assessment: Materially noncompliant. - Comments: CBS should have discretionary power to judge existence of connections; CBS has not validated compliance with law/PS 6 via periodic collection or on-site inspection; CBS does not require bank information systems to independently identify, monitor, and administer such exposures. - International banks: - Description: Section 23(2)(c) of the IBA prohibits unsecured advances/credit/guarantees or other unsecured liabilities in aggregate excess of US$5,000 or one percent of paid up capital and unimpaired reserves, whichever is greater, to connected parties. A comprehensive definition of connected parties is in Section 23 (2)(c)(i) to (iii). Inspector collects information on connected party loans and advances quarterly. - Assessment: Materially noncompliant. - Comments: Issues for Inspector to consider: - no specific prohibitions on granting extensions to connected parties on more favorable terms than to unconnected parties; - no specific requirement that transactions with connected parties be approved by the bank’s board or that beneficiaries be excluded from decision-making; and - Inspector does not require bank information systems to independently identify, monitor, and administer such exposures. ### Principle 11 — Country Risk - Domestic banks: - Description: PS 4 expects banks to be aware of various risks and have internal systems but does not specifically address country or transfer risk. CBS requires prior approval for foreign loan/investment and collects monthly information on aggregate foreign asset exposures and liabilities but not by country. No specific country risk provisioning requirements in PS 7. - Assessment: Largely compliant. - Comments: CBS should consider: - amending PS 4 and PS 7 to specifically address country and transfer risk; and - periodically collecting information on specific country and transfer risk exposures. - International banks: - Description: Inspector has not issued guidance to international banks on risk management, internal control, or information systems; has not conducted on-site examinations in these areas; does not monitor or collect country/transfer risk information; has not issued minimum provisioning requirements. - Assessment: Noncompliant. - Comments: After analyzing exposures in international banks, Inspector should issue requirements for risk management, internal control, information systems, and provisioning; monitor and control exposures via periodic data collection and on-site examinations. ### Principle 12 — Market Risks - Domestic banks: - Description: No specific market risk requirements; fifteen percent minimum capital adequacy requirement intended to cover full range of risks. No domestic securities market; foreign exchange trading exists but net open positions are small. PS 9 outlines measurement and monitoring of foreign currency risk and internal intra-day/end-of-day limits. Weekly Foreign Currency Position Report required; banks must report when exceeding internal limits for three consecutive trading days. FIA empowers CBS to impose capital charges/limits on various risks. - Assessment: Not applicable. - Comments: None. - International banks: - Description: Inspector does not monitor international banks for market risk control and has not imposed specific risk management/internal control/information systems, limitations, or capital charge related to market risk. Materiality of market risk in international banks is impossible to quantify due to lack of information. - Assessment: Noncompliant. - Comments: Following further analysis of exposures, Inspector should issue guidance for risk management and monitor implementation via data collection and on-site examinations. ### Principle 13 — Other Risks (operational, interest-rate, liquidity) - Domestic banks: - Description: CBS requires comprehensive risk management processes; PS 5 addresses liquidity risk (no general liquid assets ratio), PS 9 addresses foreign exchange risk. No specific requirements for operational risk or interest rate risk management. Off-site monitoring exists for legal and prudential compliance; weekly liquidity and monthly interest rate risk reports collected but not on-site verified. CBS has powers to adjust capital for additional risks. - Assessment: Materially noncompliant. - Comments: CBS should issue specific guidance on management and control of operational risk and interest rate risk. Note: November 2006 revision of the BCPs separated these risks into separate CPs. - International banks: - Description: Inspector does not monitor international banks for operational, interest-rate, or liquidity risks; information on liquidity not collected; no comprehensive reviews or guidance issued. - Assessment: Noncompliant. - Comments: Inspector should issue guidance for risk management and monitor implementation through periodic data collection and on-site examinations. Note: November 2006 BCP revision separated these risks into separate CPs. ### Principle 14 — Internal Control and Audit - Domestic banks: - Description: Companies Act assigns business/affairs management to directors. PS 2 sets fit and proper requirements; fit and proper assessments performed at licensing and on proposed changes. No specific FIA authority for CBS to require changes to board/management. PS 8 sets requirements for accounting and internal control systems commensurate with bank nature. Except for credit risk and AML, no comprehensive reviews of internal control, accounting, auditing systems have been undertaken. On-site internal audit staff exist in locally-owned banks; foreign-owned banks rely on regional corporate internal auditors and parent supervision. Annual independent external audits occur. - Assessment: Largely compliant. - Comments: CBS should obtain and review internal audit reports during on-site examinations. Planned FIA updates should include: - specific authority for CBS to require changes to board or management in appropriate circumstances; and - specific authority to require banks to obtain approval for proposed changes in board or senior management. - CBS should consider issuing a PS on corporate governance responsibilities of board and senior management. - International banks: - Description: IBA section 19 requires at least two directors (one Samoan resident) and Inspector approval for appointments; section 3 defines "fit and proper"; section 44 permits Minister to require removal/replacement of directors/officers in specified circumstances. Inspector relies heavily on external auditors per sections 35 and 36 of IBA. With physical presence of international banks established, Inspector can better assess internal controls, but to date on-site exams focused on AML and establishment requirements. No comprehensive reviews of internal control, accounting, auditing systems; no promotion of corporate governance concept for directors/managers. No requirement for experienced non-executive directors or audit committees; internal audit function often unnecessary due to size/nature. - Assessment: Materially noncompliant. - Comments: Inspector should provide guidance on risk management, internal controls, and accounting systems; issue corporate governance guidance; fully implement on-site examinations covering risk management, internal control, and audit systems. ### Principle 15 — Money Laundering - Domestic banks: - Description: Money Laundering Prevention Act 2000 (MLPA2000) applied; Governor of CBS carried out MLA functions with FID support. Money Laundering Prevention Act 2007 (MLPA2007) repealed MLPA2000 and implementation is beginning. MLPA2007 designates MLA supervisory functions to 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, identification, and monitoring are now in the Act. MLPA2007 intended to address FATF "40 plus 9" recommendations and key recommendations of the February 2006 Mutual Evaluation. Banks already follow MLPA2000 regulations/guidelines; new regulations/guidelines under MLPA2007 expected to be completed by May/June 2007 after consultation and approvals. Section 29 provides protection for good faith reporters. Sections 8 and 9 provide for FIU information sharing. CBS has conducted on-site AML examinations of all banks. Governor of CBS chairs the Money Laundering Prevention Task Force per section 5 of MLPA2007. - Assessment: Largely compliant. - Comments: MLA should expeditiously complete new regulations and guidelines to fully implement MLPA2007. - International banks: - Description: Under MLPA2000 international banks were defined as "financial institutions" and subject to due diligence, recordkeeping, reporting. MLPA2007 similarly defines international banks as "financial institutions"; Inspector must file STRs with FIU. Inspector is a member of the Money Laundering Prevention Task Force. New MLPA2007 regulations/guidelines expected by May/June 2007. Inspector has conducted on-site AML examinations of international banks. - Assessment: Largely compliant. - Comments: MLA should expeditiously complete new regulations and guidelines to fully implement MLPA2007. ### Principle 16 — On-Site and Off-Site Supervision - Domestic banks: - Description: CBS initiated on-site exam program focused on credit risk management and AML; all banks examined, most recent in late 2006. Two-year cycle of targeted on-site examinations anticipated. Capacity and training constraints limit full implementation. Previously only one on-site exam in 2000. 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 policies, internal controls, internal and external audit activities. CBS receives regular returns at weekly, monthly, quarterly, semi-annual, and annual frequencies for off-site monitoring. - Assessment: Largely compliant. - Comments: CBS should continue full implementation of on-site program including staff augmentation and training. - International banks: - Description: IBA section 5(4)(b) authorizes Inspector to conduct on-site and off-site supervision with full access to records. Inspector initiated on-site program in 2005–2006 but exams addressed only AML and IBA section 11/Guidance Practice Note No. 2 compliance on physical presence. Inspector adopted an on-site exam manual addressing international banks’ unique features, focusing on know your client, client money/assets, disclosure, administration, compliance, and record-keeping. Inspector relies heavily on off-site supervision via returns and audited accounts and on external auditors who must report on licensing compliance, return accuracy, and irregularities per sections 35 and 36 of IBA. All licensees must maintain accounting records in Samoa. - Assessment: Largely compliant. - Comments: Inspector should continue full implementation of on-site program including staff training; with physical presence established, expand on-site program to comprehensively cover operations and validate supervisory information while maintaining relationships with external auditors. ### Principle 17 — Bank Management Contact - Domestic banks: - Description: CBS meets with key bank executives quarterly to discuss supervisory issues and operational matters. FID management and staff have more frequent contacts. Closing meetings are held with bank management at the end of on-site examinations. *Source: _cr07222 - Section 6 of the IBA empowers the Minister to issue regulatory codes concerning, inter alia,* ### conclusion of each on-site examination to discuss the examinations findings, followed-up by a ### _cr07222 - conclusion of each on-site examination to discuss the examinations findings, followed-up by a ### Supervisory communication, licensing, and notification - Off-site surveillance, on-site examinations, and ongoing contacts give the CBS a good understanding of banks’ activities. - CBS senior officials have developed effective working relationships with bank reporting officials that improve understanding of major activities and financial performance. - There is no specific legal requirement that banks provide timely notification to the CBS on substantive changes or material adverse developments; PS 8, paragraph 4, implies such reporting will occur. - In practice, banks inform the CBS of substantive and material changes; bank management recognizes this expectation. - CBS licensing considers the quality, competence, and character of proposed directors and senior management. Proposed changes in bank directors and senior management must be presented to the CBS for fit-and-proper vetting. - Assessment: Largely compliant. - Comments: The CBS should formalize their requirement that banks provide them with timely notification of substantive changes and material developments. ### International banks — presence, contact, and fit-and-proper vetting - Inspector maintains regular communication with resident directors/managers of offshore banks and meets overseas directors at least annually. - Off-site reviews, establishment of physical presence in Samoa, and regular meetings provide sufficient general information; limitations remain because full “mind and management” is not present in Samoa. - 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. - Comments: The Inspector should consider requiring more frequent meetings with overseas directors and/or senior management of international banks to develop a more complete understanding of activities, policies, procedures, systems, and controls. ### Principle 18 — Off-site supervision: data collection and reporting (Domestic banks) - Weekly, monthly and quarterly prudential returns provide 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 reporting is being undertaken to address other relevant information and IMF financial sector reporting requirements. - Legal basis: FIA, section 9 (2) gives CBS power to require periodical returns; CBSA, section 38 and FIA, section 8 could be relied on for consolidated data and consolidated capital ratio determination. - PS 8: systems must provide information based on generally accepted accounting principles; financial statements for public disclosure must follow international accounting and auditing standards. - FIA, section 9: CBS can impose an administrative fine for delaying submission of a return or willfully submitting false or inaccurate information. - FID analyzes returns, follows up with banks, and reports to senior CBS management. - Assessment: Largely compliant. - Comments: 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 as the Minister or Inspector may direct. - Inspector has broad powers under sections 43 and 44 to require measures, impose conditions, remove/replace directors and officers, appoint an adviser, appoint a receiver/manager, petition for winding up, or cancel the license. - Implementation of physical presence requirement led to revocations where licensees would not maintain records in Samoa. - Annual audited accounts must follow international accounting standards; quarterly/semi-annual returns provide detailed balance sheets, profit and loss, loan classifications, connected lending, contingent liabilities, large exposures, provisioning, and large deposit sources. - Quarterly returns: received from A and B1 banks; B2 banks file semi-annually. - Failure to file returns is an offence under IBA, section 28 (4) with a maximum fine of US$1,000 for every day during which the offence continues. - Inspector’s inspection rights authorized under section 29 of the IBA. - Assessment: Largely Compliant. - Comments: The Inspector should consider expanding periodic reporting to include detailed information on classified assets, country exposures, liquidity, and interest rate risk. ### Principle 19 — Validation of supervisory information (Domestic banks) - CBS implementing an on-site examination program covering banks’ overall operations; to date on-site examinations covered credit risk management and anti-money laundering systems in all banks. - Program expansion planned; staff resources and training remain constraints; technical assistance and training ongoing. - External auditors have been used for independent validation; CBS meets auditors and banks after statutory audits for briefings. - FIA, section 10: external auditors must hold a certificate of public practice and be acceptable to the CBS; CBS can require auditor reports on matters it determines. - FIA, section 11: CBS can delegate inspection powers to designated examiners and has legal right of access to all bank records for on-site examinations; FIA, section 9 allows access to specific documents without going on-site. - Assessment: Largely compliant. - Comments: CBS should continue expanding on-site examinations to validate supervisory information while maintaining relationships with external auditors. ### Principle 19 — Validation of supervisory information (International banks) - Inspector developing on-site examination capacity after physical presence requirement implementation; a regular on-site program has not yet commenced. - On-site work to date focused on physical presence implementation and AML systems; external auditors relied upon in interim. - IBA, section 35 requires auditors to report whether licensee carries on business according to license and whether returns are completed correctly and reflect management accounts. - Inspector has authority to monitor audit quality; auditors must be approved by the Inspector and registered under the International Companies Act 1987. - Inspector can require auditor reports under section 36 and has full access to bank records under section 34(3). - Assessment: Largely compliant. - Comments: Inspector should expand on-site examinations to achieve comprehensive coverage and validation of supervisory information while maintaining relationships with external auditors. ### Principle 20 — Consolidated supervision - Domestic banks: no subsidiaries or branches operating within or outside Samoa. - FIA, section 20 requires CBS written approval to open places of business outside Samoa. - Samoan banks that are subsidiaries of foreign banks are subject to consolidated supervision by their home authority. - Assessment: Not applicable. - Comments: Planned update of the FIA should clarify CBS authority to apply supervisory requirements on a consolidated basis. - International banks: no subsidiaries of Samoan-licensed international banks operating within or outside Samoa conducting banking-related business. - IBA, section 21(1)(a) requires Inspector’s approval to open subsidiaries/branches outside Samoa. - Minister and Inspector have broad powers to compel information from subsidiaries outside Samoa; overseas operations must be included in quarterly/semi-annual returns and annual audited accounts. - Section 26 of the IBA requires accounting records to be maintained in Samoa. - Assessment: Not applicable. - Comments: None. ### Principle 21 — Accounting standards and audit responsibilities (Domestic banks) - PS 1: ultimate responsibility for bank affairs resides in board and management; Companies Act requires board responsibility for accounting records. - PS 8: banks must have adequate and effective accounting systems able to produce CBS-required reports. - No specific guidelines issued on external audit scope or corporate governance roles; two largest banks adopt parent group accounting policies consistent with international standards; locally-owned banks’ policies are within international accounting standards and audited using international auditing standards. - CBS has no express power to revoke auditor appointment; auditors must be acceptable to CBS pursuant to FIA, section 10 (1). - FIA, sections 10 (3) and (4): within three months of financial year-end banks must submit audited balance sheet, profit and loss accounts, notes, and auditor’s report to CBS; within four months banks must publish audited financial statements in a newspaper circulating in Samoa. - PS 7: realistic valuation and prudent recognition of income/expense are critical; valuation rules specified for credit portfolio, with qualitative classification and minimum provisioning guidelines. - FIA, section 10 (5): auditors required to report immediately to CBS if they consider a bank insolvent or likely unable to meet obligations; if criminal offence involving fraud or dishonesty has been committed; serious irregularities; losses substantially reduce capital; or unable to confirm claims of creditors are covered by assets. No civil/criminal proceedings may be taken against an auditor who discloses information in good faith to the CBS. - Assessment: Largely compliant. - Comments: More specific corporate governance guidelines are needed to clarify board and management responsibilities. ### Principle 21 — Accounting standards and audit responsibilities (International banks) - IBA, section 35: audited accounts must be prepared to international accounting standards. - Auditor duties under section 35 include reporting on books kept, balance sheet agreement with books, whether balance sheet is full and fair, information from officers/agents, compliance with license terms (financial/accounting matters), and whether returns have been completed correctly and reflect management accounts. - IBA, section 36 (1): auditors must enlarge/extend scope of audit where necessary to give a true and fair view and disclose such procedures in the report. - IBA, section 36 (2): auditors must report immediately to the Inspector, without notifying the licensee, if the licensee is insolvent or in serious financial difficulties; a criminal offence involving fraud or dishonesty has been committed; serious irregularities occurred jeopardizing depositors/creditors; losses substantially reduce capital funds; or auditor unable to confirm creditors’ claims are covered by assets. - Auditors must be approved by the Inspector and registered as company auditors under the International Companies Act 1987; Inspector cannot specifically revoke appointment of an auditor but can apply to Registrar of International Companies for revocation of company auditor registration if concerns exist. - IBA, sections 35 (1) and 36 (2): auditors must report matters of material significance; auditors are protected under section 36 (5). - Auditors required to report possible criminal offences involving money laundering and file STRs with the FIU as necessary (IBA and MLPA2007). - 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. - Assessment: Largely compliant. - Comments: No requirement for public disclosure for international banks. If future licenses permit acceptance of deposits from the general public, the Inspector should consider requiring disclosures and audited financial accounts to depositors. More specific corporate governance guidelines are needed. ### Principle 22 — Remedial measures and enforcement (Domestic banks) - CBS has a broad range of powers under FIA, sections 13, 14, 15, and 23, including revocation of license. - FIA, section 26 empowers the Attorney General to institute proceedings to prevent and restrain breaches and to prosecute offences. - FIA, section 29: HOS, acting on Cabinet advice, may make regulations to give full effect to the Act. - FIA, section 14: CBS can direct a bank to take specified actions; CBS can take control of a bank with court approval. - CBS can appoint, with court approval, a qualified person to advise, manage, liquidate, or place the bank in receivership; court approval required for CBS or appointed person’s powers. - FIA, section 23: CBS may take action against directors or officers for noncompliance or aiding/abetting violations; penalties range from monetary fines to imprisonment for up to one year or both. *Italicized source: _cr07222 - conclusion of each on-site examination to discuss the examinations findings, followed-up by a; PDF.* ### 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 ### Remedial actions, penalties, and timing - 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. - 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 FIA, Section 23: - A licensee is prohibited 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. ### International banks — supervisory remedial powers (IBA, Part V) - 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. - Assessment: Compliant. - Comment: None. ### Principles 23–25: assessments and descriptions - Principle 23 (Globally Consolidated Supervision) - 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) - Domestic banks: - No branches or subsidiaries of Samoan banks operate outside Samoa. - FIA does not explicitly prevent establishment of operations in countries with secrecy laws, but establishment of 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 or subsidiaries of Samoan-licensed international banks operate outside Samoa. - IBA does not prohibit establishment of operations in countries with secrecy laws, but establishment of overseas subsidiaries and branches of Samoan-licensed international banks requires 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 the foreign authority is subject to adequate legal restrictions, 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) - 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 standards recommended by the Basel Committee on Banking Supervision on cross-border banking. - 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 confidential disclosure to a supervisory authority in any country for supervisory purposes. - There are no prohibitions on parent bank supervisors conducting on-site examinations of subsidiary operations in Samoa. No instance yet of a parent bank supervisor conducting an on-site examination of local subsidiaries. - Assessment: Compliant. - International banks: - There are no operations of foreign banks in Samoa that are licensed as international banks. - Under the IBA, any subsidiaries of foreign banks that are licensed as international banks would be regulated and supervised within the same standards as other international banks. - For licensing, the home supervisor of the foreign bank applicant would be contacted to determine their position and whether the Samoan international bank would be subject to consolidated supervision. - Assessment: Not applicable. ### Compliance tables (summary) - Domestic Banking Sector: Summary of Compliance with the Basel Core Principles (selected entries) - CP 1 Objectives, Autonomy, Powers, and Resources: LC - CP 2 Permissible Activities: C - CP 6 Capital Adequacy: LC - CP 7 Credit Policies: LC - CP 8 Loan Evaluation and Loan-Loss Provisioning: LC - CP 16 On-Site and Off-Site Supervision: LC - CP 22 Remedial Measures: LC - CP 23 Globally Consolidated Supervision: NA - CP 24 Host Country Supervision: NA - CP 25 Supervision Over Foreign Banks’ Establishments: C - International Banking Sector: Summary of Compliance with the Basel Core Principles (selected entries) - CP 1 Objectives, Autonomy, Powers, and Resources: C - CP 6 Capital Adequacy: MNC - CP 7 Credit Policies: MNC - CP 8 Loan Evaluation and Loan-Loss Provisioning: MNC - CP 10 Connected Lending: LC (Domestic) / C (International variant) - CP 16 On-Site and Off-Site Supervision: C - CP 22 Remedial Measures: X (Compliant) - CP 23 Globally Consolidated Supervision: NA ### Recommended action plan — Domestic banking sector (selected recommendations) - CP 1(2) Adequate Resources - The CBS should increase the human resources available to the FID in view of the increased volume of on-site examinations. - CP 5 Investment Criteria - The FIA should be amended to limit the proportion of the equity of an individual non-financial enterprise which a bank may acquire (within the existing aggregate limit of 10 percent of its capital plus unimpaired reserves). - Such investments should be limited to a maximum of 15 percent of the share capital or voting rights in a non-financial enterprise. - CP 6 Capital Adequacy - The CBS should consider introducing some straightforward specific capital charges for market price risk and Foreign Exchange risk. - CP 7 Credit Policies - The CBS should issue more detailed guidance to banks on expected standards in their individual credit policies and use these to evaluate effectiveness. - CP 8 Loan Evaluation and Provisions - The CBS should require banks to have mechanisms for regularly valuing collateral and assessing the strength of guarantees. - CP 9 Large Exposures - During examinations the CBS should strengthen assessment of banks’ systems for identifying related borrower groups and controlling credit concentrations. - Banks should be required to report all single exposures which exceed 10 percent of capital. - CP 14 Internal Controls and Audit - The FIA should be amended to include authority for the CBS to change a bank’s board of directors and/or senior management in appropriate circumstances and require specific prior approval of proposed changes in directors and senior management. - The CBS should issue appropriate guidelines on corporate governance. - CP 15 Money Laundering - The CBS, as the MLA, should expeditiously complete the drafting of required new regulations and guidance. - CP 16 On-Site and Off-Site Supervision - The CBS should diligently pursue full implementation of its on-site examination program. - CP 18 Off-Site Supervision - The CBS should expand periodic reporting requirements to include detailed information on classified assets, connected lending, and country exposures. - CP 19 Validation of Supervisory Information - The CBS should expand its on-site examination program to include validation of supervisory information. - CP 22 Remedial Measures - The CBS should consider possible amendments to the FIA to limit the involvement of the Court in taking administrative remedial actions. ### Recommended action plan — International banking sector (selected recommendations) - CP 5 Investment Criteria - The IBA should be amended to limit the proportion of the equity of an individual non-financial enterprise which an international bank may acquire (within the existing aggregate limit of 60 percent of its capital plus unimpaired reserves). - Each investment in a non-financial enterprise should be limited to a maximum of 15 percent of the share capital or voting rights in that enterprise. - CP 6 Capital Adequacy - Each international bank should be subject to a minimum capital requirement which reflects its individual risk profile. - CP 7 Credit Policies - The Minister and Inspector should develop a regulatory code for standards expected of international banks’ individual credit policies, potentially in cooperation with the CBS. - CP 8 Loan Evaluation and Loan Loss Provisions - The Minister and Inspector should issue a regulatory code requiring international banks to have internal systems for regularly reviewing loans, classifying exposures, and making timely provisions. - CP 9 Large Exposures - The Minister and Inspector should issue a regulatory code addressing concentration risk, including: - a definition of closely related groups to be treated as single borrowers; - a requirement to report all individual exposures which exceed 10 percent of capital; - a prohibition on incurring single exposures which exceed 25 percent of capital without prior permission of the Inspector. - CP 10 Connected Lending - The IBAA should be amended to prevent connected lending on more favorable terms than available to unconnected parties and to require board approval with affected directors excluded from decision-making. - The Inspector should require independent information systems for such exposures. - CP 11–13 Risk Guidance and Data Collection - The Inspector should issue guidance on country risk, market risk, liquidity risk, operational risk, and interest rate risk, and periodically collect information on these exposures. - CP 14 Internal Controls and Audit - The Inspector should issue specific guidance on internal controls, audit, and corporate governance, and fully implement the on-site examination program. - CP 16 On-Site and Off-Site Supervision - The Inspector should diligently pursue full implementation and expand on-site examinations to comprehensively cover banks’ activities. - CP 17 Bank Management Contact - The Inspector should hold more frequent meetings with overseas directors and senior management of the international banks. - CP 18 Off-Site Supervision - The Inspector should expand periodic reporting to include classified assets, country exposure, liquidity, and interest rate risk. - CP 19 Validation of Supervisory Information - The Inspector should expand on-site examinations to include validation of supervisory information. - CP 21 Accounting Standards - The Inspector should provide for public disclosure of information on international banks that accept deposits from the general public, when applicable, and provide guidance on corporate governance. ### Authorities’ response to the assessment - The assessment recognizes considerable improvements achieved over past years in prudential oversight of licensed financial institutions, including efforts by the Central Bank of Samoa (CBS) and the Samoa International Finance Authority (SIFA) towards strengthening legislative and regulatory frameworks, policies, and procedures for prudential supervision of domestic and international banks in Samoa. - Improvements bring Samoa’s financial system significantly in line with internationally recognized standards as promulgated by the Basel Core Principles compared to the previous IMF assessment. - On the domestic front, several recommendations to further improve the CBC’s regulatory role have been noted and future efforts shall focus on incorporating necessary changes in legislation, prudential statements, regulations, guidelines, and staff capacity. - Regarding the international finance sector, SIFA notes the recommended action plan and shall review current legislation and prevailing prudential requirements with a view to further improving supervision of international banks as per international standards. - Reference: IMF OFC Assessment of Samoa’s financial system undertaken by the IMF from 27 February to 8 March 2007. *Source: _cr07222 - Section 16 of the Act provides for monetary and imprisonment penalties for misleading or* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07222.pdf_