This content is from: Local Insights

Banking aligned with EU

A new Banking Act is about to come into force in Albania. The Act has largely been translated from the existing Croatian Banking Act and has benefited from the advice of the International Monetary Fund. The new Act is much more aligned with European law and sets out more detailed rules regarding the licensing of banks and branches of foreign banks.

The new Act stipulates detailed requirements that must be met by banks and branches of foreign banks. Some requirements are already imposed by way of regulations set by the Bank of Albania. The new Act, however, is more detailed in its description of the requirements, leaving less room for interpretation and reducing the arbitrary powers of the Bank of Albania. A new fee payable by the banks has also been introduced in respect of the supervision of the banking activity, endorsing principle 1 of the Fundamental Principles of the Bank for International Settlements (BIS).

The Act stipulates better rules to administer the way that banks and branches of foreign banks are organized and managed, further minimizing risks related to the management of banks. The new Act goes some way towards detailing the powers of the directing council while imposing liabilities on its members regarding bank management. The Act also contains more detailed provisions regarding potential conflicts of interest in the management of banks, stipulating extended criteria to exclude persons who have a conflict of interest from the post of director. The power to choose the independent public accountant, under the new Act, is conferred to the bank's audit committee.

Greater powers are conferred to the Bank of Albania through this Act, specifically to prevent money laundering and terrorist activities. The Act also provides for modern banking facilities, including within its remit issuance of electronic payment.

One of the main changes in the law is the provision for stricter risk management through its capital adequacy ratio. When this Act comes into force, the branches of a foreign bank will have to retain a certain amount of liquid assets within the Republic of Albania. A duty is also imposed on the banks to specify detailed methods for the calculation of the risks both on an individual and consolidated basis. Specific risk elements are detailed in the Act.

The Basel principles of consolidated banking supervision are enshrined in the new Act. In preparation for participation with the EU, the new law observes almost all the standards set out in the European Directives. For example, it complies with Directive 200/12/EC in recognizing the status of a bank's branches as parts of the parent bank.

Breaches of licences granted and of the law are better categorized in the new Act, and all bear separate penalties or sanctions.

In defining better procedures to handle administrative complaints, the new Act further minimizes the potential for the use of arbitrary powers by the Bank of Albania.

The Act seeks to impose a more transparent approach regarding the continual duty imposed on banks to provide information to their clients. A new register of credits will also be kept with the Bank of Albania to blacklist bad debtors.

Having just been approved and passed by the Albanian parliament, the new Act will be published in the Official Gazette before coming to force.

By Endrit Shijaku

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