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Banking law

Regulation 06-02, introduced onSeptember 24 2006, has not changed the procedure for incorporating a bank or financial institution, but does make changes to applying for approval to open a bank or financial institution, and a banking licence.

Importantly, the changes demonstrate the Algerian authorities' commitment to ensuring the quality and reliability of future banks and financial institutions.

The new regulation, published in the Official Journal on December 2 2006, defines the requirements for creating banks or financial institutions and for setting up branches of banks or financial institutions (Regulation 06-02). It introduces new provisions and repeals old rules, namely Regulation 93-01 of January 3 1993, as amended and supplemented (Regulation 93-01).

Despite the repeal of Regulation 93-01, all other relevant legal instruments remain in full force and effect. For example, the foundation legislation surrounding Ordinance 03-11 of August 26 2003 on currency and credit (the Banking Law), has not been amended by Regulation 06-02.

Approval to open a bank

The main changes introduced by Regulation 06-02 relate to the information to be included in the application to the Currency and Credit Council (CCC).

Article 3 of Regulation 06-02 provides that the approval application should now contain information not previously required and more in-depth appraisal information.

With this in mind, the CCC published an official communiqué on September 24 2006 in which it stated that Regulation 06-02, "in the spirit of the Basel Committee's core principles, broadens the spectrum of control at the licensing phase, placing emphasis on the standing of the shareholders, their financial capacity, their professionalism and the quality of management".

The business appraisal period is extended to five years (previously only three years). The new information required for the approval application includes:

  • the network development strategy and the resources to be applied to this process;
  • the financial standing of each shareholder and guarantor;
  • the key shareholders or core capital owners, regarding their financial capacity, their experience and know-how in banking and finance and their commitment to provide support formally evidenced in a shareholders' agreement;
  • the status of the institution acting as reference shareholder, especially in its country of origin and information proving that it is financially sound;
  • a list of the main directors within the meaning of Article 90 of the Banking Law, at least two of which must be Algerian residents; and
  • the internal organization, usually an organizational chart, providing information about intended staffing levels and the specialist activities to be entrusted to each of the structures.

Other key innovations of the Regulation are:

  • the requirement for shareholder agreement,
  • the requirement for at least two of the bank's executives to be resident in Algeria, and
  • the abolition of the two-month deadline for the CCC to issue its approval decision (required by Regulation 93-01, when in actual fact the time taken by the CCC was frequently in excess of six months).

Article 5 of Regulation 06-02 does not provide for a specific reflection period. Therefore, the new rules seem to have abolished all deadlines in the approval process.

Bank and financial institution licensing

Article 4 of Regulation 93-01 prohibits any advertising encouraging a belief that a plan to create a bank or financial institution has been approved by the CCC or that a licence has been issued by the governor of the Bank of Algeria. This prohibition is reiterated in Article 4 of Regulation 06-02.

The twelve-month deadline for applying for a licence still stands, according to Article 8 (2) of Regulation 06-02.

Article 9 of Regulation 06-02 clarifies the situation regarding the status of licensed intermediaries and engaging in foreign exchange and international trade transactions.

Unlike Article 9 of Regulation 93-01, the decision to grant a licence no longer automatically grants its beneficiary the status of a licensed intermediary. According to Regulation 06-02, the licence may be limited to specific banking transactions.

Article 9 (3) of Regulation 06-02 provides that where a licence includes a foreign exchange regulation delegation of powers, it grants its beneficiary the status of a licensed intermediary with the right to engage in foreign exchange and international trade transactions.

Nevertheless, to do so, the beneficiary of the delegation of powers must still apply to register each branch conducting such business with the Bank of Algeria according to the applicable regulations.

Other safeguards

Regulation 06-02 expressly reiterates the obligation defined in the Banking Law in relation to the sale of shares, by specifying the procedure to be followed in such an eventuality.

It states that any sale of shares in a bank or financial institution requires an approval application to the chairman of the CCC, stating the reasons for the transaction and any other information that might be usefully considered.

Where the effect of the sale is to change shareholder structure, the application is subject to the same conditions as those stated in Articles 2 and 3 of Regulation 06-02. These articles govern approval applications to create a bank or financial institution.

Finally, banks and financial institutions are also required annually to update the financial information concerning shareholders owning at least 5% of their share capital.

Samy Laghouati and Florent Fassier

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