Romania: Banking & Finance (2nd edition)

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This country-specific Q&A provides an overview to banking and finance laws and regulations that may occur in Romania.

This Q&A is part of the global guide to Banking & Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance-2nd-edition/

  1. What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?

    Banking regulation, supervision and resolution are overseen by the National Bank of Romania (NBR), which is the central bank of Romania. The NBR controls, monitors and supervises credit institutions, electronic money institutions, non-banking financial institutions (NBFIs) and payment institutions. These NBR activities include the licencing of credit institutions, electronic money institutions, NBFIs and payment institutions, and the prudential supervision thereof and resolution.

    The Financial Supervisory Authority (FSA) is responsible for authorizing investment services companies that carry out the investment services and the auxiliary investment services prescribed by Annex 1 of Law no. 126/2018 on the markets for financial instruments, which transposes EU Directive 2014/65/EU (MiFID II). Credit institutions must be authorized by the NBR to carry out such services, and credit institutions that carry out investment services covered by Law no. 126/2018 or CNVM Reg. 32/2006 must be registered in the FSA register. The general rule is that the FSA supervises the application of Law no. 126/2018, EU Reg. no. 600/2014 (MiFIR) and the legal framework of MiFID II in Romania. The main exception to this supervisory scope is that the NBR supervises and regulates the carrying out of investment services by credit institutions realized through certain specified financial instruments that are not traded on a regulated market (e.g. money market instruments and government securities) (art. 2(1)-(4), Law no. 126/2018).

  2. Which type of activities trigger the requirement of a banking license?

    The main activities requiring a banking license are taking deposits or other repayable funds from the public and granting credits.

    However, EGO 99/2006, which transposes the authorization obligations contained in EU Directive 2013/36/EU (CRD IV), prescribes a list of activities that may be performed by credit institutions, subject to the limits prescribed by the respective authorization (licence). The activities covered by EGO 99/2006 (art. 18) include those that are specified in Annex I of CRD IV (list of activities that are subject to mutual recognition by EU/EEA states), plus the following activities which are additionally prescribed by EGO 99/2006:

    • Operations with metal and precious stones and objects made from these;
    • Acquiring holdings in the capital of other entities;
    • Any other activities or services, to the extent in which these involve the financial sector, subject to the specialised laws that regulate the respective activities, where applicable.

    We note that certain activities may be performed by entities that are not banks, such as non-banking financial institutions (NBFIs) which are monitored/supervised by the NBR in accordance with Law 93/2009 and NBR Reg. 20/2009. NBFIs may carry out, inter alia, the following crediting activities on a professional basis (art. 14, Law 93/2009):

      Granting of loans, including consumer credit, mortgages and factoring;

    • Financial leasing;
    • Issuance of guarantees and undertakings.

    The following non-bank entities authorized by the NBR may carry out certain activities:

    • Payment institutions, which carry out payment services and
    • Electronic money institutions, which issue electronic money and may perform payment services.
  3. Does your regulatory regime know different licenses for different banking services?

    According to art. 3 of EGO 99/2006, credit institutions that are Romanian legal entities may be constituted and function (subject to NBR authorization) in one of the following forms:

    • Banks – may perform all the activities that are listed for credit institutions;
    • Credit cooperative organizations – non-governmental associations carrying out activities for the mutual benefit of members.
    • Savings and credit banks for housing – long-term financing of housing;
    • Mortgage banks – mortgage lending for real estate investments and the raising of repayable funds from members of the public through mortgage bonds.

    An NBFI may conduct lending activities on a professional basis. The entity must be incorporated as a joint-stock company, subject to certain exceptions, but they cannot attract deposits.

    In addition, the following entities may be constituted and function in respect of payment services and electronic money (subject to NBR authorization):

    • Payment institutions that conduct payment services.
    • Electronic money institutions that issue electronic money and may carry out payment services.
  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    A banking licence may cover a range of activities, but the right to carry out any given activity is subject to the scope of the respective individual banking licence. The list of activities prescribed by art. 18 of EGO 99/2006 does not imply a general authorization for a credit institution to carry out all of the activities stated, and there is no automatic authorization of a credit institution in respect of any of the named activities. Instead, the NBR licence will specifically authorize a credit institution, on a case-by-case basis, to carry out particular individual activities. The respective activities for which authorization is sought should correspond to the business plan that has been submitted to the NBR together with the application for authorization (art. 17, EGO 99/2006).

    Regarding financial intermediaries, broker dealing is allowed, and this activity falls under the regulatory oversight of the Financial Supervisory Authority, in application of the legislation that regulates financial services.

  5. Is there a “sandbox” or “license light” for specific activities?

    No. In principle, there are no exemptions to the requirement for the authorization of banking activities on a professional basis in Romania.

  6. Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?

    Crypto currencies are not currently regulated in Romania and accordingly are not defined or controlled by law. We note that the NBR issued press releases on 11 March 2015 and 6 February 2018, in which the NBR specified that crypto currencies are not recognized as a national or foreign currency and that the acceptance by vendors of payments using crypto currencies is not mandatory. Furthermore, the NBR affirmed that crypto currency is not deemed to be a form of e-money in terms of Law 127/2011 on the issuance of e-money. The NBR has stated that it will continue to monitor the evolution of crypto currency schemes in view of potential systemic risks to the financial sector.

  7. What is the general application process for bank licenses and what is the average timing?

    Under art. 3, NBR Reg. 11/2007, and art. 10, EGO 99/2006, the authorization of a credit institution comprises two stages:

    1. Authorization of the establishment of the credit institution; and
    2. Authorization of the functioning of the credit institution.

    The NBR approval of the establishment of the credit institution does not guarantee the authorization of the functioning of the credit institution (operational approval), with the establishment authorization only indicating the shareholders’ permission to constitute the credit institution (art. 3(2), NBR Reg. 11/2007). This means that the establishment authorization and the functional authorization are two distinct phases.

    The NBR decides on the granting of the establishment authorization not later than four months from the date of the application. No later than three months following the application date, the NBR may request further information or documents. Within two months of the notification of the establishment authorization by the NBR, the credit institution must present the NBR with the documents that attest to its legal establishment, in order to obtain the authorization to function.

    The required documents include the articles of association, information on significant shareholdings, on the management team and the identity of the financial auditor (art. 25, NBR Reg. 11/2007).

    The NBR must decide on the approval of the authorization to function within at most four months from the date of receipt of the documents relating to the legal establishment of the credit institution, and further information/documents may be requested by the NBR (art. 33, EGO 99/2006).

    In practice, we noted that timelines may be exceeded due to additional information usually requested by the NBR, therefore the above maximum time periods should be considered as general indicators only. Cumulatively, the preparation, NBR authorization and implementation phases may take up to one year.

  8. Is mere cross-border activity permissible? If yes, what are the requirements?

    Yes.

    EU and EEA member states

    A credit institution authorized and supervised by an EU/EEA member state is entitled to carry out credit institution activities in Romania through the freedom to carry out services directly (passporting) or through the establishment of a branch. This is subject to the inclusion of the respective activities in the authorization granted by the competent authority from the member state of origin, and subject to compliance with Romanian legislation adopted in the scope of protecting the general public interest (art. 45, EGO 99/2006).

    For direct provision of services, the competent authority of the member state of origin must notify the NBR of the activities that the credit institution intends to carry out in Romania (art. 49, EGO 99/2006).

    For the establishment of a branch, the competent authority of the member state of origin must notify the NBR of, inter alia, the types of activities that are to be carried out by the branch, the branch’s leadership, and the credit institution’s level and structure of own funds. Prior to starting the crediting activities, and within two months of receiving the notification, the NBR must provide the respective credit institution with the list of normative acts that cover the protection of the general public interest, which regulate the specific conditions under which certain activities can be carried out. The branch may start its activities upon the communication by the NBR of the list of normative acts or, in the absence of such a communication, from the expiration of the above two-month term (art. 48, EGO 99/2006).

    Third countries

    A credit institution from a third country (non-EU/EEA member state) may carry out credit institution activities in Romania if (art. 67, EGO 99/2006):

    1. The credit institution establishes a branch in Romania (procedure which is similar with that of establishing a bank);
    2. The branch is authorized by the NBR;
    3. The competent authority from the member state of origin does not oppose the establishment of the branch; and
    4. There is compliance with the applicable provisions of Romanian and EU legislation.

    The authorization and operational requirements for third-country branches are the same as those applicable to Romanian credit institutions (art. 69, EGO 99/2006). Under art. 77, EGO 99/2006, the NBR may exempt third country branches from certain prudential requirements if, as a result of the assessment made, it is determined that there is a prudential regulatory framework in the third country of origin equivalent to that established by EGO 99/2006.

  9. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    Banking activities may be carried out by Romanian banks, by branches of foreign credit institutions or through the direct provision of services through passporting by credit institutions authorized and supervised in EU/EEA member states (art. 1, NBR Reg. 11/2007).

    Romanian banks are required to be incorporated as joint-stock companies (art. 287, EGO 99/2006).

  10. What are the organizational requirements for banks, including with respect to corporate governance?

    EGO 99/2006 transposes the obligation contained in EU Directive 2013/36/EU (CRD IV) for credit institutions to have robust governance arrangements, by imposing strict authorization requirements and eligibility criteria for the leadership of credit institutions. The Romanian law in this regard should be read together with the EBA Regulatory Technical Standards under art. 8(2) of CRD IV on the information to be provided for the authorization of credit institutions.

    Before commencing its activities, a Romanian credit institution must obtain NBR approval for the persons having medium level management functions of important activities (art. 21, NBR Reg. 6/2008). The authorization for the functioning of a credit institution is accompanied by the NBR approvals for, inter alia, the persons designated in the capacity of director, supervisory board member and financial auditor, and must be accompanied by the confirmation of the significant shareholders (art. 3(4), NBR Reg. 11/2007).

    The members of the board of directors and, where applicable, the members of the supervisory and executive boards, as well as managers in certain specified departments must possess adequate reputation and experience to carry out the responsibilities attributed to them (art. 108, EGO 99/2006, art. 16, NBR Reg. 11/2007).

    The specific governance obligations for directors and executives of credit institutions include:

    • In the case of a one-tier system, the board must delegate executive management to at least two executives. The Chairman of the board must not concurrently hold the role of CEO, unless this arrangement is approved by the NBR in exceptional cases (art. 107, EGO 99/2006);
    • In the case of a two-tier system, the executive board must be comprised of at least three members (art. 107, EGO 99/2006);
    • The executive leadership responsibilities may only be carried out by natural persons, who must be approved by the NBR before they start their mandates (108(2)-(3), OUG 99/2006);
    • For credit institutions that are significantly large from the perspective of internal organization and the complexity of activities, persons who cumulate multiple mandates may not exercise an executive mandate concurrently with two non-executive mandates, or four concurrent non-executive mandates (art. 1081(21), EGO 99/2006).

    For both banks and credit cooperative organizations, at least one of the directors must be able to demonstrate knowledge of the Romanian language (art. 16(3), NBR Reg. 11/2007).

    For both banks and credit cooperative organizations, as part of the evaluation of the persons nominated for directorship/leadership roles, the NBR will take into account whether the business plan presented is based on a realistic approach and whether it denotes professionalism (art. 17(3), Reg. NBR 11/2007).

  11. Do any restrictions on remuneration policies apply?

    In accordance with EBA guidelines, the remuneration policy should contain the following:

    • The performance objectives for the institution, business areas and staff;
    • The methods for the measurement of performance, including the performance criteria;
    • The structure of variable remuneration, including where applicable the instruments in which parts of the variable remuneration are awarded;
    • The ex ante and ex post risk-adjustment measures of the variable remuneration.

    With respect to the restrictions on remuneration policy, all EU level restrictions apply (e.g. CRD IV requirements, EBA guidelines).

  12. Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    All the EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) with respect to the bank’s regulatory capital have been implemented.

  13. Are there any requirements with respect to the leverage ratio?

    The leverage ratio is calculated based on the requirements of EU Regulation 62/2015 and reported under the EU Regulation 428/2016. However, the implementation of the ratio is still open as no mandatory requirement is currently applied.

  14. What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    LCR is calculated based on the requirements of EU Regulation 61/2015. The implementation of the indicator is fully effective starting with 2018.

    NSFR is only reported based on the provisions of Regulation 575/ 2013. However, the implementation of the ratio is still open as no mandatory requirement is currently applied.

  15. Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?

    EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) with respect to the publication of annual financial statements apply. There is no mandatory requirement for the publication of financial statements for interim periods.

  16. Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?

    Banks supervision is performed by the competent authority on a consolidated basis based on the EU regulatory requirements and EU level banking sector guidelines.

  17. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    The EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) apply.

    Any potential acquirer and any significant shareholder who decided to increase or decrease its qualified holding (so as to set above or under 20%, one third or 50%) has an obligation to first notify in writing the NBR about such intention and submit supporting documentation and information.

    If the potential acquirer intends to obtain the control over the target bank, the NBR must be presented with specific documentation that includes: (i) a business plan reflecting potential acquirer’s intention regarding he activity and organization of the bank; (b) envisaged structure of the group to which it forms a part; (c) an evaluation of the financial consequences of the proposed acquisition, including a medium term financial forecast.

    If the potential acquirer will purchase a qualifying holding (i.e. a direct or indirect holding in an bank which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that bank), the NBR must be filed with a strategy document, considering the envisaged degree of involvement of the potential acquirer within the activity of the bank.

    If it deems necessary, the NBR may require to be filed with additional documents and information.

    Upon finalization of its assessment, the NBR may oppose to the proposed acquisition if it deems based on reasonable grounds that there are not met the requirements regarding a prudent management of the bank.

  18. Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    The EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) apply.

    The significant shareholder of a bank is defined as the individual or legal entity or the group of individuals or legal entities which act in concert and which hold directly or indirectly qualifying holdings (i.e. a direct or indirect holding in an bank which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that bank).

    The potential acquirer intending to become a significant shareholder must meet certain criteria detailed within relevant legal framework, out of which we mention the following: (i) reputation (i.e. integrity and professional competence); (ii) financial status; (iii) capacity of observing prudential requirements; and (iv) observance of money laundering and counter-terrorism provisions.

    If the NBR is notified by more potential acquirers intending to acquire participations within the same bank, the NBR must treat each potential acquirer in a non-discriminatory manner.

  19. Are there specific restrictions on foreign shareholdings in banks?

    The foreign shareholdings are not subject to different requirements or treatment by the NBR or legal framework.

  20. Is there a special regime for domestic and/or globally systemically important banks?

    All the EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) for domestic systemically important banks apply. No globally systemically important banks exist in the Romanian market.

  21. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    As a matter of principle, the sanctions applied by the NBR must be efficient, proportionate with the wrongdoing and discouraging in nature. Before applying a sanction, the NBR must assess the personal and de facto circumstances.

    Non-compliance with the banking regulations may trigger the application of sanctions and/or sanctioning measures by the BNR. As such, the sanctions are the following: (i) a written warning; (ii) a public warning; (iii) in the case of legal entities, a fine of 10% of the net turnover for the previous year, including the gross revenue consisting of the interest to be cashed and other similar revenue, income from shares and other securities with variable or fixed yield, as well as the commissions or taxes to be collected, as they are regulated by article 316 of the EU Regulation no. 575/2013; if the legal entity is a subsidiary, the relevant gross revenue is determined based on the consolidated financial statements of the highest rank parent company for the previous year; (iv) in the case of individuals, a fine up to EUR 5 million; (v) withdrawal of the approval of the members of the board of directors and managers or of the supervisory board and directorate, respectively; and (vi) a fine up to twice the value of the benefit (if assessable) obtained by committing the wrongdoing.

    The sanctioning measures are the following: (i) order to cease the illegal activity; (ii) temporary interdiction to hold a position within the board of director or as a manager or within the supervisory board or directorate of a credit institution, as applicable; (iii) withdrawal of the authorization of the credit institutions; and (iv) suspension of the voting rights of the responsible shareholders(s).

  22. What is the resolution regime for banks?

    According to EU level regulatory requirements, the resolution plans are prepared by resolution authority which can ask banks to take appropriate measures to address obstacles to resolvability, including changes to corporate and legal structures.

    The resolution tools that can be applied are the following: (i) Sale or merger of the business with another bank; (ii) Set up temporary bridge bank to operate critical functions; (iii) Separation of assets between “good bank” and “bad bank”; (iv) Bailing-in creditors of the bank: imposing losses to shareholders + bondholders + other creditors + depositors (> €100K deposit guarantee).

  23. How are client’s assets and cash deposits protected?

    The Bank Deposit Guarantee Fund (“BDGF”) was established by the law transposing in the relevant part the provisions of EU Directive 2014/49 EC. Before the signing of any contract, credit institutions shall inform depositors that their debts to the credit institution will be considered when the compensation is calculated. Legal entities and individuals’ deposits with a credit institution contributing to the BDGF are guaranteed through BDGF up to an amount of the RON equivalent of EUR 100,000 per depositor per financial institution.

    The Investors Compensation Fund (“ICF”) is guarantee scheme to investors on the capital market. As such, the ICF collects contributions from intermediaries authorized to provide investment services and management companies, managing individual investment portfolios with the intention to pay out compensation to the investors when a member fails to return the money and/or the financial instruments owed by or belonging to investors. The ICF compensates the investors (professional and institutional investors are excluded) up to a limit of the RON equivalent of EUR 20,000 per investor.

  24. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    Yes, in accordance with EU regulatory requirements (e.g. Directive 2014/59/EU) and EU level banking sector guidelines (i.e. EBA guidelines). The liabilities excluded from the bail-in tool are specifically presented in the Banking Recovery and Resolution Directive.

    In accordance with Moreover, the National Bank of Romania (NBR), the resolution authority, may exclude or partially exclude, liabilities from bail-in on a discretionary basis:

    a. if they cannot be bailed-in within a reasonable time;
    b. to ensure the continuity of critical functions;
    c. to avoid contagion (in particular regarding eligible deposits held by natural persons and micro, small and medium-sized enterprises); or
    d. to avoid value destruction that would increase the losses borne by other creditors.

  25. Is there a requirement for banks to hold gone concern capital (“TLAC”)?

    There is no requirement for TLAC as there aren’t globally systemic important institutions in the Romanian market. However, banks are required to meet the MREL ratio. Regulation (EU) 2016/1450 includes the criteria that the eligible liabilities considered for the calculation of MREL must comply.

    MREL is the correspondent BRRD measure for the Total Loss Absorbing Capacity (TLAC) proposed by the Financial Stability Board (FSB) for Globally Systemically Important Banks (G-SIBs)

  26. In your view, what are the recent trends in bank regulation in your jurisdiction?

    NBR is aligning local regulations of its competence with EU regulatory framework.

    However, banks are facing regulation from other sectors, such as tax and consumer protection, that may affect their activity and profitability.

  27. What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?

    The legislative instability from other areas, such as tax and consumer protection, that creates a high degree of uncertainty, leads to the risk for banks to maintain an adequate profitability ratio in the long term.

    These answers have been prepared by KPMG Legal Romania – TMO together with KPMG Risks Advisory.