This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Romania including national authorities, regulation, licenses, organisational requirements, supervision and assets.
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/
What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?
In Romania, the competent authority for banking regulation, supervision and resolution is the National Bank of Romania (NBR), i.e. the central bank.
Which type of activities trigger the requirement of a banking licence?
As a rule, crediting activities can be performed with professional title only by the entities authorised to this effect by the NBR. While certain crediting activities can be performed without a banking license (e.g. loans can also be granted by non-banking financial institutions which are authorised as such by the NBR), accepting deposits from the public on a professional basis can only be performed by credit institutions.
The Emergency Government Ordinance no 99/2006 on credit institutions and capital adequacy (the Romanian Banking Law), provides a list of activities that credit institutions may perform, in each case within the limits of the license (e.g. acceptance of deposits and other repayable funds; lending (including, inter alia, consumer credit, mortgage credit, factoring, financing of commercial transactions); financial leasing; payment services; issuance and administration of other means of payment, such as checks, bills of exchange and promissory notes, etc.).
Does the regulatory regime know different licenses for different banking services?
While the concept of universal banks exists under Romanian law, in Romania, credit institutions may be set up as: (i) banks, (ii) credit and savings banks for housing, (iii) mortgage banks and (iv) credit cooperative organisations.
Banks may perform any and all of the activities listed for credit institutions in the Romanian Banking Law; credit and savings banks for housing are credit institutions specialising in the long-term financing of housing; mortgage banks specialise in the conduct of mortgage lending for real estate investments and the raising of repayable funds from the public through mortgage bonds, while credit cooperative organisations are independent, non-political and non-governmental associations carrying out activities specific to credit institutions for the mutual benefit of their members.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
Yes. Pursuant to article 18 of the Romanian Banking Law, a banking license allows the provision of expressly mentioned and limited activities, such as payment services, issuance of e-money, trading of financial and money market instruments, participation in securities issues and the provision of services relating to such issues, advice to undertakings on capital structure, industrial strategy and related questions and advice, M&A services, money broking, portfolio management and advice, safekeeping and administration of securities, credit reference services.
Although the list of other permitted activities is limited, it does include a very general item ‘other activities and services related to the financial sector, subject to compliance with specific legislation’, provided that the regulator’s approval is obtained.
What is the general application process for bank licenses and what is the average timing?
A credit institution (incorporated as a Romanian legal entity) may be established and may operate in Romania only based on the authorisation issued by the NBR.
The general authorisation process comprises two stages: (i) obtaining of the establishment license of the credit institution, and (ii) obtaining of the functioning license (i.e. the license based on which the credit institution may start operating in Romania).
For each step of the authorisation process, it is necessary to submit with the NBR an application form along with all the statutory documents and information. The NBR shall decide on the establishment license (i.e. granting or rejection the establishment license) by not later than the date falling four months from the date of such application. During this period, but no later than three months after the application date, the NBR may request in writing any additional information or documents.
Upon the NBR’s decision to grant the establishment license, in order to obtain also the functioning license, the credit institution shall submit with NBR within two months from receiving the establishment license, the documents certifying its legal establishment (i.e. the registration with the National Trade Register Office).
The NBR decides on granting the functioning license within a period that does not exceed four months from receiving the aforementioned documents (additional documents and information may be requested in the process).
Is mere cross-border activity permissible? If yes, what are the requirements?
A credit institution based in an EU Member State may carry out crediting activity on a professional basis in Romania, by providing services directly in Romania, by establishing a branch in Romania or based on the freedom to provide services; a credit institution based in a third country may carry out crediting activity on a professional basis in Romania in general by establishing a branch.
A) Passporting rules for banks based in EU Member States
The direct provision of services in Romania may be carried out based on the prior notification of the NBR by the competent authority of the home Member State of the concerned credit institution; such notification shall describe the activities that the credit institution intends to perform in Romania.
The activities intended to be carried out in Romania shall be covered by the authorisation granted by the competent authority of the home Member State and with the observance of the Romanian legislation issued in the interest of the general good.
In addition, the credit institutions based in EU Member States carrying out banking services in Romania, based on the freedom to provide services, must comply with the professional banking secret regulations.
B) Setting-up branches in Romania by banks from EU Member States
A credit institution authorised and supervised in another EU Member State may set up a branch in Romania based on a notification issued by the competent authority of the home Member State to the NBR, along with various documents/information.
The NBR shall communicate, within two months from such notification, to the relevant foreign bank, the list of the Romanian legislation issued in the interest of the general good.
The branch may start its activity upon the reception of the notification but not later than within two months from the notification.
The NBR shall supervise the activity of the branch according to the Romanian banking legislation.
C) Requirements for banks based in third countries
The credit institutions based in third countries may carry out crediting activities on a professional basis in Romania if the following conditions are met:
i) the credit institution establishes a branch in Romania;
ii) the branch is authorised by the NBR;
iii) the competent authority from the home state does not oppose to the establishment of a branch in Romania; and
iv) the relevant Romanian and European banking legislation are observed.
The NBR issues the authorisation for branches of foreign banks under the same conditions and based on the same procedure as for the authorisation of the Romanian banks.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
The Romanian banks, the Romanian branches of the foreign credit institutions or, through passporting under certain conditions, the credit institutions authorised and supervised in an EU Member State.
Romanian banks may only be set-up as joint stock companies.
What are the organisational requirements for banks, including with respect to corporate governance?
In accordance with article 74 of EU Directive 2013/36/EU, the Romanian legislator has enacted various pieces of legislation, to ensure that banks in Romania have robust governance arrangements (including clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management).
Each of the members of the board of administration and the directors or, where applicable, the members of the supervisory board and the directorate of a credit institution, as well as the persons designated to manage the structures related to the risk management and control activities, internal audit, legal compliance, treasury, credit and any other activities that may expose the credit institution to significant risks must at all times have a good reputation, knowledge, aptitude and experience appropriate to the nature, scale and complexity of the credit institution's activity and the responsibilities entrusted to it. to operate in accordance with the rules of prudent and sound banking practice.
If the bank opts for a unitary management system, the management of the bank shall be delegated by the board of administration to at least two directors, while, if the bank opts for a dual management system, the board of directors shall be formed of at least three members.
Management and/or administration responsibilities can only be exercised by individuals (as opposed to legal persons).
Do any restrictions on remuneration policies apply?
The European Capital Requirements Directive (CRD IV) was implemented into national legislation by Regulation no 5/2013 of the NBR on the prudential requirements for the credit institutions and the Romanian Banking Law. In addition, the NBR has issued a series of orders and instructions in view of transposing the provisions of the European Banking Authority's guides.
The credit institutions must determine the remuneration policies and practices in accordance with a detailed list of principles set under Regulation no 5/2013. For example, the fixed and variable components of total remuneration should be appropriately balanced and the fixed component should represent a sufficiently high proportion of the total remuneration in order to allow the operation of a fully flexible policy, on variable remuneration components. The variable component of the total remuneration should not exceed 100% of the fixed component of the total remuneration.
Moreover, the total variable remuneration shall generally be considerably contracted where subdued or negative financial performance of the institution occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements. Up to 100 % of the total variable remuneration shall be subject to malus or clawback arrangements. The specific criteria for the application of malus and clawback covers, in particular, situations where staff members: (i) participated in or were responsible for conduct that resulted in significant losses to the institution; or (ii) failed to meet appropriate standards of good reputation and adequate experience.
Has the 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?
Basel III framework with respect to regulatory capital was mirrored in our jurisdiction which has been aligned with the European banking legislation, phased-in until 2019. There are no major deviations for certain categories of banks.
Are there any requirements with respect to the leverage ratio?
There are no special requirements. In line with Basel III requirements, the leverage ratio is reported to the supervisory authorities on a quarterly basis. The NBR takes into account the model business of the credit institutions in order to determine the adequacy of the leverage ratio and the governance framework, strategies, procedures and mechanisms implemented by credit institutions to manage the risk associated with excessive leverage.
What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
The competent authority determines the liquidity coverage requirements taking into account credit institutions' reports as of the implementation of the CRR. Currently, the NBR does not set liquidity coverage requirement in addition to those required in CRR.
Do banks have to publish their financial statements?
Yes, all banks have to publish their financial statements.
Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?
The NBR conducts the supervision of credit institutions, at both individual and consolidated levels, in case of competent authority designation. The home supervisory authority has the responsibility in the field of supervision at consolidated level of a banking group. In the supervision of international banking groups, the NBR cooperates with its peers through the working structures and their relevant substructures at European level.
The NBR and the Financial Supervisory Authority are the resolution authorities in Romania.
The NBR, in its capacity as a resolution authority, is empowered to apply the following resolution tools: the sale of business tool, the bridge institution tool, the asset separation tool, the bail-in tool.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Any potential purchaser or any significant shareholder which considers to increase or decrease its participation must first notify in writing the NBR and submit at the same time certain statutory documents and information.
If the potential purchaser will obtain the control of the target bank based on the acquisition, it shall submit with NBR, inter alia: (i) a business plan which shall reflect its strategy concerning the bank’s activity and structure; (ii) the proposed structure of the group from which the bank will belong; and (iii) the financial evaluation of the consequences of the proposed acquisition including a financial projection for a medium term.
In case the potential purchaser will not detain the control of the target bank, but will acquire a qualifying holding (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 undertaking) subject to the notification, it must submit with the NBR a strategy document with the required information.
The NBR may oppose to the proposed acquisition, notified as per above, if there are reasonable grounds to consider that the requirements for ensuring a prudent management of the bank by the potential purchaser are not met.
Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
A natural or legal person or a group of natural and/or legal persons acting in concert, which holds directly or indirectly qualifying holdings (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 the bank) in a credit institution, are considered significant shareholders
The NBR’s regulations impose several criteria related to the significant shareholders’ evaluation: (i) the reputation of the significant shareholders; (ii) the financial situation of the significant shareholder; (iii) the compliance of the bank with prudential requirements; and (iv) suspicions of money laundering or terrorist financing.
No person may become a significant shareholder if falling certain situations (e.g.: is known or suspected, internally or internationally, as involved in money laundering or money laundering attempts activities or in terrorism financing and terrorism financing attempts).
In addition, the significant shareholders must have a good reputation and financial situation, in order to ensure a prudential management of the bank.
Are there specific restrictions on foreign shareholdings in banks?
There are no additional requirements or restrictions for the foreign shareholdings at the level of the Romanian banks, or for the evaluation of the foreign shareholders.
Is there a special regime for domestic and/or globally systemically important banks?
The NBR has decided to implement an O-SII buffer (the capital buffer for other systemically important institutions) on an individual, sub-consolidated or consolidated basis, applicable of 1% of the total risk exposure amount, for all credit institutions identified as systemically important. The provisions regarding the O-SII buffer were implemented in Romania through local regulation on prudential requirements for credit institutions.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
The sanctions that may be applied in the case of a violation of banking regulations:
- written warning;
- a public warning;
- a fine applicable to the legal person, up to 10% of the total net turnover value of the preceding business year, including gross revenue consisting of interest receivable and other similar income, income from shares and other variable or fixed yield securities , as well as the fees or charges to be collected as provided in article 316 of the European Regulation no 575/2013; where the legal person is a subsidiary of a parent, the relevant gross income is that resulting from the consolidated financial statements of the highest ranking parent company in the preceding business year;
- a fine applicable to the natural person;
- the withdrawal of approval granted to the members of the board of directors and the directors or, where appropriate, the members of the supervisory board and the directorate;
- a fine up to twice the value of the benefit obtained by committing the deed, if it can be determined.
Separately, certain sanctioning measures can be applied in the case of a violation of banking regulations.
What is the resolution regime for banks?
Starting with December 2015, the resolution regime in Romania is aligned with the EU Directive 2014/59/EU regarding the recovery and resolution of credit institutions, also known as the Bank Recovery and Resolution Directive (BRRD). Under the Romanian bank resolution law, the NBR has been designated as the Romanian resolution authority for credit institutions.
The Romanian bank resolution regime abides the bail-in principle under BRRD and provides that the shareholders will be the first to bear the losses, followed next by the creditors of the failing bank. Also, banks are under the obligation to contribute to the National Resolution Fund which may fund the resolution process. The amount of the contribution to the national resolution fund is determined by the NBR taking into account various factors such as the size and the risk of each bank.
In line with BRRD, the resolution instruments available to the NBR are the sale or merger of the business, the set-up of a temporary bridge institution to operate critical functions, the separation of good and bad assets and bail-in instruments.
As part of the prevention efforts, banks are required to prepare recovery plans and the NBR is equipped with early intervention tools such as dismissing the existing management and appointing a temporary administrator, requesting urgent reforms and plans to restructure the bank’s debt.
How are client’s assets and cash deposits protected?
In line with EU Directive 2014/49/EU on deposit guarantee schemes, the client’s deposits are protected by the National Fund for Bank Deposits (NFBD). Currently, NFBD is the only deposit guarantee scheme functioning in Romania. NFBD guarantees client deposits within the limit of EUR 100,000/depositor/financial institution. In the case of individuals, the protection may be extended to EUR 200,000 for a period of twelve months for special categories of deposits (e.g. deposits made following the sale of residential assets). The NFBD is funded primarily by the contribution of the banks whose deposits are guaranteed by NFBD.
With regard to the client’s monetary funds and/or financial instruments held by the bank as an investment firm, in addition to the safeguard imposed by MIFID II (currently in progress of implementation in Romania), the Romanian Investors Compensation Fund (RICF) compensates the investors, in the cases where the bank becomes unable to return the assets to the investors. The compensation is limited to EUR 20,000 and does not apply to professional and institutional investors. RICF is funded by the contribution of the investment firms.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
Yes, the bail-in instruments available to the Romanian resolution authority are debt-to-equity swaps and debt waivers.
Such instruments apply as a general rule to all liabilities with the exception of (i) limited categories of liabilities expressly mentioned in the Romanian bank resolution law; or (ii) liabilities excluded following a NBR decision.
The categories of liabilities excluded from the bail-in tools are: covered deposits, secured liabilities (including covered bonds and liabilities in the form of financial instruments used for hedging purposes which form an integral part of the cover pool and which are secured in a way similar to covered bonds), any liability that arises by virtue of the holding of client assets or client money (including client assets or client money held on behalf of UCITS or of AIFs), provided that such a client is protected under the Romanian insolvency law, fiduciary liabilities, liabilities outside group with an original maturity of less than seven days or liabilities to payment systems with a remaining maturity of less than seven days, tax and NFBD’s liabilities, liabilities to employees and service providers key for the functioning of the bank.
Is there a requirement for banks to hold gone concern capital (TLAC)?
There are no additional capital requirements from the national authorities in regards to the Total Loss-Absorbing Capacity (TLAC) requirements.
In your view, what are the recent trends in bank regulation?
The local authority priority is to ensure financial stability. The requirements are towards endorsing the banking system profitability by cleaning the non-performing portfolios, reducing the risk from variable interest rates and the risk of the over-indebtedness of the population. There is a clear encouragement to use capital resource for healthy lending to the real sector. Romania decided to deactivate the systemic risk buffer from 1 March 2017 onwards. The deactivation is related to the perceived reduction in the contagion risk, the activation of the O-SII buffer and legislative developments at the national level that may lower the capital adequacy of banks (changes in debtor rights and the conversion of foreign currency loans into local currency against a discount). In addition, in May 2017, the Mandatory Minimum Reserves in foreign currency were lowered from 10% to 8%.
What do you believe to be the biggest threat to the success of the financial sector ?
The biggest threat for the financial sector success is the unpredictability and continuous changing legislative framework, retroactive law application and poor fiscal policy.