Non-bank financial institutions

7 April 2006 (Invest Romania

Aimed at controlling the consumers’ overindebtedness, having also as background the maturity and need to establish an appropriate regulatory framework for the financial market, the Government has passed the Ordinance no. 28/2006 concerning financial measures (GO no 28/2006). The new enactment indirectly restricts the access to non-bank credit, by proposing certain mechanisms designed to control the crediting through non-bank institutions.

The provisions of GO no. 28/2006 concern the Romanian legal entities involved in professional credit activities like the financing of commercial transactions, factoring or discount operations or issuance of guarantees, as well as the leasing companies and pawnshops, collectively designated as non-bank financial institutions (IFN).

The authority vested with the coordination of this policy is the National Bank of Romania (BNR), as the IFNs are placed under its enlarged area of competence and forced to comply with special monitoring and prudential supervision. Moreover, BNR will be solely competent to decide on a case by case basis whether specific activities performed by legal entities fall within the scope of GO no. 28/2006.

According to the new enactment, all IFNs should be registered with the special register kept by BNR. As such, companies set up prior to the coming into force of GO no 28/2006 shall have certain reporting obligations towards BNR, whereas IFNs established subsequent to this date shall notify BNR within 30 days as of their registration with the Trade Register.

One of the main requirements brought on by GO no. 28/2006 is the setting up of a minimum threshold for the share capital of IFNs at the RON equivalent of EUR 200,000. The minimum share capital of such companies shall be fully paid up in cash upon its subscription, with the exclusion of any in-kind contributions both at the time of the company’s setting-up, as well as in case of subsequent share capital increases.

Moreover, all IFNs must be set up or reorganized, as the case may be, in the form of joint stock companies, having as sole scope of business the performance of credit activities.

As regards the managers of the non-bank financial companies, these should comply with specific honorability, experience and professional background conditions. The IFNs shall be obliged to provide BNR with detailed information concerning the significant shareholders and the corresponding group structures, as the case may be. Furthermore, BNR is authorized to request any information with respect to any entity which is a party to such groups.

Among the instruments aimed at controlling the credit activity, as proposed by the new enactment, it is included the IFNs’ obligation to comply with certain prudential requirements concerning, inter alia, the exposure to a sole debtor, the aggregate exposure, the exposure to persons in special relationships with the non-bank financial institutions, or the setting up and use of risk provisions. As such, the IFNs are required to elaborate internal rules and to transmit such rules to BNR within 5 days as of the beginning of their activity.

GO no. 28/2006 also provides for certain restrictions applicable to IFNs, such as the collection and opening of deposit accounts or other redeemable funds from the public, the issuance of bonds or the entering of their own shares as collaterals for debts.

It is of note that as regards the non-bank financial companies set up prior to the coming into force of the GO no. 28/2006, the enactment refers to a 6-month period as the date of its coming into force (i.e. February 3rd, 2006) as deadline to insure the compliance with the new requirements.

As a final comment, the actual impact of the GO no 28/2006 implementation, as well as the consequences of IFNs compliance with the new regulatory framework may be determined clearly only after the coming into force of the secondary legislation which BNR is expected to issue for the proper application of this enactment.



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