CHAPTER 10

Equity Participations by Covered Entities in the Capital
of Other Commercial Companies

 

Article 32:    For the purposes of this law, holdings shall be regarded as equity participations when they directly or indirectly confer on a covered entity at least 10 percent of the capital or voting rights; of another Company. 

Article 33:    A covered entity may hold equity participations, which must at no time exceed either of the following two limits:

  1. as regards each equity participation, 15 percent of the amount of the own funds of a covered entity;

  2. as regards total equity participations, 60 percent of the amount of the own funds of a covered entity.

Article 34:    The following shall not be subject to the individual and overall limits laid down in Article 33 of this law:

  1. equity participations in industrial, real estate, or commercial undertakings whose activities are linked to the running of a covered entity;

  2. equity participations in banking or financial institutions, with the prior approval of the supervisory authority;

  3. companies engaged in agricultural activities.

Article 35:    For the purposes of Article 34‑2 of this law, the following shall be regarded as banking or financial:

  1. covered entities;

  2. financial companies, including those engaging in the activities referred to in Article 8 of this law;

  3. undertakings engaging in banking or financial operations abroad as their regular business;

  4. insurance companies.

Article 36:     Whenever a shareholder of a covered entity is a banking or a financial, institution, or whenever a covered entity itself has a stake in a banking or a financial institution, the supervisory authority shall require for the calculation of a covered entity's net worth on which prudential ratios are based:

  • either the deduction of the participations held by the covered entity in other banking or financial, institutions;

  • or the prior consolidation of balance sheets of companies of the group whenever relevant upstream or downstream holdings reach at least 20 percent of the capital of related companies.

Article 37:    Any acquisition of holdings by a covered entity in the capital of an industrial or a commercial undertaking registered abroad shall be subject to the prior approval of the supervisory authority.
 

CHAPTER 11

Establishment Abroad or in Cambodia
 

Article 38:    Any acquisition of holdings by a covered entity in the capital of a bank or financial institution abroad, as well as any opening of a branch or representative office abroad, shall be subject to the prior approval of the supervisory authority. 

Article 39:    The opening of a branch in Cambodia by a covered entity shall be subject to the prior approval of the supervisory authority. 

Acquisitions of holdings by a covered entity in the capital of another covered entity are governed by the provisions of Articles 19 - 27 as well as Articles 33 - 35 of this law.
 

CHAPTER 12

Supervisory Authority and Regulatory Power
 

Article 40:    The Central Bank supervises the banking system and its related activities such as the money market the interbank settlement system, and financial intermediation. 

To this end the Central Bank shall:

1.   issue licenses and define the licensing process;

2.   prepare and keep up to date a list of licensed banks which shall be published in the Official Gazette of the Kingdom      of Cambodia and in the Bulletin of the National Bank of Cambodia;

3.   be empowered to issue regulations for the implementation of this law which authorise the Central Bank to determine,      in particular the:

a)   amount of minimum capital and the nature of the assets it is backed with;

b)   prudential ratios regarding particularly liquidity, solvency, risk diversification, foreign exchange exposure, and market       risk exposure;

c)   valuation rules for accounting balances;

d)   conditions under which participations can be taken and held in the capital of a covered entity or a financial                institution;

e)   conditions under which participations can be taken and held in the capital of other banking or financial companies;

f)    debts which must be regarded as doubtful, and the provisioning thereof;

g)   the chart of accounts, the related accounting standards, the rules for the consolidation of accounts, and the rules of the disclosure of accounting statements;

h)   conditions applicable to the banking and financial operations that may be carried out in their relations with customers;

i)    organization of interbank joint services, including the centralization of financial information, risks, and overdue debts;

j)    granting of individual, exceptional, and temporary exemptions;

k)   requirements and authorization rules concerning modifications in the business name, legal form, capital distribution, management and activities of a covered entity, or of the head office in the case of a branch of a foreign bank;

l)    practice of door‑to‑door selling of banking or financial services;

m)  after consultation with the covered entities' professional association, the rules governing the operation of a deposit guarantee system;

n)   and, generally speaking, the modalities for enforcing this law in light of the differences concerning the legal form of covered entities, the scope of their network, and the nature of their activities. 

4.   it publishes all regulations issued by virtue of its authority in the Official Gazette of the Kingdom of Cambodia and in       the Bulletin of National Bank of Cambodia; 

5.   it supervises the banking system through permanent off‑site monitoring and periodic on‑site examinations of each covered entity; if the need arises, on‑site examinations may be extended to a subsidiary of a covered entity or to any other related entities, including shareholders; 

6.   it organises or supervises any interbank settlement system; 

7.   it may require that covered entities, public offices, auditors, and any other individual or legal entity disclose information considered as useful for its mission; 

8.   and it may, in accordance with the conditions defined in Articles 52 to 54 of this law, take disciplinary action. 

Article 41: The supervisory authority's duty consists:

1.   in licensing covered entities to carry out financial and banking operations in Cambodia;

2.   in defining and enforcing prudential rules related to the financial structure and management that covered entities must abide by;

3.   in supervising, permanently but after the fact, through both off‑site and on‑site examinations, the financial position and functioning of covered entities;

4.   in imposing disciplinary sanctions against covered entities failing to comply with laws and regulations;

5.   in referring to the courts if failure to observe laws and regulations undermines the public interest. 

Managers and shareholders of the covered entities are accountable for errors of strategy, for mistakes in and errors of management, and for deficiencies in internal control, in accordance with the provisions of Articles 14, 19, 27 and 30 of this law. 

CHAPTER 13

Prudential Measures - Internal control
 

Article 42:    A covered entity shall, under the conditions prescribed by the supervisory authority, abide not only by the monetary policy rules defined in the Law on the Organization and Functioning of the National Bank of Cambodia as promulgated by Kram No. NS/RKM/0196/27 of January 26, 1996, but also the management standards aimed at safeguarding its liquidity and solvency vis‑à‑vis depositors and, more generally, as regards third parties, as well as the equilibrium of its financial structure. 

In calculating the net worth of a covered entity on which prudential norms are based, the supervisory authority must deduct not only any intangible or worthless asset recorded in the balance sheet, but also any equity participation in a banking or financial institution, as well as credits and loans of whatever nature or maturity granted to shareholders or other commitments to shareholders under regulatory conditions. 

Article 43:   Under conditions prescribed by the supervisory authority, a covered entity must have an internal control system aiming particularly at:

1.   verifying that the operations carried out by a covered entity, as well as the organization and internal procedures, comply with the laws and regulations in force, professional and ethical standards and practices, and the policy of the executive body;

2.   verifying that the limits laid down for risks, in particular counterpart, exchange‑rate, interest‑rate and other market risks, are strictly observed;

3.   monitoring the quality of accounting and financial information, in particular the arrangements whereby this information is recorded, preserved, made available, and disclosed internally and externally. 

CHAPTER 14

Accounting Obligations - External Auditors' Duties
 

Article 44:    The provisions of ordinary commercial law or of the legal statute of noncommercial societies concerning the closing and auditing of accounts as well as certification of annual individual accounts shall apply to a covered entity under the conditions prescribed by the supervisory authority. 

Article 45:    A covered entity shall prepare, publish and if need be consolidate its accounts under the conditions prescribed by the supervisory authority. 

A covered entity shall also periodically submit to the supervisory authority accounting statements and reports showing evidence of enforcement of legal, regulatory and prudential requirements. 

Article 46:    No external auditor may audit a covered entity without prior authorisation of the supervisory authority. 

Before certifying the accounting statements, auditors must be satisfied of the fairness and truth of the annual accounting information reflected in the balance sheet and off‑balance sheet items, income statement, and appended statements; intended for publication or submission to the supervisory authority. 

Auditors shall inform the court if they notice that a covered entity has violated legal or regulatory provisions, in a manner likely to undermine the public interest. 

At the close of their audit, auditors shall prepare and submit to the supervisory authority a report summarizing their findings, in particular:

1.   payment of capital;

2.   valuation methods of account balances;

3.   consolidation methods;

4.   financial, position of the covered entity;

5.   agreements that may have been concluded, directly or indirectly, during the accounting year between the covered entity and its shareholders or its directors. 

The supervisory authority may request from auditors any information about the activity or financial position of a covered entity. 

Furthermore, the supervisory authority may forward to auditors its remarks or requests for explanations, to which auditors shall reply in writing.
 

CHAPTER 15

Professional Secrecy
 

Article 47:     No person who participates in any capacity in the administration, direction, management, internal control, or external audit of a covered entity, and no employee of the latter, may provide to any person any confidential information pertaining to statements, facts, acts, figures or the contents of accounting or administrative documents of which he might have become aware through his functions. 

Any person who fails to observe this obligation of professional secrecy shall be liable to the sanctions laid down in Article 55 of this law. 

However, the obligation of professional secrecy may not be used as a ground for nondisclosure vis-à-vis the supervisory authority, auditors, provisional administrators, liquidators, or a court dealing with criminal proceedings.
 

CHAPTER 16

Related Parties
 

Article 48:     Without prejudice to the provisions of Article 42 of this law concerning the calculation of net worth, any credit granted to a related party by a covered entity shall be subject to a regulation issued by the supervisory authority so that the extent of such credit shall be limited and known permanently. 

Article 49:     For the purposes of this law, related parties to a covered entity are defined as follows:

  1. any person holding directly or indirectly at least 10 percent of the capital or voting nights;

  2. any company of which the covered entity directly or indirectly holds at least 10 percent of the capital or voting rights;

  3. any individual, who participates in the administration, direction, management or internal control;

  4. and the external auditors.

Article 50:     The supervisory authority may require a covered entity to consider in a same way loans granted to beneficiaries regarded as related parties because of their kinship or their financial links with persons referred to in Article 49 of this law, or beneficiaries who, despite being under the shareholding threshold fixed in Article 49, would have a significant management power owing to a wide dispersion of capital shareholding.
 

CHAPTER 17

Money Laundering
 

Article 51:    In addition to the specific legal provisions that it must observe regarding money laundering, a covered entity shall take appropriate measures to identify precisely all its customers and, above a threshold to be defined by the supervisory authority, the transactions carried out through them, and shall keep all relevant documentation thereon for at least ten years. 

CHAPTER 18

Disciplinary Sanctions
 

Article 52:    If a covered entity has contravened a provision of the laws or regulations governing its activities, has failed to heed a warning or not complied with an injunction, the supervisory authority may impose one of the following disciplinary sanctions:

  • caution;

  • reprimand;

  • prohibition on the execution of certain operations and any other limitations on the carrying on of business;

  • temporary suspension of one or more of the executives, with or without appointment of a provisional administrator;

  • compulsory resignation of one or more of the executives, with or without appointment of a provisional administrator;

  • setting up a provisional administration;

  • withdrawal of the license and liquidation.

Furthermore, the supervisory authority may, either in place of or in addition to these sanctions, impose a fine not exceeding the minimum capital of the covered entity. 

Article 53:    The appointment of a provisional administrator or of a liquidator is an urgent administrative and protective measure. The covered entity concerned must be given notice of the measure, which is enforceable immediately. 

Article 54:    The supervisory authority decides as a last resort jurisdiction in the case of the other disciplinary sanctions, which are of a moral or a financial nature. These decisions are enforceable immediately but may be appealed to the highest administrative jurisdiction on the grounds of legal flaw or irregularity.
 

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