PREAH REACH KRAM

NS/RKM/1199/13

Preahbath Samdech Preah Norodom Sihanouk Reach Harivong Uphatosucheat
Visothipong Akamohaborasratanak Nikarodom Thammikmohareacheathireach
Boromaneat Boromabopit Preah Chau Krong Kampuchea Thipdey

Referring to the 1993 Constitution of the Kingdom of Cambodia;
Referring to Kram No. NS/RKM/0399/01 of March 8, 1999 on the Amendment of the Articles 11, 12, 13, 18, 22, 24, 28, 30, 34, 51, 78, 90, 91, and 93 and Articles of Chapters VIII to XIV of the Constitution of the Kingdom of Cambodia,
Referring to Reach Kret NS/RKT/1198/72 of November 30, 1998 on the formation of the Royal Government of Cambodia;
Referring to Reach Kram No. 02/NS/94 of July 20, 1994 promulgating the Law on the Organization and Functioning of the Council of Ministers;
Referring to Kram No. NS/RKM/0196/27 of January 26, 1996 promulgating the Law on the Organization and Functioning of the National Bank of Cambodia;
Pursuant to the request by the Prime Minister and the Governor of the National Bank of Cambodia.

HEREBY PROMULGATE

The Law on Banking and Financial Institutions as ratified by the National Assembly on October 19, 1999 during the third plenary session of the second legislature, and where the Senate did not have sufficient time to review the new article 113 of the Constitution and where the Constitutional Council has declared it to be in conformity with the Constitution on November 3, 1999, and whose meaning are as follow:

LAW ON BANKING AND FINANCIAL INSTITUTIONS

CHAPTER 1
Banking and Financial Intermediation

Article 1: Banks are legal entities licensed to carry out banking operations as their regular business.

Article 2: Banking operations include:

1. credit operations for valuable consideration, including, leasing, guarantees and commitments under signature;

2. the collection of non‑earmarked deposits from the public;

3. the provision of means of Payment to customers and the processing of said means of payment in national currency or foreign exchange.

Any entity carrying out even one of these three types of activities shall be considered de facto to be engaged in banking.

An entity carrying out only one of these three basic activities, or only one component of each of these three basic activities, shall be known as a "specialized bank".

Article 3: Banks may also, for their customers or on their own behalf, perform or carry out:

1. all the financial operations referred to in Article 4 below, except insurance services which are the subject of a specific legislation;

2. foreign exchange operations;

3. money market intermediation, and all operations in negotiable claims on said market;

4. transactions in derivatives;

5. spot or forward dealing in precious metals, raw materials and commodities; and

6. other services related to their core activities, subject to the agreement of the supervisory authority.

Article 4: Banks as defined above may, on their own behalf and for their customers, either directly or indirectly by participating in one or more specialized institutions, carry out securities transactions which constitute financial intermediation, such as:

1. taking deposits for the purpose of subscribing or purchasing securities, pursuant to instructions received from individual customers or from open‑end investment companies;

2. subscribing in and trading securities;

3. custody of securities;

4. individual or collective management of securities;

5. underwriting of securities upon their issuance;

6. financial engineering;

7. trading in derivatives; and

8. all manner of securities transactions on their own behalf, in their capacity as commercial companies and in compliance with the laws and regulations in force.

Article 5: Other specialized financial institutions may also carry out the same securities transactions for their customers.

Article 6: The National Bank of Cambodia has the power to license and supervise the specialized financial institutions in accordance with the provisions of Article 7, Paragraphs 4 and 11, and Article 33 of 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

However, securities transactions, whether carried out by the banks and by the specialized financial institutions, shall also be subject to the supervision of a special Commission, which shall ensure that savings invested in securities are protected through compliance with securities issuance conditions and with securities disclosure requirements.

The composition and functioning of this Commission shall be determined by the laws and regulations governing the financial market.

Article 7: Owing to the risks that may result from a combination of securities activities within banks or within specialized financial institutions, such as the receipt of earmarked deposits and the custody and the management of securities portfolios, the supervisory authorities of the banking system and of the financial system, acting in concert either at the time of initial licensing or by regulation, shall establish rules for regulating combination of such securities activities.

Article 8: The operations related to the banking business referred to in Article 3, Paragraphs 2, 3, 4 and 5 of this law, and carried out for customers by entities other than banks, shall comply with the rules established by the supervisory authority.

CHAPTER 2

Scope

Article 9:

1. The banking and financial institutions defined in Chapter 1, and hereinafter referred to as covered entities, shall be subject to the provisions of this law.

2. No person other than a covered entity may carry out banking operations on a regular basis.

3. No person other than a covered entity may make use of a business name, corporate name, advertising or, in general, any expression implying that it is an institution authorized to carry out an activity subject to authorizations in accordance with the provisions of this law.

Article 10: Covered entities shall comply either with the provisions of ordinary commercial law or with the provisions of the special legislation applicable to noncommercial companies, as well as with the provisions of this law.

In case of conflict, this law shall prevail.

CHAPTER 3

Legal Form of Covered Entities

Article 11: A covered entity shall be incorporated either as a public company under commercial law or as a cooperative or a mutual noncommercial society subject to special statute.

Cooperatives or mutual societies shall belong to a common federative body called a "central body".

Central bodies shall be responsible for ensuring cohesion among the entities affiliated with their network as well as the smooth functioning thereof. To this end, they shall take all necessary measures, in particular to safeguard the liquidity and solvency of each of these institutions and of the network as a whole.

The central bodies themselves are considered as covered entities.

Article 12: A covered entity may be locally incorporated in Cambodia or be a branch of a foreign bank.

Article 13: With prior approval of the supervisory authority, a foreign bank may open an information, liaison or representative office in the Kingdom of Cambodia, which office shall not be entitled to carry out banking operations or financial intermediation and canvassing operations.

Such establishments may be locally incorporated or be a simple entity, a delegate person, or an office, and shall be so entered in the Commerce Registry.

Such offices may use the business name of the foreign bank they represent.

An authorisation is given for a period of two years, which may be renewed once only.

CHAPTER 4

Licensing of Covered Entities

Article 14: Before starting business, covered entities must obtain a license from the supervisory authority.

Before issuing a license, the supervisory authority shall ensure:

1. the qualifications of the shareholders and the accuracy of their reported financial position;

2. the ability of the principal shareholders to fulfill, jointly and severally, their obligation to strengthen the bank's own funds if required to do so in accordance with the provisions of Article 27 of this law;

3. the adequacy of human, technical, and financial resources for the planned activities.

The supervisory authority shall be aware of the reciprocity offered by other countries when the shareholders of a locally incorporated bank or the head offices of branches of foreign banks are from said countries.

Article 15: The supervisory authority shall reach a decision within six months of receiving the application together with all relevant documents. Applicants shall be notified of any refusal of authorization.

The supervisory authority shall maintain a current list of licensed institutions, which shall be published in the Bulletin of the National Bank of Cambodia and in the Official Gazette of the Kingdom of Cambodia.

CHAPTER 5

Minimum Capital - Solvency

Article 16:

1. Before obtaining a license, a covered entity that is locally incorporated as a company or a noncommercial entity, whatever its legal form, must have fully paid‑up initial capital at least equal to a sum fixed by the supervisory authority.

2. Before obtaining a license, a branch of a foreign bank must have a fully paid‑up capital endowment at least equal to the minimum capital of a covered entity locally incorporated as a company.

3. The minimum capital shall be fixed by a regulation issued by the National Bank of Cambodia. A portion of the minimum capital, equal to a percentage prescribed by a regulation issued by the National Bank of Cambodia, shall be permanently deposited with the National Bank of Cambodia as a guarantee deposit.

The minimum capital of commercial banks shall amount at least to Riel 50 billion.

Said amount has been determined on the basis of SDR = Riel 5,616.

The guarantee deposit maintained with the National Bank of Cambodia shall amount at least to five percent of the minimum capital.

4. A covered entity that is either locally incorporated or operating as a branch of a foreign bank, must at all times be able to prove that its assets minus related potential losses and intangibles exceed its liabilities to third parties by an amount at least equal to the minimum capital.

Article 17: Covered entities must also observe a solvency ratio, the level of which shall be fixed by the supervisory authority in compliance with international standards. The ratio shall be calculated as a proportion of the covered entity's net worth in relation to its risks.

CHAPTER 6

Capacity of Directors and Managers

Article 18: No one may be member of a board of directors or supervisory board of a licensed entity, or, either directly or through an intermediary, direct, manage or run a licensed entity in any capacity, or be authorized to sign on behalf of such an institution if he:

1. has been convicted of:

a crime;
theft, fraud or breach of trust;
misappropriation when acting as a public depository;
extortion of funds or securities, criminal bankruptcy, injury to the credit of the State, or breach of exchange control regulations;
usury;
money laundering;
forgery and/or the use of forgeries;

2. has been sentenced to a period of imprisonment for issuing bad checks;

3. has been convicted by a foreign court of law of one of the crimes, or offenses listed in Paragraphs 1 and 2 above;

4. has been declared in Cambodia or abroad for personal bankruptcy, receivership, or liquidation of assets;

5. has been relieved of his duties as a law official by virtue of a court ruling;

6. has been involved in a personal capacity in the management of a covered entity whose license has been withdrawn following a disciplinary action.

CHAPTER 7

Composition, Permanent Identification, and Responsibilities of Partners in
Covered Entities Constituted as Noncommercial Societies

Article 19: The conditions applicable to setting up the capital, variable or non variable, of the covered entities constituted as noncommercial societies, plus the permanent identification of members or holders of stocks, shall be defined in the special act applicable to cooperative or mutual societies.

In compliance with the provisions of Articles 11 and 14‑2 of this law, the central body shall be responsible for guaranteeing the solvency and liquidity of each network vis-à-vis third parties, depositors and creditors.

CHAPTER 8

Composition, Permanent Identification, and Responsibilities of Shareholders in Locally
Incorporated Covered Entities

Article 20: The shareholders of locally incorporated covered entities may be individuals or, under conditions fixed by the supervisory authority, legal persons whose own shareholders must be clearly identified.

The supervisory authority shall particularly avoid situations where there are chains of shareholding companies, each of them holding shares in the others.

Article 21: A holding company which holds as subsidiaries, exclusively or principally, one covered entity or more, shall itself be deemed a covered entity, particularly as regards its licensing approval and submission to the supervisory authority.

Article 22: A covered entity applying for a license must inform the supervisory authority of the identity of its shareholders who directly or indirectly hold 5 percent or more of its capital or voting rights.

Article 23: Any shareholder, or any group of shareholders acting in concert, shall, directly or through the concerned covered entity, notify to the supervisory authority of any increasing in or transfer of direct or indirect equity holdings in a covered entity which would enable this shareholder or group of shareholders to acquire or to lose 5 percent of the covered entity's capital or voting rights.

Article 24.

1. Any shareholder, or any group of shareholders acting in concert, shall, directly or through the concerned covered entity, obtain the prior authorization of the supervisory authority for taking on or disposing of equity holdings that would directly or indirectly enable this shareholder or group of shareholders to:

a. acquire or to lose a half, a third, a fifth, or one tenth of the capital or voting nights of the covered entity;

b. acquire or to lose the power of control over the management of the covered entity.

2. The covered entity shall be held accountable for completing the notification and authorization request formalities.

If the formalities have not been observed, the vote of the concerned shareholders in the general meeting shall automatically be invalidated, without prejudice to other penalties applicable to such a case.

Article 25: Unless otherwise stipulated by ordinary commercial law, the minimum number of shareholders and the level of each stake in the share capital of a covered entity shall not be restricted. However, while examining an application for license, and when scrutinizing a notification or application for authorization to step across a regulatory threshold, the supervisory authority shall, on one hand, look to the presence of one or more influential shareholders, and, on the other hand, shall avoid either the extreme concentration or the excessively wide dispersal of shareholdings. However, a high concentration can be accepted if the concerned shareholder is a foreign bank of high standing.

Article 26: For the purposes of this law, a shareholder shall be deemed to be influential from the moment that he directly or indirectly holds at least 20 percent of the share capital or voting rights, or if he holds de facto decision making power as a consequence, inter alias, of widely dispersed shareholding.

Article 27: If the financial position of a covered entity so warrants, the supervisory authority shall enjoin the influential shareholders, jointly and severally, to increase the net worth until the solvency standards are met.

If they refuse to comply, the concerned influential shareholders shall be liable to penalties provided in Article 55‑2 below, without prejudice, in case of voluntary liquidation, to actions in meeting disputed liabilities as opposed by creditors or depositors.

CHAPTER 9

Composition, Permanent Identification and Responsibilities of Shareholders of the Parent
Company of a Covered Entity Constituted as a Branch of a Foreign Bank

Article 28: A branch of a foreign bank or foreign financial institution licensed to carry on banking or financial activities in Cambodia shall inform the supervisory authority of any change in the composition of the influential shareholding of its parent company, as soon as such a change arises.

Article 29: The supervisory authority may call into question the validity of the license previously granted to a branch, if changes referred to in Article 28 above are likely to weaken the financial position or the accountability of the parent company abroad.

Article 30: If a branch does not abide by prudential regulations, the supervisory authority shall invite its parent Company abroad to reconstitute its capital endowment as mentioned in Article 16‑2 of this law or to modify the distribution of assets.

Article 31: In case of voluntary liquidation of the parent Company abroad, all assets of the foreign branch in Cambodia are earmarked, on a priority basis, for repayment of resident customers, whether they are depositors of securities, gold, or cash, or whether they are creditors, as far as their rights to the assets of the branch at the time of liquidation have been acknowledged by the liquidator of the branch.