Memorandum of Understanding between the Central Bank of the Russian Federation and the Financial and Capital Market Commission of the Republic of Latvia concerning the Cooperation in the field of Banking Supervision

MEMORANDUM OF UNDERSTANDING
between the Central Bank of the Russian Federation and the Financial and Capital Market Commission of the Republic of Latvia concerning the Cooperation in the field of Banking Supervision

The Central Bank of the Russian Federation and the Financial and Capital Market Commission of the Republic of Latvia, both hereinafter also referred to as the "Supervisory Bodies", agree to base their cooperation in the field of cross-border banking supervision in both countries on the principles and procedures laid down in this Memorandum of Understanding (Memorandum).

1.1. The "Supervisory Bodies" are the Central Bank of the Russian Federation (the Bank of Russia) and the Financial and Capital Market Commission of the Republic of Latvia;

1.2.1. In the Russian Federation is an entity which carries on banking business (general or specialised) and whose activities are subject to licensing and banking supervision;

1.2.2. In the Republic of Latvia is a company that has been established to accept deposits and other repayable funds from the public, and to grant loans on its own behalf as well as provide other financial services.

In the event of any discrepancy between these two different meanings of the term "Credit institution", each Supervisory Body shall comply with the national legislative acts.

1.3. "Supervisory information" is the information received or obtained by the Supervisory Bodies in the process of fulfilling their supervisory functions, as well as through the exchange of information or through the conduct of on-site inspections in accordance with this Memorandum, the national legislation and the international obligations of each Supervisory Body;

1.4. A "branch of a credit institution" is a structural unit of a credit institution that has been territorially or otherwise separated, does not have the status of legal person and operates on behalf of the credit institution;

1.5. A "subsidiary credit institution" (a subsidiary) is a legally independent entity, wholly or mostly owned by a credit institution;

1.6. A "representative office" is an office through which the interests of a credit institution are promoted or assisted but at which no banking business is carried out;

1.7. "Home country" is the country of incorporation of a credit institution that has set up a branch or a subsidiary or a representative office in the other country;

1.8. "Host country" is a country, in the territory of which a subsidiary of a foreign bank and a credit institution with participation of a foreign bank are registered, a branch or a representative office is opened.

The Central Bank of Russian Federation (Bank of Russia) undertakes regulation and supervision of credit institutions.

The Bank of Russia is independent in its activities from the state authorities. Functions of the Bank of Russia as the regulative and supervisory body are determined by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)".

The Financial and Capital Market Commission (the Commission) enjoys full rights of an autonomous public institution and, in compliance with its goals and objectives, regulates and monitors the functioning of the financial and capital market and its participants. The Commission makes decisions within the limits of its authority, executes functions assigned to it by law, and is responsible for their execution. The Commission supervises and inspects credit institutions (banks and branches of foreign banks) entitled to offer financial services in the Republic of Latvia.

3.1. The Supervisory Bodies declare their willingness for cooperation, including exchange of information in order to strengthen and support the effectiveness and efficiency of prudential supervision of credit institutions in the respective country.

3.2. Cooperation within the framework of this Memorandum shall be implemented at the initiative or on the basis of requests for assistance in banking supervision from either Supervisory Body.

3.3. A request for assistance shall be made in writing. Contemporary means of telecommunication may be used to transmit such a request.

3.4. A request for assistance within the framework of this Memorandum may be denied wholly or partially, if the requested Supervisory Body believes that the fulfilment of the request will run counter to the legislation of its country or that it may be contrary to the public good of its country. In that event, the requesting Supervisory Body shall be notified of the denial and given the reasons for it in writing.

3.5. The Supervisory Bodies shall take all necessary measures to provide a prompt and, as far as possible, full reply to such requests. They shall also notify one another of the circumstances preventing or delaying the fulfilment of a request for assistance.

3.6. Each Supervisory Body shall independently bear the expenses related to the implementation of this Memorandum, unless a different procedure is agreed upon.

4.1. The exchange of information between the Supervisory Bodies is subject to conditions of confidentiality as stipulated in laws and regulations of both countries.

4.2. In the Russian Federation the procedure of information exchange with foreign supervisory authorities, including the issues of confidential information protection, are regulated by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)".

In the Republic of Latvia this issue is regulated by the Law on the Financial and Capital Market Commission.

4.3. The Supervisory Bodies undertake to observe confidentiality in their co-operation and in the field of information exchange.

Information divulged under the terms of this Memorandum may not be disclosed without the explicit prior written consent of the Supervisory Body disclosing it and it may be used only for the purposes agreed upon by the Supervisory Bodies, except in cases where such information may be subject to a legally enforceable demand to disclose it that is stipulated by laws of both countries.

Such information includes any information concerning the activities of the Supervisory Bodies themselves, as well as the information obtained by the Supervisory Bodies during the process of supervision.

4.4. Information received from either Supervisory Body may be used for supervisory purposes only and shall be disclosed solely to the duly authorized employees of the Supervisory Bodies.

The obligation to observe secrecy applies to all those who, as a result of this Memorandum, receive confidential information, including employees of either Supervisory Body, their management staff and Members of the Governing bodies, as well as legal advisers, accountants, and experts employed by or on behalf of either Supervisory Body. The obligation to observe secrecy remains in effect after the cessation of employment.

In the Russian Federation foreign credit institutions can participate in the authorized capital of credit institutions, including the establishment of subsidiary credit institutions which should be licensed in accordance with the legislative requirements of the Russian Federation, and they can also open representative offices

A credit institution in the Republic of Latvia shall operate as a bank or as a branch of a foreign bank. Credit institutions shall only be entitled to start their activity after they have received a licence (permit) issued by the Commission and have been registered in due course of law. The Commission shall specify the procedure for granting licences (permits) to credit institutions and shall establish restrictions on banking activities.

The Supervisory Bodies will co-operate in supervising credit institutions as follows:

6.1.1. If a credit institution incorporated in one of the countries applies to the Supervisory Body of the other country for a license (permission) to open a branch, a subsidiary or a representative office, or for another form of participation in the capital of a credit institution in the host country, the other Supervisory Body shall consider such application within the time-limits and in accordance with the procedures established by its national banking legislation or regulations.

6.1.2. The Supervisory Body receiving an application, as referred to in Article 6.1.1 hereof, shall notify the other Supervisory Body of the details of such an application and obtain the other Supervisory Body's outward authorisation as provided by the rules established by the national legislation. The Supervisory Body receiving this application may request the other Supervisory Body to provide additional information necessary to make a decision, including information on the candidates for the management of a subsidiary or the head of a branch (a representative office) of a credit institution.

6.1.3. A Supervisory Body shall notify the other Supervisory Body in writing of its decision regarding granting of a license (permission) to a credit institution, which has applied to it as provided in 6.1.1 hereof, to open a branch, a subsidiary or a representative office.

6.2. In exercising off-site supervision: through collecting information and examining and analyzing financial and statistical reports submitted by branches, subsidiaries or representative offices set up in one country by credit institutions incorporated in the other country.

6.2.1. The Supervisory Body of the host country shall exercise off-site supervision over the activities of branches, representative offices, if applicable, and subsidiaries in accordance with its national legislation and/or regulations.

6.2.2. The Supervisory Body of the host country shall not prevent the entities referred to in Article 6.2.1 from submitting information and other reports to their Head Offices or parent institutions necessary to implement consolidated supervision and compile consolidated financial statements in accordance with national legislation and/or regulations of the home country.

6.2.3. The Supervisory Body of the home country with regard to parent institutions and the Supervisory Body of the host country with regard to subsidiaries, branches and representative offices shall, on a mutual basis, provide the necessary supervisory information in accordance with their national legislation.

6.3. In connection with the supervision of credit institutions incorporated in one country which have branches, subsidiaries or representative offices in the other country, the Supervisory Bodies agree to, on a reciprocal basis, provide supervisory information concerning any substantial changes pertaining to the credit institutions referred to above, such as restrictions of the range of permitted banking operations, suspension or modification or revocation of a license, appointment of external regulative bodies in accordance with the national legislation and re-organization or liquidation of any such credit institution.

Should it become necessary for the Supervisory Bodies to conduct on-site inspections:

6.4.1. The Supervisory Body of the home country shall notify the Supervisory Body of the host country of its intention to inspect a branch, a subsidiary or a representative office. The Supervisory Body of the host country shall, without unreasonable delay, express readiness to, at the request of the other Supervisory Body, provide any available supervisory information related to the smooth conduct of on-site inspections.

6.4.2. The Supervisory Body of the host country shall assist the Supervisory Body of the home country in carrying out on-site inspection, in case on-site inspections by home country Supervisory Body is not variant to the legislation of the host country.

6.4.3. Representatives of the Supervisory Body of the host country have the right to participate in on-site inspections conducted by representatives of the Supervisory Body of the home country.

7.1. Acquisition of a direct or an indirect participating interest by a legal entity or a natural person, or a group of legal entities and (or) natural persons, capable to exercise the agreed actions, in the shares of a credit institution registered in the other country, requires preliminary consultations between the Supervisory Bodies.

7.2. For the purposes of this Memorandum, a participating interest is considered to be:

a purchase of more than 20 per cent of the shares (participation) in a credit institution registered in the territory of the Russian Federation,

a purchase of more than 10 per cent of the shares (participation) in a credit institution registered in the territory of the Republic of Latvia.

The Supervisory Bodies will correspond with each other in English or Russian. As regards meetings and other occasions, the language used will be decided on a case-by-case basis.

The Supervisory Bodies agree that meetings are held, if necessary, to discuss issues related to the implementation of this Memorandum and various questions regarding the supervision of credit institutions.

Information regarding the Russian banking supervision authority, the banking system of the Russian Federation, as well as the information on laws and regulations is available at the following Web site of the Bank of Russia: www.cbr.ru.

Information regarding the Latvian banking supervision authority, its organizational structure and performed activities as well as regulatory framework (laws and regulations) for the financial and capital market and its participants in the Republic of Latvia is available at the following Web site of the Latvian banking supervision authority: www.fktk.lv.

The Supervisory Bodies do not oppose making this Memorandum publicly available at the respective Supervisory Body's Web site.

9.2. The Supervisory Bodies are aware that changes in this Memorandum will be necessary, due to the future developments of national legislation and based on the experience of supervision of credit institutions.

9.3. The Supervisory Bodies agree to delegate the powers and rights of this Memorandum to their successors, giving written notice one month prior to the enforcement of the concerned decision.

9.4. This Memorandum shall remain in force until either Supervisory Body notifies the other in writing of its intention to revise, suspend, amend or withdraw it. One-month notice of any such action will be given.

For the Central Bank of the Russian Federation		For the Financial and Capital Market Commission of the Republic of Latvia
Mr. Andrey Kozlov First Deputy Chairman		Mr. Uldis Cērps Chairman

October 24, 2002		October 24, 2002