Bank Finance and Regulation Survey PANAMA Arosemena Noriega & Contreras I. BANKS AND FINANCIAL INSTITUTIONS SUPERVISION 1) Applicable laws and regulation. Provide a list of the main laws and regulations that refer to the supervision and control of banks and financial institutions. Give a brief summary of the substance of each of them. The procedures for the establishment, operation and supervision of banking institutions in Panama are contained in Decree Law Nº 9 of 1998 ( Law 9 ) The banking legislation was enacted, inspired in the Basle Agreements, for the purpose of modernizing the banking system by perfecting the financial integration of the Panamanian economy with the rest of the world and to create the regulatory and supervisory framework necessary to guarantee the solidity, efficiency and stability of the banking rector. The regulation and operation of finance companies (compañías financieras) are contained in Law Nº 42 of 2001 ( Law 42 ). 2) Entities/Authorities in charge of the control and supervision. Purposes, powers and functions of each of them- their organization and structure (i.e. public or private, independency or body of the Government to which they belong, size, etc). Law 9 creates the Superintendency of Banks as an independent and autonomous governmental entity, headed by a superintendent, with extensive powers in regulating, supervising and inspecting banking operations and the granting of bank licenses. The Superintendency of Banks is also integrated by a Board of Directors composed of five independent members, which acts as a consulting body with the powers to establish the criteria by which licenses will be granted and the general polices that will govern the Superintendency. Law 42 contemplates that finance companies are regulated by the Directorate of Finance Companies of the Ministry of Commerce and Industries.
3) Describe briefly the activities under supervision and give a list the different types of licenses available. Pursuant to Law 9 all banking activities to and from Panama are regulated. In this regard banking is defined primarily as the act of obtaining financial resources from the public or from financial institutions through the acceptance of demand or time deposits of money through any other means authorized by the appropriate law and the use on account and risk of the bank of such resources for loans, investments or any other transactions authorized by law, the Superintendency of Banks or banking practices. There are three types of banking licenses: General License, International License and a Representation License. Pursuant to Law 42 all persons or legal entities that engage in offering loans or financial facilities in money to the public, known as finance companies are covered by said law. Law 42 also governs those companies that without using the corporate or commercial name of Finance, engage in the activities of a finance company, as defined above. The Directorate of Finance Companies issues the authorizations to operate a finance company, which must then by recorded in a special registry known as Registry of Finance Companies kept at said Directorate. In addition to the above all General License type banks and finance companies must obtain the corresponding commercial license to operate issued by the Ministry of Commerce and Industries. 4) Describe briefly non regulated financial and banking activities. Law 9 regulates all banking activities to and from Panama. Law 42 does not regulate pawn shops, furniture stores and any other person or legal entity that carry out finance operations of their own sales and the operations carried out by banks and other entities regulated by the Superintendency of Banks, by insurance and reinsurance companies, by cooperatives, mutual companies, as well as by savings and loans associations. 5) Describe briefly non-permitted financial and banking activities and/or government monopolies. Under Law 9, banks are permitted to engage in all types of legal banking activities. Finance companies are prohibited from engaging in those activities not regulated by law 42. The government owns two banks i.e., Banco Nacional and Caja de Ahorros, but there are no State monopolies. II. BANKING ACTIVITIES 6) Different types of banking licenses. Activities permitted under each of them. Activities prohibited. Pursuant to Law 9, there are three (3) types of banking licenses: 1) General License. Issued to banks organized under Panamanian law and to authorized branches of banks organized under foreign laws to engage in banking business both within and outside Panama; 2) International License. Issued to banks organized in accordance with Panamanian law and to authorized branches of banks organized under foreign laws to conduct, exclusively, from an office
established in Panama, transactions which are completed, accomplished, or are intended to take effect outside of Panama; 3) Representation License. Issued to banks organized in accordance with foreign laws to establish, exclusively, representation offices in Panama and to carry out those activities authorized by the Superintendency of Banks. 7) Procedures to be followed and requirements to be met to obtain each of the different licenses. Formalities to be fulfilled, documentation to be submitted, guaranties requested, time estimation, etc. The procedure for application of a bank license before the Superintendency comprises two stages. Nevertheless, in the case of corporations already organized or that have already qualified the procedure for application of the bank license can be affected directly in the second stage, complying, at that moment, with all the requirements. A. FIRST STAGE: Temporary Permit In order for the Superintendency to formally consider the application for a Temporary Permit it is necessary to comply with the following formalities: 1. Application A written application on stamped paper requesting a Temporary License from the Superintendency for the exclusive purpose of recording at the Public Registry those documents related to the organization or qualification of the corporation, according to Panama or foreign law that supports its organization. The application must indicate the type of License which is being requested. 2. Documentation With the application the following documents must be filed: a. Power of Attorney in favor of our law firm to file the application before the Superintendency and to take all measures in furtherance of the respective License. b. Articles of Incorporation. i. In the case of corporations to be organized according to Panama law: first draft of the minutes of the Articles of Incorporation and By-laws, if any, of the applicant. ii. In the case of corporations organized according to foreign law: Authenticated copy of the public deed containing the Articles of Incorporation and By-laws, if any, of the applicant. c. Authorization from the Board of Directors. Minutes, extract of the minutes or certification from the Secretary of the Board of Director's meeting of the applicant or from his economic promoter, containing the economic support, the authorization to carry out banking business abroad, especially in Panama, as well as the assignation or investment of the necessary capital to carry out banking operations in Panama. d. Certification from Authorities (monetary, supervisory, regulatory).
Certification issued by the authority of the country of origin of the applicant or its economic promoter certifying that it is duly registered and authorized to engage in the banking business in said country, as well as the authorization to engage in banking business in or from Panama or to establish a Representation Office. e. General Information on Shareholders, directors and officers of the applicant and of his promoter. Detailed and precise information concerning the identity, domicile, address, nationality (I.D. card and/or passport), profession and percentage participation in the capital of the shareholders of the applicant and of his promoter and his directors and officers, and their shareholding is required. When the shares of the applicant or promoter are frequently negotiated on the stock exchange, the required information will be in regard to the five shareholders with the most percentage of participation. f. Curriculum Vitae of those Responsible for the Bank. A short biography or curriculum vitae of the principal officers, directors, executives and administrative personnel that will have the responsibility for the bank, as well as banking, commercial and personal references, with indication of the source so as to confirm or request additional information. g. Personal Financial Statements. These are personal financial statements that detail the financial solvency of the directors, officers and majority shareholders or with capacity to exercise control over the bank. h. Economic Group or Financial Conglomerate. Information about the Economic Group or Financial Conglomerate of which the applicant is a part of, and/or detailing in particular a organizational chart that shows the relationship between the applicant, the companies that exercise control over the applicant and/or promoter, and any affiliate or subsidiary, relation of kinship, ownership, control or management; the directors, officers and personnel of responsibility that they maintain in common. i. Economic Group or Conglomerate Financial Activities. A brief report on the financial activities carried out by the enterprises that are part of the Economic Group or Financial Conglomerate to which they belong, including a list of jurisdictions in which said enterprises operate. j. Substantial Investments of the Applicant. A list of all the corporations in which the applicant and the subsidiaries that consolidate with it hold in it's name or jointly with others, a patrimonial investment of more than 25% of the capital or more than 10% of the respective voting rights. k. Capital. The applicant must provide evidence that he has the minimum initial capital for the bank in Panama, to wit: US$10,000,000 if he requests to a General License and US$3,000,000 if he requests an International License.
The capital destined to the subsidiary in Panama must be constituted with additional funds from the capital of the Headquarters and not as part of the same capital as that of the Headquarters. l. Distribution of Capital. Percentage of participation of the applicant or its promoter in the paid in capital of the projected establishment. m. Legal Representation. (i) In the case of banks organized according to foreign law: Names of the persons designated as General Attorneys-in-fact of the bank, who must be residents of Panama, and one of them at least must be a Panamanian citizen; (ii) In the case of banks that are to be organized according to Panama law: name of the person that will hold the legal representation of the projected bank, according to the designation in the proposed Articles of Incorporation. n. Audited Consolidated Balance Sheets. In the case of banks to be organized in Panama, the audited consolidated comparative Balance Sheets of the applicant and/or promoter group corresponding to the closing of the last two fiscal years, accompanied by interim Balance Sheets. In the case of banks organized abroad, the audited consolidated comparative Balance Sheets of the applicant and/or promoter group corresponding to the closing of the last two fiscal years, accompanied by interim Balance Sheets dated no more than sixty (60) days. The Balance Sheets to which this paragraph refers must be prepared in accordance with the International Rules of Accounting (IRA) or the principles of accounting generally accepted in the United States of America (US-GAAP). o. Registry and Authorization of the Auditors. In the case of those banks to be organized in Panama, the name of the external auditor of the establishment which will be the principal holder of the respective license, accompanied by a certification from the Technical Board of Accounting of the Ministry of Commerce and Industries of the Republic of Panama certifying that the external auditor that countersigns the Balance Sheets of the applicant and/or promoter is duly qualified to practice the profession. In the case of banks organized abroad, the name of the external auditor of the establishment which will be the principal holder of the respective license. At the discretion of the Superintendent, a certification issued by the corresponding foreign authority would be presented, stating that the external auditor that countersigns the Balance Sheets of the applicant and/or promoter is duly qualified to practice the profession. p. Publications and Reports. Annual reports and other publications containing information on the applicant's background and/or promoter, and of the Economic Group its constitution, change of
name, mergers or consolidations, turn of operations, banking establishments (subsidiaries, branches, representation offices and agencies) locally and abroad and relations with other financial institutions and, in general on the results of their management, indicators of profits, growth and risks over assets, liabilities and patrimony. q. Projected Activities to be Developed Business/Plan. Description of the plans which the applicant is to develop once the License is granted (short, medium and long term objectives) indicating the viability of the bank and of the contribution to the Panamanian economy. r. Feasibility Study or Profile. Financial projections of the applicant, projected organizational functions and expected profitability for the bank. s. Administrations of Risks. Available information on recent classifications of the applicant or promoter or of the Economic Group by Classifiers of Risks, in accordance with the internationally recognized guidelines of classification. t. Other Financial Information. In the case of branches, reports on the classification on the portfolio of assets and the structure of maturity of assets and liabilities, as well as the position of the bank or promoter in the place of origin, in accordance with the principal financial indicators (total assets, portfolio, deposits and patrimony) and the most recent classification from the supervisory authority. u. Correspondents. A list of the principal correspondents of the bank divided by geographic region. v. Any other documents, information or requirements asked for by the Superintendent. 3. Publication Within 15 days after the presentation of the application a notice must be published, in a local newspaper, during three working days, with the following information: (i) (ii) Name of the applicant of the License. Name of the Directors and Officers of the applicant. (iii) Operational background of the applicant. (iv) Names and identification numbers or passports of the directors, officers and executive personnel of the bank, with indication of the positions they hold.
4. Opposition to objections In the event that objections are presented by the public, within 15 days subsequent to the last publication dealt with in the preceding paragraph, the applicant will have the right to refute them within a period of 15 days subsequent to the notification of the objections. 5. Public Review of the Financial Statements The audited Financial Statements of the applicant are available for review by the public at the offices of the Superintendency. 6. Applicant and Foreign Promoter Groups Notwithstanding, the other requirements established in this document, the bank organized abroad and their promoter groups must have proven and recognized strength in the banking system from where they come from and meet at least the following conditions. a) The legislation of the headquarters of the bank must permit the consolidated supervision of the establishment in Panama by the Supervisory Entity of said headquarters; b) The operational structure of the banking establishment object of the application must permit the Superintendency adequate access to carry out their duties of supervision; c) The applicant or its promoter group must present an express authorization from the Supervisory Banking entity in the jurisdiction of origin of the bank in Panama, or at least a declaration of "no objection" issued by said entity; d) The applicant or it's promoter group must present a declaration from the Supervisory Banking entity of the Jurisdiction of origin, containing the willingness of said entity to sign a Memorandum of Understanding with the Superintendency, in order to facilitate the inter-institutional cooperation, the exchange of information and the on site inspection of the establishment in Panama, by their personnel; and e) The applicant or its promoter group must show that the bank that will hold the respective license maintains physical presence, administrative and substantial operations in the country of origin, as well as compliance in the requirements of capital adequacy, liquidity and other prudential rules established by the foreign legislation and/or respective Foreign Supervisory Entity. 7. Authentications and Translations All documents issued abroad must be authenticated by a Notary Public and legalized by the Panamanian Consulate in the place where they were issued. If there is no consular representation in that place, the documents shall be authenticated by the Consul of a country with which Panama maintains diplomatic relations, who shall state that he is acting as such due to the non-existence of a Panamanian consular representation in said place. Notwithstanding the above, in the event that the country issuing the documents has ratified the Hague Convention of 1961, which eliminates the legalization requirement of public foreign documents (Apostille), the documents must bear the Apostille in lieu of legalization. All documents drafted in a foreign language must be translated to Spanish, in Panama, by an Authorized Public Translator.
8. Registry Having completed the documentation and information required by the Superintendency a Temporary License will be issued to formalize in a public deed and record at the Public Registry the Articles of Incorporation of the new corporation or of the foreign corporation. The decision to grant the Temporary Permit will be taken within 90 days following the complete presentation of the application and will be valid for 90 days. Once the Temporary Permit is obtained, if the bank is to operate as a branch, the following documents must be filed at the Public Registry, for registration: a. A copy of the Articles of Incorporation and By-laws of the bank and any amendments thereto, if they exist. b. A copy of the Bank's last balance sheet, duly certified by the Treasurer of the corporation (this can be the same as referred to in paragraph n Section A, above). c. A certificate issued by the Secretary of the bank whereby said officer certifies that the Board of Directors of the corporation has resolved to establish a branch or representation office, as the case may be, in the Republic of Panama and has assigned a capital to said branch or representation office or an authenticated copy of the corresponding minutes. d. A certificate issued by the competent authorities in charge of the formation of corporations in the country of origin, certifying that the bank is a duly organized corporation and in existence according to the laws of said country. e. A certificate issued by the secretary of the bank, containing detailed and precise information concerning the domicile, address and nationality of the members of the Board of Directors and Officers of the corporation interested in obtaining the respective bank license. f. As required by article 37 of the Law 9 powers of attorney must be granted to two (2) natural persons resident in the Republic of Panama, authorizing them to represent or obligate the Bank. The law requires that, at least one of the attorneys be a Panamanian citizen. B. SECOND STAGE. Permanent License In order for the Superintendency to formally consider the application for the Permanent License, it is necessary to comply with the following formalities: 1. Application A written application on stamped paper requesting a Permanent Bank License corresponding to the type of projected operations. The application must be filed within 90 days subsequent to the issuance of the Temporary Permit, in the event said permit is granted. 2. Documentation With the application the following documents must be filed: a. Copy of the applicant's Public Deed of organization or qualification duly registered, the case may be. b. Evidence that the capital has been duly paid or assigned, in accordance with the corresponding legal requirements.
c. In the case of banks applying for an International License, a certificate issued by the National Bank of Panama certifying to the consignment of US$250,000 as a restrictive deposit under the orders of the Superintendency. d. Any additional information which the Superintendency may request. Within a period of 120 calendar days subsequent to the application for a Permanent License the Superintendency must, by means of a motivated resolution, issue or deny the License, personally notifying the application of said resolution. This period may however, be extended at the discretion of the Superintendent. Once the Permanent Bank License is granted, the bank must initiate operations within the following six (6) months after obtaining the respective license, except if the Superintendency grants an extension. 8) Legal structure admitted/requested for each of the different licenses. (a) Different types of legal structures that may be used, i.e. corporations, limited liability partnerships, branches, subsidiaries, etc. There are no limitations on the types of legal structures that may be used in applying for a bank license. Nevertheless, the most common legal entity used would be the corporation in the form of a subsidiary or a branch. (b) Capital requirements and own fund rules. The minimum paid or assigned capital for General License banks is set at US$10,000,000, and for International License banks at US$3,000,0000, of which in the case of the latter US$250,000 must be deposited with the National Bank of Panama (Banco Nacional de Panamá) or invested in bank guaranty bonds consigned in said institution. For General License banks, a minimum capital of 8% of the total prorated assets by risk, is fixed, based upon a schedule that will be determined by the Superintendency of Banks for which the pro rata schedule of the Basle Committee shall be used as reference and adopted to local requirements. The branches of foreign banks, however, will be governed by the indexes of adaptation of their country of origin. All banks that operate in Panama are subject to taxes on the net income obtained from operations in Panama, according to rates established by law. No taxes are paid on operations outside Panama (offshore), even though such operations may have been directed from an office in Panama. (c) Transfer of control and ownership regime. Is it regulated? Any transfer of control and /or ownership of the bank would have to be formally approved by the Superintendency. However, in the case of the transfer of shares within the Economic Group that implies a change of control or represents a corporative reorganization, the applicant must notify the Superintendency of Banks of said transfer with due anticipation. (d) Personal requirements and restrictions that may apply in each case for officers, directors, shareholders, etc.
There are no restrictions in general that apply to directors, officers and/or shareholders. However, in applying for a bank license the applicant must provide detailed information on the shareholders, directors and officers. (e) Special requirements/restrictions for foreigners either individuals or legal entities (including short description of WTO/GATS commitments and exemptions). There are no special requirements / restrictions for foreigners either individuals or legal entities. 9) Is there a Deposits Insurance? Is it mandatory or based on self-regulation? Provide a brief explanation of how it operates. There are no deposits insurance. 10) Interest rate. Is it regulated? Should the answer be affirmative, explain briefly its regulatory framework. Interest rates are not regulated III BANK SECRECY LAWS 11) Is clients information protected? Are there any restrictions for its use? There does exist bank reserve regulations. 12) Should answer to number 11) be affirmative, please describe the legal framework, i.e. scope, limitation, exceptions. The information obtained by the Superintendency of Banks in the exercise of its functions regarding individual customers of a bank, can only be divulged to a competent authority pursuant to present legal dispositions within the course of criminal proceedings. The Superintendency, including all its personnel and external auditors, advisers and inspectors so designated by the Superintendency are obligated to maintain reserve regarding the information provided or obtained pursuant to the Law and consequently are prohibited from revealing said information to third parties, except in the case of a competent authority pursuant to legal provisions. Those public officials that by reason of the position that they hold have access to bank information, are obligated to maintain due reserve even when they leave office. The Banks can only disclose information about their customers of their operations when consent is obtained by the customers, or when there exists a formal order by a competent legal authority. Notwithstanding, the banks have discretion to disclose information about their customers to entities that act as credit unions. 13) Sanctions (civil, administrative, or criminal) for violations. There are severe penalties for violations of the bank reserve precepts, without prejudice of the civil and criminal sanctions that may correspond.