Memoranda of understanding - Germany

The Czech National Bank (hereinafter the "CNB") and the German Bundesanstalt für Finanzdienstleistungsaufsicht (hereinafter the "BAFin"), both hereinafter referred to jointly as "the Authorities", express their willingness to co-operate on the basis of mutual trust and understanding and agree to base their co-operation in the field of banking supervision on the principles and procedures outlined in this Memorandum.

The general framework of this Memorandum is the Core Principles for Effective Banking Supervision issued by the Basle Committee on Banking Supervision in September 1997 and the provisions of Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000.

Article I

1. General issues

1. In accordance with Act No. 6/1993 Coll., on the Czech National Bank ("zákon č. 6/1993 Sb., o České národní bance"), as amended (hereinafter the "CNB Act"), and Act No. 21/1992 Coll., on Banks, ("zákon č. 21/1992 Sb., o bankách"), as amended, (hereinafter the "Act on Banks") the CNB as the central bank of the Czech Republic supervises the activities of banks, foreign bank branches and consolidated entities which include a bank having its registered office in the Czech Republic; the CNB also sees to the sound operation and purposeful development of the banking system in the Czech Republic. The CNB is not authorised to supervise on an individual basis investment firms and other financial institutions, including credit unions, established in the Czech Republic.
2. As central body in accordance with the Act on Bundesanstalt für Finanzdienstleistungsaufsicht ("FinDAG"), German Banking Act ("BA") and other special laws, the BAFin, wherein the Bundesaufsichtsamt für das Kreditwesen has been integrated in May 2002, is entrusted with the supervision of banks, investment firms, insurance companies and security trading companies in Germany. As independent superior federal authority within the purview of the Ministry of Finance, the BAFin forms a part of the direct federal administration. Exercising its sovereign functions in banking supervision, the BAFin closely co-operates with the Deutsche Bundesbank, which assists in carrying out the supervision of banks and investment firms. The BAFin and the Deutsche Bundesbank are hereinafter jointly referred to as "German banking supervisors".
3. The Authorities intend to co-operate in the supervision of cross-border establishments of banks incorporated in the respective other country and within their respective jurisdiction upon conditions set in this Memorandum to the extent allowed under the law. The scope of co-operation encompasses the licensing (issuance, change and revocation) and granting an approval for acquisition of a qualifying holding as well as the ongoing supervision of the cross-border establishments including exchange of information and on-site inspections (under conditions stipulated in Article II, sections 2, 3 and 4 hereof), be they branches or subsidiaries. The BAFin will pass on information received from the CNB to the Deutsche Bundesbank, with regard of the domestic allocation of responsibility and in accordance with the provisions of this Memorandum.

2. Definitions

For the purposes of this Memorandum, the following definitions shall apply:

1. cross-border establishment:
   a branch or a subsidiary authorised in the Czech Republic (Germany) of a (parent) bank which is authorised in Germany (the Czech Republic); or other bank authorised in the Czech Republic (Germany) in which a bank authorised in Germany (the Czech Republic) has holdings, if agreed between the Authorities;
2. branch office:
   an organisational unit of a bank incorporated in the Czech Republic (Germany) which has been granted a banking licence in Germany (the Czech Republic);
3. subsidiary:
   a bank incorporated in the Czech Republic (Germany) which is controlled by a (parent) bank incorporated in Germany (the Czech Republic);
4. home-country Authority:
   banking supervisor supervising a (parent) bank in case of a subsidiary or a head office bank in case of a branch;
5. host-country Authority:
   banking supervisor supervising a cross-border establishment.

Article II

1. Exchange of information

1. The CNB and the BAFin endorse a broad principle of exchange of information between the home and host country Authority to support and facilitate their respective supervisory tasks. The subject of exchange pertains to information on the following entities:
   1. A (parent) bank authorised in Germany (the Czech Republic) which applies for a banking licence or has cross-border establishment in the Czech Republic (Germany) and the cross-border establishments themselves;
   2. A natural person or non-banking legal entity domiciled in Germany (the Czech Republic) which applies for a licence to establish a cross-border establishment from the CNB (the BAFin) or which intended or intends to acquire a direct or indirect qualifying holding in a bank domiciled in the Czech Republic (Germany), given that CNB (BAFin) approval is required by law and that the BAFin (the CNB) has documentation on these entities.
2. In broad terms this means that there will be contact, in writing or orally, whenever the home or host country Authority considers this useful or necessary on the basis of relevant facts or developments for his own or each others supervisory purposes. The Authorities shall alert each other in good time of any event concerning a branch or subsidiary, which might jeopardise the stability of the bank as a whole. They shall inform each other of administrative penalties imposed or other actions taken on a branch or subsidiary or a bank as a whole, in so far as they are aware and the penalty or other actions can be deemed to be of material importance.
3. In addition, there will be communication between them regarding any substantial changes in their respective domestic supervisory regulations and policies.

2. Granting of licences and an approval for acquisition of a qualifying holding

1. If a bank authorised in Germany (the Czech Republic) applies to the Authority of the Czech Republic (Germany) to establish a branch or a subsidiary, the latter shall inform the home-country Authority without delay and shall consult with it before granting a licence to a cross-border establishment of the bank.
2. If a bank authorised in Germany (the Czech Republic) intends to acquire, directly or indirectly, a qualifying holding in a bank in the jurisdiction of the host-country Authority, the host-country Authority shall consult with the home-country Authority before consenting to the acquisition.
3. The home-country Authority shall provide the host-country Authority upon its request with the following information on the applying bank:
   1. the amount of own funds and the solvency ratio (if applicable both on solo and on consolidated basis);
   2. the structure of the bank's shareholders with a 10 % or more share in the equity capital or the voting rights, as well as significant changes thereto which indicate a change in control thereafter;
   3. whether the bank is fully subject to and complies with the domestic banking regulations;
   4. whether the banks management is deemed to be fit and proper; and
   5. whether it is expected in the light of the bank's administrative structure and internal control to run the cross-border establishment in an orderly and proper manner.
   The home-country Authority shall disclose any information available to the host-country Authority which might give rise to doubts as to the fit- and properness of the prospective owners and managers of the cross-border establishment.
4. If a natural person or legal entity (non-bank) domiciled in Germany (the Czech Republic) applies for a banking licence or intends to acquire, directly or indirectly, a qualifying holding in a bank in the Czech Republic (Germany), the host-country Authority shall consult with the home-country Authority to the extent possible before granting the banking licence or consenting to the acquisition. The home-country Authority shall disclose any information available to the host-country Authority which might give rise to doubts as to the fit- and properness of the prospective holders of participating interests in this bank.
5. Above-mentioned information shall be provided on the basis of a written request by the relevant Authority to the other Authority, in a good time, by way of the authorised employees of the Authorities.

3. Ongoing supervision; corrective action

1. The Authorities shall inform each other, in good time and to the extent reasonable, about any event which has the potential to endanger the stability of banks having cross-border establishments in the respective other country, in particular an incipient crisis, any serious violation of the laws and regulations of prudential banking, a decline in capital adequacy to under the minimal limit set by the Authorities on solo- and consolidated basis, the carrying out of business in a way that impairs the interests of depositors of the bank or threatens the safety and soundness of the banking system, or other information of a serious nature. They shall also notify each other on administrative penalties which they have imposed or any other action which they have taken against such a cross-border establishment as host supervisor or against the parent bank as home supervisor if the information in their judgement is possibly important to the Authorities, in particular limiting and cancelling some activities stated in the licence, requesting changes in the management or supervisory board of the bank, creation of appropriate amounts for provisions and reserves, lowering the initial capital of the bank, implementing conservatorship, revoking licence etc.
2. Above-mentioned information shall be provided to the other Authority without request, in writing (if not agreed otherwise), without any delay, by way of the authorised employees of the Authorities.
3. The CNB and the BAFin shall discuss with each other any significant information on banks having cross-border establishments in the Czech Republic or Germany. Representatives of the Authorities shall convene for ad-hoc meetings to promote the resolution of supervisory problems concerning a cross-border establishment in the Czech Republic (Germany), whenever other party deems this necessary.

4. On-site inspections

1. Recognising the importance of consolidated supervision, the Authorities agree that co-operation is particularly useful in assisting each other in carrying out on-site inspections of cross-border establishments. They shall, therefore, allow each other to inspect branches and subsidiaries of their respective bank on site. They shall do so in their capacity as home-country Authority and upon notification of the purpose of the inspection, its expected duration, the institution to be inspected, and details of the persons performing the inspection.
2. The host-country Authority has the right to have a representative accompany any such on-site inspection. As agreed, the host-country Authority shall be kept informed of the results of such an on-site inspection to a reasonable extent and in a timely manner.

Article III

1. Laws and Regulations

1. The Authorities shall notify each other about any major change in their domestic rules and regulations within their jurisdiction, in particular about those changes which have a significant bearing on the activities of cross-border establishments and on the operation of laws and regulations that concern the banking sector or the financial sector in the prudential conduct of banks, information about banking sector developments in Germany and the Czech Republic.
2. Information shall be exchanged between the Authorities in writing or orally, without request or upon request, as well as during consultation sessions between the Authorities' management and other designated staff.

2. Financial Crime

The Authorities will co-operate closely when they identify suspected financial crime activities in supervised institutions. For the purposes of this Memorandum, financial crimes include, among other things, money laundering, fraudulent and other illegal activities deemed to be criminal acts according to the laws of the Czech Republic and Germany. This also includes unauthorised banking or investment business. The Authorities shall share information on financial crime concerning the respective institutions which carry out cross-border activities in the other state or which could affect the other state to the extent allowed under their laws. They may pass on this information with prior consent received from the other Authority for regulatory, supervisory or law enforcement purposes to other such authorities in the national jurisdiction.

3. Meetings and exchange of staff

In order to enhance the quality of co-operation, representatives of the Authorities shall convene regularly to discuss issues concerning banks which maintain cross-border establishments within their respective jurisdiction. Such meetings may also be attended by the Deutsche Bundesbank. The Authorities intend to promote their co-operation by visits for informational purposes and by exchange of staff for practical internships. At these meetings they will also review the effectiveness of these arrangements. The consultations shall be held on regular basis at a time and a place specified by the Authorities.

Article IV

1. Professional secrecy

1. Compliance with the obligation of professional secrecy by all employees who receive confidential information from the other Authority in the course of their activities is a necessary condition for a successful co-operation between the CNB and the BAFin. The CNB and the BAFin shall ensure compliance with the letter and spirit of Article 30 of Directive 2000/12/EC. Authorities agree that any confidential information shared through these arrangements will be used only for lawful supervisory purposes.
2. The CNB and the BAFin may not disclose any confidential information to third parties without the prior written consent of the party that has provided this confidential information except for the exchange of information between the BAFin and the Deutsche Bundesbank to the extent that information is of significance for the activities of the Deutsche Bundesbank as outlined in Section 7 of the BA which might be relevant to the other authority. Relevant matters include in particular: concerns about financial soundness of an institution (failure to meet capital adequacy or other financial requirements, significant losses, rapid decline in profits or a deterioration in profitability), concerns relating to compliance or control procedures, concerns arising from supervisory visits, prudential interviews or reports from and communications with an institution or other regulatory body, concerns arising from late or inaccurate prudential returns and concerns relating to supervisory arrangements in third countries.
3. Restrictions mentioned in Article IV, para 1 and 2 and in Article III section 2. concerning the necessity of prior consent to the reporting of information on financial crimes shall not apply to cases in which the CNB or the BAFin fulfils the required obligation according to law or cases in which the CNB or the BAFin is required by law to report information at the request of an appropriate government agency. The fulfilment of the reporting obligation and providing information at the request of an appropriate government agency must be, without undue delay, conveyed to the second contracting party. This shall not pertain to cases in which conveyance of information would interfere with the confidentiality clause set by a special act.
4. For institutions which are not licensed in the Czech Republic and in Germany respectively and which are licensed or apply for a licence with one of the Authorities, the CNB and the BAFin will, as far as they are able, discuss any significant information available to them which might be relevant to the other Authority.

2. Technical arrangements

1. The agreement becomes effective and valid on the day of its signing by both Authorities.
2. The Authorities shall make known the lists of the employees authorised to request and provide information on behalf of the CNB and the BAFin pursuant to this Memorandum, no later than 30 days from the day this agreement comes into effect. The list shall contain the following contact data: first name and surname, function, e-mail address and telephone and fax numbers of the authorised employees. Persons other than those specified by the CNB and BAFin may request and provide information of a general nature or information that has been officially disclosed. Both Authorities shall inform each other of any modification to the list of authorised employees without undue delay.
3. For the purposes of this Memorandum, the Authorities will use the lists of licensed and authorised institutions within their jurisdiction published on their respective Internet websites. The CNB website address is http://www.cnb.cz/, the BAFin website address is http://www.bafin.de/. The Authorities advise each other upon request on any aspect of their regulatory systems and notify about any major change in their domestic rules and regulations within their jurisdiction, in particular about those changes which have a significant bearing on the activities of cross-border establishments.
4. Co-operation and assistance in accordance with this Memorandum of Understanding will continue until the expiration of 30 days after either Authority gives written notice to the other Authority of its intention to discontinue co-operation and assistance. If either Authority gives such notice, co-operation and assistance in accordance with this Memorandum will continue with respect to all requests for assistance that were made before the effective date of notification until the requesting Authority withdraws the matter for which assistance was requested. In the event of termination of this Memorandum, information obtained under this Memorandum of Understanding will continue to be treated confidentially.
5. Any amendment to this Memorandum shall be made in writing only. Any such amendment to the Memorandum shall enter into force when signed by both Authorities.
6. This Memorandum of Understanding shall remain in existence until either party notifies the other in writing of its wish to withdraw from the Memorandum of Understanding. One month notice of withdrawal from the day following receipt of the notice by the other party will be given.
7. Both Authorities agree that the Memorandum shall be published on their websites after its signing.

Praha 16/12/2002
THE CZECH NATIONAL BANK
Pavel Racocha, Member of the Bank Board
Věra Mašindová, Executive Director, Banking Regulation Dept.

Bonn 6/01/2003
THE BUNDESANSTALT FÜR FINANZDIENSTLEISTUNGSAUFSICHT
Jochen Sanio, President