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Regulatory framework

Key policies

What are the principal governmental and regulatory policies that govern the banking sector?

The main focus of the Andorran banking regulations is centred on the stability and efficiency of banks and other Andorran financial entities that operate in the financial system, to enhance the confidence of international financial markets in the Andorran banking sector and to protect the interests of its clients and investors.

Andorran banking regulations are based on the cornerstone principle of reserve of activity. According to this principle, only the banks that have been duly authorised by the local regulator, the Andorran National Finance Institute (INAF), may carry out typical banking activities, such as receiving deposits and other funds from clients and granting any kind of credits by its own account. Andorran banks can also render investment and ancillary services.

Andorran banking regulation is being increasingly influenced by international standards in financial regulation (ie, EU and international financial standards), which are taken as a reference by the Andorran legislature in order to adapt its internal banking regulation. Andorra signed the European Union Monetary Agreement in 2011 (the Monetary Agreement), which obliged the Andorran government to implement several banking and anti-money laundering European directives and regulations before 2020.

Primary and secondary legislation

Summarise the primary statutes and regulations that govern the banking industry.

Overall, the primary statutes governing the banking sector are Law No. 7/2013, of 9 May 2013, on the regime for the operating entities in the Andorran financial system and other provisions that govern financial services in Andorra, and Law No. 8/2013, of 9 May 2013, which covers the organisational requirements and operating conditions of entities operating in the Andorran financial system, investor protection, market abuse and financial securities agreements. The first of these Laws establishes the substantive regime for banking and financial activity within Andorra, while the second determines the formal aspects (ie, organisational requirements and operating conditions) for Andorran financial entities, jointly with the market abuse regulation and the regime of financial securities agreements in line with the corresponding EU regulations.

Specifically, certain areas of the banking sector are governed by concrete rules, including:

  • Law No. 35/2010 on the legal regime for authorising the creation of new operating entities within the Andorran financial system;
  • Law No. 10/2008 regulating Andorran collective investment schemes’ undertakings;
  • Law No. 8/2015 on urgent measures to introduce mechanisms for the recovery and resolution of banking entities;
  • Law No. 10/2013 of the INAF;
  • the financial system disciplinary Law, dated 27 November 1997;
  • the capital adequacy and liquidity criteria of financial institutions Law, dated 29 February 1996;
  • the insurance companies’ Law; and
  • Law No. 14/2017 on prevention and fight against the money or securities laundering and the terrorism financing.

Additionally, the INAF is empowered to issue technical communications and recommendations to develop the Andorran banking regulations applying international standards on the banking industry.

It should be noted that the Accounting Plan of the Andorran Financial System was abolished with legal force from 1 January 2017 by means of the Decree dated 22 December 2016, which transposed the International Financial Reporting Standards (IFRS) rules into the Andorran legal framework. Andorran financial institutions shall apply the IFRS rules to their 2017 financial statements.

Regulatory authorities

Which regulatory authorities are primarily responsible for overseeing banks?

The INAF is the national banking authority, responsible for supervision of Andorran banks. The INAF has been a member of the International Organization of Securities Commissions (IOSCO) since 2013. It is envisaged that in 2018, this entity will also assume supervision over the insurance and reinsurance of Andorran entities, due to the coming into force of the draft legislation on the organisation and supervision of insurance and reinsurance within Andorra. See question 9.

Government deposit insurance

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

By means of Law No. 1/2011, of 2 February 2011, related to the creation of a banking entities deposit guarantee system, the Andorran government created a banking deposits’ guarantee system that does not have legal personality and is managed by a management committee, which is in turn directed by the INAF. The banking deposits’ guarantee system is participated in by all banks authorised to operate within Andorra.

In essence, the Andorran banking deposits’ guarantee system is aligned with EU standards. Law No. 1/2011 establishes the maximum amount of coverage at €100,000 per depositor and €100,000 per investor. The initial overall limit was €94.1 million, which will be increased as the system of annual contributions to the fund assets reaches 1.5 per cent of the calculation basis of contributions, with a maximum limit of €200 million (as the absolute value). The scope of the protection provided by the banking deposits’ guarantee system encompasses all cash and securities deposits of natural and legal persons, irrespective of their nationality or domicile, held in the Andorran banks.

The banking deposits’ guarantee system is excluded from contribution to bail-in in the event of bank resolution. (See question 13.) All in all, this deposit guarantee system is configured as an ex post mechanism by paying the corresponding amounts secured in case of intervention or resolution of an Andorran bank.

So far, the deposits’ guarantee system has never been applied to the financial assistance of Andorran banks. Moreover, the Andorran State Agency for the Resolution of Banking Institutions (AREB) and the Andorran Fund for the Resolution of Banking Institutions, as the financing mechanism for the banking resolution processes, were incorporated in 2015.

Transactions between affiliates

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

The legal regime on transactions that banks may carry out with their affiliates is principally made up of the capital adequacy and liquidity criteria of the Financial Institutions’ Law, dated 29 February 1996, since the Andorran banks acting as a group have to comply with solvency and liquidity ratios and risk concentration limits stated in the Financial Institutions’ Law under a consolidated basis.

Under Andorran law, an ‘affiliate’ relationship applies when there are dominant and dependent entities, and the dominant entity directly or indirectly:

  • holds the majority of the voting rights of the dependent entity;
  • has the power to appoint or to remove the majority of the board of directors of the dependent entity;
  • has appointed exclusively with its votes, at least the majority of the board of directors of the dependent entity; or
  • exercises control of the board of directors of the dependent entity where at least the majority of its members are directly or indirectly directors of the dominant entity.

The type of entity and its specific regulatory status are the criteria that determine the activities that Andorran financial entities may carry out. Banks may perform the widest spectrum of activities, since these are the only entities authorised to take deposits or other repayable funds from the public. Additionally, banks are also authorised to render investment services and investment ancillary services, yet they can neither directly manage collective investment schemes nor perform the activities reserved to life insurance companies, unless they acquire either a majority or a minority stake in these companies.

In relation to the other Andorran financial entities that act in the Andorran financial system, the essential note is that they have a limited range of activities and services:

  • investment financial entities may render both investment and ancillary services, including complementary activities, as long as their principal activity continues to be performed efficiently. On the other hand, they cannot carry out typical banking activities;
  • non-banking financial entities of specialised credit (specialised credit institutions) may only grant financing under any form (eg, mortgage loans); and
  • management entities of collective investment schemes.

All the aforementioned financial institutions have an exclusive corporate purpose; therefore, they may only render the relevant financial services established by law with express exclusion of other activities, except for complementary activities that are reasonably linked to their financial business.

Regulatory challenges

What are the principal regulatory challenges facing the banking industry?

The Andorran legislator has made significant efforts in recent years to adapt and modernise the Andorran banking industry to international standards.

To this end, the areas that have been set up and strengthened include:

  • investor protection;
  • market abuse regulation;
  • the general regulatory regime for Andorran financial entities;
  • regulation of financial guarantees; and
  • regulation of banking resolution and restructuring


Nevertheless, there are several upcoming challenges that must be carefully monitored for their impact.

Insurance and reinsurance regulation

Recently approved Law No. 12/2017 on the regulation and supervision of insurances and reinsurances in Andorra will serve as a cornerstone for the Andorran insurance market. In particular, the main challenges in this respect are the adaptation of Andorran insurance entities to the capital requirements imposed by that Law, which are aligned with the provisions of Directive 2009/138/EC (Solvency II), as well as the exercise of effective and efficient supervision by the future regulator, the Andorran National Finance and Insurance Institute (INAF). A draft bill is currently being considered by the Andorran Parliament in order to provide the INAF with all the necessary authority, powers and instruments to exercise as the sole supervisor of financial and insurance industries in Andorra.

Banking industry framework

One of the main challenges for the banking industry is to continue to open up to foreign investment while, simultaneously, maintaining its independence and remaining a competitive financial hub by implementing the commitments agreed in the Monetary Agreement. Furthermore, the Andorran government signed an agreement with the European Union in February 2016 that involved incorporating Andorran law to the Common Reporting Standard of the Organisation for Economic Co-operation and Development. This commitment came into force following the enactment of Law No. 19/2016, of 30 November 2016, on the automatic exchange of tax information.


Bank resolution and restructuring regulation

The main challenges refer both to the modernisation of the Insolvency Decree, dated 4 October 1969, which governs the general bankruptcy regime and its alignment with Law No. 8/2015, which provides for the specific banking insolvency regime, and the level of effectiveness and certainty that their combination has to provide.

Association agreement

Currently, the Andorran government is working on the future framework of relations between Andorra and the European Union in order to allow progressive and structured access to the European Union internal market, taking into account the particularities of Andorra by means of a specific association agreement.

Consumer protection

Are banks subject to consumer protection rules?

Andorran banks are subject to general and specific consumer protection rules.

The general consumer protection rules are established by Law No. 13/2013, of 13 June 2013, on effective competition and consumer protection. Its key points may be summarised as follows:

General principles on consumer protection

The good faith principle, the fair equilibrium between consumer protection and competitiveness of companies as well as the irrevocable status character of consumer protection regulation.

Basic rights of consumers

In addition to any applicable provisions established by sectoral rules and civil regulation, the basic rights of consumers protected are:

  • health and safety;
  • economic and social interests; and
  • the right to information.

Requirements common to all consumer relations

In the framework of any consumer relation the following requirements must be met at all times:

  • consumer relations may not cause a risk to health, insurance or environment, unless expressly permitted by law;
  • publicity, information and offers made by any means may be subject to the principles of veracity and objectivity, and must not lead to confusion or error;
  • availability of information to consumers by businesses;
  • information regarding beneficial conditions for consumers;
  • requirements and configuration of the right of withdrawal;
  • requirements and configuration of the guarantee over products and post-sale service;
  • customer satisfaction and product suitability;
  • seller’s responsibility;
  • civil liability for damage caused to consumers;
  • abusive clauses;
  • special procedures for sale; and
  • information and dissemination on consumption through mass media.

Unfair terms

This law provides a general definition of unfair terms and a catalogue of possible contractual clauses with consumers that may be considered unfair, and therefore, void. Unfair terms are defined as all those that derive from an agreement that have not been individually negotiated, and those practices not expressly permitted that, against the good faith principle obligation, cause prejudice to a consumer and a material imbalance between the rights and obligations of each party to a contract.

Specific protection rules apply to Andorran banks in respect of investment services by means of Law No. 8/2013, which is in line with the provisions of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004, on Markets in Financial Instruments (MiFID I). This regulation aims to maintain and enhance certain ethical and behavioural principles as well as regulate specific practices that are actively combatted internationally.

According to Law No. 8/2013, a retail investor or client is any individual or legal person other than a professional investor or client. In turn, a professional investor is a client that possesses the experience, knowledge and expertise to make its own investment decisions and to properly assess the risk that it incurs.

The Commerce and Consumer Unit is the administrative body responsible for the development, promotion and implementation of policies with the aim of improving the Andorran commercial sector, as well as for protecting consumers’ rights.

In addition, according to the Monetary Agreement implementation of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on Markets in Financial Instruments (MiFID II) and Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012 (MiFIR) is planned for 31 December 2020.

Future changes

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

The main trends regarding legal and regulatory policy will be in accordance with the commitments contained in the Monetary Agreement (eg, capital requirements, payment services, electronic money and financial instruments’ market regulations). The Andorran government is working to enact a gradual framework of securities law. Moreover, Andorra is currently negotiating jointly with Monaco and San Marino an association agreement with the European Union whose main objective is the participation of Andorra, Monaco, San Marino and their citizens in the European Single Market, and also to give the possibility to European investors and banking entities to accede to these jurisdictions. However, in order to operate in a level playing field, Andorran economic and financial needs would accelerate the implementation of international standards.



Extent of oversight

How are banks supervised by their regulatory authorities? How often do these examinations occur and how extensive are they?

The INAF is the regulatory authority for Andorran banking entities, which performs a supervisory role over Andorran financial entities, in accordance with Law No. 10/2013. Since Andorra is not a member of the European Union, the INAF is not integrated within the framework of the Single Supervisory Mechanism.

In brief, the main objectives of the INAF are:

  • to promote and ensure the proper functioning of the Andorran financial system;
  • to ensure the stability and reputation of the Andorran financial system and contribute to reducing systemic risk deriving from credit events affecting the Andorran financial entities or their counterparties;
  • to provide adequate protection to clients and investors;
  • to enhance the competitiveness of Andorra as an international financial hub;
  • to reduce the systemic risk deriving from the financial markets; and
  • to perform all activities that may be deemed necessary for the exercise of its functions.

INAF-performed supervision aims to protect the public interest rather than to guarantee the individual interests of the supervised entities or the interest of their clients and third parties. It performs supervision on a consolidated basis over:

  • entities operating in the Andorran financial system;
  • Andorran undertakings of collective investment schemes;
  • financial markets located or operating in Andorra or requiring INAF authorisation to operate; and
  • those natural or legal persons over whom the INAF may exercise supervisory powers.

The most relevant functions and competences of the INAF that Law No. 10/2013 does not expressly foresee, among others, are:

  • to issue technical communications, communications and recommendations in order to develop the regulation and instrumental technical regulations in accordance with Andorran law and also with international standards;
  • to supervise, on a consolidated basis, groups of entities operating in the financial system;
  • to exercise disciplinary and sanctioning power;
  • to examine and manage the claims brought against Andorran banks before it and, possibly, carrying out specific controls if the problem advertised through the claim regards prudential supervision;
  • to undertake treasury services for the state and manage the issuance of public debt; and
  • to assess the Andorran government on economic and financial policy.

The INAF has discretionary powers to conduct investigations and on-site inspections over Andorran banks and request information from supervised entities, as well as imposing administrative penalties for cases breaching Andorran financial legislation. Such INAF on-site inspections are frequent and are thorough.

In spite of not being a member state of the European Union, article 20 of Law No. 10/2013 foresees the international cooperation with other regulators in addition to INAF IOSCO membership. To this end, there is a memorandum of understanding (MoU) in force between Andorra and Spain, signed on 4 April 2011. The MoU’s terms:

  • constitute an agreement for consolidated cooperation in the supervisory framework between the INAF and the Bank of Spain;
  • establish the terms of the protocol for the relationship and collaboration between both authorities; and
  • enable the supervisory authority of the country of origin to request information of consolidated risks of banking groups from the relevant authority of the country where the entity has subsidiaries.

In addition to this MoU, the INAF signed the Multilateral Memorandum of Understanding on Cooperation and Exchange of Information on 17 September 2013, becoming a member of the IOSCO framework.


How do the regulatory authorities enforce banking laws and regulations?

As stated in question 9, banking regulation is enforced by the INAF, a body that is entitled to exercise the widest enforcement powers.

INAF enforcement powers facilitate, among others:

  • restricting or limiting a bank’s business and operations;
  • requesting divestment of activities posing excessive risks;
  • requiring institutions to limit variable remuneration;
  • requesting the use of net profits to strengthen own funds;
  • imposing specific liquidity requirements; and
  • requesting judicial assistance to undertake its powers.

What are the most common enforcement issues and how have they been addressed by the regulators and the banks?

In recent years, the principal enforcement issues with relevant implications for the banking sector have been:

  • the increase in the default ratio (NPL ratio) of Andorran banks;
  • compliance with the anti-money laundering law; and
  • the judicial proceedings issued against unfair terms incorporated in consumer contracts.

Nevertheless, the volume and intensity of the three aforementioned enforcement issues in comparison with other jurisdictions has been significantly lower (eg, promotion of preferred shares to retail investors).


Government takeovers

In what circumstances may banks be taken over by the government or regulatory authorities? How frequent is this in practice? How are the interests of the various stakeholders treated?

Law No. 8/2015 comprises a set of rules specifically applicable to the restructuring and resolution of banks, in line with the provisions stated in Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD).

Under this law banks may be taken over by the regulatory authorities (INAF or AREB) when they infringe or it is expected that they will infringe in the near future insolvency, organisational or disciplinary regulations.

Once a bank is under one of such situations the INAF can adopt several measures to rectify them. If the situation cannot be rectified, the INAF will have to determine whether the bank is unviable.

If the INAF determines the unviability of the bank, it must communicate that situation to the AREB, which will decide what resolution measures to implement.

Bank intervention and processes of resolution and restructuring are governed by the following principles:

  • shareholders will necessarily bear losses in the first place;
  • after the shareholders, creditors will bear losses pursuant to the seniority of their credits;
  • there will be an equivalent treatment for creditors with the same seniority;
  • shareholders and creditors will not bear higher losses than those that would have arisen under an insolvency proceeding;
  • the directors may be replaced and shall be responsible for any damage caused to the bank; and
  • full protection to guaranteed deposits is provided (see question 4).

The AREB may intervene in a credit institution’s business, in order to start its restructuring and, possibly, its resolution process if:

  • there is evidence that the bank’s situation may damage its stability, liquidity and solvency;
  • in a restructuring, the AREB may order the removal or replacement of one or several members of the bank’s board of directors, as well as senior management members, if it determines that such members are not eligible to fulfil their obligations in accordance with the mandatory aptitude requirements; or
  • right after the opening of a resolution process, the AREB shall dictate the substitution of the whole board of directors. This measure has a limited temporal extent of one year, although it may be extended by the AREB to the extent necessary for the smooth development of the resolution process.

Bank failures

What is the role of the bank’s management and directors in the case of a bank failure? Must banks have a resolution plan or similar document?

The role of the bank’s management and directors in the framework of a bank failure can be explained by distinguishing the following plans: the action plan (living will), the debt restructuring plan and the reorganisation of activities’ plan.

Under Law No. 8/2015, the bank’s management must draft an action plan in the case where a bank is already or is foreseeably going to enter an insolvency situation. The plan’s objective is to provide measures to restore the bank’s position and must be accompanied by a specific implementation schedule.

In addition to this plan, the board of directors must draft a plan in order to negotiate the debt restructuring with part or all of the creditors.

Furthermore, in the event of internal recapitalisation being used as resolution instrument, the AREB will ask the board of directors to draft a plan for the reorganisation of activities. This plan shall contain measures that, in accordance with the economic situation of the bank and the markets in which it operates, are geared towards re-establishing the long-term economic viability of the entity, either all of its activity or a part of it, within a reasonable period of time. This plan must be approved by the AREB, prior to a non-binding consultation with the INAF. The AREB shall also adopt all necessary measures to ensure the fulfilment of the reorganisation plan.

Are managers or directors personally liable in the case of a bank failure?

Managers or directors may incur personal liability in the event of a bank failure. Such liability may be civil, criminal or administrative or a combination of all three.

Civil liability implies that the directors may be liable for any damages caused if a causal link between the bank failure and their acting with gross negligence or wilful misconduct is verified.

Criminal liability exists in several cases (eg, false accounting, negligent management of the business and fraudulent transactions prior to commencement of the restructuring process).

From an administrative perspective, infringements are classified in different grades: very serious, serious and minor. The sanctions that may be imposed on the managers or directors in the case of a bank failure and depending on the gravity of the sanction are:

  • pecuniary sanctions (from €36,000 to €200,000), which may be imposed on directors in the event of, among other things, obstructing AREB and INAF functions with respect to analysis of the bank’s situation;
  • removal from the position of director and disqualification from exercising management or directorship activities in the failed entity for five years;
  • disqualification from exercising management or directorship activities in any financial or banking entity, and removal, as the case may be, from his or her position as director, for a period of less than 10 years;
  • an order for the directors to cease and desist from the prejudicial activity performed against the entity;
  • a public reprimand in the Andorran official journal or the website of the sanctioning organisation; or
  • a private reprimand.

Planning exercises

Describe any resolution planning or similar exercises that banks are required to conduct.

Under Law No. 8/2015, the bank’s management must draft an action plan in cases where a bank is already or is foreseeably going to enter an insolvency situation. The plan’s objective is to provide measures to restore the bank’s position and must be accompanied by a specific implementation schedule. Such a plan would include the different foreseen actions with the necessary information needed to conduct such actions, for example:

  • detailed information on the strategy required to address the circumstances;
  • a description of the arrangements to ensure business operational continuity;
  • a description of the financing requirements; and
  • the necessary financing sources for implementing the plan’s strategy.

Capital requirements

Capital adequacy

Describe the legal and regulatory capital adequacy requirements for banks. Must banks make contingent capital arrangements?

Andorran banks are subject to the law regulating the minimum capital adequacy and liquidity ratios, which establishes the general framework for prudential requirements. The minimum percentage of own resources that banking entities have to maintain at all times is the level of own funds necessary to reach a solvency ratio of 10 per cent.

Additionally, without prejudice to the obligations derived from the solvency and liquidity ratio, Andorran banks should have solid, effective and exhaustive strategies and procedures to evaluate and permanently maintain the amount, type and distribution of share capital adequate to cover the nature and the level of risk to which a bank may be exposed. These strategies and procedures must be periodically subject to evaluation. Moreover, Andorran banks must have a minimum share capital of €30 million.

Own resources of banking entities cannot be below 10 per cent, except for the two first exercises of operation, in which only in the case of accumulated losses, can own resources be under 20 per cent, as long as the reduction in capital resources is guaranteed by the entity’s shareholders. The INAF has competence to adopt all necessary measures if a bank has insufficient own funds.

Furthermore, the Monetary Agreement established the implementation of the Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV) and the Capital Requirements Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (CRR) by 30 September 2017. However, even if these regulations are not yet formally implemented into Andorran law, the INAF is empowered to require their compliance with Andorran banking entities since it views them as international standards.

How are the capital adequacy guidelines enforced?

Banks are required to report information quarterly to the INAF in relation to solvency and liquidity ratios. The communication will be made during the first 15 days following the submission date of the quarterly balances. Additionally, the INAF is entitled to demand banks declare their ratio situation at any moment it deems it necessary.

On the basis of such information, the INAF will be able to determine whether a bank is undercapitalised, in which case it will proceed as stated in question 17.


What happens in the event that a bank becomes undercapitalised?

Banks that do not comply with the solvency and liquidity ratios are normally required by the INAF to draft a restructuring plan. This plan has to be drafted by the board of directors, determining all the measures that must be taken in order to overcome the problems detected in the framework of an implementation schedule. In addition to this, the drafting of a debt restructuring plan may also be ordered at the INAF’s initiative.

If a bank is financially struggling, yet is still in a position to reverse this situation and avoid entering into a resolution process, the INAF may adopt certain preventive measures, among others:

  • to require the board of directors to call a general meeting or call on its constitution directly, in order to adopt the corporate resolutions that may be considered necessary;
  • to order the cessation or dismiss members of the board of directors or senior managers; or
  • to appoint a representative in the bank to monitor the process and assess its effectiveness.


What are the legal and regulatory processes in the event that a bank becomes insolvent?

The AREB may initiate the resolution process if, in spite of the measures mentioned in question 18:

  • a bank is not able to fulfil solvency and liquidity ratios, and falls into insolvency or will foreseeably do so;
  • there is no likelihood that private-sector measures will be able to prevent the insolvency within a reasonable period of time; and
  • for reasons of public interest, it is necessary or convenient to wind up the entity, hence the dissolution or liquidation of a bank by means of bankruptcy proceedings will not reasonably allow the resolution objectives to be fulfilled.

There are several instruments for the resolution of a bank under Law No. 8/2015, which can be individually or jointly applied by the AREB:

  • sale of the bank’s business;
  • transfer of the assets and liabilities to a bridge entity;
  • transfer of the assets and liabilities to a management company; or
  • the internal recapitalisation of the bank.

However, it is also possible that banks will be subject to ordinary, court-driven insolvency proceedings (ie, under the general framework of the Insolvency Decree, dated 4 October 1969), if after the valuation process the AREB reaches the conclusion that the objectives stated in question 12 will not be fulfilled by the banking resolution process.

Recent and future changes

Have capital adequacy guidelines changed, or are they expected to change in the near future?

Capital adequacy guidelines are expected to be amended in the near future, in order to align their provisions with bank capital and liquidity provisions stated by CRD IV and CRR, by implementing them into Andorran legislation. However, although the INAF has been anticipating provisions of Basel III framework by means of personalised direct recommendations and communications (note that the regulator has the ability to set as applicable what he or she deems to be an international standard) the provisions of Basel III and the corresponding EU Capital Requirements Regulations (EU) No. 575/2013 have not been homogeneously imposed by the INAF when performing its supervisory activity.

As Basel III provisions have been already phased in by the regulator and IFRS rules were also applicable to 2017 financial statement, the impact on the regulatory Andorran framework should not be particularly relevant.

Ownership restrictions and implications

Controlling interest

Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank. What constitutes ‘control’ for this purpose?

The creation or acquisition of entities, with a long-term project and acquiring a ‘qualified stake’, is subject to the INAF’s prior consent and subsequent registration.

A participation is considered as ‘qualified’ when it reaches, either directly or indirectly, 10 per cent of the capital or voting rights in the participated entity, or regardless of its amount, it enables the holder to exercise ‘significant influence’. In turn, ‘significant influence’ is defined as the power to intervene in the financial and business activity decisions of the entity, without having an absolute or joint control over it (eg, the capacity to appoint or dismiss a director is normally deemed as ‘significant influence’).

The INAF will deny the consent to the authorisation or the registration if, from the analysis of the documentation, it reaches the conclusion that the act does not adjust to legislation in force or may negatively affect in a significant way the elements that are technical, economical or professional guarantees of the entity or its group. Additionally, prior to granting authorisation for the transaction, the INAF will request a report from the anti-money laundering (AML) authority (UIFAND), which will also examine the transaction and the acquirer.

Foreign ownership

Are there any restrictions on foreign ownership of banks?

There are no general restrictions on foreign ownership of banks. Thus, foreign natural or legal persons may own banks without having to fulfil additional requirements, except for the prior obtention of a foreign investment authorisation granted by the Andorran government.

The request form to the foreign investment authorisation has to identify the investor and explain the details of the business plan to undertake as well as the investment amount.

The Andorran government has up to 45 days to decide whether to grant authorisation. However, if authorisation is not resolved in that period, it is deemed granted.

Moreover, the Andorran government has a safeguarding clause to deny such authorisations to protect the sovereignty, public and economic order, national security, public health or general interest of Andorra.

Implications and responsibilities

What are the legal and regulatory implications for entities that control banks?

Entities that control banks fall under the supervision of the INAF for prudential purposes; in particular, these entities must comply with the requirements set down in question 24.

Controlling entities and holders of significant stakes are liable to administrative sanctions if they exercise a negative influence over, or otherwise destabilise, the bank in question.

What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?

The entity or individual controlling a bank as a parent company is subject to the suitability requirements that apply to directors of banking entities (ie, business reputation, suitable knowledge and professional experience). Hence, the parent company’s proposal for appointing directors must be submitted to, and analysed by, the INAF prior to the appointment of these directors.

Additionally, according to Law No. 10/2013, if the home state regulator of the entity or individual controlling a bank incorporated in Andorra has signed a cooperation agreement for supervision on a consolidated basis with the INAF, the entity or individual shall comply with the following provisions in accordance with the terms of the specific cooperation agreement:

  • transmitting all the information required by its home state regulator and, as the case may be, all the information regarding risk management to its parent company; and
  • demanding the home state regulator to perform on-site inspections in relation to entities supervised by the INAF and vice versa.

What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?

Law No. 8/2015 expressly establishes that shareholders will be the first to bear the entity’s losses, although they will not bear any losses to a higher extent than those accumulated if the entity had been subject to a general insolvency proceeding. Consequently, the loss that may be suffered by a shareholder is limited to its stake in the share capital.

Changes in control

Required approvals

Describe the regulatory approvals needed to acquire control of a bank. How is ‘control’ defined for this purpose?

The acquisition of a ‘qualified stake’ in the capital of an Andorran bank is subject to prior INAF approval and registration. Furthermore, the considerations of the UIFAND, in respect of AML control, will have to be taken into consideration.

‘Qualified stake’ is defined as the reaching, either directly or indirectly, of 10 per cent of the capital or voting rights in the participated entity or regardless of its amount, a percentage of the share capital that enables the holder to exercise ‘significant influence’. In turn, ‘significant influence’ is defined as the power to intervene in the financial and business activity decisions of the entity, without having an absolute or jointly control over it (eg, the capacity to appoint or dismiss a director is always deemed ‘significant influence’).

In turn, definition of ‘control’ includes the following situations:

  • a person or entity has the majority of the voting rights;
  • a person or entity has the right to appoint or revoke the majority of members of the board of directors, direction or control and at the same time, while being a shareholder or partner of that company;
  • a natural or legal person is a shareholder or associated party and has exclusive control, by means of an agreement concluded with other shareholders or associated parties of this bank, over the majority of voting rights of the shareholders or the associated parties; or
  • a natural or legal person may exercise or actually exercises a dominant influence or an influence of control.

Foreign acquirers

Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?

The INAF is receptive to foreign acquirers. The regulatory process does not differ substantially for a foreign acquirer, except for the requirement for a foreign investment authorisation.

The INAF has accepted the purchase of stakes in Andorran banks by foreign banks, as well as the incorporation of subsidiaries of foreign banks in Andorra. Therefore, the jurisdiction of a foreign acquirer is not an obstacle in itself, as long as the INAF can continuously perform its supervisory and regulatory activity.

Factors considered by authorities

What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank?

The key factors analysed by the INAF in the context of an acquisition of control of an Andorran bank are principally:

  • the business reputation of the acquirer and the persons controlling it;
  • the capacity of a bank to comply with the applicable regulatory and disciplinary rules stated in Andorran legislation;
  • the directors and senior officers of a bank who may be appointed as consequence of taking control, who will have to comply with the suitability requirements of business reputation, experience, knowledge and independence;
  • the absence of a significant negative effect on the elements that form the technical, economic and professional guarantees of the entity whose control is acquired;
  • absence of a breach of Andorran laws by the acquisition of control of an Andorran bank; and
  • the existence of signs that may reasonably lead to suspicion that the transaction is related to money laundering or terrorism financing.


Filing requirements

Describe the required filings for an acquisition of control of a bank.

The INAF will demand the following information to authorise the acquisition of control of a bank:

  • information about the transaction:
  • purpose, price and payment terms;
  • identification of the entity;
  • impact on the distribution of voting rights;
  • transaction financing and the existence of agreements with third parties or other shareholders in relation to the transaction;
  • documentation stating that the technical, economic and professional guarantees of the Andorran bank will not be affected;
  • whether qualified stakes are not in breach of Andorran legislation; and
  • information about the acquirer and its controlling persons:
  • a certificate of the general meeting of the foreign entity according the acquisition;
  • the identity of the acquirer and its controlling persons, group structure, structure and members of the management bodies as well as their reputation and experience,
  • their economic and financial situation;
  • verification or previous links with the acquired bank;
  • evaluations performed by AML bodies; and
  • the impact on the bank’s economic activity and impact on the Andorran economy:
  • business and strategic plans;
  • changes and structure of the corporate governance structure;
  • internal controls; and
  • AML compliance procedures.

Timeframe for approval

What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?

For both domestic and foreign acquirers, the framework for regulatory approval is the same. Therefore, the INAF should make a decision on the acquisition, accepting or opposing the transaction within 30 business days of submission of the application or, if applicable, from the date of submission of additional information.

The INAF may always choose to oppose an application. The foreign entity may file an administrative appeal against this decision before the competent Andorran courts.