SUPERVISORY AND REGULATORY GUIDELINES: …

1 Central Bank of The Bahamas managed Branches BANK SUPERVISION DEPARTMENT 1 SUPERVISORY AND REGULATORY guidelines : 2002-02 managed Branches Issued: 23rd January 2002 Amended: 22nd March 2012 guidelines FOR managed BRANCHES 1. INTRODUCTION The Central Bank of The Bahamas ( the Central Bank ) is authorized to license and supervise banks and trust companies operating in and from within The Bahamas pursuant to the Banks and Trust Companies Regulation Act, 2000, and the Central Bank of The Bahamas Act, 2000.

2 The Central Bank is charged with the responsibility of reviewing bank and trust company practices in The Bahamas. Additionally, the Central Bank has the duty, in collaboration with the financial institutions, to promote and maintain high standards of conduct and management in the provision of banking and trust services in and from within The Bahamas. Since 30th June 2004, the Central Bank s policy1 has been that no licensee will be permitted to operate in or from within The Bahamas without a physical presence appropriate to the business of that institution.

3 All licensees are expected to adhere to the Central Bank s licensing and prudential requirements, including all requirements under the Suspicious Transactions guidelines relating to the Prevention of Money Laundering and the Financing of Terrorism , issued by the Financial Intelligence Unit and endorsed by the Central Bank. Additionally, licensees should comply with ongoing SUPERVISORY programmes, including periodic on-site examinations, and required REGULATORY reporting.

4 Licensees are also expected to conduct their affairs in conformity with all other Bahamian legal requirements. 2. PURPOSE These guidelines outline the Central Bank s policy for the minimum requirements for the management and operation of branches of foreign banks and/or trust companies without a physical presence in The Bahamas ( managed Branches ). 1 This policy is set out in the guidelines for the Requirements for the Transition of managed Banks to Full Physical Presence, which was issued in 2001 Central Bank of The Bahamas managed Branches BANK SUPERVISION DEPARTMENT 2 3.

5 APPLICABILITY Unless a specific exemption is granted by the Central Bank, all managed branches permitted to operate without a physical presence in The Bahamas must comply with these specific requirements. No managed branch that currently operates through a full physical presence in The Bahamas will be permitted to take advantage of the policy detailed in these guidelines . 4. POLICY FOR THE CONTINUATION OF THE MANAGEMENT OF BRANCHES Generally, most of the managed branches of foreign bank and/or trust companies that have been established to operate from within The Bahamas, either through Management Agreements with third-party Managing Agents in The Bahamas or through arrangements with affiliated banks and/or trust companies with a full physical presence in The Bahamas.

6 Have served principally as vehicles for the booking of business initiated by the head office or other offices of their parents or by affiliates of their parents. These managed branches have traditionally been established to hold such activities as overnight booking of deposit accounts, wholesale on and off-balance sheet business, portions of larger transactions held throughout their parent organizations, etc. and as legal vehicles through which such transactions could be easily segregated from the other business of the parent organizations.

7 The Central Bank requires that all managed branches must be supervised, in keeping with international best practices, as part of the consolidated supervision conducted by the home country supervisor of their parent banking organizations, and, in some cases, by host country supervisors in locations from which they are managed and controlled. The Central Bank also recognizes that the reliability of such supervision differs from country to country. Therefore, the Central Bank has made judgments to differentiate the quality of such home/host country supervision.

8 The Central Bank has determined that, effective 31 March 2002, only parent banking and/or trust organizations headquartered in jurisdictions that are deemed to be supervised in accordance with the following Criteria (see Section 5), will be permitted to continue to operate managed branches, under the license granted to their parent foreign bank and/or trust company, from within The Bahamas without maintaining a full physical presence in The Bahamas subsequent to 30 June 2004.

9 In the future, the Central Bank will not permit any foreign bank and/or trust company to operate a managed branch from within The Bahamas unless its parent organization already maintains or establishes a subsidiary or branch with a full Central Bank of The Bahamas managed Branches BANK SUPERVISION DEPARTMENT 3 physical presence in The Bahamas and meets the Criteria and Operating Requirements set forth below (see Sections 5 and 6). Going forward, the Central Bank will permit existing managed branches to continue operating from within The Bahamas, but only through appropriate Management Agreements with third-party Managing Agents or Management Agreements with affiliated banks and/or trust companies that already have a full physical presence in The Bahamas, if they fully meet the following Criteria and Operating Requirements in Sections 5 and 6.

10 managed branches that do not fully meet these requirements will be required to convert to a separately incorporated, licensed bank and/or trust company with a full physical presence or wind-up their operations. 5. CRITERIA As per section 4, the following criteria must be met:- (a) the ultimate parent of the managed branch (the licensee) is a financially strong, well- managed organization, approved by the Inspector of Banks and Trust Companies ( the Inspector ), that: o is subject to consolidated supervision by a supervisor(s) located in one of the following approved jurisdictions2.