The texts of the Law on solvency, liquidity and supervision, as well as on financial conglomerates, are approved

The Council of Ministers, at the proposal of the head of Finances Jordi Cinca, has approved the draft Law of solvency, liquidity and supervision, which will implement, in a coherent and clear manner, all the regulatory changes that are necessary in order to incorporate the European regulations derived from the Monetary Agreement into the Andorran legal system. Under the same parameters, the text of the Law on financial conglomerates has been approved, which will regulate the financial groups that offer services and products in various sectors of the financial markets.

The Minister of Finance explained at a press conference that the draft Law of solvency, liquidity and supervision represents a significant leap in respect to current legislation from 1996. Among the most significant changes, the distinction of the different capital elements depending on their ability to absorb losses is emphasized; More demanding requirements when it comes to considering capital instruments as own funds elements; A capital buffer regime; Risk self-assessment for each entity through dialogue with the AFA (Andorran Financial Authority) as well as the need to provide additional capital to cover unforeseen risks in the total amount of exposure to the risks identified in the supervisory review and evaluation processes; Transparency in the market on the fulfilment of the solvency and liquidity requirements for entities and, finally, the AFA´s obligations to publish information in relation to regulation and financial supervision. The incorporation of the requirements will be introduced gradually through the different transitional provisions, which in some cases extend up to the year 2023.

The objective of this law, according to Cinca, is to strengthen the resilience of the Andorran banking and financial sector in the face of economic crises. From the point of view of liquidity and stable financing, the purpose of the law is to ensure that entities have sufficient liquid funds to deal with potential tensions in the markets, as well as that they have a balance structure that does not depend exclusively on short-term financing.

The head of Finance has added that the text introduces significant changes regarding the corporate governance concerning the direction and management of financial entities. Similarly, it modifies the penalty system adapting it to the requirements of European legislation.

With regard to the Law on financial conglomerates, Cinca explained that the main objective is the supervision, at group level, of banks, insurance companies and investment firms that are part of these conglomerates. The legislation will regulate aspects such as the solvency situation and the concentration of internal processes of risk management or the suitability of management.

The Finance Minister has concluded that these laws represent a significant leap over existing regulations and added that the Andorran financial institution and its entities assume, with these two Laws, a level of solvency and liquidity requirements equivalent to the most demanding standards and those of all European entities.

Source: The Government of Andorra´s Department of Communication