do business in the Dominican Republic - Pellerano & Herrera

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DOING BUSINESS INTHE DOMINICAN REPUBLICSavings and Loans Associations. Which are mutual entities without corporatestructure.Savings and Credit Cooperatives. Which do not have either a corporate structureand shall be subject to regulation and supervision in accordance with therelevant regulations of the Monetary Board.Law 183-02 describes in detail in Articles 40, 42 and 43 the transactions and servicesthat Multiple Banks, Savings and Credit Banks and Credit Corporations mayrespectively carry out.c) Foreign Banks. Law 183-02 liberalizes banking services by granting equaltreatment to foreign financial entities. It provides the guidelines to regulate theadmission of such entities, setting forth the types of foreign investment participationin national financial activities, which may take the form of (i) purchase ofstock in existing Multiple Banks and Credit Entities, (ii) incorporation of financialentities of a corporate nature, (iii) subsidiaries, or (iv) establishments of branches(Article 39).Furthermore, foreign banks not having a legal seat in the country may still createrepresentative offices within the national territory according to the regulations,although these may not undertake activities of financial intermediation.80d) Regulatory Norms.The legal regime grants particular attention to the descriptionof minimum requirements of establishment and operation that enable toensure a proper management of deposits and the adequacy of capital. Some ofthe rules provided for such purposes are the following.The establishment of financial entities shall be subject to the approval of theMonetary Board, prior opinion of the Superintendence of Banks. Multiple Banksand Credit Entities shall be formed as limited liability companies, and must havea minimum paid-up capital of 90 million pesos for Multiple Banks, 18 millionpesos for Savings and Credit Banks and five million pesos for CreditCorporations.The paid-up capital must be entirely paid in cash.Regarding equity exposure of Multiple Banks,these may invest up to (i) 20% of theirpaid-up capital in entities providing supporting or related services, as statutorilydefined, including those undertaking operations of debt-collection, factoring, leasing,creditcards,foreign exchange,stock exchange,etc.,(ii) 10% of their paid-up capitalin non-financial entities,but these investment may not amount to more than 10%of the paid-up capital of the receiving company, and (iii) 20% of their paid-up capitalin opening branches or agencies abroad, as well as foreign financial entities.In addition, the law lists the operations that for preventive reasons are subject toprior authorization (Article 44) or prohibited (Article 45), whether for not beingrelated to banking business or for being a threat to the interest of depositors.Among prohibited operations we find the following:To finance the purchase of stock or titles issued by related companies.To purchase their own stock or accept it as collateral.To purchase real estate that is not necessary for their operations.
Pellerano & HerreraAttorneys at lawTo assign their assets to stockholders under lower conditions than thoseprevailing in the market.To make investments in the capital of insurance companies, pension fundsand investment funds.To give their complete portfolio, investments or assets as collateral.In relation to minimum capital requirements, the statutory provisions take intoaccount international standards inspired on the Basel Capital Accord. The lawdefines in Article 46 the notion of “regulatory capital” (“patrimonio técnico”),which is the basis for the capital regime and includes the following rules:The capital ratio shall not be lower than 10%, where the numerator is theregulatory capital and the denominator the risk-weighted assets (article 46.e).A part of the control of credit risk exposure results from the prohibition oftransactions entailing direct or indirect financing of more than 20% ofregulatory capital to a single risk person or group (Article 47.a).Credits granted to shareholders, managers and employees should not exceedthe total amount of 50% of regulatory capital (Article 47.b).The total value of fixed assets belonging to the financial entity shall notexceed 100% of regulatory capital (Article 48).Law 183-02 reaffirms the obligation to maintain liquid assets with the CentralBank under the system of reserve ratio (Article 50), which is a specified percentageof deposits, pursuant to the relevant regulations of the Monetary Board(Article 26.b).The law provides a transition period of two years for allowing existing financialentities to adapt to the new requirements (Article 86).e) Bank Transparency and Consumer Protection. Transparency rules are establishedin order to make easier the supervision of financial entities. Minimumrequirements of internal management are provided by establishing certain operationalprocedures, obliging financial entities to provide specific documentationin relation to their operations (Article 51), and establishing that they shall haveadequate systems for risk assessment, independent mechanisms of internal controland a clear written description of administrative policies (Article 55).Law 183-02 creates a legal regime of accounts, financial statements and audit ofaccounts of financial entities (Article 54).It also provides minimum rules for the protection of bank consumers, by imposingcertain obligations of information and treatment of claims (Article 52).Moreover, since the banking business is a typical sector for mass agreements,basic principles are established in order to prevent unfair contracts (Article 53).81f) Criteria of Bank Supervision. The reform exchanges the model of financialsupervision based on the notion of joint administration or State franchise on thebanking business for a model of preventive supervision, based on a scheme ofpermanent follow-up of minimum liquidity and solvency requirements in orderto prevent insolvency.
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FOREWORDA place to invest ...The Do
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