Liquidity risk management: organizational strengthening of banks - International Law Office

The new Regulation on the Core Man­agement Principles of Banks and Branches of For­eign Banks and the Criteria on the Approval of their Administrators entered into force on July 10 2009.

The regulation sets out, among other things:

• core principles and regu­lations for responsible and efficient man­agement of banks and branches of foreign banks;
• requirements for administra­tors of banks and branches of foreign banks and the requisite supporting documentary evi­dence; and
• conditions for outsourc­ing banking activities.

The regulation enables banks (without the prior approval of the Bank of Albania) to con­tract and enter into agreements with third parties in the area of telephone and market information services, such as those provided by, among others, Bloomberg, Moody's and Standard & Poor's, and common infrastructure networks, such as Visa and MasterCard. A bank may outsource the following without the prior approval of the Bank of Albania:

• certain advisory services;
• the provision of legal opinion;
• independent as­sessments; and
• activities that are generally considered to be low risk (eg, mail services, printing, the purchase of goods and equipment).

Given the financial crisis and the greater emphasis on liquidity manage­ment, the Bank of Albania has provided new competencies for the Steering Council and the directorate. Their key function is to ensure that banks and foreign branches have adequately robust internal organizational structures to manage liquidity risk. They must be familiar with the risk profile and ensure that banks' capital levels sufficiently cover any risk.

The council has a super­visory role and the directorate has a more hands-on, daily management role. The council reviews and assesses:

• the development and maintenance of a bank's adequate professional expertise in line with the growth and degree of complexity of the bank's activities;
• the financial security and stability of the bank and the implementation of applicable acts and by-laws;
• the prevention and avoidance of potential conflicts of interest in the activities and deci­sion-making process of the bank; and
• the protec­tion of the interests of customers, investors and members of the general public who may be affected.

The directorate shall, among other things, organize and continuously manage a bank's activity.

Changes brought about by the regulation in relation to administrators focus mainly on the criteria for their appointment. For example, the evaluation procedure for the appointment of a foreign citi­zen as an administrator shall now take place in two stages. During the first stage the Bank of Albania evalu­ates the documentation submitted and, if such documents prove that the criteria have been met, shall grant its initial approval. During the second stage the Bank of Albania grants final ap­proval once the relevant work and residence permits have been produced.

For further information on this topic please contact Irsida Gjino at Kalo & Associates Law Firm by telephone (+355 4 2233 532), fax (+355 4 2224 727) or email (i.gjino@kalo-attorneys.com).