To protect the interests of depositors and to maintain the stability of financial system, the central banks or other assigned institutions have the duty to ensure the regulation and prudential supervision of commercial banks. These objectives can’t be achieved unless prudential norms and indicators are established, their compliance is monitored, and if appropriate, sanctions are imposed to prevent and limit the risks. In addition, taking into account the possibility to calibrate risks, the sanctions aim to correct the modus operandi of the bank as a whole, and individually, of key persons, who ultimately decide on the level of assumed risks. The international financial leaders have reached a consensus on the need to strengthen supervision and prudential regulation framework because of pressing negative effects and frequency of banking crises. The new Basel III Agreement is the outcome of many debates and covers a number of reference norms designed to reform and strengthen the worldwide financial industry. As regards the relevant intervention measures and sanctions, the new provisions aim to standardize both their level and implementation mode or triggering conditions. Though the new provisions fundamentally affect the bank’s profitability, a number of countries started to implement them in 2011, being aware of the need to maintain the macro-prudential balance.
The Moldovan national authority assigned to supervise the banking sector (NBM) did not have the capacity to adjust in due time the relevant regulations because it was constrained by the political and judicial environments. Though the 2014-2015 banking crisis revealed the risky and fraudulent activity of some banks, the sanctioning mechanism of that time proved itself incapable of deterring some people from getting involved in extremely risky activities and, finally, of avoiding the committed frauds. Besides the low level of sanctions, the intervention levers and capacity to impose fines was significantly limited by the improper legal framework that has allowed other state institutions to cancel the NBM’s decisions. As a result, the crisis, triggered by significant deviations in the prudential activity of the banks, revealed that the intervention mechanism is inefficient, the consequences of the improper behavior are momentous, activity standards are eroded and even that the banking ethics declined.
It was only in 2016 when the political decision-makers, being practically forced to rectify the situation in the banking sector and resume external financing, initiated a number of amendments to the basic banking legislation in order to harmonise it with the international practices. During the last year, a number of amendments aimed to increase the capacity of intervention and of surveillance tools, including sanctions, were made to the Law on Financial Institutions. Thus, following the approval of the aforementioned amendments and the Bank Recovery and Resolution Law, the level of sanctions increased significantly, about 10 times, and tends to correlate with Basel III. However, an important aspect is that the new sanctions cannot be imposed retroactively on acts committed before they were enacted, in other words, on the acts committed during the period of banking fraud.
Taking into account the process of reform, through this Note we intend to carry out a comparative and qualitative analysis of the existing financial sanctions from the perspective of best international practices, especially the European Community legislation. The objective consists in determining how the corrective measures stipulated by the current national banking legislation can foster a change of the culture and behaviour in the banking environment. Though in the case of banking fraud we are aware of the role of other types of sanctions, such as the criminal ones, we state however that these are rather a reaction to an already committed act. Therefore, we will further focus our attention only on the sanctions that may be imposed by the NBM under the banking legislation, or if imposed in due time they aim to rectify the identified shortcoming at an early stage and to bring the bank on a prudent activity line.
This publication has been funded by the British Embassy in Chisinau, through the Good Governance Fund. The content of this publication is the sole responsibility of the author and does not necessarily reflect the views of the British Government.