Commercial Banking Licensing

May 14, 2007 at 1:50 am Leave a comment

Commercial Banking Licensing

MongolBank
Commerce Street – 6
Ulaanbaatar – 1 1
Telephone: (976) 1-328-482
Facsimile: (976) 1-311-471
Contact: B. LHAGVASUREN, Director, Banking Supervision

Investors in commercial banking must apply to Mongol Bank for a banking license. Under the Banking Law, only banks and financial institutions are permitted to establish branches or subsidiaries or otherwise invest in banks financial institutions in Mongolia. Any foreign financial institution in good standing in its home country can apply to invest in commercial banking in Mongolia.

The bank licensing procedure is more rigorous than most other sectors. Investors wishing to engage in banking activities must provide detailed information on their banking activities outside Mongolia and management experience. As a signatory to the Basle Convention on Banking Supervision, Mongolia will cooperate, through Mongol Bank, with foreign Central Banks regarding licensing and supervision of foreign banks in Mongolia.

Unofficial Translation
Appendix 1 to the Resolution
No 375 of the Governor of the Bank
of Mongolia, dated August 7, 2000

REGULATION ON LICENCING OF
THE BANK AND ITS UNITS
ONE. GENERAL PROVISIONS

1.1. The purpose of this regulation is to regulate relations with respect to licensing of
the bank and its units, authorization to restructure a paid-up capital of the bank, verification of
evidence and revocation of a license by the Bank of Mongolia /BOM/ based on the Articles
20, 24 and 27 of the Banking Law of Mongolia.
1.2. The BOM shall accept application and other related documents for a bank
license from the founders and make appropriate decision while verifying them in accordance
to this regulation.
1.3. The BOM shall equally treat applications for bank license regardless of
ownership of the bank, form of its foundation and type of activities by applying the same
requirements and principles indicated in the legislation unless law otherwise provides for it. If
necessary, the BOM may impose certain restrictions and special requirements concerning a
type of activities, assets, liabilities and other items of the bank.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
1.4. In accordance with the Law on foreign investment of Mongolia, bank with
foreign investment means a bank founded by single or few foreign banks or financial
institution in Mongolia or operating bank whose shares have been bought by foreign investor.
In accordance with the Law on foreign investment of Mongolia, foreign bank branch
means a branch, which is a legal entity and it is founded by foreign bank in Mongolia.
In order to establish bank with foreign investment or foreign bank branch, they should
meet requirements set up in legal acts.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
1.5. The bank can be a shareholding or limited liability company by form of its
foundation, and general or specialized by type of banking activities.
1.6. The bank can be established by subscribing new capital, issuing share,
accepting share orders and restructuring /acquiring, merging, segregating, separating and
transforming/ in accordance with the articles 13 and 18 of the Company’s Law of Mongolia.
1.7. The taxation authorities shall first provide the authorization for the bank name,
then after having license for bank foundation and banking business from the BOM, the bank
shall start its operation by registering its name with the Intellectual Property Department.
1.8. Bank should clearly incorporate its name and location into its chapter, and in a
case of change of name or location, bank should receive approval from the BOM and tax
authorities, and shall register it with the Intellectual Property Department.
1.9. The banking unit shall use only the name of its headoffice and be provided a
special branch code by the BOM. A number for banking units shall be provided in accordance
with the sequence of its foundation.
TWO. REQUIREMENTS FOR BANK FOUNDATION
2.1 Any citizen, legal entity, foreign bank and financial organization, who desires to
form a bank /in the form of shareholding or limited liability company/ shall complete fully and
accurately the following documents that comply with the Articles 18 and 19 of the Banking
Law of Mongolia and requirements of this regulation, and shall submit original copy to the
BOM. Documents indicated in 2.1.8 of this regulation shall be provided in the final phase of
application process:
2.1.1 An application for license to found bank
An application shall be written in accordance with the Appendix 1 of this regulation
and attach the following documents:
1/ A decision of founders’ meeting, at which share orders have been taken and their
payment was made in accordance with the regulation set by the Security and Exchange
Commission and a letter of registration from the Security and Exchange Commission if the
bank is founded in a form of shareholding company by selling public share orders.
2/ A decision of all shareholders’ meeting in the case of restructuring of the bank that
has operated as a limited liability company into the shareholding company and license from
the Security and Exchange Commission.
In accordance with the Banking Law of Mongolia, payment for share orders shall be
made only in cash.
2.1.2. Bank Foundation Agreement
An agreement shall be made in accordance with the Civil Law of Mongolia and the
following items should be agreed in it:
1/ form, structure, organization, type of business and operation of the bank,
2/ a principle of collaboration of the founders, rights and responsibilities of each
founder,
3/ form of investment into paid-up capital, its term, classification and type of shares,
amount and size of each type, term for their purchase if founders are buying company’ shares,
4/ other necessary items,
This agreement shall not apply for the bank with a single founder.
2.1.3. A decision of the meeting of the founders
The founders shall hold a meeting to form bank and official decision should be taken.
As for a single founder, his/her decision shall be considered as a decision to found a bank.
Decision shall include charter of the bank, share order, price for new shares, amount, term for
purchase and method of payment as well as whether the bank will have the Board of Directors
/BOD/ and Supervision Committee, if it will do so, regulation on nomination and work of their
chairperson and members, and appoint executive director and members. Also other required
issues shall be discussed and decided, and chairman elected by this meeting shall confirm the
decision by signing it.
For the founders that form the bank by offering share orders or issuing the new orders,
decision of the founders meeting shall be made upon consideration that condition has been met
if the amount for share payment reaches the minimum limit of paid-up capital required by the
legislation.
A decision shall have the following materials attached:
1/ list of shareholders that will invest in paid-up capital of the bank,
2/ the following references from concerned authorities on top ten shareholders (if
capital provided by top ten shareholders does not constitute 51 percent of paid-up capital, then
on shareholders, whose holdings in total represent a share no less than 51 percent of paid-up
capital) shall be submitted:
a/ references obtained from all banks, Mongolian Asset Recovery Agency and Credit
Information Bureau whether he/she has any past due loans or guarantee,
b/ references obtained from the custom and taxation authorities with a management
signature, which informs whether there is tax debt owed by the founders,
c/ reference obtained from the management of a department or division of the General
Department of Police, which informs whether he/she had any past criminal record,
d/ reference obtained from Chairman of founders meeting that confirms the chairman
and members of the BOD are bank shareholders if the founders meeting decided to have BOD,
e/ reference obtained from Chairman of the founders meeting that confirms ethical and
business reputation of the Chairman and members of the BOD,
3/ Depending on the country-specific conditions, if it is impossible to submit the
references indicated in the article 2.1.3, paragraph 2, bank with foreign investment, foreign
bank branch founders may not submit it.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the BOM. /
2.1.4. Charter of the bank
In accordance with the Articles 16 and 17 of the Company’s Law of Mongolia and
Article 26 of the Banking Law of Mongolia, charter of the bank should include the following
items and must be approved by the founders meeting:
1/ name of the bank and address of its location,
2/ forms of ownership and foundation, directions of business and operations,
3/ amount of paid-up capital /number of shares for shareholding company, nominal
price, number of preferred shares if preferred shares have been announced and rights of the
owners/, condition to make changes into composition of the paid-up capital structure,
4/ if the BOD to exist, then operational regulation on shareholders’ meeting and BOD,
rights and duties of executive director, a separate regulation on how deals, which would
substantially effect bank activity, will be carried out,
5/ operational regulation for the Internal Audit Department reflecting audit procedures
in accordance with the Manual for the internal audit operations approved by the BOM,
6/ rights and responsibilities of the shareholders meeting, the BOD, the Supervision
Council and the Internal Audit Department,
7/ issues related to protecting a reputation of the bank and its employees and providing
their safety and social security,
8/ legal reasons to regulate share trading, share transfer to others, reciprocal limitation
and other issues indicated in legislation,
9/ reasons to close bank, methods and forms to eliminate damages caused to the
customers by the inappropriate management actions and principles of being liable,
2.1.5. Economic reasons to found a bank
The economic reasons to found a bank shall be written introducing business activities
that identifies and summarizes economic reasons for bank based on service directions, scope
of banking services, loan, deposit and settlement operations while considering actual
requirements of the particular location. It shall present bank’s beginning balance and five-year
business plan from the date of bank operation.
The business plan shall be worked out based on the sample methodology indicated in
the Appendix 2 of this regulation including balance sheet, cash flow, income and statement of
the bank.
The legal documents with policy specifications /charter, regulation and guidelines on
business, and general condition for business and service/ shall be attached to the business plan.
2.1.6. Financial statements of the founders and shareholders shall include the following
items:
1/ Top ten shareholders invested in paid-up capital of a bank (if capital provided by top
ten shareholders does not constitute 51 percent of paid-up capital, then on shareholders, whose
holdings in total represent a share no less than 51 percent of paid-up capital) – financial
statements of a legal entity for last two years audited by the audit organization /auditor/, a
notarized copy of shareholder’s financial statements of bank with foreign investment and the
headoffice’s financial statements for past three years, in a case of foreign bank branch
licensing and note for identification of individual income tax due from the individuals.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2/ Bank with foreign investment and foreign bank branch should attach following
materials:
– Official approval papers to open branch in Mongolia from licensing institution,
– A decision of the applicant institution to establish bank or branch in Mongolia,
– An evidence that bank or financial institution has been registered in their home
country,
– Rating of this bank provided by the international rating agencies.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2.1.7. A description of management and personnel of the bank
The following legal entity should present description in accordance with the Appendix
3 of this regulation.
1/ Founder or shareholder, chairman and members of the BOD, the management of the
Internal Audit Department and employees that shall work as an auditor,
2/ Legal person that shall work as bank Executive Director, management of the
departments, divisions, other officers, management committees, management of any branch,
chief accountant and loan officer.
2.1.8. A description of hardware and software and terms of reference
The description shall be made in accordance with the Appendix 4 of this regulation
and it should include in detail how safety of hardware and software, job place, confidentiality,
guard and security issues will be solved. As an appendix, it should contain evidence that
confirms that software has been connected both to the BOM clearing network and Credit
Information Bureau and is ready to function. Police or other similar organizations shall
provide security.
2.1.9. The legal documents with policy specifications to be followed in the operations
/charter, regulations, guidelines, general terms of business and services, other materials/.
2.1.10. Bank with foreign investment and foreign bank branch should meet the
following requirements:
1/ the paid-up capital should not be less than minimum capital requirement for
domestic banks,
2/ at least 70 percent of the staff should consist of Mongolian residents,
3/ in a case if executive management is foreign resident, than institution should have
full-time translator
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2.2. In a case of bank with foreign investment and foreign bank branch, licensing of
documents indicated in the article 2.1 should be prepared in the both language of home
country and Mongolian (2 copies each) and translated copy should be notarized.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
2.3. A term of 60 days to verify the application and make appropriate decision
indicated in the third part of the Article 20 of the Banking Law of Mongolia shall be counted
from the date when founders presented their documents to the BOM in complete and accurate
form.
2.4. The founders may have professional and methodological advise by the
Supervision Department of the BOM regarding document completion.
2.5. After bank receiving a license from the BOM to conduct banking business, if there
is a need to revise documents mentioned in 2.1 article of current regulation, then bank should
present those changes to the BOM within 7 working days and get an approval.
THREE. VERIFICATION OF THE DOCUMENTS TO FOUND A BANK
3.1. Based on the banking legislation, the Supervision Department of the BOM shall
undertake the following procedure of verifying documents presented by the founders, which
are indicated in current regulation:
3.1.1. It shall verify whether documents indicated in this regulation, which have been
presented, are full and complete.
3.1.2. It shall make a conclusion in cooperation with Legal Division of the BOM
whether submitted documents and their contents meet the requirements of legislation as well
as of this regulation.
3.1.3. It shall verify whether there is a payment slip or other equivalent evidence,
which confirms that shareholders have met their obligations to invest their contribution to the
paid-up capital and purchased shares, as well as whether funding source of the shareholders
contribution is a profit from their operation.
3.1.4. The business plan of the bank shall be verified against the fact that whether it is
developed taking into account a density of local population, direction and scale of local
production and services, actual requirements of deposit’ loan and fund placement and other
external and internal factors. It shall also verify and summarize whether study of impact on
stabilization and acceleration of national economy.
3.1.5. It shall verify that whether other legal documents with policy specifications /
charter, regulations and guidelines on business and service, general condition for business and
service and regulation for internal audit/ are in compliance with legislation and confirm that
bank can make profit through the way of effective placements of funds of the customers and
deposit owners. It shall verify whether internal audit system of the bank and its principle of
operation are systemized to meet minimum internal audit requirements and it is capable to
identify and assess both loss and risk of loss, whether it has established dual audit system that
will apply an audit to all levels of the management and reflect in detail its rights and
responsibilities as they are indicated in the law, and whether internal audit management and
staff have such knowledge and experience.
3.1.6. It shall verify whether shareholders, the chairman and members of the BOD, the
director of the Internal Audit Department, management of other departments, divisions, units
and committees, the chief accountant and staff of the internal audit and credit department of
the bank complies with legal and ethical requirements as well as criteria’s of professional
knowledge and work skills to undertake banking business.
3.1.7. It shall make on-site verification whether preparations of hardware, software and
work place meet minimum requirements of reliable and secure banking business, whether they
are connected to clearing network and Credit Information of the BOM and ready for
appropriate operation and whether guards will be able to provide with responsible and reliable
security under the joint contract made with police and other similar organizations.
3.2. In accordance with the Article 18 of the Banking Law of Mongolia, the BOM has
right to approach legal and tax authhorities, audit, banks and other organizations to have
reference and information on the required issues or undertake investigation together with
professional organizations.
3.3. The Supervision Department shall officially inform the founders and require
additional documents, if documents submitted for bank foundation license are considered to be
incomplete and insufficient during their verification.
FOUR. GRANTING A LICENSE TO FOUND BANK
4.1. In accordance with the Articles 17-20 of the Banking Law of Mongolia and this
regulation, the Supervision Department shall verify the documents submitted by the founders
for bank license and it shall make on site examination of required issues. If as a result of
verification, documents are considered to fully comply with the requirements indicated in the
Part Two of this regulation, then the Supervision Department shall work out a proposal in
accordance with the Appendix 5 of this regulation using comments by the Legal Division, and
present it to the management of the BOM or submit to the Board of Directors’ meeting for
resolution.
/ This part was revised by Resolution No 352 of August 10, 2001 of the Governor of the BOM.
/
After the BOM concluding “Memorandum of understanding” with the home country
supervisory authority to have cross border joint supervision, the BOM will decide a matter of
licensing foreign bank branch. The BOM may supervise bank with foreign investment with
cooperation of home supervisory authority.
Before discussing a bank with foreign investment and foreign bank branch at the
meeting of the Board of Director’s of the BOM, the paid-up capital amount should be placed in
the special account at the BOM.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the BOM. /
4.2. Based on the decision of the Board of Director’s of the BOM and related legal acts,
the Governor of the BOM shall make a final decision on whether to grant bank license. This
decision shall reflect what type of business has been authorized for the bank and maturity of
the license, if it is issued for certain period of time.
A license for non-cash settlements except interbank settlements shall be issued as an
additional license.
4.3. The Supervision Department shall present a license to the bank based on the
payment of fee of 1,000,000 togrog paid to the BOM, and resolution of the Governor of the
BOM issued in accordance with the article 4.2 of this regulation.
The Accounting Department of the BOM shall deduct a charge from above mentioned
service fee as a registration fee in the amount as it is indicated in the State stamp duties of
Mongolia and transfer it to state budget account within 7 working days.
4.4. Based on the resolution of the Governor of the BOM for the bank license, the
Supervision Department shall register the bank and it shall open and maintain a file in
accordance with appropriate guidance.
FIVE. REFUSAL TO GRANT A BANK LICENSE
5.1. The BOM shall refuse to issue a bank license due to the factors indicated in the
Article 21 of the Banking Law of Mongolia. They include:
1/ Specifications indicated in the Articles 17, 18, 19 and 20 of the Banking Law of
Mongolia are not fulfilled,
2/ The charter of the bank contradicts the Company’s Law of Mongolia, Banking Law
of Mongolia and other legal acts,
3/ It has been confirmed that the bank have not fully subscribed a paid-up capital at the
level, which meets bank requirements in accordance with the appropriate regulation
/resolution of the shareholders meeting to stop bank establishment due to the fact that issued
and offered shares have not been sold, or it becomes clear that shareholders will not able to
invest their contribution to paid-up capital at the specific time agreed by the contract/ or paidup
capital has been set up by loans,
4/ Documents completed for bank license are false, and people nominated for the bank
management position have not met requirements indicated in the legal acts,
5/ Other requirements, which are indicated in this regulation, have not been met.
5.2. In the case of refusal to grant a bank license on the basis of reasons indicated in
the Article 5.1 of this regulation, the Supervision Department shall provide founders with
appropriate written explanation.
SIX. LICENSING OF BANKING ACTIVITIES
AND THEIR POSSIBLE LIMITATIONS

6.1. The BOM shall provide the bank with license for the banking activities indicated
in the Articles 4, 6, 8, 9, 10, and 12 of Part 1 of the Paragraph 6 of the Banking Law of
Mongolia only in following cases:
/ This part was revised by Resolution No 451 of September 29, 2000 of the Governor of
the BOM. /
1/ The bank has fully complied with the requirements indicated in the Article 15 of the
Banking Law of Mongolia and operated for more than one year on regular basis,
2/ The bank that operated for more than one or more years from an issuance of the
bank establishment license has fully complied with the requirements indicated in the Article
15 of the Banking Law of Mongolia and operated for more than six months on regular basis,
/ This part was added by Resolution No 451 of September 29, 2000 of the Governor of
Bank of Mongolia /
3/ The bank had “Good” or better mark after to the on-site examination conducted by
the Supervision Department,
6.2. A license for forex settlement shall be issued by the International Department of
the BOM on the basis of special regulation on approved by the Governor of the BOM.
6.3. An application for a license of additional banking activities should maintain
detailed description of additional business, demand for it, funding source, required hardware
and software to undertake additional businesses /accounting, credit information bureau and
etc/, changes to be made regarding work place, management, personnel, banking operations,
financial positions, and bank shall submit them together with the following documents:
1/ a management decision to engage in certain business, required additional capital and
estimation of their funding source,
2/ amendments in the charter of the bank,
3/ related amendments to be made in business plan and financial statements,
4/ legal documents with policy specification to be applied in business /guidelines,
regulations, instructions, general terms of service and business, etc/.
6.4. The Supervision Department along with the Legal Division shall review
documents indicated in the article 6.3 of this regulation submitted for a license of other
additional banking activities and make its comments on whether they are in line with
requirements and eligible for license for additional banking service, and the Supervision
Department shall brief management of the BOM and present it to the Board of Director’s of
the BOM for resolution.
6.5. Based on the decision of the BOD meeting and other related legal acts, the
Governor of the BOM shall make final decision whether to issue license for additional
banking activities. The Supervision Department shall make appropriate note on the Appendix
of a certificate while authorizing it based on the decision of the Governor of the BOM on the
license issuance and evidence that confirms service fee payment has made for authorization of
additional banking activities. Fee for issuance of license for additional banking activities are
200,000.00 togrog.
6.6. The Supervision Department along with the Legal Division shall review
documents submitted for license for additional banking activities and study financial position
of the bank. It shall submit an issue to the Governor of the BOM and the Board of Director’s
of the BOM if submitted documents are considered to comply with the requirements of this
regulation. The Governor of the BOM and the Board of Director’s of the BOM shall review
and discuss recommendations from Supervision Department and Legal Division. And if they
decide to refuse a request for additional banking activities, then the Supervision Department
shall inform applicant bank about refusal by sending an official letter within three working
days from the date of final decision. If the recommendations are considered to be not
reasonable or incomplete then case shall be given back to the appropriate department with
certain assignments.
6.7. The BOM shall restrict and cease operation of the bank, revoke and rescind the
license based on the following reasons:
/The phrase ” in accordance with the license for other additional banking business”
has been excluded by the Resolution No 451 of the Governor of the BOM of September 20,
2000/
1/ the requirements indicated in 1 and 2, Section 2, Article 15 of the Banking Law of
Mongolia have not been complied for duration of three months,
2/ the Banking Law of Mongolia and other legal acts have been violated,
3/ bank itself has requested it,
4/ other reasons indicated in the legal acts,
SEVEN. AUTHORIZATION AND REGISTRATION BY THE BOM
OF THE CHANGES TO BE MADE TO THE BANK PAID-UP CAPITAL

7.1. The bank shall subscribe its paid-up capital in accordance with the article 27.2 of
the Banking Law of Mongolia. The paid-up capital of the bank may be subscribed in the
following ways:
1/ by cash invested by the founders or shareholders when the bank has been initially
established,
2/ with authorization from other shareholders making new investment and issuing
additional shares from current year dividends, which resulted from banking activities.
7.2. In accordance with the article 17 of the Banking Law of Mongolia, legal entity that
has funding from state budget, religious and non-government organizations and humanitarian
foundations are forbidden to make investment in bank’s paid-up capital and buy its shares.
7.3. The bank may change structure and amount of its paid-up capital by making
additional investment and issuing additional shares from the current year dividend, which have
resulted from banking activities with authorization from other shareholders, selling the shares
of shareholders to other interested parties /in the case of shareholding company it will sell the
shares on the stock exchange/, or enforcing the court decision and directive of the bank
receiver that confirms that paid-up capital has been subscribed on illegal basis, or making
transfer of shares by inherited, granted and testamentary ownership in accordance with the
Civil Law of Mongolia. The BOM should be informed of any changes on timely basis and
provide appropriate authorization. The following documents shall be submitted for the license
to the BOM before making any transactions or payments.
1/ an application,
2/ an evidence that confirms compliance with law to make changes or decision of
shareholders meeting that has authorized an issuance of new or additional shares, report from
the bank or stock exchange and related agreements that confirm sale of shares, decision of the
receiver that rescinds rights of the former shareholders and authorizes new shareholders to
make investment or court decision that confirms that paid-up capital has been subscribed on
illegal basis and evidence that confirms ownership right was inherited, gifted and bequeath in
accordance with the Civil Law of Mongolia.
3/ a reference obtained from respective organizations confirming information as
indicated in the article 2.1.3 of this regulation regarding shareholder (shareholders) who is
included in top ten or shareholders, whose total amount of holding is not less than 51 persent
of paid-up capital, and other evidence showing their purchased shares are generated from the
net profit made on the legal operation.
/ This part was revised by Resolution No 282 of June 20, 2001 of the Governor of the
BOM. /
4/ / This part was excluded by Resolution No 352 of August 10, 2001 of the Governor
of the BOM. /
5/ a reference on person if this person shall be a part of the bank management team
/Appendix 3 of this regulation /
6/ amendments to the charter of the bank regarding changes in the amount and
structure of the bank’ paid-up capital,
7/ a license obtained under appropriate regulation and reports of the bank and Stock
Exchange on the sale and purchase of shares if the bank has been established as a shareholding
company,
7.5. The BOM shall review whether documents indicated in the article 7.4 of this
regulation have complied with the following requirements and officially inform the bank
whether to authorize the changes of amount and structure of paid-up capital:
1/ a decision of the stockholders meeting to accept or issue the new shares, legal basis
for agreement of sale, purchase and future purchase of shares, authorization of the
shareholders agreeing to those changes, evidence that confirms trading at stock market has
been accurate and legitimate as for shareholding company, court decision if the shares has
been transferred by the court and legal evidence confirming ownership transfer,
2/ Information indicated in the article 7.3 of this regulation is confirmed by the
reference from appropriate organizations that there is no violation,
3/ A citizen or legal person that requested to establish the bank should comply with the
requirements indicated in the Banking Law of Mongolia as well as other requirements of
section 2 and 3 of this regulation.
7.6. In a case if the bank management has been newly appointed due to changes in the
amount and structure of the bank paid-up capital, the bank shall make study and conclusion
whether the candidates complied with the requirements indicated in the paragraphs 6 and 8 of
the article 25 of the Banking Law of Mongolia and will inform in written form the Supervision
Department about its decision within three working days when decision has been made.
7.7. If required, the Supervision Department shall undertake on-site examination
whether bank request for modification of the paid-up capital’s size and structure is complete,
and bank management has complied with appropriate requirements of the legal acts. It shall
make decision whether to authorize modification of the bank paid-up capital, its restructuring
and related changes of management team within 30 working days and inform the bank about
its decision by sending an official letter. If the BOM does not agree with the changes in
management structure, the bank may appoint another management and re-submit the request.
7.8. Based on the authorization from the BOM, the bank shall make transaction that
changes its paid-up capital and inform the BOM about it within three working days by sending
an official letter.
7.9. The bank shall make a contract with new shareholders after it receives an
authorization from the BOM.
7.10. The bank shall open a file for each shareholder that has invested in paid-up
capital, maintain the following documents, attach related evidence on regular basis and
maintain a record:
1/ related decision to invest in the paid-up capital and purchase the shares and an
authorization of the BOM,
2/ contracts made between the shareholder and bank to make investment in paid-up
capital,
3/ reference from appropriate tax authorities on the shareholder’s state registration as
for legal person, passport or identification card, its number, registration number, citizenship
and permanent residence address,
4/-transaction slip of the bank or its copy, which confirms that investment in the bank
paid-up capital has been made,
5/ decision of the changes made in shareholding capital and allocation of dividends and
transaction slip,
6/ evidence that identifies the shareholders,
7/ evidence that confirms decision of the shareholders meeting, which has approved a
charter of the bank and its amendments, attendance of the meeting.
7.11. The bank that operates as a shareholding company should submit daily trading
report of its shares /from Stock exchange/ to the Supervision Department.
7.12. The bank shall submit its report of paid-up capital structure to the Supervision
Department semiannually within 30th of the first month of next half of an year.
7.13. During its on-site examination, the BOM shall verify whether paid-up capital
transaction has been carried out appropriately.
EIGHT. LICENSING OF BANK UNIT
8.1. The branch, sub-branch, cash counter and foreign currency counter representative
office are forms of bank unit.
8.2. The branch of the bank is a unit that carries out all types of business authorized by
the BOM to the bank.
8.3. The sub-branch of the bank is a unit with limited authority that does lending and
other businesses authorized to the bank. A management of the bank shall decide whether to
establish the sub-branch, which has enough professional staff and equipment, and secure work
place.
8.4. Cash counter of the bank is a unit that provides limited banking service including
acceptance of individual deposits, all other relevant and non cash settlements, however, it does
not provide lending and current account service and business for legal entities. Management of
the bank shall decide whether to establish cash counter, which has enough professional staff,
and equipment, and secure work place.
8.5. Foreign currency counter of the bank is a unit that only buys and sells foreign
currency.
8.6. Representative office of the bank is a unit, which does not engage in business,
however, only represents the bank with duties to make agreements and negotiation and
provide an information.
8.7. The bank that complied with the requirements indicated in the article 1.2 of the
paragraph 6.1 of this regulation may found its branch. License for the branch foundation
should be solicited from the BOM. The branch can have sub-branch, cash counter and foreign
currency counter. The bank can limit the branch operation by certain type of products and
services and it should inform the BOM about any limitations.
8.8. The bank (including the bank with foreign investment as well as foreign bank
which operates under the authorization of the BOM) should complete the following documents
and present them to the Supervision Department:
1. proposals on opening of the branch both from the bank and local authority where
branch will operate
2. bank operation procedure and legal documents that will regulate the opening,
functioning, and closing of the branch
3. CV’s of the personnel, who will work in the branch
4. location of the branch office, equipment, software and computer characteristics, be
used for the branch operation
8.9. If foreign bank opens its representative office in Mongolia, it should submit the
documents besides those indicated in the article 8.8 of this regulation as well as the following
ones indicated in the Article 19 of the Banking Law of Mongolia:
1/ Financial statements of the bank for last three years that are audited and certified by
authorized audit organization,
2/ Official document from the authorized organization of the host country to issue the
bank establishment license to open the bank branch and representative office in Mongolia,
3/ Rating and assessment of the bank by the international rating agencies.
8.10. The Supervision Department will review documents indicated in the paragraphs
of 8.8 and 8.9 of this regulation whether they comply with the legal requirements as well as
the requirements indicated in 1.2 of paragraph 6.1. It also will develop and approve branch
operation regulation, legal documents that will regulate the opening, functioning and closing
of the branch, check whether it has been registered in the Legal Division and present to the
Governor of the BOM.
8.11. The Governor of the BOM will make final decision whether to authorize the bank
to open a branch. Based on decision of the Governor of the BOM and paying slip for branch
authorization fee of 500,000 togrog, Supervision Department will confirm authorization for
branch by making appropriate note on the bank certificate appendix.
8.12. If foreign bank establishes its representative office, this matter shall be decided
based on the negotiations and agreement made with the BOM, and it shall be officially
registered by the BOM.
8.13. Every time when the bank will open, close, limit operation, restructure
(consolidate, merge, separate and segregate) and change locations (moving branch locations to
other banking office, exchange locations between them and move) between the branches and
transfer) of the banking offices except branch, it should make appropriate decision and inform
the customers and present evidence to the BOM and register with the BOM within three days
when decision has been made.
If the foreign bank closes its representative office or moves its location from Mongolia
to another place, it shall inform the BOM. In a case of restructuring /merging, combining,
segregating separating and modifying/ of two or more operating branches and representative
office, an authorization should be solicited from the BOM.
8.14. The BOM shall rescind decision of the bank that established its office if the bank
has financial difficulties, or it has conducted businesses that did not comply with existing
banking regulation, or it did not fulfill assignments given by the BOM, or financial situation of
the bank is considered to have negative impact on banking system.
8.15. The bank shall include description of movement of its offices and their location
in the financial statements and present them to the BOM.
NINE. ABOLISHING A LICENSE FOR FOUNDATION OF THE BANK
AND ITS OFFICES, OR ABOLISHING A LICENSE FOR CERTAIN
TYPE OF BUSINESS ACTIVITIES

9.1. The BOM shall abolish the bank establishment license on the following reasons:
1/ authorized organizations as the court, the BOM and stockholders meeting have
announced that the bank has become bankrupt, insolvent or has been closed,
2/ it has been confirmed within a year when the bank had state registration, or bank has
presented false documentation,
3/ operations have not started for more than a year after the bank has state registration.
9.2. If the license for bank foundation has been abolished, the Supervision Department
shall seize the license, put “Invalid” seal on, add to the bank file and pass to the archive under
appropriate regulation.
9.3. The branch license shall be on the following reasons:
1/ decision of the bank management to close its branch,
2/ decision of the BOM has been made based on conclusion that identifies activities of
the branch are harmful to the banking system, economic security of Mongolia or customer
interests or it may cause difficulties to the regular activities and liquidity of the bank,
3/ in the case of the branch of foreign bank except of the sub-article 1 and 2, decision
of the BOM will be made based on the home country supervisory authority’s decision to
withdraw the banking license on the reasons of head office having financial difficulties,
bankruptcy and become insolvent, and other reasons to withdraw the banking license.
4/ other reasons indicated in legal acts.
/ This part was added by Resolution No 352 of August 10, 2001 of the Governor of the
BOM. /
9.4. If the BOM abolished a license for bank establishment and its offices and to be
engaged in certain type of banking business in accordance with the Banking Law of Mongolia,
the request for issuing the license shall not be reaccepted within a year. After certain period of
time, the bank may again complete appropriate documents and submit them in accordance
with this regulation.
9.5. If the bank continued to be engaged in business without eliminating reasons
suspension for that which led to limitation of its activities or there is not sufficient condition
for rescinding of limitation within six months since limitation of some bank activities has been
imposed and abolishment of the license on the basis stipulated article 6.8 of this regulation,
then the license for certain bank business shall be annulled.
9.6. The BOM shall inform the public as well as customers if it has suspended or the
license issued for banking activities.
9.7. In the case of the license suspension for branch or some type of business, the bank
can request to restore a license if it considers that discrepancies are eliminated and the bank
has returned to regular operation.
TEN. RESPONSIBILITIES AND CONTROL
10.1. The BOD, the Audit Council and the Internal Audit Unit of the bank shall
supervise movement, location, process of making changes in the amount and structure of paidup
capital and accounting of the bank and its branches /branch and representative office for the
foreign bank/
10.2. If the bank has established the bank and its branch and carried out banking
activities, without any authorization income of the bank and its branch shall be confiscated
while operations of the bank and its branch will be ceased bank will have to pay for loss
caused during its operation.
10.3. The expenses occurred during cassation of operations of the bank and its branch
established without the BOM the license shall be borne by person who made that decision.
10.4. If making changes in paid-up capital without the BOM license has carried out
transaction, the transaction shall be reversed and person in charge shall be held responsible
under the Banking Law of Mongolia.
10.5. Any loss caused by the business operation that hold by violating this regulation
shall be met by authorized person who made that decision.
10.6. The BOM shall supervise enforcement of this regulation, conduct on-site
examination and charge appropriate person that violated banking legislation with
responsibilities.

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Information contained in this web site are partly derived from a CD-ROM "Guide to Investment and Trade-Mongolia", produced by Foreign Investment and Foreign Trade Agency (FIFTA). All trademarks are properties of their own respective owners.

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