Annual Report 2013 Annual Report 2013 Table of Contents

3 Address of Chairman Cooperation with Financial System 44 of the Board of Trustees of FSM Offi ce Mediator and dispute resolution at court

4 Address of Financial System Mediator Financial statement/Audit opinion 47

About The Offi ce Cases reviewed by Financial 54 5 of Financial System Mediator System Mediator/Precedents

10 Activities carried out in 2013 Customary Business Practices 71 11 Financial education of consumers 15 International cooperation Questions and Answers 75 17 More Work Done List of organizations which have 79 19 Programs of the Offi ce signed/not signed the covenant to be implemented in 2014 80 Organizations and Firms which have signed the Accord 21 Statement of claims, 2013 83 Organizations and Firms which 2 have not signed the Accord We are proud to say that Mediator – an ex- trajudicial body that deals with such a touchy aspect as dispute resolution – has now become demanded, and this is the result of the previous years' hard work and professionalism.

Sincerely, Vakhtang Abrahamyan,

Board Member of the Central Bank of Armenia Chairman of Board of Trustees of the Offi ce Dear reader, of Financial System Mediator

he year under review was prominent T as the Offi ce of Financial System Me- diator played an increasingly important role and built more trust and respect in the society. In my capacity as chairman of Board of Trustees of the Offi ce of Financial System Me- diator, I would like to say thanks and extend my appreciation to Mediator and all staff of the Offi ce for their work carried out in 2013. I am happy that the Offi ce reported new achievements during the year, and what is more en- couraging is that people in both Armenia and elsewhere acknowledged this. In 2013 the number of claims and complaints of citizens fi led to the Financial System Mediator has increased by more than 100 percent compared with the previous year. While in 2012, Mediator reviewed 392 claims, the number of claims reviewed in 2013 was 818. The above brief statistics refl ects the objective criteria which points to the effective and impar- tial work carried out by Mediator and the staff of the Offi ce. In addition to its primary func- tion, the Offi ce remained committed to various initiatives, such as carrying on implementing the consumer education project, speaking at important international events, organizing an annual international conference which, happily, has become known at the regional level. 3

Address of Chairman of the Board of Trustees of FSM Offi ce I would also like to highlight the achievements of the Offi ce in the international context. In- ternational institutions view the Offi ce of the Financial System Mediator as best success- ful experience in post-Soviet countries, and therefore Mediator receives many invitations to share about how the Offi ce has started and what has done so far. In particular, Mediator has been invited to act as a spokesperson at a handful of high-status events. Also, the Of- fi ce has invited experts from the CIS, who paid visits to learn the experience of the Offi ce. By the way, our experience has been ascribed as Dear reader, exemplary and best in its form at the meeting of the CIS inter-ministerial committee dedicat- would like to speak a few words about ed to the protection of consumer rights, which I what we have done during the year was held in Astana, Kazakhstan, in June of 2013. under review and briefl y introduce core I would like to thank everyone for their dem- activities, initiatives and achievements Mediator onstrated confi dence. I believe the Offi ce will and the staff of the Offi ce had in 2013. continue doing what it’s been mandated to by In the past year, the number of claims and com- further abiding to the principles of fairness, im- plaints fi led to the Offi ce of Financial System partiality and professionalism. We will do our Mediator has almost doubled in relation to 2012. best for the benefi t of consumers as well as Because the fi nancial market has seen no signif- development and strengthening of Armenia's icant change, nor has there been an establish- fi nancial system. ment of new authority, nor any system-specifi c problem has arisen in connection with activities of the fi nancial institutions over 2013, the in- Yours truly, crease in the number of claims is, I think, due to Piruz Sargsyan, stronger public confi dence in the Offi ce of the Financial System Mediator and increased public Financial System Mediator awareness of the law and rule. The clients' feedback in the form of letters and questionnaires well supports the above statement. The increased number of claims is primarily due to the consumer education program, a key direction in the activities of the Offi ce. In implementing this program, the Offi ce always receives support from a variety of organizations and individuals, and on this occasion I would like to thank our partners, including the Re- public of Armenia Ministry of Education and Science, fi nancial institutions, high school prin- 4 cipals and university rectors.

Address of Financial System Mediator About The Offi ce of Financial System Mediator

5 he Offi ce of Financial System Mediator The Board of Trustees of the Offi ce of Fi- T is an establishment with an independ- nancial System Mediator is called to approve ent management system. The Offi ce internal policies and procedures of the Offi ce, has been incorporated as a foundation, and its hear Financial System Mediator reports, con- founder is the Central Bank of the Republic of trol the status of implementation of the deci- Armenia. The Offi ce is called to settle out any sions it has made, oversee day-to-day activities property disputes that arise between consum- of the Offi ce and its fi nancial and economic ers as natural person and fi nancial organiza- performance, approve the budget of the Of- tions. The services of Financial System Media- fi ce, any changes made thereto; oversee the tor are free of charge; the process of review of performance against the budget, approve an- complaint is explicit, fast and transparent. nual fi nancial accounts and take on other functions as required by the law. According to the The Offi ce of Financial System Mediator law, the Board of Trustees shall not interfere performs in pursuit of the following objectives: with the professional activities of the Financial • Protection of consumer rights and inter- System Mediator. ests in the fi nancial fi eld; • Fast, effective and free of charge review and handling of claims of clients; and • Enhancement of the public confi dence in the fi nancial sector.

Management of the Offi ce of Financial System Mediator consists of: • Board of Trustees, and • Manager of the Offi ce, i.e. the Mediator.

According to the Republic of Armenia Law on Financial System Mediator, the Board of Trustees of the Offi ce of Financial System Me- diator consists of 7 members, and they are appointed as follows: • one member by the Republic of Armenia Government; • one member by the Board of the Central Bank of Armenia; • one member by organizations that advo- cate protection of consumer rights; and • four members by unions of organizations.

According to the said law, the Financial System Mediator is appointed by the Board of Trustees for a 4-year term. Furthermore, the law sets forth requirements to the Financial 6 System Mediator.

About The Offi ce of Financial System Mediator Vakhtang Arthur Abrahamyan Sargsyan

Chairman of the Board Member of the Board of Trustees

Mr. Abrahamyan studied at Yerevan Institute Mr. Sargsyan studied at Yerevan State Uni- of National Economy in the period 1991-1996. In versity in the Department of Law in the period 2004, he studied at William Howard Taft Uni- 1995-1999. In 2001-2003, he earned a Master's versity, in the Department of Global Commerce: degree at the Faculty of International Relations Finances and Economy, and the Fletcher School of the same university. In 2008-2014, he served of Law and Diplomacy, Boston, Massachusetts. as head of Law Department of the Staff of the Since 2008 to date, he has been serving as Government of Armenia, and since February Board Member in the Central Bank of Armenia. 2014, was appointed as chief of the Staff of the In December of 2009, Mr. Abrahamyan was ap- Government / Deputy Minister. pointed as Chairman of the Board of Trustees of On October 23, 2013, Mr. Sargsyan was ap- the Offi ce of Financial System Mediator. pointed as Member of the Board of Trustees of the Offi ce of Financial System Mediator.

The Board of Trustees

About The Offi ce of Financial System Mediator Emil Armenuhi Soghomonyan Mkrtchyan

Member of the Board of Trustees Member of the Board of Trustees

Mr. Soghomonyan graduated from Yerevan Ms. Mkrtchyan studied at Yerevan Institute State University as economist, in 1973. In the of National Economy in the faculty of World period 2007-2009, he has served as Chairman Economy, in the period 1994-1999. In 2004, she of the Union of Banks of Armenia, and from studied at William Howard Taft University, and 1992 to date he has been serving as Chairman in the Fletcher School of Law and Diplomacy, of Executive Board of Prometey Bank LLC. Since Boston, Massachusetts. In 2010-2011, she stud- December of 2008 he has been appointed as ied at University of St Andrews, Great Britain. Board Member of the Offi ce of Financial Sys- In 2008-2013, she served as head of Consumer tem Mediator. Interest Protection and Market Behavior Unit of the Financial System Policy and Financial Sta- bility Department, and starting 2014, as head of Consumer Interest Protection and Financial Education Center at the Central Bank of Arme- nia. In December of 2008 the Central Bank of Armenia appointed Ms. Mkrtchyan as Member of the Board of Trustees of the Offi ce of Finan- cial System Mediator.

About The Offi ce of Financial System Mediator Ashot Paylak Salnazaryan Ghukasyan

Member of the Board of Trustees Member of the Board of Trustees

Mr. Salnazaryan studied at Yerevan Institute Mr. Ghukasyan studied at Yerevan State of National Economy: Faculty of Planning and University: Faculty of Mechanics and Math- Economics, in the period 1975-1979. In 1988, main- ematics, in the period 1989-1994. In the period tained a candidate (Ph.D.) thesis The Distribution 1994-1996 studied at American University of Ar- of Profi t Amidst Enhancement of Economic and menia: Faculty of Political Science and Interna- Settlement Relations and earned a degree in can- tional Relations; a holder of a master’s degree. didate of economics. Then, having maintained In the period 1999-2003, passed a correspond- a thesis Investment Functions and Effectiveness of ence course at the Chartered Institute of Insur- the Securities Market for doctor's degree in 2003, ance of Great Britain in the fi eld of insurance. he earned a degree of Doctor of Economics. In In the period 2008-2010 he served as execu- 2005, Mr. Salnazaryan was rewarded a profes- tive director of Association of Insurance Market sorial degree. Since 2011, he serves as head of Participants. Since April 2009, has been acting Faculty of Corporate Finance in State Univer- as representative of ABB Organization to Ar- sity of Economics of Armenia, and since January menia. In December of 2008, the Association 2013 serves as acting head of the Department of Insurance Market Participants appointed Mr. of Finance in SUEA. Starting from December of Ghukasyan as Board Member of the Offi ce of 2008, he serves as Board Member of the Offi ce Financial System Mediator. of Financial System Mediator.

About The Offi ce of Financial System Mediator Activities carried out in 2013

10 s it has been told previously, in 2011- A 2012 the Offi ce of Financial System Mediator designed and implemented a fi nancial education program for different target groups. The program is called to raise the level of fi nancial education of people and make sure we have fi nancially literate consumers, which, in turn, will help strengthen fi nancial intermediation in the Armenian economy. Be- cause popular information on fi nancial products/instruments in the Armenian fi nancial market is scarce, and all relevant stuff is mainly for professional usage (which makes life of non-professional users not any easier for understanding), this leads to a situation whereby people make irrational decisions in perform- ing fi nancial transactions, which in turn results in deterioration of their social and economic standing. Therefore, arrangements under such Financial a program could allow people to learn about fi nancial products/instruments, understand at- education tendant risks and be able to make as effective of consumers and purposeful decisions as possible. To this end, in 2011-2012 the Offi ce of Finan- cial System Mediator took a series of measures specially tailored to target groups. We developed popular materials and animated presen- tations and made it available to various consumer groups in a clear and handy language. The outcome of the project appeared shortly, since already in the end of 2012 we could see from the feedback of the people that there had been a substantial rise in consumers' awareness of fi nancial products/instruments, with an increased perception of the need to protect their rights and lawful interests. To maintain and strengthen what we have achieved so far, we made a decision to carry on with the program and expand its scale and geography. The Board of Trustees approved the consumer education program for 2013-2014, which added a new group of people engaged in agricultural business as well as benefi ciaries of pension reforms to the existing target groups. 11

Activities carried out in 2013 High-graders of schools of general education we were able to provide general understanding Seminars organized in 2011-2012 covered of financial instruments, explain to them how 79.8 percent of schools in Armenia, and the re- to use such instruments, advise them on their maining 20.2 percent was planned to include rights and obligations in using whichever finan- in 2013. However, in early 2013 the Office of cial service or product and warn in which cases Financial System Mediator had to accomplish to use caution when dealing with financial ser- visits to all high schools in Armenia, and it was vices/products. expected to resume the visits starting from September of 2013. The taking up of the project was due to the fact that during visits in Students/young people the period 2011-2012 seminars were conducted For this target group we have arranged for high school students of 11th and 12th grade. practical training/internships for a total of 16 As part of resumed visits to high schools in students from various universities in Armenia, September 2013, the staff of the Office facili- which helped much to involve students in our tated participation of high school students of activities and keep them informed of what we 11th and 12th grade in the dedicated seminars do in general. The internees had an opportu- (students of the 9th and 10th grade took part nity to obtain theoretical and practical knowl- in seminars in the period 2011-2012). edge of the Mediator activities and the nature The seminars which the staff of the Office of claims in particular and the financial sector arranged for students of high schools of Arme- on the whole. nia were in line with the pre-announced time- table. Specifically, seminars were held in a number of high schools, including education centers Users of financial services such as "Imastaser", school of craftsmanship Previous experience shows that the best and school of arts at "M. Sebastatsi" center, way for this target group to get an access to high schools at State Pedagogical University of information is through television, radio as well Armenia after Kh. Abovyan, as well as Agrarian as financial institutions, knowing that financial Academy of State Agrarian University of Arme- institutions surely stand the closest to the us- nia, "Haybusak" University, "Northern" Univer- ers of their financial services and products. sity, high basic schools at the Institute of Fo- rensic Science and Psychology "Azpat-Veteran", The following activities for financial educa- and high schools elsewhere in Armenia (school tion of this target group were carried out dur- No. 3 in Artik, schools No. 45, 42, 12, 3 and 33 in ing the reporting period: Gyumri, school No. 3 in Spitak, school No. 3 in Stepanavan, school No. 1 in Tashir, school No. 8 • Dissemination of information/education of and 5 in Alaverdi, school after H. Shiraz in Gu- consumers through financial institutions: this garq, schools No. 10, 11 and 17 in Vanadzor). involved distribution of informational brochures As part of the program in 2013, staff mem- and posters in financial institutions. We regu- bers of the Office visited a total of 56 high larly distributed information booklets not only schools in Armenia and helped 6811 students to about the activities of the Office but also finan- get more of the education. cial services and products. Also, posters telling Within the framework of the seminars, more about the operations of the Office were distrib- information booklets and paper notebooks were uted. Overall, around 28,160 copies of booklets 12 distributed to schoolchildren, through which were distributed during the reporting period.

Activities carried out in 2013 • Conducting seminars for users of finan- nars in rural communities of towns Sisian and cial services: to educate this group, we found Goris such as Spandarian, Brnakot, Ishkhanasar, it reasonable to hold seminars for employees Tatev, Qarahounj and Akner, as part of the pro- of various employers. Specifically, workshops gram "Livestock Development in Syuniq" which were held for employees of VivaCell MTS, is funded by the Swiss Development and Co- a mobile operator, to tell about the activities operation Agency. Also, we arranged seminars of the Office and provide information on indi- in cooperation with the foundation "Center for vidual financial services and products. Agro-business and Rural Development" for en- trepreneurs, farmers and agricultural product • Direct contact with consumers through developers of towns Meghri and Agarak and expo/exhibition events: we have participated a nearby community Shvanidzor. The main pur- in a variety of exhibitions, EXPO events, em- pose of the seminars was to invite community ployer-to-student forums organized by higher municipality workers' and farmers' attention educational establishments, in order to inform to the types of loans and provisions of loan households about us and have as much direct agreements which should be duly considered of contact with people as possible. In particular, when entering into such agreements. the Office participated in FINAR EXPO 2013 exhibition organized by Expomedia Company in cooperation with the Republic of Armenia People of retirement age Government, the Ministry of Finance and the Financial education of this group of people Central Bank. During the event, visitors were was intended in the context of pension system provided with information booklets about the reforms. Given the known complexity of acces- operations of the Office as well as explanations sibility to this group, we decided to place our were given in connection with the issues raised focus on providing the elderly people with best by participants. The Office also participated in affordable information on payment cards and seminars and other events as part of the pro- how to use them: gram "My money month" and in an exhibition "World Savings Day" which took place on North • distribution of explanatory notes/informa- Avenue of Yerevan. tion booklets containing description of payment cards; these booklets were distributed at financial institutions; People engaged in agricultural business The new consumer education program en- • an informational video-clip about pay- visaged seminars to be conducted for people ment cards was frequently televised; by doing engaged in agricultural business. Experience we this we tried to explain to elderly population gained in the Office has shown that most peo- how to use cards with automated teller ma- ple taking agricultural loans are absolutely una- chines as well as advised them on how to keep ware of their rights and responsibilities, which them safe and undamaged. gives rise to unwanted consequences resulting from their loan obligations. In the previous year, The Office's website which has a dedicated we had seminars in communities of Syuniq re- "Consumer Financial Education" section posted gion of Armenia. In particular, experts of the a variety of materials about financial services Office, invited by the Strategic Development and products, tips, as well as information about Agency, an NGO, visited and conducted semi- the events taken place under the program. 13

Activities carried out in 2013 Awareness campaigns f. interviews to Mediator were published in a While further explicating the role and activ- variety of newspapers and journals; a handful of ities of the Office of Financial System Mediator, video materials were broadcast via TV channels; we extensively used ads to provide information on financial services and products, strongly g. we developed and updated, on a regu- believing that these would encourage citizens lar basis, information and news on the Office's to use financial services and products to their website concerning financial market, custom- own benefit. We repeatedly cheered them up ary business practices, reports of day-to-day to come to the Office if they had problems operations of the Office, and so on. We have arising in connection with financial services, developed and compiled some selected claims and to get their complaints handled fast and in the form of precedent, which we then had free of charge. published in our website, with names or titles of the counterparties remained unmentioned. • As part of increasing the Office awareness: Apart from being a broad source of information, our website provides for a possibility to fill a. special advertisement designed by the in a claim electronically. More to the point, citi- Office with educational content about financial zens are now able to use our website to pose products (loan, deposit, insurance and payment their questions to and get complete response cards) were televised in Yerevan and elsewhere from the staff members of the Office. in the regions of Armenia;

b. we participated in various television shows featuring finances; participation in these shows by the Mediator and staff members was primarily of informational and consultative nature;

c. we had information booklets printed and distributed at financial institutions – banks, insurance companies, credit organizations; public authorities – ministries, other government departments; educational establishments and elsewhere; we distribute such information booklets on an ongoing basis;

d. there were informational boards of an A3 format elucidating the activities of the Office, and we had them placed at educational establishments and elsewhere;

e. we had 3 promotional advertisements filmed in the framework of arrangements concluded with reputable firms; 14

Activities carried out in 2013 he year under review was prominent T as the Offi ce of Mediator earned high appraisal and enjoyed growing recog- nition in the international community. Thus, Mediator has been invited to participate as spokesperson at several international confer- ences and summits. Invited by G. Onishchenko, chairman of the Intergovernmental Board of CIS Consumer Rights Protection, the Financial System Mediator participated in the 4th CIS Consultative Council's Meet- ing, which took place in Astana, Kazakhstan. The minutes of this meeting said the following: "The importance of experience of the Armenia's Financial System Mediator in the fi eld of consumer protection should be highlighted and that experience should be introduced to other CIS countries". In June 13-14, 2013, the Financial System Me- diator and Head of Case Handing and Investiga- International tion Group of the Offi ce attended a conference " Empower Consumers of Financial Products and cooperation Services through Improved Financial Literacy/ Capability and Effective Consumer Protection Systems" which was held in Moscow, Russia, with the support of the World Bank, the G-20 and the OECD. Participants of the conference included representatives from the World Bank, the OECD, the Central Bank of Brazil, as well as fi nancial market experts, analysts and other participants of fi nancial industry from the U.S.A., Russia, Great Britain, Australia, and Spain. For exchange of country experience, the Financial System Mediator made a speech, commenting Armenia's experience on how confl ict situations and complaints in the fi nancial fi eld get settled. In September 14-19, 2013, the Financial Sys- tem Mediator and two staff members of the Offi ce made a business trip to Taipei to take part in INFO 2013, an annual international conference of Financial Ombudsmen. Mediator delivered a speech at this important gathering, speaking about the tasks and challenges posed to the Offi ce, including budgeting and resource mobilization and management issues. 15

Activities carried out in 2013 Conference In the period September 25-28, 2013, two On October 2-3, 2013, the Office of Mediator claim handling specialists of the Office traveled hosted the 4th annual international conference to the Great Britain to attend an annual con- titled "Financial Ombudsman Institute: increas- ference "Consumer ADR" which took place in ing public confidence and enhancing financial the city of Oxford. mediation 4". Guest speakers included Financial In the period under review, a claim handling System Ombudsmen of the United Kingdom specialist of the Office had a business trip to and Ireland, Insurance Ombudsman of Switzer- Kiev, Ukraine, to attend a seminar titled "Mas- land and South African Republic, the Director terCard Suitability", and another claim handling General of the Securities Commission of India, specialist visited London, UK, to participate in a Russian Federation Consumer Protection De- a workshop titled "Introduction to Chargeback", partment representative and Chairman of Un- which was organized by MasterCard Academy. ion of Russian Banks. Home speakers included The results of business trips were collated the Deputy Minister of Justice and President of and some useful insights and ideas from such the Chamber of Advocates of the Republic of trips gathered. This served a basis for develop- Armenia. Representatives from central banks ing some internal regulations of the Office and and supervisory authorities of Russia, Kazakh- was a great help in handling and investigating stan and Georgia participated in the proceed- claims at the Office. ings of the conference. The conference made a discourse over ap- pealing the Ombudsmen decisions judicially, the international experience of enforcement of Ombudsmen decisions as well as how the Financial System Mediator decisions are appealed; a comparative reference was made to Ombudsmen offices and judicial systems across countries, and developing a vision for alternative dispute resolution mechanisms in Armenia was discussed.

Training and exchange of experience For the staff members of the Office regularly travel to different places for training and exchange of experience. They have an oppor- tunity to improve their professional skills and knowledge, learn best international experience and consequently accommodate best international experience to the localities. In the period under review, two claim investigation specialists of the Office made a business trip to Zurich, Switzerland, to visit the Swiss Insurance and Banking Ombudsmen 16 Office for exchange of experience.

Activities carried out in 2013 Four years of operations of the Offi ce On January 24th of 2013, the Offi ce of Financial System Mediator marked the 4th year of its operations. A press conference invited on this occasion received a detailed account of the complaints and claims handled and projects carried out by the Offi ce not only for the current year but all four years, as well. During the event, certifi cates were awarded to the representatives of fi nancial institutions in the nomination “Best Cooperated Insti- tution 2012”. A video fi lm featuring the four years of the operations and relevant activities of the Of- fi ce was a creative part of the event.

Discussions/workshops We organized workshops and meetings with the participation of representatives of fi - nancial institutions and fi nancial professionals More in various fi elds to talk about issues of concern. Work Done A round-table meeting with banks In the period under review, the Offi ce arranged a round-table that gathered bank offi c- ers who are responsible for the relations with the Financial System Mediator. The meeting addressed the problems and controversies which had been identifi ed as a result of review of customer claims and complaints fi led against banks. Other discussion included typical examples of the claims reviewed at the Offi ce, presentation of the Mediator position with regard to each of the cases in question, selected customary business practices, reference information on claims/ complaints fi led to and handled by the Offi ce from 2009 to date, and an overview of the 4 years' activities and programs of the Offi ce.

A get-together with insurance market participants At the Tufenkian hotel complex Avan Marag Tsapatagh, Armenia, in July 5-7, 2013, the Offi ce 17

Activities carried out in 2013 arranged the 4th annual meeting between our In the context of NSFE, the Commission is specialists and insurance market participants, responsible for designing action plans, estab- including top managers of all insurance bro- lishing priorities, coordinating financial edu- kers and insurance companies functioning in cation programs, building communication to Armenia. The meeting addressed controversial stakeholders, as well as referring at regular in- issues arisen in connection with the review of tervals to the pace of implementation of meas- customer claims filed against insurance com- ures and revision of NSFE at least every 5 years panies, MTPLI and state health insurance-relat- or some other timeframes, as appropriate. ed issues; explanations were given to insurance companies concerning some sensitive issues and there was reference to the programs and statistical profile of the Office.

A single electronic database In the year under review, we further worked on updating the single electronic database that facilitates the acceptance and review of complaints/claims by the Office and makes the process automated. Apart from being a collector of information about complaints filed to the Office, the single electronic database makes it possible to obtain statistical data, detailed information on each of the claim reviewed.

Office specialists involved in various professional groups We are pleased to say the Office takes part in financial education programs carried out by the German Federal Savings Bank Foundation. Questionnaires of the survey regarding savings which the Foundation conducts in regions of Armenia include information about the Fi- nancial System Mediator. The survey outcome served a basis for making appropriate changes to the 2014 consumer education program. The Office is involved in the taskforce for developing the National Strategy for Financial Edu- cation (NSFE), as well as in the group for pension reform education and awareness. The involved in these groups makes it possible to represent and coordinate the projects implemented and 18 problems identified by the Mediator.

Activities carried out in 2013 Programs of the Offi ce to be implemented in 2014

19 anuary 24, 2014 is the date that cele- ket participants for discussion and debate; the J brates the 5th anniversary of the Medi- newspaper will feature issues that are typical ator activities. On this occasion, we are and/or controversial to the financial system; planning to hold a series of events, as follows: will offer precedents and customary business practices established as a result of the Media- • celebrating of Mediator's 5th anniversary tor activities; will contain advice and tips for the users of financial services, as well as papers • continue consumer education program in of industry professionals with broad legal, eco- 2014 nomic and analytic coverage.

• strengthen financial intermediation and raise the level of financial literacy in rural econ- omies (a select region)

• a promo action "five special days" for customers on the occasion of the 5th anniversary; this means that 5 days randomly chosen in 2014 will offer surprises to customers who will have applied to the Office at that time

• hold "five events for schoolchildren in regions" on the occasion of the 5th anniversary; this will involve five tours offered for provin- cial schoolchildren during which they will enjoy sightseeing in Yerevan or elsewhere in Arme- nia, attend a seminar on financial services, take part in events with hospitality and receive gift books and other literature

• provide student scholarship after student competition

• host the annual 5th international conference

• arrange the 5th annual "round-table meeting" with insurance companies

• develop a new interactive website of Me- diator

• issue a quarterly electronic newsletter of the Office of Mediator to reflect precedents, other thematic articles; the newsletter is in- 20 tended to be a platform for professional mar-

Programs of the Office to be implemented in 2014 Statistics of claims, 2013

21 n the year under review, the number of • Specialists of the Office delivered advice I customer complaints and claims handled to all the clients who applied as well as helped by the Office has grown steadily in rela- draw up complaints to the financial organization to previous years. For comparison, in 2010 tions concerned and explained to clients their the Office received 70 percent more complaints rights and obligations. Based on the 2013 re- and 93 percent more claims than in 2009. These sults, 92 complaints (5.6 percent) out of a to- indicators were, respectively, 25 percent and 31 tal 1627 eligible for review were treated posi- percent for 2011 to 2010, and 63.2 percent and tively by the organizations, without having to 172.2 percent for 2012 to 2011. In 2013, the number file a request in writing to Mediator; where customer complaints has grown by 52.78 percent the client applied to us for request, we helped and reviewed claims by 108.67 percent, compared him/her to complete the complaint-claim filed with 2012. The progress is a result of increasingly against that organization. Note that this indi- effective public awareness campaign we do and cator was 2.7 percent (26 complaints out of 951) growing trust in the activities of the Office. in 2012; 7.8 percent (43 complaints out of 551) in In 2013, the Office further provided advice 2011; 14.7 percent (66 complaints out of 450) in to the clients by explaining their rights and re- 2010; and 20.4 percent (40 complaints out of sponsibilities, and helped, where necessary, to 196) in 2009. The indicator on a declining path formulate the complaints against the financial can only mean that the number of customer institution in question. complaints grows year after year.

• In 2013, the Office received a total of 2231 • During 2013, a total of 818 claims/com- complaints, including 2003 complaints related plaints were received in writing, with about to the financial sector, of which 1627 were eligi- 70.5 percent of which settled out in favor of ble under law to be reviewed and/or handled by the client; nearly 80 percent of claims settled Mediator. Note that in 2009, the Office received out in favor of the client ended up with rec- 378 complaints filed against financial organiza- onciliation of the parties involved. According to tions (642 complaints in 2010, 803 complaints the 2009 results, of claims settled out in favor in 2011 and 1311 complaints in 2012). By years in of the client 61 percent had an outcome of rec- a row, an increase in the number of complaints onciliation; in 2010, 2011 and 2012, these indica- received by the Office is perhaps due to the fact tors were nearly 60 percent, 70.5 percent and that people have started to want to know more about 73.5 percent, respectively. about their rights and about the operations and scope of activities of the Office. • In monetary terms, a total AMD 204,578,416 was compensated through the mediation of • Complaints not eligible for review were the Office in favor of the clients during 2013. associated with the events occurred before the Incidentally, this figure does not consider the Law on Mediator has entered into force; some of cases which were settled out with no money the claims ended up with court writ issued in re- actually reimbursed to the client but rather spect thereto or with the case pending in court seeking to satisfy another claim of theirs, for proceedings; part of clients having filed com- example, by changing the terms in the loan plaints not eligible for review were a legal entity, contract or having an overdue loan re-classi- warrant, pledger, and etc. The rest of complaints fied in favor of the client, and so on. The larg- were of a general nature and these have not, vir- est compensation was AMD 6,429,728 and the 22 tually, contained property-related claims. smallest, AMD 250. In 2012, the total amount of

Statistics of claims, 2013 compensation was AMD 134,087,137; in 2011 – AMD 58,137,847; in 2010 and 2009 these indicators were AMD 29,264,354 and AMD 26,062,886, respectively.

• By virtue of our core principle of providing fast and effective review of the claim, after a preliminary review we often explained to our clients and made them clear that action of the organization involved was exemplary and that we would not be going to have success even if we took the claim for review. Normally, in such circumstances, our clients trusted our specialists and agreed to our point. This perhaps ex- plains the dynamics of the complaints accepted for review by the Office. In 2013, a total of 818 complaints out of 2003 were accepted for review by the Office (which makes up roughly 41 percent in total), whereas in 2012, 2011, 2010 and 2009 these indicators were, respectively, 392 out of 803 (nearly 30 percent), 144 out of 803 (nearly 18 percent), 110 out of 642 (more than 17 percent) and 57 out of 378 (15 percent).

• In the year under review, complaints associated with Motor Third Party Liability Insur- ance (MTPLI) contracts made a prevailing part of total complaints received by the Office, making up 63.11 percent of total claims filed against insurance companies. Most of the clients did not agree with the estimated amount of damage, as well as many complaints were received in connection with non-compensation of the damage or delayed compensation.

Statistics of claims, 2013 Statistics, general profile

The number of complaints received by the Office during 2013, by quarter

The number of complaints related to financial system

700

446 422 445 690 0

24 I quarter II quarter III quarter IV quarter

Statistics of claims, 2013 The number of complaints received by the Office during 2013, by month

The number of complaints related to financial system 250

148 119 179 139 149 134 167 171 107 218 232 240 0

January February March April May June July August SeptemberOctober November December

The number of claims received by the Office during 2013, by quarter

The number of claims 300

160 192 183 283 0

I quarter II quarter III quarter IV quarter 25

Statistics of claims, 2013 The number of claims received 0 110 by the Office during 2013, by month

The number of claims 35 January

51 February

74 March

75 April

60 May

57 June

63 July

65 August

55 September

86 October

92 November

105 26 December

Statistics of claims, 2013 The number of complaints and claims received for review by the Office during 2013, by quarter

700

600

The number of complaints related to financial system received by the Office during 2013 500 The number of claims received by the Office during 2013

400

300

200

100

446 160 422 192 445 183 690 283 0

I quarter II quarter III quarter IV quarter 27

Statistics of claims, 2013 Total number of complaints received during 2013, o/w: 2231

Number of complaints related to financial system 2003

• Not eligible for review by Mediator 376

• Eligible for review by Mediator 1627

Resolved based on complaint/claim filed against the organization in question 92

Taken in for review upon presentation of a claim in writing 818

• Claim satisfied through reconciliation 412

• Claim declined 217

• Claim partially satisfied 78

• Review of the claim suspended 80

• Claim satisfied 27

• Review of the claim declined 4

Statistics of claims, 2013 Results/outcome of review of complaints/claims, by percent

50.37% 26.53% 9.78% 9.53% 3.30% 0.49%

Claim satisfied through reconciliation Claim declined Review of the claim suspended Claim satisfied Claim partially satisfied Review declined

Cases declined and cases settled down in favor of the client, presented as a ratio

70.44%

Claims settled down in favor of the client Claims declined

29.56% 29

Statistics of claims, 2013 Claims settled down in favor of the client, by percent

79.70%

15.08% 5.22%

Claim satisfied through reconciliation Claim partially satisfied Claim satisfied

Complaints, by type of organizations

Number of complaints to financial system received during 2013, 2003 100% which were filed against:

Banks 706 35.25%

Insurance companies 1142 57.01%

Credit Organizations 48 2.40%

Pawnshops 14 0.70%

Armenian Motor Insurers’ Bureau 18 0.90%

Payment and settlement organizations making remittances 7 0.35%

30 Other financial institutions 68 3.39%

Statistics of claims, 2013 Share of complaints filed against financial organizations in 2013 in the total number of complaints presented to the Office

57.01% 35.25% 3.39% 2.40% 0.90% 0.70% 0.35%

Banks Armenian Motor Insurers Bureau Insurance companies Payment and settlement organizations Credit institutions making remittances Pawnshops Other

Claims reviewed, by type of organizations

Total number of claims in writing during 2013, which were filed against 818 100%

Insurance companies 591 72.25%

Banks 208 25.43%

Pawnshops 6 0.73%

Armenian Motor Insurers’ Bureau 7 0.86%

Credit organizations 5 0.61%

Payment and settlement organizations making remittances 1 0.12% 31

Statistics of claims, 2013 Share of claims filed against selected financial organizations in total complaints accepted by the Office for review in 2013

72.25% 25.43% 0.86% 0.73% 0.61% 0.12%

Credit institutions Banks Armenian Motor Insurers Bureau Pawnshops Payment and settlement organizations Insurance companies making remittances

Content of claims filed against banks

Total number of claims in writing filed against banks during 208 2013 in connection with

Credit operations 123

Payment and settlement transactions 45

Depositary operations 18

32 Other 22

Statistics of claims, 2013 59.13% 21.63% 10.59% 8.65%

Credit institutions Depositary operations Payment and settlement transactions Other

Content of claims filed against insurance companies and the Armenian Motor Insurers’ Bureau

Total number of claims in writing during 2013, which were filed against 598 insurance companies and Armenian Motor Insurers’ Bureau, including

Vehicle insurance 75

Medical insurance 122

Travel insurance 3

Accidents insurance 3

Property insurance 15

Mandatory car insurance contracts 373

Mandatory car insurance contracts (against Armenian Motor Insurers’ Bureau) 7 33

Statistics of claims, 2013 62.37% 20.40% 12.54% 2.51% 1.17% 0.50% 0.50%

Accidents insurance Property insurance Vehicle insurance Mandatory car insurance contracts Medical insurance Mandatory car insurance contracts (against Travel insurance Armenian Motor Insurers’ Bureau)

Reimbursement

Total value of Client reimbursement during 2013, including: 204,578,416 100%

Reimbursement on claims against banks 21,378,810 10.45%

Reimbursement on claims against insurance companies 178,428,415 87.22%

Reimbursement on claims against credit organizations 432,731 0.21%

Reimbursement on claims against pawnshops 1,356,500 0.66%

Reimbursement on claims against Armenian Motor Insurers’ Bureau 1,356,500 1.45%

Reimbursement on claims against Payment and settlement 10,000 0.01% 34 organizations making remittances

Statistics of claims, 2013 Share of reimbursements as a result of review of the claims filed against financial institutions in total indemnification provided to the clients in 2013

87.22%

10.45%

1.45%

0.66%

0.21%

0.01%

Reimbursement on claims against banks Reimbursement on claims against insurance companies Reimbursement on claims against credit institutions Reimbursement on claims against pawnshops Reimbursement on claims against Armenian During 2013 Motor Insurers Pawnshop Bureau 70.44% of the cases reviewed were settled in Reimbursement on claims against favor of the client Payment and settlement organizations the largest compensation – AMD 6,429,728; making remittances the smallest compensation – AMD 250. 35

Statistics of claims, 2013 Share of claims, which were settled in favor of the client, in total claims, by year

75%

66.4% 68.75% 67.69% 72.14% 70.44%

60%

2009 2010 2011 2012 2013

Claims settled down in favor of the client (claims satisfied, partially satisfied, reconciliation decisions)

Statistics of claims, 2013 Share of claims, which were settled in favor of the client, in selected financial institutions claims

100 100 100

75.80 75

52.81 50

Banks Pawnshops Insurance companies Armenian Motor Insurers… Credit institutions Payment and settlement… 37

Statistics of claims, 2013 Dynamic analysis of some indicators

The number of complaints received by the Office in 2009-2013, by quarter

0 700

185

213

249

446 I quarter

164

185

345

422 II quarter

128

The Number of complaints 212 to financial system received by the Office during 2009 379 The Number of complaints to financial system received 445 III quarter by the Office during 2010 The Number of complaints 161 to financial system received by the Office during 2011 165 The Number of complaints to financial system received 193 by the Office during 2012 The Number of complaints 338 to financial system received 690 38 by the Office during 2013 IV quarter

Statistics of claims, 2013 The number of complaints filed to and claims received for review by the Office in 2009-2013, by year

2009 2010 2011 2012 2013

800

57 110 144 392 818 0 378 642 803 1311 2003

2300

The number of complaints related to financial system The number of claims 39

Statistics of claims, 2013 The number of complaints received 0 1200 by the Office in 2009-2013, by type 252 of financial institutions 419 434 509 Banks 706 54 63 252 689 Insurance companies 1142 46 75 60 48 Credit institutions 48 22 80 42 33 Pawnshops 14 0 0 10 10 Armenian Motor Insurers Bureau 18 0 3 4 1 Payment and settlement organizations making... 7 1 2 1 0 Investment companies 0 3 2009 0 2010 0 2011 21 2012 40 Other 68 2013

Statistics of claims, 2013 Share of complaints filed against selected 0 70 financial institutions in total complaints 66.7 submitted to the Office in 2009-2013 65.3 54 38.83 Banks 35.25 14.3 9.8 31.4 52.56 Insurance companies 57.01 12.2 11.7 7.5 3.66 Credit institutions 2.40 5.8 12.5 5.2 2.52 Pawnshops 0.7 0 0 1.2 0.76 Armenian Motor Insurers Bureau 0.9 0 0.5 0.5 0.08 Payment and settlement organizations making... 0.35 0.3 0.3 0.1 0 Investment companies 0 0.8 2009 0 2010 0 2011 1.6 2012 Other 3.39 2013 41

Statistics of claims, 2013 Client reimbursement in 2009-2013

Client reimbursement (AMD)

210 000 000

26 062 886 29 264 354 58 137 847 134 087 137 204 578 416

42 2009 2010 2011 2012 2013

Statistics of claims, 2013 Share of Client reimbursement 0 90 in total reimbursements, by type of financial institutions 43.87

37.9

11.69

10.45 Banks 25.53

85.89

87.22 Insurance companies 11.21

19.1

0.41

0.21 Credit institutions 19.37

2 2010 2011 1.01 2012 0.66 2013 Pawnshops 0

1 Armenian Motor 1.45 Insurers Bureau It should be mentioned that the Republic 0.03 of Armenia Law on Motor Third Party Liabi- lity Insurance entered into force in January of 0 2011, and this means that in 2009 and 2010 no claims against the Bureau of Car Insurers 0 of Armenia were reviewed and compensation Payment and settlement 0.01 given, accordingly. organizations making remittances 43

Statistics of claims, 2013 Cooperation with Financial System Mediator and dispute resolution at court

44 ach year, the Office of Financial System We are pleased to mention that coopera- E Mediator spots and announces "best tion between the Office of Financial System cooperated institutions". This encour- Mediator and financial institutions remained ages financial institutions to remain proactive strong in the year under review. The share of in handling internally all such complains and/or cases ended with a reconciliation outcome claims that are filed against them. This in turn constituted roughly 80 percent in total cases increases the level of quality in providing cus- settled out in favor of the client. We met regu- tomer service. So, financial institutions which larly with representatives of financial institu- earn the title "Best Cooperated Institution" are tions for resolution of various problems and granted a respective certificate. This is some- disputable areas existing in the financial sector thing that is broadly featured in the mass media. as well as appropriate efforts were spent to es- Best cooperated institutions are chosen tablish a unified approach to problem solution, based on the criteria developed by the Of- as well as a number of problems were commu- fice. These criteria include the level of the or- nicated to the Central Bank so that the latter ganization's involvement in the case reviewed, gives legislative solution thereto. willingness to provide full documentation and In the period under review, no case was support, the share of cases ended with rec- reported about court appeal of the decision onciliation of the parties involved in total and, binding to the parties, and no financial organi- surely, the number of cases of expressed desire zation was recognized as unwilling to cooper- to pay compensation even if the client’s claim ate, either. was not eligible to review. In the period under review, based on avail- In the period under review, financial institu- able data, 6 citizens having not agreed with the tions that best fitted the aforementioned cri- decisions of Mediator resorted to the court for teria were: the same claim. The three of the claims had been lodged against banks and three against • ACBA-Credit Agricole Bank CJSC; insurance companies. In respect of three of these cases, Mediator made a decision to de- • VTB-Armenia Bank CJSC; cline, so the clients have resorted to the court. For the other three cases, citizens have chosen • Rosgosstrakh-Armenia Insurance CJSC; to terminate the Mediator review and resorted to the court for review. • Nairi Insurance CJSC. The claim of the citizen having not agreed with the Mediator decision was taken by the In 2013, the Office of Financial System Me- court in June of 2011 and was still under court diator rewarded those members of the staff of proceedings as this report was getting pre- the financial institutions, who demonstrated pared (August 4, 2014). One claim filed against willingness to promptly respond to questions a bank for a generated liability resulted from raised by the Office specialists in their work to an overcharged debit card was satisfied while review the claims. another claim associated with infringement of Best cooperating officers of financial in- the rights under the Republic of Armenia Law stitutions as determined by Mediator in 2013 on Consumer Crediting was declined by the were Ms. Heghine Melkumyan from "VTB-Ar- court. A claim of compensation filed against an menia Bank" and Mr. Stepan Minasyan from insurance company was accepted by the court "Rosgosstrakh-Armenia" insurance company. in August of 2013 and was still under court 45

Cooperation with Financial System Mediator and dispute resolution at court proceedings as this report was getting pre- pared. Of two claims filed against insurance companies, one ended with reconciliation at the stage of court proceedings and the other was declined by the court. In the period under review, Mediator has been involved as third party in the court for a case review. In the period under review, no case of re- sorting to the court for execution writ in implementation of the binding decision of the Mediator has been reported.

Cooperation with Financial System Mediator and dispute resolution at court Financial statement/ Audit opinion

Cases reviewed by Financial System Mediator / Precedents

54 Claim filed against a bank operating in receive the money. The Bank's officers in charge 1 the Republic of Armenia contacted both the beneficiary and the benefi- Claim involves bank functions as funds ciary's bank. It turned out that the IBAN code, are transferred via a transfer system which is a bank account used for country identification and is called to facilitate international transfers, was missing. Based on what we heard According to the claim presented to the Of- from the Bank, the beneficiary did not receive fice, the Client made a payment order to the the money transfer because of an incomplete Bank for a transfer of USD 10,000 onto their bank account which the Client provided. business partner's bank account in a foreign To the Mediator's question why the Client bank. The Client notes that at the time of mak- was asked to only provide the beneficiary's ing a payment order, the officer of the Bank SWIFT code without asking for an IBAN code, said they would need to have the beneficiary's the Bank mentioned that the SWIFT code is SWIFT code to execute the money transfer. requisite data for international transfers and The Client gave the SWIFT code to the officer that if the Client had provided other transfer who then informed that the information sub- data correctly, the SWIFT code alone would mitted was sufficient for money transfer. Soon have been enough for the proper execution of the business partner informed the Client that the transfer. The IBAN code, the Bank argued, they did not receive any money transfer, and is not an additional condition, so the Bank did the Client came to the Bank to find out the not have any obligation to ask for it simply be- problem. Bank officers told the Client that no cause the IBAN code is an integral part of the money transfer has been executed since the account number. beneficiary's IBAN code was missing in the Because of an incomplete account number, data as delivered by the Client. Because the the beneficiary's bank has charged a fee of 27 money did not go the beneficiary, the Client U.S. dollars and returned the transfer money demanded a refund from the transaction. The to their correspondent bank which, in turn, bank employees could only return USD 9,942, charged a fee of 30 U.S. dollars for the transac- indicating that the foreign bank had charged tion, according to the rates the bank applied in- 27 U.S. dollars as a commission fee for a non- ternally. In the outcome, the rest of the money executed transfer, plus another 30 U.S dollars which had been credited into the Bank's corre- as a fee charged by the correspondent bank. spondent account was refunded to the Client. To refund the missing part of the money, Based on what was written above, the Bank the Client lodged a complaint to the Bank but said they as well as other banks involved as received a response which did not satisfy them. members of the international transfers system So, the Client went to the Office of Mediator, had acted in compliance with the requirements making a USD 57-worth of property claim of the law and internal policies and procedures. against the Bank. The beneficiary's bank is in the United Arab In response to the Mediator's first letter, the Emirates, and it is noteworthy that, effective Bank notes that the Client has signed on the from November 19, 2011, all banks in UAE are payment order, thus confirming the authentic- obliged to accept and process payments/trans- ity of the data it contained. On the same day, fers of money transfer money through the IBAN the Bank executed the transfer via the SWIFT system, according to the UAE Central Bank de- system through its correspondent bank. The Cli- cision. In UAE, the IBAN-system account num- ent told the Bank that the beneficiary did not bers should consist of 23 characters. According 55

Cases reviewed by Financial System Mediator / Precedents to the UAE Central Bank's announcement, in In response to the Mediator's request to the period from November 19, 2011 to April 12, a number of banks in Armenia, they responded 2012 banks shall not reject money transfers; that before making outbound transfers to the for the period following that date, transfers UAE, the banks require an IBAN code and once executed with no IBAN code will be rejected. they have it only after that they will execute Furthermore, a transfer rejected may induce a transfer of money. charging extra money, which will only be appli- It turns out that the Bank executed the cable if the beneficiaries are located in the UAE. money transfer as per information contained Since the money was transferred via the in the Client's payment order, which was how- SWIFT system, there arose a need to also view ever not sufficient to carry out the transaction the Internet website of that firm. The study re- properly. Yet, before the transfer of money, the vealed that the SWIFT system, which is author Bank should have checked the content of the ISO 13616 IBAN system registration, regularly payment order and whether or not it was in publishes a list of the countries [along with line with the requirements and operational bank account numbers, number of characters, rules of the transfer system in question, as pre- as well as many other information as appropri- scribed in the Republic of Armenia Civil Code. ate] which have moved to a mandatory usage Also, the Client's obligation to have knowledge of the IBAN system. The said document speci- of such professional, bank-specific information fies that the IBAN code consists of letters and does not normally ensue from the nature of le- numbers, followed by the bank account which gal relationship. has an established number of characters for By virtue of what has been written above, each country. Mediator has satisfied the Client’s claim. The manual covering a section dedicated to the UAE specifies that for the UAE, local bank accounts shall be added with as much digits of zero so that they are always up to 16 characters. Besides, every bank in the UAE must have its own three-digit code that comes before a bank account and always consists of 19 characters. As for the bank account with an IBAN code, it shall in turn consist of 4 characters, shall come before the three-digit code and have a total of 23 characters. The beneficiary's account number reflect- ed in the Client's payment order to the bank consisted of 13 characters. The IBAN system has been registered by the SWIFT system, and this information is regularly published on the website of the SWIFT system, so the Bank having made the money transfer via this system should have followed the operational rules of the SWIFT system. However, the Bank failed to do that and the Client has incurred a financial 56 loss as a result.

Cases reviewed by Financial System Mediator / Precedents Claim filed against a bank operating in to be a special account number for which you 2 the Republic of Armenia need a special code, the officer replied that it Claim involves incorrect instructions by was possible to make such a deal as a typical the bank officer, which led to a loss incurred by transfer of money to another bank in Armenia. the client The Client's money was transferred to the designated account and the receiving bank took the money and had it transferred on to the ac- According to the claim, the Client used the count of the organization of the U.S. embassy. Bank’s transfer service to pay the U.S. embassy The Bank said that, for getting any sum visa application fee on to the account of Bank credited on to an account or making a money 2 for collection of visa application fee. The Cli- transfer to another bank, it is not necessar- ent says the payment would have resulted in ily any of their employee's obligation to know the activation of the MRV account number, what kind of data they need to complete so as as was provided by the Embassy. The said ac- to make sure the payment is made correctly, count number, however, did not get activated unless the officer in charge has dealt with such since the payment was to be made at the a situation in his private affairs, and that it is the Bank. The Client says the payment was sup- Client who should have informed the officer of posed to be made at Bank 2, but being in the the importance of such data. After the above- vicinity of another bank (the Bank), the Client mentioned problem with the Client was identi- decided to ask whether the money can be fied, the Bank immediately contacted Bank 2, paid through the Bank. As soon as an officer heard their explanations and came back to the of the Bank assured that no problems would Client by advising them to go to the company arise, the Client paid the visa application fee the internal policies and procedures of which plus a money transfer fee. As a result, the Cli- have a procedure on how to get a refund for ent incurred a pecuniary loss after the said a visa permission fee. In this case, the Bank be- MRV code remained inactive. In connection lieves, the receiving bank itself should have the with this incident, the Client lodged a com- money returned to the Bank 2, knowing that plaint to the Bank, asking reimbursement for payments like these should only be made at the loss, but received the Bank's response that the Bank and anticipating that the transfer like declined the Client's request. In order to save that could not have the IBAN code activated or time, the Client notes, they paid the same the amount refunded. And the only thing the amount of money to Bank 2, after which the Bank would do in the first place would be to MRV account number got activated. Based on take action to refund the amount to the Client. the foregoing, the Client went to Mediator and In this case, the Bank acted lawfully. asked for their mediation to require the Bank During hearings held at the Office of Me- to compensate the loss suffered as a result of diator, the Client confirmed that their advisor incorrect instruction by the officer of the Bank. on embassy issues had clearly stated that the To tackle the Client request, Mediator had payment would have to be made at the Bank 2 to learn what the Bank's position was about only. However, asked whether the money can this matter. According to the Bank, the Client be transferred through the Bank, even when approached the officer of the Bank and asked if there was a clear instruction in writing that they could pay at the bank for a money trans- the payment should be made at the Bank 2, fer on to the account with Bank 2. Because the the officer of the Bank replied: "yes, it's possi- account provided by the Client did not appear ble". During hearings, the Bank's representative 57

Cases reviewed by Financial System Mediator / Precedents told that the Client presented a sheet of pa- did not seek identification for the money trans- per which indicated the account number with fer due to a missing code as long as the money Bank 2 and asked to transfer money for the was on the account of the receiving bank so U.S. visa. All requisites for the transfer were designated in the payment order. available and the amount was successfully The Financial System Mediator has decided transferred to the bank account, but the prob- to decline the Client's claim against the Bank. lem was that the payer could not have been identified afterwards due to a missing receipt number (i.e. the MRV code). As for the Bank's action for money callback, the representative said that after they were informed of the problem, the Bank immediately contacted Bank 2's branch manager, who said that the sum credited on to the account of the U.S. Embassy is not subject to withdrawal or callback. Request was made to the Bank 2, where- from it became clear that in practice cash money is only possible to transfer in the Bank 2, as a special computer program used in the Bank has a separate field for the receipt (the MRV code) in addition to the field "purpose of payment". Also, the Bank 2 does not have a software solution to check the details of payment orders on every single fund being credited. Funds accrued on that account are transferred to the U.S. Embassy at a certain time interval. In this case, as we knew from the hearings, the Client presented to the officer of the Bank a document with an account number of Bank 2 and asked them to make a money transfer on to that account. The officer of the Bank handled the payment order properly by completing all the fields correctly and indicating "U.S. visa application fee" in the field "purpose of payment", as was instructed by the Client, so the money was transferred on to the relevant account with Bank 2. The employee of the Bank couldn't know and, frankly, wouldn't have to know that a particular code was required for transfer identification, especially when the Cli- ent didn't tell this in the first place. So, Mediator believes that the officer of the Bank handled the payment order in a proper way and should 58 not be liable for the fact that the beneficiary

Cases reviewed by Financial System Mediator / Precedents Claim filed against a credit organization Mediator engaged an expert into the case 3 operating in the Republic of Armenia and asked him to examine the signature on Claim involves an AMD 300,000-worth a document available on a compact disc to find of pecuniary claim for non-receipt of information out if it has been put by the Client or some- subject to disclosure body else. The examination provided a conclusion that said the digital features constituted a stable, material and sufficient combination of According to the claim, a loan agreement evidence that the signature in question had not signed between the Client and the Organization been made by the Client but by another person. had provided the Client with a consumer credit. In this case under review, the Client has The Client notes that they have not received signed a loan agreement with the Organi- monthly loan account statements for 9 months zation, which provided a consumer loan for in a row, although the Republic of Armenia Law recreational purposes. That is to say, in the on Consumer Crediting (the Law) stipulates context of the Law, the loan provided by the that the Creditor shall provide the Customer in Organization is a consumer loan, and therefore writing with information on consumer's liabili- must meet the requirements of the Law. ties arising from credit agreement, the reasons The Organization's application that the Cli- for their occurrence and repayment, including ent waives their right to receive the informa- a comprehensive list of applicable and applied tion via mail has not been signed by the Client, sanctions against failure or improper fulfillment according to the expert's conclusion. The Or- of consumer's liabilities (penalty or any other ganization has not filed any other application. measure having negative effect on consumer's Nor has the Organization delivered other writ- standing), and cases and terms of their applica- ten authority that they used a mail service to tion, with a frequency established independent- provide the Client with information subject to ly or through a credit agreement, but not less disclosure under the Law. than on a 30-day basis, through a mail service, Mediator has decided to satisfy the Client's except in cases as provided for in the appro- claim. priate clause. The Client indicates they did not file any application, in writing or electronically, whereby they have waived their right to receive information, as provided for under the Law, via mail. Based on the foregoing, in a letter to the Mediator, the Client lodged a pecuniary claim of AMD 300,000 against the Organization. In response to the Mediator letter, the Office sought the Organization's position through explanations and clarifications: the Organization said, for unknown reasons, the original application of the Client was missing in the credit file but a photocopy version of the application was available. The Organization further noted that all loan documents, duly signed by their clients, get photocopied and stored appropriately in accordance with internal policies and procedures. 59

Cases reviewed by Financial System Mediator / Precedents Claim filed against a bank operating in pensation, since there were no other grounds 4 the Republic of Armenia for refusal under the Contract. Claim involves damage caused by im- Appendix 1.2 to the Republic of Armenia proper handling by the bank of the payment order Government Resolution no. 1691-N (hereinafter for insurance premium payment the Resolution) provides for a template to the standard form of requirements to health insurance contract. It has point 1.2.6 which defines According to the claim, on 26th of February, that an insurance contract comes into force 2013, the Client signed an insurance agreement 10 days after the insurance premium or the with an insurance company by purchasing first installment thereof has been paid to the the policy from a social benefits package. For insurer, unless otherwise provided for by the ill health, the Client went to a medical center contract, and it shall be in effect for 365 days. to be treated to the recanalization of primary a similar provision is set forth in the Compa- arteries, balloon predilatation and stenting. On ny's health insurance contract. There is nothing 31st of May, 2013, the Client applied to the In- otherwise specified in insurance policies signed surance Company in order to get compensa- between the parties. Paragraph 12 of the terms tion but was declined by the Company. The of service of client social benefits package ac- decision that rejected the insurance indemnity count (the Account) defines the Bank's commit- argued that the agreement started on April 27, ment to make transfers from the Account no 2013, while the Client received an in-patient later the day following the date on which any treatment in the period April 17-19, 2013. This of the documents serving as written authority would mean the medical care had been provid- for the transfer is made available to the Bank. ed to the Client before the term of the contract According to paragraph 13, the Service Purchase commenced, so treating of the disease would Agreement (certificate) shall serve a written au- not be viewed as occurrence of insurance ac- thority to make any transfer from the Account cident and would not be subject to compensa- possible. So, the above regularization and docu- tion, either. The insurance contract, as the Cli- mentation involved with the case infer that the ent puts, did not enter into force as the Bank Bank made the first installment of insurance executed a delayed transfer of funds from the fee later from the established timeframe. social benefits package. Mediator has decided to satisfy the Client's The Bank noted that they signed a "Con- claim. tract for Opening an Individual Social Benefits Package Account" with the Client on 25th of February. On 28th of March, 2013, a branch office of the Bank generated a regular payments order which served a basis for the Bank to make first part of the transfer of the insurance premium to the Company on April 17, 2013 During the investigation of the claim, Me- diator got the Company's letter to the Bank, in which the Company wrote that had the Insur- ance Policy been in effect as of April 17, 2013, they would have paid to the Client all medical 60 costs to the extent applicable under the com-

Cases reviewed by Financial System Mediator / Precedents Claim filed against an insurance compa- driver will be obliged to regularize the matter 5 ny operating in the Republic of Armenia of fault not at their own but as required by the Claim involves self-regulated relations Armenian legislation, while the Code of Admin- associated with Motor Third Party Liability Insur- istrative Infringements explicitly set out regula- ance (MTPLI) contract tory conditions. The Company noted that where the drivers involved with the accident would attempt According to the claim, a traffic accident re- to resolve the matter of fault subject to para- sulted in damage to the motor vehicle owned graph 7.4 of operational rules RL 1-001 of the by the Client. The traffic police officers arrived Bureau, which suggest they would go through at the scene of the accident, yet no administra- a process of independent settlement and de- tive proceedings was carried out as the other cide which one of the drivers was found guilty driver, i.e. other participant of the accident had in the accident, even though they were not admitted the fault. So, the Company refused required to accept any culpability in accord- to pay insurance indemnity, reasoning that, by ance with the operational rules RL1-001 of the reference to paragraph 7.8 of operational rules Bureau, the maximum amount of insurance in- RL 1-001 of the Bureau of Car Insurers of Arme- demnity against the damage could amount to nia (the Bureau), in a standard process of com- 0 (zero) Armenian dram. pensation, the Policyholder shall, in addition to Thus, for review of the claim it was neces- the actions as provided for in paragraphs 7.1 sary to clarify, as follows: and 7.3 of the Rules, not admit the guilt and/ 1. Is making a claim for and carrying out or commit to liabilities without the results of administrative proceedings in connection with the examination conducted by Insurer or at In- road accident a mandatory condition to start surer's consent, unless criminal, civil or judicial a standard process of compensation? Could charges were brought because of the insurance signing an agreement to waive from carrying accident. The company notes that a thorough out administrative proceedings and relying on analysis of legislative norms identified that the such a written authority serve a basis for disal- Armenian legislation provides for two founda- lowing the sufferer of the accident of the right tions that are able to regularize the matter of to insurance indemnification against MTPLI? If fault in the occurrence of an accident: not, has the Client submitted all the necessary a. the matter of fault settled out by the documents to the Company to start the appli- competent authority (e.g. the traffic police ser- cation process? vice of the Republic of Armenia Police, or 2. Could non-execution of administrative pro- b. the matter of fault settled out without ceedings on a basis of an agreement signed by the intervention of the public authority. the driver involved in a car accident to waive from Referring to the policyholder's or drivers' carrying out such administrative proceedings be ability to independently make a decision about considered a process of indemnification through in- the matter of fault in the occurrence of car dependent settlement? Or, in other words, wheth- accident, the Company stated that they may er or not the parties involved in the car accident do so exclusively in agreement with the insur- have gone through a process of independent set- ance company, in which case an appropriate tlement, and whether or not the Company shall covenant or a statement of fault will be drawn be liable to pay compensation to the Client? up. For the rest of the cases, to receive insur- 3. If the Company is liable to pay compensa- ance indemnity, the policyholder or participant tion to the Client, how much money it should be? 61

Cases reviewed by Financial System Mediator / Precedents Paragraph 4 of operational rules RL 1-017 of through the process of standard compensation, the Bureau says the following: In order to re- and notify injured party (their legal successor), ceive insurance indemnity, when applying to in- policyholder and insured party about the results surance company, the injured party (their legal of examination, furnishing them with the cop- successor) shall submit to insurance company ies of expert conclusions (reports) on the ex- a list of the documents stipulated by provisions amination and specifying in the notes attached of the MTPLI contract, which have not been thereto the procedure, terms and conditions of submitted yet. In the event of paying indemnity the appeal. Pursuant to this paragraph, applica- through the process of standard compensation, tion to receive insurance indemnity shall be deemed insurance company shall not request from the received in accordance with the provisions of MT- injured party (their legal successor) protocol is- PLI contract, from the moment when all documents sued by the authorized state body in charge subject to submission for compensation of the re- of the road safety as stipulated under MTPLI spective type of damage have been duly received by contract provisions, provided the injured party the insurer. In the event all the documents that (their legal successor) presents document evi- are necessary for receiving insurance indemnity dencing consent of parties involved in the ac- on different types of damage were submitted cident to the waiver of the requirement to con- in different periods of time (also, subject to the duct proceedings, together with the scheme of consent of the insurer, irrespective of the dif- the road accident, the explanations of parties ference between such time periods), process on involved in the accident and the act of mutual payment of insurance indemnity against each consent, signed at the place of accident by all type of such damage stipulated by these Rules, the parties involved in the accident and rep- as well as other rules of the Bureau, shall be resentatives of all insurance companies which executed and the decisions shall be taken sepa- carry out insurance of motor third party liability rately from each other. (together with the attached note about repre- Subparagraph 8.2.5 of the Terms of the sentatives of any insurance company that did MTPLI Contract as an integral part of General not arrive to the place of accident) (in accord- MTPLI Contract establishes, as follows: where ance with Form 1). In the event representative a standard procedure of insurance indemnifica- of insurance company (insurance companies) tion is involved, the sufferer (their legal succes- does not arrive within the established period or sor) shall deliver the following documents to notifies by phone that will not arrive, the field the Insurer in order to seek insurance indem- "signatures" of the act specified under this par- nification: agraph shall contain a reference that represent- a. a letter of request for insurance indemni- ative of insurance company (insurance compa- fication, subject to the forms and terms of the nies) consents with information provided in the Insurer, which must be reasonable and justified, act. Further, paragraph 5 of the rules provides: b. where the letter of request is not sub- Upon receiving the application from injured mitted within the timeframes required under party (their legal successor), insurance company subparagraph 8.2.1 of the Terms, documents or shall arrange examination of the reasons of the other deliverables/proofs supporting the circum- accident and damages inflicted to injured party stances under which the sufferer (their legal suc- during the accident, within three business days cessor) was unable to or unaware of the possi- in the event of paying indemnity through the bility to apply within a three-month period, process of coordinated declaration, or within 10 c. the record (when available) drawn up by 62 business days, in the event of paying indemnity a unit in charge of maintaining road safety,

Cases reviewed by Financial System Mediator / Precedents d. documentation supporting the right of The foregoing infers that the documents succession under the law, if the sufferer's suc- such as the record-protocol drawn up by an cessor applied to the Insurance Company, authorized unit in charge of maintaining road e. documentation supporting the fact of safety and the Agreed Statement of Fact are authorization under the law, if the sufferer's not required to be submitted for seeking in- representative applied to the Insurance Com- demnification against the damage caused to pany, and the property, since the sufferer’s obligation to f. documents or other deliverables/proofs provide the record-protocol as drawn up by as specified in subparagraphs 8.2.5.1, 8.2.5.2 and/ a unit in charge of maintaining road safety or 8.2.5.3 of the Terms. along with the letter requesting insurance in- The review of the provisions of the Law, the demnification arises when such record-pro- Rules and the Terms, when these are blended tocol has been drawn up. In all cases, on the with each other, can allow us to conclude, as other hand, when no record-protocol has been follows: drawn up by the unit in charge of maintaining 1. The regulatory act that establishes the road safety, the sufferer will not be required to list of the documents required to be submit- provide such record-protocol along with the ted for indemnification is incorporated as the letter of request for compensation. Further, as Terms of the MTPLI contract as an integral part established by the Rules, the letter of request of General MTPLI Contract, and the following for compensation shall be deemed received formulations below, which are laid down in subject to the terms of the MTPLI contract as and regulatory acts pertaining to insurance indus- when all the documents deliverable for indem- try, support this statement: nifying against that particular type of harm a) Article 20 (2) of the Law, which says that shall have been duly accepted by the Insurer, the sufferer (their legal successor) shall person- and since submitting a record-protocol subject to ally or through a representative submit a letter the terms of the MTPLI contract is not an impera- of request and the documents as required under tive requirement (it would be delivered only as and the Rules of the Bureau, when duly drawn up) and there is no requirement b) Paragraph 5 of the operational rules RL of presenting an agreed statement of fact for non- 1-017 of the Bureau as approved under the De- provision of the record-protocol, the letter of re- cision No. 10-L, dated 13.09.2010, by the Board quest for compensation will be deemed as ac- of the Bureau of Car Insurers, which says that cepted even without the said documents. the letter of request for compensation as referred Thus, summing up the above-written, it to herewith shall be deemed received subject to should be noted that making a claim for and car- the terms of the MTPLI contract as and when rying out administrative proceedings in connection all the documents deliverable for indemnifying with road accident is not a mandatory condition, against that particular type of harm shall have and signing an agreement to waive from carry- been duly accepted by the Insurer, ing out administrative proceedings and relying c) subparagraph 8.2.5 (c) of the Terms of the on such a written authority cannot serve a basis MTPLI Contract as an integral part of General for disallowing the sufferer of the accident of the MTPLI Contract says that in a standard proce- right to insurance indemnification against MTPLI. dure to seek an insurance indemnification, the So, the above arguments suggest that the Client sufferer (his/her legal successor) shall, inter alia, has delivered, in a duly manner, all required docu- deliver the record-protocol (if available) drawn up mentation to the Company in order to start the by a unit in charge of maintaining road safety. application process. 63

Cases reviewed by Financial System Mediator / Precedents For clarification of the point whether non-ex- statement of fact and submit it to the respec- ecution of administrative proceedings on a basis tive insurance company (companies), provided of an agreement signed by the driver involved in that the expected loss compensation does not a car accident to waive from carrying out such exceed the maximum size established by the administrative proceedings can be considered Bureau for the independent settlement of case. a process of indemnification through independ- In case of not providing consent, the respective ent settlement, we need to look to the provisions insurance company (companies) shall ensure of the MTPLI legislation pertaining to insurance arrival of it (their) representative (representa- compensation through independent settlement. tives) to the site not later than by the time de- Thus, according to article 3 (1) 26 of the Law fined by part 5 hereunder. Where the respective on Compulsory Insurance of Liability arising insurance company (companies) does not pro- out of the Use of Motor Vehicles (hereinafter vide consent, the agreed-on declaration shall the Law), a maximum amount of independently not be signed and all issues related to insur- regulated indemnity is the maximum amount of ance accident shall be settled under the gener- the damage caused to property as defined by the al rules of determining the amount of damage Bureau, in which case parties of the insurance ac- as defined by this law. According to paragraph cident can complete the agreed statement of fact 7.4 of the Terms, the maximum amount of in- without asking consent of the insurance company surance indemnity settled out independently (insurance companies). Article 15 (3) of the Law shall amount to 0 (zero) Armenian dram. provides the following: where the agreed-on The foregoing infers that where insured declaration was completed in manner defined parties involved in a car accident complete an by clauses 1 or 2, part 4, Article 19 hereunder, agreed statement of fact without consent of compensation of loss to an aggrieved person the insurance company (insurance companies), may not exceed the maximum amount of they are thereby starting a process of indem- compensation made through independent set- nification through independent settlement, tlement or agreed-on, unless the size of com- which means that the maximum amount of pensation against damage caused to property insurance indemnity settled out independently was assessed through a relevant and valid and shall amount to 0 (zero) Armenian dram. To effective court decision. Further, article 19 (4) of qualify the accident as an event that can be the Law says: if the insurance accident involved settled out independently, one needs to have solely two motor vehicles and damage was the following condition whereby the parties in- caused only to property, the persons involved volved have completed an agreed statement of in the accident shall advise the respective in- fact without consent of the insurance company surance company (companies) that insured (insurance companies), in which case only the their liability, and they shall be able to: maximum amount of insurance indemnity set- a) in case of mutual agreement, complete the tled out independently shall amount to 0 (zero) agreed statement of fact and submit it to the Armenian dram. Moreover, the fact that the respective insurance company (companies), pro- parties have signed a covenant to waive from vided that the expected loss compensation does the right to call for administrative proceed- not exceed the maximum size established by the ings is validated by a form of consent signed Bureau for the independent settlement of case; by the drivers, as established by the Republic b) in case of mutual agreement and sub- of Armenia Police Chief Order yet it cannot be ject to the consent of the respective insurance viewed as an agreed statement of fact con- 64 company (companies), complete the agreed cluded between the parties without consent

Cases reviewed by Financial System Mediator / Precedents of the insurance company (insurance compa- intervention of the public authority, it should be nies), since an agreed form of such statement mentioned that paragraph 7.7 of the Terms es- and the procedure to complete is established tablishes that the insurance indemnification in- by the Republic of Armenia Government Reso- volves two practices – entering into an agreed lution no. 1104 (dated 26.08.2010) "Appearance, statement of fact and a standard compensation Content, Instructions to Complete the Agreed procedure, and in each of these practices, the Statement of Fact and MTPLI CONTRACT; Cri- matter of fault shall be settled out on a basis teria to Damage and Defectiveness of MTPLI of expertise conclusion issued by qualified and CONTRACT; Substituted MTPLI CONTRACT; registered experts. Moreover, paragraph 7.7.2 Approval of Registered MTPLI CONTRACT and says a standard compensation process, among Its Form. According to point 5 of the Resolu- others, is also when there has not been the tion, the front page of the agreed statement consent of the parties involved in the accident of fact and the information contained therein to complete the agreed statement of fact. shall be in accordance with Form 1; according Referring to the Company citing that the to point 6, the back page of the agreed state- Policyholder shall, in addition to the actions as ment of fact shall contain an instruction of provided for in 7.1 and 7.3 of the Terms, neither how to complete the statement, in accordance accept any fault nor take on any liability without with Form 2; point 7 says the agreed statement the results of expertise provided from the Insur- of fact shall be completed as described in the er or without the consent of the Insurer, except instruction provided in point 6. The parties in- when an administrative procedure whether volved in this case did not enter into an agreed through civilian, criminal or judicial manner has statement of fact in accordance with an es- arisen in connection with that case, it should tablished procedure, that's why the insurance- be noted that non-abiding to such stipulation related matters will have to be regulated sub- cannot lead the suffered party to a legal con- ject to the general rules of MTPLI CONTRACT sequence of disallowing them of the right to in- insurance law. surance indemnification, subject to the require- The documents and other deliverables ob- ments of the law and of regulations adopted by tained during the investigation of the case the Bureau. In particular, no regulation govern- showed that the parties neither entered into an ing the insurance industry shall provide for the agreed statement of fact without consent of the possibility to decline the insurance compensa- Insurance Company (Insurance Companies), nor tion on a basis and the way the Company had have they started the insurance indemnification insisted on. process by settling out the subject matter inde- Because the reviewing of the two issues pendently. In this case, therefore, the maximum above demonstrates that the parties have de- amount of damage cannot be 0 (zero) Arme- cided on the standard compensation process nian dram. and the Company is liable to pay insurance com- Further, looking to the Company saying the pensation to the Client, the Company shall in- Armenian legislation provides for two founda- demnify the Client against the damage caused. tions that are able to regularize the matter of The above considerations were communi- fault in the occurrence of an accident, which cated to the Company, and the case has been are, namely, a/ the matter of fault settled out settled with reconciliation. by the competent authority (e.g. the traffic police service of the Republic of Armenia Police, or b/ the matter of fault settled out without the 65

Cases reviewed by Financial System Mediator / Precedents Claim filed against an insurance compa- in the Insurance Contract, the Insurer's obliga- 6 ny operating in the Republic of Armenia tion to pay insurance compensation shall not Claim involves a delayed non-recurrent extend over those insurance events which payment of insurance premium have occurred in the period from 00:00 am of the day following the day of payment of regular premium until 12:00 pm of the day on According to the claim, a motor vehicle in- which the payment of the premium outstand- surance policy which a limited liability compa- ing has been made. Furthermore, the Insurer ny (the Company) purchased from the Insurer maintains the point that AMD 570.200 paid on on 19th of December, 2012, established that 31st of January, 2013 was spent on repaying the beneficiary, i.e. the Client, is the owner of the liabilities which the Company had in respect of motor vehicle. On 8th of February, 2013, a traf- other contracts. To make sure the Insurer has fic accident happened. The Insurer refused to acted in compliance with their internal pro- compensate the damage caused to the motor cedures and policies and customary business vehicle, reasoning that the regular payment of practices, Mediator asked the latter to present insurance premium had not been made. The arguments, such as, for example, the Insurer's Client noted, however, that they paid the pre- statement of the accounting policy as to what mium on 31st of January, 2013, and this could priority it normally uses for the repayment of li- be confirmed by the payment order. Yet, the abilities, a reprint from an operational software Insurer kept on declining the claim by citing to ascertain which contracts the said amount non-availability of the serial number of the in- of AMD 570.200 was channeled to. surance policy in the transfer of the insurance On 5th of June, 2013, the Insurer presented premium. Previously, the Client told, there had their chief accountant's rationale and a com- been no mention of the serial number of the puter reprint of debt repayments practiced insurance policy in transferring the insurance within the company. It was found out, in par- premium, while the transfers were executed ticular, that the payer, i.e. the Company, failed to with ease and properly. indicate the exact purpose of the transfer (the According to the Insurer, the Company has funds transfer order only specified the payment made the transfer of the money with desig- of premium instead), so the money transferred nated purpose of "transfer of insurance pre- was used to repay an outstanding debt under mium" without, however, pointing out which the policy purchased on 12th of July, 2012. The certificate it was related to. The serial number Central Bank Regulation 3/09 "Insurance Com- of the policy should have been included in the pany Assets Classification and Creation and Use designated purpose "transfer of insurance pre- of Assets Provisioning" provides that the claims mium" instead. That’s why the amount trans- on the same person should be classified using ferred was channeled to cover previous liabili- a common strictest class. So, all new claims ties on premiums the Company held against arisen with regard to the Company because of the Insurer in respect of other policies. Behind non-transferred sums of premiums under the this action was the Insurer's caution to secure policies have been classified and a relevant pro- their exposure to reserve accumulation by us- cedure of assets provisioning by the use of the ing risk buffers at hand. Subject to the terms Company's expenditures started. The value of of insurance, for non-payment or incomplete such assets provisioning varies, depending on payment of regular insurance premium by the the number of days overdue. To reduce costs 66 Policyholder as per the timeframe established arising in connection with provisioning of as-

Cases reviewed by Financial System Mediator / Precedents sets, the payments with no designated purpose as and when an insurance event occurs, in or- are used to repay the outstanding debt, which der to indemnify damage caused as a result of is why the other liabilities concerned will have occurrence of any event/s, provided that such to be classified using the strictest class. event/s is/are accidental and/or not dependent Thus, in view of the foregoing and further on the will of the parties or insured person or investigation of the claim, Mediator had to beneficiary, except when, in case of life assur- clarify if the Insurer's actions were lawful when: ance, occurrence of any certain or anticipated 1. on 31st of January, 2013 they had the trans- event is indemnified. Further, article 9831 of the ferred sum of insurance premium channeled to Civil Code says: an insurance premium is de- cover the liabilities arisen in connection with fined as a sum payable by the Policyholder as other contracts, and per rate and term specified in the Insurance 2. they declined the payment of insurance Contract to the Insurer for possible insurance indemnity was declined due to the Policyhold- compensation. Then, article 1010 (1) of the Civil er's failure pay insurance premium according to Code says: the insurance rate and the payment the timeframe established by the contract. procedure insurance premium shall be deter- Having examined the documents provided mined by the insurance contract. and pondered over arguments of the parties as The Insurer signed the Contract with the well as in consideration of the provisions of the Client on 18th of December, 2012, with the cer- law and the contract signed between the par- tificate validity spanning a period from 19.12.2012 ties, Mediator has concluded, as follows: to 09.04.2013. The Contract also specified that Firstly, it should be noted that in the pay- the Insurance Premium will be payable by the ment order of AMD 507,267 which the Com- Policyholder as cash or through a bank transfer pany instructed the Bank to pay to the Insurer to the Insurer's bank account by 1st of Febru- on 31st of January, 2013, a serial number of the ary, 2013. That is to say, the Contract did not policy was not indicated in the field of desig- provide for the possibility to pay the insurance nated purpose but an "Insurance premium" premium by installments (whether regular or was indicated instead. Thus, based on the fact otherwise) but rather to pay the premium in that the Policyholder, i.e. the Company, has had a lump sum. Article 1010 (4) of the Civil Code a number of outstanding liabilities to the Insur- says that if the policyholder does not pay the er in respect of a number of contracts, the In- insurance premium, whether non-recurrent or surer's argument over the use of the premium first regular installment, within 14 days after the to repay earlier debt is acceptable. contract comes into force (in this case, it took Secondly, according to article 983 (1) of the effect on 19th of December, 2012), the insurer Republic of Armenia Civil Code, insurance is shall be entitled to rescind unilaterally the insur- performed through an insurance contract and/ ance contract, unless other timing or possibility or insurance policy which the Policyholder has for deferred payment of the insurance premium signed with the Insurer. Article 996 of the Civil is established under the contract. The Insurer Code establishes that a party to the insurance has established other timing for payment of the contract (the Insurer) shall undertake, against insurance premium, until 1st of February, 2013, a certain charge, whether non-recurrent or using the capability to extend an established regular (Insurance premium), to pay or make timing of 14 days, as prescribed in the Code available to the other party to the insurance and the Rules. Starting from 1st of February, contract, i.e. the policyholder or a party desig- 2013, the Insurer had been able to rescind the nated by it (the Beneficiary), an insurance cover Policy unilaterally but they did not use this right. 67

Cases reviewed by Financial System Mediator / Precedents What's more, the Insurer resorted to the court Claim filed against an insurance compa- of general jurisdiction of Syuniq region asking 7 ny operating in the Republic of Armenia them to issue an edict against the Company, Claim involves indemnifying against dam- including for an unpaid portion of AMD 73,650. age caused to artwork, jewelry, precious stones On the other hand though, the Insurer refuses to or metals under the MTPLI contract perform contractual obligations, namely to pay the insurance compensation as and when the insurance event occurs by virtue of the provisions set forth According to the claim, an accident caused in point 4.9 of the Rules. Point 4.9 of the Rules material damage to the motor vehicle which says that Subject to the terms of insurance, for belongs to the Client by ownership. The Client non-payment or incomplete payment of regu- went the insurance company (the Company) to lar insurance premium by the Policyholder as get compensation. The damage to the motor per the timeframe established in the Insurance vehicle was appraised by the Company, which Contract, the Insurer's obligation to pay insur- reached an estimated AMD 381,000. The Com- ance compensation shall not extend over those pany, however, has provided AMD 81,000 out insurance events which have occurred in the of the total estimated amount and declined to period from 00:00 hour of the day following pay AMD 300,000 for indemnification, citing the day of payment of regular premium until that aerography is a form of art (a category of 24:00 of the day on which the payment of the drawing), so as an artwork it's not subject to premium outstanding has been made. compensation. As descried by the Client, aerog- This consideration of the Insurer needs some raphy was used for anti-theft purposes and not more evaluation. Point 4.9 of the Rules, which just for art. The Client added that with the help had induced the Insurer to decline insurance in- of a specialist they found out that the accident demnification, refers to cases of non-payment resulted in damage to the motor pads, with an of regular premium other than non-payment estimated loss of about AMD 70,000, which the of one-time premium, which is the case here. Company did not consider for calculation. For the non-payment of one-time premium, The Company cited the Republic of Armenia the law does not provide for the insurer's right Law on Compulsory Insurance against Civil Li- to decline compensation. For the non-payment ability in Respect of the Use of Motor Vehicles premium, the law only allows the insurer to re- (the Law), which has an article 25 (6) saying that scind the contract unilaterally (article 1010 (4) the requirement of compulsory insurance shall of the Civil Code) and entitles to claim a pay- not apply to liability for damage arising out of ment of premium from the policyholder only for the use of motor vehicles for compensation of period up until termination of the effect of the works of art, jewelry, precious stones or metals. contract (1010 (9) of the Civil Code). Believing that aerography is a form of art (a Thus, in consideration of the foregoing, Medi- category of drawing), the Company concluded ator believes the Insurer is liable to perform under that the damage caused is not subject to com- contractual obligations for which the Policyholder pensation on that part. has pledged to pay the insurance premium. With regard to the Company's reference to the Mediator has decided to satisfy the Client's said article 25 (6) of the Law, which lists the works claim. of art, jewelry, precious stones or metals not subject to insurance compensation against liability for damage arising out of the use of motor vehicles, 68 Mediator came to the conclusion, as follows:

Cases reviewed by Financial System Mediator / Precedents According to article 136 of the Republic of Claim filed against an insurance compa- Armenia Civil Code, a property can be divisible 8 ny operating in the Republic of Armenia or indivisible. The property is indivisible if it can- Claim involves property insurance not be divided without change in its purpose or is not subject to division by virtue of law. Based on the foregoing and what we could obtain According to the claim, the Client and the from existing theoretical literature, it should be Company has signed a property insurance con- noted that the Client's motor vehicle is an in- tract. An insurance event in May of 2013 (par- divisible property, therefore the implication of tially collapsed house walls) urged the Client to the said article 25 (6) could be about the prop- apply to the Company to get insurance com- erty in its entirety and non-application of the pensation. The Company decided to decline requirement of compulsory insurance thereto, the claim, reasoning that the Client did not rather than about an indispensable part of the take all necessary precautions to prevent the property as an artwork, as the Company tried loss or destruction or damage. to interpret in this case. Based on the results of the examination, the It should be noted that article 16 (1) of the Company noted that the damage was caused Law establishes the following: costs resulting in part due to inaction of the owner of the from the damage to the motor vehicle include house, by meaning that the owner could have the repair costs to restore to the actual con- done something to prevent water penetrat- dition of the motor vehicle which it had been ing from the roof, do plaster dressing in some into prior to the accident; and Article 18 (3) of parts of the wall both outside and inside, and the Law specifies that costs incurred in con- so on. The Company said the partial collapse nection with restoration of the property dam- of the walls was due to the water (rain, snow age as established under article 15 of the Law meltdown, etc.) having resulted in the decay of include the repair costs to restore to the actual adhesive material (currently cement liquor) be- condition of the property which it had been tween the stones of the walls, as well as due to into prior to the accident. Furthermore, accord- atmospheric temperature fluctuations having ing to the above-mentioned articles, monetary resulted in wear-out of the outer walls and not difference resulting from reduction in market enough care (strengthening, repair, replace- value of the motor vehicle after repair cannot ment, etc.) of the walls by the owner of the be subject to compensation. house. According to the Contract, an insurance Based on the foregoing, Mediator has de- event includes accidents directly or indirectly cided to satisfy the claim. caused by fire, lightning, explosion, air crash, strike, flood, pipe explosion, hurricane, storm, earthquake, theft (with forcible entry and/or exit), none of which happened in fact. The Company, therefore, noted that the incident (partial collapse of the walls of the house) did not constitute an insurance event, and the damage had been caused by partial inaction of the owner of the house. Again, according to the Contract, an insurance event includes accidents caused, directly or indirectly, by fire, lightning, explosion, air crash, 69

Cases reviewed by Financial System Mediator / Precedents strike, flood, pipe explosion, hurricane, storm, earthquake, theft (with forcible entry and/or exit). the insurance accidents are the cases that are directly or indirectly caused by fire, lightning, explosion, aircraft disaster strikes, floods, pipe explosion, storm, hurricane, earthquake, theft (forcible entry and / or exit), and the Client told the claim investigator of the Office that floods in Mashtots street of Yerevan in the period May 1-14 of 2013 caused a damage to the insured house of the Client. In a letter to the Republic of Armenia Hydro and Meteorology and Moni- toring Service, Mediator kindly asked to provide information whether or not there had been floods in, or what kind of precipitation has the Service recorded for, the said street of Yerevan in the period May 1-14 of 2013. In a letter (No. 08-440) responding to Mediator, the Service wrote that in the mentioned period of time the highest reported precipitation in c. Yerevan was on May 12, as the relevant indicator reached 19.4 mm. The Service later added that to Yerevan the indicator of 19.4 mm is of average precipitation intensity, so the generated water flow could not be classified as floods. Mediator has decided to decline the claim.

Cases reviewed by Financial System Mediator / Precedents Customary business practices

71 rovisions of the Republic of Armenia the Client. The Bank got the money and again P Law on Financial System Mediator es- used it to repay the Client's credit line. As result, tablish that in making a decision, Me- the mortgage loan remained outstanding thus diator shall be based not only on the require- undermining the Client's pledge to the buyer of ments of the Armenian legislation but also on the mortgaged property under the home pur- the rules of business conduct and ethics, and chase contract and costing him extra monies. customary business rules. Following standardi- The question is whether the Bank is enti- zation of customary business practices not only tled to not perform the Client's instruction. In gives the Mediator enough flexibility in deci- particular, the Bank hinges on the logic behind sion-making but enables to take as streamlined the bank account agreement, signed with the an approach as possible to protect consumer Client, which establishes that the Bank has the interests whilst also considering conventional right to collect, any time, funds from all types wisdom in any particular aspect. of accounts of the Client, without prior notice, The following is summary of the customary in order to cover existing liabilities of the Client business practices which we identified during to the Bank, regardless of the documented ori- the period under review. gin of such funds. The Bank justifies its position by reference to article 922 (2) of the Republic of 1. The Office of Financial System Mediator Armenia Civil Code. The Client believes this rule sent a written communication to all commer- does not apply to the case. In particular, it de- cial banks operating in the Republic of Armenia fines a rule that is applicable as and when the and sought their opinion about the following: following circumstances occur simultaneously: Suppose the Client has signed a bank/card 1. there is not a specific customer order account agreement, a mortgage agreement and 2. the contract establishes the bank’s right a letter of credit facility agreement with the Bank to collect funds from the account at different times. For some time, the Client has 3. funds are available in the account. performed their contractual obligations properly In this case, it turns out there is the client in- but at some point later they started to have destruction to repay exactly the mortgage loan, and lays in installments on credit line, in the mean- in fact there are no funds in the client's account. while though carefully repaying the mortgage According to the client, the funds are generated subject to the terms of the mortgage contract. artificially when the client puts money into the Getting regular mortgage repayments from the bank in order to repay the loan. Yet, the bank Client, the Bank has used them to cover over- channels the sum to the bank account of the due installments on credit line, thereby making client and collects it for other purposes instead. the mortgage loan overdue. Moreover, the Bank According to the client, the bank's commitment has never kept the Client informed of this. Af- to perform as per client instruction is imperative, ter some time, wanting to sell the mortgaged and it cannot be altered by the contract. property, the Client went to the Bank and re- The subject matter gave rise to controversies quested a statement of the mortgage loan bal- among lawyers too, so to check if a customary ance. The Client got it and made the payment business practice like this exists in the financial as per amount shown in the statement, with sector, Mediator asked all commercial banks to designated purpose "mortgage loan repayment" present professional opinion regarding it. included in the payment order. Additionally, the The feedback of the banks was insufficient Client requested the Bank in writing to pay the to form a customary business practice, as only 72 mortgage loan off from the money payable by a little number of banks responded, with every

Customary business practices bank varying in their approaches. Having scru- orders of the client to transfer monetary funds tinized the requirements of the law, Mediator from the account, the bank shall be obligated came out with a position about the subject to pay interest from on this amount through matter. Specifically, article 912 (1) of the Civil the procedure and in the amount provided for Code provides: under the contract of bank ac- by Article 411 of this Code. count, a bank is obligated to credit monetary The analysis of these rules infers that the funds on to the account opened with the client Bank may set limitations on the Client's right (the accountholder), to execute the orders of to dispose their monetary funds under the the client on transfer and issuance of respective contract on bank account. However, the Bank amounts from the account and on the conduct shall not set limitations other than those al- of other operations on the account. Paragraph ready provided for in the contract. As specified 3 of the same article says that the bank has in article 922 of the Civil Code, the Bank shall the right to neither determine or control the be allowed to withdraw monetary funds from direction of use of monetary funds of the cli- the account without the client instruction, if ent nor establish other limitations not provid- such a right is entitled under the contract be- ed for by statute or contract of bank account, tween the client and the bank. Moreover, the over the client’s right to dispose of the mon- Bank is entitled to collect funds, without the client etary funds at their own. According to article instruction, without prior notice, from the account 918 of the Civil Code, in cases when, subject to of the client, as and when the following circum- the terms of the contract on bank account, the stances occur simultaneously: bank makes payments from the account in the 1. there is not a specific customer order face of lack of funds on it (crediting with the 2. the contract establishes the bank’s right to account), the bank shall be considered to have collect funds from the account granted the client credit in the corresponding 3. funds are available in the account; funds amount from the day of making of such a pay- available on the account suggests availability of ment. The rights and duties of the parties con- funds which the accountholder or an authorized nected with giving credit to an account are de- person can withdraw from or otherwise dispose of termined by the rules on loan (Chapter 46) and without any additional restrictions. credit (Chapter 47), unless the contract of bank account provides otherwise. Article 922 of the 2. While in a case review, the Office of Fi- Civil Code provides as follows: Withdrawal of nancial System Mediator needed to determine monetary funds from an account shall be made a customary business practice relating to the by the bank on the basis of the client instruc- applicability of article 236 of the Republic of tion. Without an instruction of the client, the Armenia Civil Code. Paragraph 2 of the article withdrawal of monetary funds available with says that a subsequent pledge is allowed if it is the account shall be allowed by decision of not forbidden by prior contracts of pledge. Me- a court and also in other cases as established diator found it appropriate to learn the position by a statute or provided by the contract be- of commercial banks if there is any customary tween the bank and the client. According to business practice in the financial sector. article 924 of the Civil Code, in case of delayed According to the claim, the Client signed transfer of monetary funds on to client account a mortgage loan and collateral contract with the or in case of unfounded withdrawal by the Bank. To conclude a subsequent collateral con- bank of such funds from the account, as well tract, the Client applied to the Bank to seek their as failure to obey or improper performance of consent. The Bank notified the Client in writing 73

Customary business practices that, to grant the consent, they would charge Armenia, and the review of all these considera- the Client a fee at the rate of 1 percent of the tions helped Mediator to come to the conclu- outstanding loan balance or a maximum of AMD sion, as follows: 1,000,000, by referring to the provision of the 1. all banks limit, by virtue of the contract, collateral contract whereby the item of collateral the pledger's ability to make the pledged prop- cannot be pledged for transactions with third erty to become an item of subsequent collat- parties unless prior written consent of the Pledg- eral, whilst providing for stipulation to seek the ee is in place as well as by virtue of the board de- consent of the bank in writing; cision about the aforementioned charge. Upon 2. 8 out of 14 banks mentioned above do receipt of the written notification of the Bank, not charge the pledger a fee in exchange for the Client paid the fee as per requirement and the consent but give their consent on the basis obtained the Bank consent. However, the Client of objective and subjective criteria (e.g. loan- finds that they have paid more than stipulated to-value ratio, the borrower's financial condi- in the contract and claimed a refund of the fee tion), provided that the monetary obligations from the Bank. To review the case, Mediator had to the bank will be covered; to learn if commercial banks had an appropriate 3. 3 banks follow a policy of making reference customary business practice with regard to the to the rates, normally an attachment to the con- said article 236 of the Civil Code in place, whilst tract, which establish the amount of the fee pay- seeking to shed light on the following considera- able by the pledger in exchange for the consent; tions and questions: 4. 3 banks determine the pledger fee, using 1. Do banks prohibit or otherwise restrict the a statute or document that is independent of pledger’s ability to make the pledged property the agreement/arrangement between the par- to become an item of subsequent collateral? ties, which the pledger has not been previously 2. If the contract contains a stipulation ena- attached to, subject to bank's internal regula- bling the bank to make the pledged property to tions, policies and rates; these banks justified become an item of subsequent collateral, will their policy by saying any bank would be enti- the bank have to charge a fee from the pledger tled to set commission fee for provision of ser- for giving consent, or under which conditions vices and/or giving of consent to the pledger, such consent shall be given? and that before paying any commission fee, 3. If the pledger is charged a fee in exchange each client is able to learn the rates/tariffs and for the consent, which statute or document is be aware of the payment of the fee beforehand. in place to determine the amount of the fee? Is Thus, the banking practice that allows the amount of the fee specified by the custom- a subsequent pledge is as follows: the collateral er contract or the terms or rates established as contract limits the pledger's ability to make the annex to the contract? pledged property to become an item of subsequent 4. If the fee charged in exchange for the collateral and provides for stipulation to seek the consent is determined by a statute or docu- consent of the bank in writing. The consent is ment that is independent of the agreement/ granted on the basis of objective and subjective arrangement between the parties, which the criteria (e.g. loan-to-value ratio, the borrower's pledger has not been previously attached to, financial condition), or if the pledger has prom- what is the legal basis the bank acts upon? ised to cover monetary obligations to the bank or For the subject matter, Mediator had ex- pay fee as required by the contract or a statute or planations and clarifications received from 14 document that is independent of the agreement/ 74 commercial banks operating in the Republic of arrangement between the parties.

Customary business practices Questions and Answers

75 n the period under review, people ap- at the expense of another person shall bring in I plied to the Office increasingly in the an interest to be paid on such money. The inter- field of mortgage and consumer loans est shall be accrued from the day of deferment and MTPLI contracts. Because health insurance up until the day on which the obligation termi- for government employees is new to our finan- nates, based on the reference rate of the Central cial market, people often wanted to seek clarifi- Bank of Armenia which is currently 12 percent. cation in this area. This procedure is in effect unless the law or Below is the summary of questions which contract provide for another measure for indem- people most frequently posed to the Office of nification of the loss or another rate of interest. Financial System Mediator in the period under A credit contract may provide for other pen- review. alties for non-performance of improper performance of contractual payments, which means Question: How long is credit information the parties to the loans contract may agree to stored in the database? a ceiling of the amount of fines and penalties. Answer: Article 11 (1) of the Republic of Ar- menia Law on Circulation of Credit Information Question: What rights and liabilities does the and Credit Bureau Activities says that credit guarantor have when the borrower has failed to information constitutes a credit history of the make or improperly made the contractual payments? borrower, which denotes all outstanding debts Answer: According to article 375 (1) of the on the borrower's loan obligations, payments Civil Code, under the contract of surety, the or payment habit, and/or any information re- surety is obligated to the creditor of another per- lating to liabilities or performance of liabilities. son to answer for the performance by the latter According to paragraph 6 (2) of the same of its obligation in full or in part. Also, article 380 article, the credit bureau shall not keep credit (1) of the Civil Code establishes that to a surety information on the borrower if such informa- who has performed an obligation shall pass the tion is more than 5 years old at the moment rights of the creditor under this obligation and a respective credit report on the borrower is the rights belonging to the creditor as a pledgee provided. Such information shall be archived in the amount in which the surety satisfied the after the completion of the five-year period. claim of the creditor. The surety also shall have the right to demand from the debtor payment Question: Does the law provide for a ceiling of interest on the amount paid to the creditor of the amount of fines and penalties which accrue and compensation for other losses borne in against non-performance or improper performance connection with liability for the debtor. of obligations under the loan contract? According to article 377 (1) of the Civil Code, Answer: Article 369 (1) of the Civil Code estab- in case of nonperformance or improper per- lishes: a penalty (forfeiture, fine) is a monetary sum formance by the debtor of obligations secured determined by a statute or contract that a debtor by a surety, the surety and debtor shall be li- must pay to the creditor in case of non-perfor- able jointly and severally to the creditor unless mance or improper performance of an obligation, a statute or the contract of surety provides for in particular in case of a delayed performance. the subsidiary liability of the surety. Further, article 411 (1) of the Civil Code says Therefore, non-payments or improper pay- that unlawful retention of someone else's money, ments by the borrower under the loan contract including avoiding to return it, using it for some may prompt the creditor to bring their require- 76 deferred payment, or unjustified receipt or saving ments to all the guarantors or each of them.

Questions and Answers Question: Should the creditor be required to tract, to receive the short amount from other notify the borrower of existing overdue liabilities, property of the debtor, unless otherwise pro- as well as of fines and penalties accrued for non- vided by the contract. That is, in the event the performance of improper performance of credit creditor’s claims are not satisfied after the sell- obligations? ing of the item of collateral, the borrower shall Answer: Where a consumer loan contract be held liable for the remaining property. concluded between the parties is involved, it It should be noted that the law provides should be noted then that article 17 (2) of the some other regularization for pawnshops. Spe- Republic of Armenia Law on Consumer Cred- cifically, article 255 (7) of the Civil Code says iting establishes as follows: Creditor shall pro- that In case of failure to return in the estab- vide Customer in writing with information on lished period the amount of the credit secured consumer’s liabilities arising from credit agree- by the pledge of property in the pawnshop, the ment, the reasons for their occurrence and pawnshop shall have the right to realize (sell) repayment, including a comprehensive list of this property at public auction. After this the applicable and applied sanctions against failure demand of the pawnshop against the pledger or improper fulfillment of consumer’s liabilities (debtor) is extinguished, even if the amount re- (penalty or any other measure having negative ceived on the disposition of the pledged prop- effect on consumer’s standing), and cases and erty is insufficient for their full satisfaction. terms of their application, with a frequency established independently or through a credit Question: What criteria are considered when agreement, but not less than on a thirty days a loan is provided? Should such criteria be in place basis, through mail service, except in cases in- so that the lender is able to conclude a loan con- dicated under part 3 hereunder. tract with the client? Paragraph 3 of the same article says that Answer: The loan contract is not a public by filing an application, including through elec- contract, therefore the lender (banks, credit tronic service, consumer may renounce his organizations, pawnshops) are free to decide right of receiving information through mail ser- whom to enter into a loan agreement with and vice, and request a receipt of information sub- whom to not enter with. That is to say, it is the ject to disclosure through electronic or other lender that evaluates an applicant's creditwor- communication services instead. thiness and their ability to repay the loan. If the loan contract between the parties is In order to assess the creditworthiness, the not a consumer loan contract, the communi- following circumstances may be taken into ac- cation between the parties shall be organized count. pursuant to the loan contract. 1. the availability of salary and other income 2. a credit history Question: Where loan obligations are not 3. the availability of real estate and other covered in full after the item of collateral has been property sold, could the creditor require the borrower to re- 4. the availability of guarantors pay the debt outstanding? 5. age Answer: Article 251 (2) of the Civil Code says 6. citizenship that if the amount realized on the sale of the 7. more circumstances. pledged property is insufficient to cover the claim of the pledger, he has the right, in the Question: Should the creditor sell the collat- absence of a contrary indication in the con- eral without sending a notice to the borrower? 77

Questions and Answers Answer: Article 249 (2) of the Civil Code which an insurance compensation under a MTPLI establishes that in case of non-fulfillment or contract should have been paid? improper fulfillment of the liability secured Answer: According to article 22 (6) of the by collateral the pledgee shall deliver a notice Republic of Armenia Law on Motor Third Party in writing to the pledger through the notary Liability Insurance, where insurance company about seizure of the pledge without resort to (the Bureau) takes a decision on postponement court (seizure notice). of the period for arranging expert examination, Once the seizure notice is handed to the paying indemnity or refusing to pay indemnity, debtor the pledgee will have the right to hold the or on postponement of the period of conducting pledge (if movable property) and take reasonable expert examination, insurance company (the Bu- action to keep, maintain and ensure safety of it. reau) shall pay to the sufferer or their legal suc- The same article further provides that Two cessor a penalty for each day of postponement: months after handing the seizure notice to the • 0.1 percent of indemnity amount, in case debtor, the pledger will have the right to ar- of postponement of period for taking decision range direct sale or public auction of the pledge on paying indemnity; on behalf of the pledger, unless the pledger and • 0.1 percent of indemnity due to the suffer- the pledgee have otherwise agreed upon. The er for the respective type of damage according pledgee must sell the pledge at market value. to the MTPLI contract signed with regard to Consequently, at least two months before the motor vehicle that caused the damage, in the selling of the collateral, the creditor must case of postponement of the period for arrang- send a written notice of the seizure and pos- ing expert examination, refusing to pay indem- sible sale of collateral as a result of non-perfor- nity, or postponement of period of conducting mance or improper performance of obligations. expert examination. Article 23 (1) of the same law establishes Question: Where we do not agree with the re- that where insurance company (the Bureau) sults of double expert examination conducted, is it fails to keep the period (periods) defined by this possible to apply to the Financial System Mediator? part, it shall pay to the sufferer (or their legal Answer: Article 22 (4) of the Republic of Ar- successor) a penalty in the amount of 0.1 per- menia Law on Motor Third Party Liability Insur- cent of indemnity, for each day of delay. ance establishes that after the second expert examination, an additional expert examination may not be arranged, whereby results of the second expert examination may be appealed only through court.

Question: How long will it take to carry out double expert examination? Answer: The Republic of Armenia Law on Motor Third Party Liability Insurance does not provide for a maximum timing for carrying out double expert examination.

Question: What sanctions apply to the insur- 78 ance company when they violate the timing within

Questions and Answers List of organizations which have signed/not signed the covenant

79 Banks • “ArtsakhBank” CJSC • “ProCredit Bank” CJSC • “BTA BANK” CJSC • “AraratBank” JSC • “ArdshinInvestBank” CJSC • “Mellat Bank” CJSC • “Anelik Bank” CJSC • “Byblos Bank Armenia” CJSC • “UniBank” CJSC • “ACBA-Credit Agricole Bank” CJSC • “VTB-Armenia Bank” CJSC • “ArmSwissBank” CJSC • “Converse Bank” CJSC List of organizations • “HSBC Bank Armenia” CJSC • “ArmEconomBank” JSC which have signed • “ArmBusinessBank” CJSC the Covenant • “Inecobank” CJSC • “Prometey Bank” Ltd • “AmeriaBank” CJSC

Insurance Companies • “IngoArmenia” CJSC

Insurance Brokers • “Prime Insurance Brokers” Ltd

Pawnshops • “Dickrison” Ltd • “Voske Amran” Ltd • “Adamand” Ltd • “V – M” Ltd • “Cartouche-Art” Ltd • “Fidelity Law Group” Ltd • “ArsKare” Ltd • “Golden Chain” Ltd • “Gravich” Ltd • “Carmen” Ltd • “Credit Grko” Ltd • “Al-Mick” Ltd • “Aida Karin” Ltd • “Nariena” Ltd • “Dizak” Ltd 80 • “Mets Vark” Ltd

List of organizations which have signed/not signed the covenant • “Vigen and Vahagn” Ltd • “GorExArt” Ltd • “New Branch” Ltd • “Karen Maloyan” Private Entrepreneur • “Roland and MG” Ltd • “Henrik Karapetyan” Private Entrepreneur • “Sarte” Ltd • “Anmar Astxik” Ltd • “AvaCred” Ltd • “Haik and Arsen” Ltd • “Fast Credit” Ltd • “Arthur Bogomazov” Private Entrepreneur • “Valge” Ltd • “Valerik Abrahamyan” Private Entrepreneur • “Volta” Ltd • “Anahit Tagouhi” Ltd • “Sassoon” Ltd Credit Organizations • “Everest” Ltd • “Gladzor” UCO • “Simon Minasyan” Private Entrepreneur • “First Mortgage Company” UCO Ltd • “Arthur Yenokyan” Private Entrepreneur • “National Mortgage Company” • “Hovhannes Hakobyan” Private Entrepreneur UCO CJSC • “Anahit Avagyan” Private Entrepreneur • “Farm Credit Insurance” UCO Commercial • “Zhirair Hovhannisyan” Private Entrepreneur Cooperative • “Karapet Khachatryan” Private Entrepreneur • “Global Credit” UCO CJSC • “Gourgen Melikyan” Private Entrepreneur • “Fast Credit Capital” UCO CJSC • “Ara Movsesyan” Private Entrepreneur • “Express Credit” UCO CJSC • “Ruben Hovhannisyan” Private Entrepreneur • “SME Investments” UCO Ltd • “SAS-Group” Ltd • “ACBA Leasing” CJSC • “Arthur Azatyan” Private Entrepreneur • “VHM” Ltd Exchange Offices • “Gregory Davidyan” Private Entrepreneur • “Saleable Goods” Ltd • “Hakob Tandaryan” Private Entrepreneur • “Anahit Damburajyan” Private Entrepreneur • “Artyom Mousinyan” Private Entrepreneur • “Garegin Ghardashyan” Private Entrepreneur • “Karen Keshishyan” Private Entrepreneur • “Karen Hakobyan” Private Entrepreneur • “SAB Trust” Ltd • “Gagik Ghardashyan” Private Entrepreneur • “Hamlet Asatryan” Private Entrepreneur • “Arturik Hakobyan” Private Entrepreneur • “Arthur Gyulnazaryan” Private Entrepreneur • “Maurice Babajanyan” Ltd • “Samvel Balyan” Private Entrepreneur • “Vladik Poghosyan” Private Entrepreneur • “Levon Avanesyan” Private Entrepreneur • “Arthur Martirosyan” Private Entrepreneur • “Samvel Hambardzumyan” Private • “Levon and Gegham” Ltd Entrepreneur • “Samvel Movsisyan” Private Entrepreneur • “Andrew Group” Ltd • “Arayik Melqumyan” Private Entrepreneur • “Aram Ghazaryan” Private Entrepreneur • “Garik Hayrapetyan” Private Entrepreneur • “Gayane Askaryan” Private Entrepreneur • “Hovhannes Ghazaryan” Private Entrepreneur • “Aravet” Ltd • “Aleksan Mkhitaryan” Private Entrepreneur • “Levon Karapetyan” Private Entrepreneur • “NAT” Ltd • “HENV” Ltd • “Goharik Minasyan” Private Entrepreneur • “Amster Flowers” Ltd • “Samvel Adamyan” Private Entrepreneur • “Limida” Ltd • “Henrik Avetisyan” Private Entrepreneur • “Har-Art” Ltd • “Murad Mkhitaryan” Private Entrepreneur • “V.A.S. Group” Ltd • “Lusine Chalabyan” Private Entrepreneur • “Surprise World” Ltd 81

List of organizations which have signed/not signed the covenant • “Vega World” Ltd • “M Za” Ltd • “Petak” Ltd

Investment Companies • “Capital Investments” CJSC • “Renesa” CJSC

List of organizations which have signed/not signed the covenant Banks • “AreximBank” CJSC • “Armenian Development Bank” JSC • “All-Armenian Bank” JSC

Credit Organizations • “Arphin” Credit Union Ltd • “SEF International” UCO Ltd • “Agrolease Credit Lease Company” Ltd • “Aregak” UCO CJSC • “Finca” UCO CJSC • “New Horizon” UCO Ltd • “Norvik” UCO CJSC • “Malatia” UCO Ltd • “Garni Invest” UCO CJSC • “Ekloff” UCO Ltd • “Bless” UCO Ltd • “GFC General Financial and Credit List of organizations Company” UCO CJSC • “Good Credit” UCO CJSC which have not • “Card AgroCredit” UCO CJSC signed the Covenant • “Unileasing” UCO CJSC • “Aniv” UCO Ltd • “Fides Mortgage Company” CJSC • “Housing for Youth” UCO CJSC • “Kamoorj” UCO Ltd • “Cilicia” UCO Ltd • “G & A” UCO Ltd • “F.I.K.O.” UCO Ltd • “Credit Corp” UCO CJSC • “Credo Finance” UCO CJSC

INSURANCE COMPANIES • “Garant Insurance” CJSC • “SIL Insurance” CJSC • “Armenia Insurance” CJSC • “ISG Insurance” Ltd • “Reso Insurance” CJSC • “Armenia Export Insurance Agency” CJSC

Insurance Bureaus • “Armenia Motor Insurers’ Bureau” ULE 83

List of organizations which have signed/not signed the covenant Insurance Brokers • “Vantig” Ltd • “Resolution Insurance Broker” Ltd • “Nor-Saz” Ltd • “White - SOLITER” Ltd Money Remittance Companies • “Musoyan - AAA” Ltd • “Haypost” CJSC • “Ashot Frangulyan” Private Entrepreneur • “Tandem Payments” Ltd • “SIMNOR” Ltd • “Tell-Cell” CJSC • “AR-Credo” Ltd • “E-Dram” Ltd • “Serve-EDAR” Ltd • “Mobi Dram” CJSC • “Silver Cup” Ltd • “Money Tun” Ltd • “R.R.H. Brothers” Ltd • “Lianna Danielyan” Private Entrepreneur Pawnshops • “Financial Aid” Ltd • “Leylo” Ltd • “Private Entrepreneur Haik Zohrabyan” Ltd • “Tiger” Ltd • “ MM NIKA” Ltd • “Malen” Ltd • “Fast Finance” Ltd • “Sicor” Ltd • “Easy Credit” Ltd • “M V M Anna” Ltd • “Vilmar One” Ltd • “Saver” Ltd • “Janguay” Ltd • “Art Credit” Ltd • “ProFFinance” CJSC • “GUDAVI” Ltd • “Five Minutes” Ltd • “Gevorgyan and Company” Ltd • “Leraz” Ltd • “Artyom Ghahramanyan” Private • “Arangel Provider” Ltd Entrepreneur • “Arthur Hovsepian” Private Entrepreneur • “ Krbulagh” Ltd • “Gold Idea” Ltd • “V.I.A.” Ltd • “MARLIA” CJSC • “VEM and VIG” Ltd • “Fast Cash” Ltd • “Amalik Credit” Ltd • “GEV-STAR” Ltd • “Gnahatoum” Ltd • “AghDagh” Ltd • “AR-ET” CJSC • “Kluzh” Ltd • “Pirop” Ltd • “Cay-Man” Ltd • “Zhirayr Aharonyan” Private Entrepreneur • “Money and Company” Ltd • “Amouni Group” Ltd • “Express VIP Service” Ltd • “Grav” Ltd • “Trader” Ltd • “Valge” Ltd • “Gold & GB” Ltd • “Nomidisk” Ltd • “Ardalin” Ltd • “Sargis and Nana” Ltd • “KBM” Ltd • “Vardan Ohanyan” Private Entrepreneur • “Inrim Credit” Ltd • “Arman and Gnel” Ltd • “Gevasar Credit” Ltd • “Manioka” Ltd • “Iska Credit” Ltd • “Yana - Gor” Ltd • “Julietta Ohanyan” Private Entrepreneur • “Robert Maroutyan” Ltd • “Voske Vtak” Ltd • “Ninella” Ltd • “Max Credit” Ltd • “Mamma Mia” Ltd • “ERA LINE” Ltd 84 • “LombardStreet” Ltd • “Gold Consulting” Ltd

List of organizations which have signed/not signed the covenant • “Real Credit” Ltd Exchange Offices • “Dramatun” Ltd • “Arsen Papyan” Private Entrepreneur • “Lombardia” Ltd • “Arthur Aigounyan” Private Entrepreneur • “Anoush Nourijanyan” Private Entrepreneur • “Norayr Martirosyan” Private Entrepreneur • “ Legat Credit” Ltd • “Arsen Galstyan” Private Entrepreneur • “Armen Ohanyan” Private Entrepreneur • “Harutjun Arsenyan” Private Entrepreneur • “ALMELEROA” Ltd • “Armen Bayramyan” Private Entrepreneur • “ALEKAWORLD” Ltd • “TransDealer” Ltd • “Huso Lusniak” Ltd • “Harutjun Harutjunyan” Private Entrepreneur • “Voske Luma” Ltd • “Azat Khachatryan” Private Entrepreneur • “Credit House” Ltd • “Manouk Sargsyan” Private Entrepreneur • “Karen Mets” Ltd • “Yotnyak” Ltd • “Gold Cash” Ltd • “Hrachia Minasyan” Private Entrepreneur • “Aghvan Tadevosyan” Private Entrepreneur • “Arman Kosyan” Private Entrepreneur • “UminiLine” Ltd • “Albert Papoyan” Private Entrepreneur • “Amuni Credit” Ltd • “Arsen Bareghamyan” Private Entrepreneur • “S.U.R.-72” Ltd • “Karine Arakelyan” Private Entrepreneur • “Narine Arzumanyan” Private Entrepreneur • “Andranik Mkrtchyan” Private Entrepreneur • “Euro Credit Capital” Ltd • “Hovhannes Khachatryan” Private Entrepreneur • “Diamond Credit” Ltd • “Arthur Arakelyan” Private Entrepreneur • “Guarant Credit” Ltd • “Hakob Hovhannisyan” Private Entrepreneur • “ArmAst” Ltd • “Cone-Brossel” Ltd • “Elato Gold” Ltd • “Zaven Tschagharyan” Private Entrepreneur • “NGS Finance” Ltd • “Tigran Sargsyan” Private Entrepreneur • “Ars Elite” Ltd • “Julietta Gabrielyan” Private Entrepreneur • “Art Credit” Ltd • “Valerie Navasardyan” Private Entrepreneur • “AVACRED” Ltd • “Hasmik Balasanyan” Private Entrepreneur • “AMS” Ltd • “Artyom Davtyan” Private Entrepreneur • “Panthera Credit” Ltd • “Andranik Hakobyan” Private Entrepreneur • “Trust Credit” Ltd • “Smbat Aslanyan” Private Entrepreneur • “Trader” Ltd • “Hrachia Hakhverdyan” Private Entrepreneur • “Royal Credit” Ltd • “Vardan Baghdasaryan” Private Entrepreneur • “Royal Finance Group” Ltd • “Ruzanna Arakelyan” Private Entrepreneur • “SAS Credit” Ltd • “Samvel Ghazaryan” Private Entrepreneur • “Real Credit” Ltd • “Gvidon Lazaryan” Private Entrepreneur • “Karen Yaralyan” Ltd • “Vatu” Ltd • “VOLTA” Ltd • “Hovsep Haroutjunyan” Private Entrepreneur • “Venus Athina” Ltd • “Vahagn Khachatryan” Private Entrepreneur • “Major Credit” Ltd • “Aristakes Atoyan” Private Entrepreneur • “Micro Capital” Ltd • “Arman Baghdasaryan” Ltd • “Move Med” Ltd • “Hamlet Barsegyan” Private Entrepreneur • “Nomidisk” Ltd • “Capital Trade” Ltd • “NK Ninella” Ltd • “ALS Erzrumtsi” Ltd • “Armenuhi Arakelyan” Private Entrepreneur • “Armen Yenokyan” Private Entrepreneur 85

List of organizations which have signed/not signed the covenant • “Tigran Vahradyan” Private Entrepreneur • “EN.PA” Ltd • “Armenia International Airports” CJSC • “Gogly” Ltd • “Levon Katayan” Private Entrepreneur • “Sahak Hagoyan” Private Entrepreneur • “Armen Mkhitaryan and Friends” Full • “Arthur Danielyan” Private Entrepreneur Partnership • “Hrachia Arakelyan” Private Entrepreneur • “Aram Barseghyan” Private Entrepreneur • “Gagik Jndoyan” Private Entrepreneur • “Varuzhan Avetisyan” Private Entrepreneur • “P S R” Ltd • “Mill AG” CJSC • “Sedik Sahakyan” Private Entrepreneur • “Gegham Arqa” Ltd • “Arman Galstyan” Private Entrepreneur • “Sergei Aghayan” Private Entrepreneur • “Seriozha Melikjanyan” Private Entrepreneur • “Donka” Ltd • “Hrachik Hakobyan” Private Entrepreneur • “Nairi Matinyan” Private Entrepreneur • “Zolushka” Ltd • “Vardan Vardazaryan” Private Entrepreneur • “Armenia Shopping Center Hayrapetyan • “Jemma Baghramyan” Private Entrepreneur Brothers” CJSC • “Ghrer” Ltd • “TUNAR” CJSC • “Andrey Shaqaryan” Private Entrepreneur • “Karen Anna and Family” Ltd • “Gross Realtor” Ltd • “Sev Kakach” Ltd • “Armine Khachatryan” Private Entrepreneur • “Alex-Grieg” Ltd • “Armenia Hotel Complex” CJSC • “Pretty Way” Ltd • “Aram Arakelyan” Private Entrepreneur • “Hagoyan” Trade Center • “Parandzem Hakobyan” Private Entrepreneur • “IMEX Group” CJSC • “Arthur Kochinyan” Private Entrepreneur • “Business Leader Holding” CJSC • “Anahit Virabyan” Private Entrepreneur • “Fresh” CJSC • “Armen Maleryan” Private Entrepreneur • “Parma” CJSC • “Stoic” Ltd • “Vagharsh and Sons” Ltd • “Tigtat” Ltd • “Sparapet” Ltd • “Khachatur Ghahramanyan” Private • “Tashir Invest Group” CJSC Entrepreneur • “Vardan and Monika” Ltd • “Anatoly Sahakyan” Private Entrepreneur • “SIMAO” Ltd • “Gorik Stepanyan” Private Entrepreneur • “D G S Group” Ltd • “Ashot Harutjunyan & Sons” Ltd • “ArboomProm” Ltd • “Karin Gohar” Ltd • “Gntunik” Ltd • “Samvel Amirjanyan” Private Entrepreneur • “R.G.A.T.” Ltd • “Azatuhi Blikyan” Private Entrepreneur • “Europark Shopping Center” JSC • “Anoush Zakaryan” Private Entrepreneur • “Plaza Systems” CJSC • “Vardan Ghazaryan” Private Entrepreneur • “Arm and Art Change Market” Ltd • “Rudik Khachatryan” Private Entrepreneur • “Metal Levo Group” Ltd • “Voske Getak” Ltd • “Baseni Govq” Ltd • “ANDAKO” Ltd • “Bonus Trade Center” Ltd • “United West” Ltd • “Bego Trans” Ltd • “Artak Yesayan” Private Entrepreneur • “Gagik Dheryan” Private Entrepreneur • “Armine Marabyan” Private Entrepreneur • “Gazprom Armenia” CJSC • “Hasara” Ltd • “Giant Trade” Ltd 86 • “Hasmik Tadevosyan” Private Entrepreneur • “GH G” Ltd

List of organizations which have signed/not signed the covenant • “Khas-Profit” Ltd • “Khachatur Petrossyan” Ltd • “VLV Center” Ltd • “TOUREX GOLD” Ltd • “Krpak” Ltd • “Valley Bay” Ltd • “ProdLine” Ltd • “Nork Market” Ltd • “Felix-Sarg” Ltd

Investment Companies • “Alfa Securities” Ltd • “Tonton” Ltd • “Future Capital Market” Ltd • “ARMENBROK” JSC • “Financial Technologies Laboratory” CJSC • “Prime Capital” Ltd

Investment Fund Managers • “Capital Asset Management” CJSC • “Amoundy-ACBA Asset Management” CJSC • “C-Quadrat AMpega Asset Management Armenia” CJSC • “America Asset Management” CJSC

List of organizations which have signed/not signed the covenant “Elite Plaza” Business Center, 7th floor 15 M. Khorenatsi street, 0010 Yerevan, Armenia

Site: www.fsm.am Email: [email protected] Tel.: (+37410) 58-23-22, 58-23-21 88 Fax: (+37410) 58-24-21