GEORGIA

DECREE ON APPROVING THE PROVISIONAL REGULATION OF THE FINANCIAL SUPERVISION AGENCY OF

Important Disclaimer This translation has been generously provided by the Financial Supervision Agency of Georgia. This does not constitute an official translation and the translator and the EBRD cannot be held responsible for any inaccuracy or omission in the translation. The text should be used for information purposes only and appropriate legal advice should be sought as and when appropriate.

DECREE N1

OF HEAD OF THE FINANCIAL SUPERVISION AGENCY OF GEORGIA

April 24, 2008

On Approving Provisional Regulation of the Financial Supervision Agency of Georgia

Pursuant to the Paragraph 5, Article 70 of the Organic Law of Georgia on National I decree:

1. Approve the attached Provisional Regulation of the Financial Supervision Agency of Georgia;

2. The Provisional Regulation shall become effective upon promulgation.

3. The validity period of the Provisional Regulation shall be defined according to Paragraph 7, Article 53 of the Organic Law of Georgia on prior to approval of the Regulation of the Financial Supervision Agency of Georgia by the Council of the Financial Supervision Agency of Georgia.

G. Kadagidze

Annex

Financial Supervision Agency of Georgia

Provisional Regulation

Chapter I

General Provisions

Article 1. Status and Grounds for Establishing of the Agency

1. Financial Supervision Agency of Georgia (hereinafter referred to as “the Agency”) is a legal entity of the public law, established with the National Bank of Georgia, pursuant to the Organic Law of Georgia on the National Bank of Georgia and its main objective is to exercise state supervision over the financial sector.

2. The Agency shall be an independent body not subordinated to any other body or official. The Agency, in its activities, shall be directed by the Constitution of Georgia, international treaties and agreements, the Organic Law of Georgia on the National Bank of Georgia, Law of Georgia on the Legal entity of the Public Law, Law of Georgia on Activities of Commercial Banks, Laws of Georgia on Non - Bank Depository Institutions – Credit Unions, On Insurance, On Non - State Pension Insurance and Provision, On Securities Market, On Microfinance Institutions, Laws of Georgia, other normative acts and this regulation.

3. The Agency shall be entitled to acquire rights and liabilities in its own name, conclude transactions, enter in relations with the third parties on its own behalf and be a plaintiff or / and defendant in the court.

4. The Agency shall be accountable to the .

5. The Agency shall have independent balance sheet, bank account, seal with the state emblem and own name and letterhead and stamp approved by the Head of the Agency.

6. The Agency shall be the only state authority exercising supervision over the financial sector.

7. The Agency, in its activities, shall be directed by the principles of independence, publicity, equity and responsibility.

8. No person shall have the right to influence the Agency or interfere in its activities for the purpose of affecting its decisions.

9. Requirements of normative acts issued by the Agency, according to the set procedure, shall be mandatory for physical persons and legal entities to fulfill regardless their organizational – legal form.

10. The Agency shall be entitled to represent the state in execution of duties assigned under the Georgian legislation

11. The Agency is located at Leonidze Street 3/5, Tbilisi Chapter II

Objectives and Functions of the Agency

Article 2. Objectives of the Agency

Objectives of the Agency shall be: a) Participation in development of state policy and implementation thereof in bank and non - bank depository institutions, microfinance organizations, currency exchange bureaus and entities providing money remittance services, facilitating development of bank and non - bank depository institutions, microfinance organizations, currency exchange bureaus and entities providing money remittance services in Georgia, elaboration of mechanisms for operation of bank and non - bank depository institutions, microfinance organizations, currency exchange bureaus and entities providing money remittance services, regulation and facilitating protection of credit market, supervision and coordination of activities of bank and non - bank depository institutions, microfinance organizations, currency exchange bureaus and entities providing money remittance services, facilitating securing effectiveness and solvency of bank and non - bank depository institutions, protection of rights of bank and non - bank depository institutions, microfinance organizations, currency exchange bureaus, entities providing money remittance services and clients. b) Facilitating development of securities market in Georgia, protection of investors’ interests on the securities market, ensuring transparency of information and securities public trading upon making public offer of securities by issuers, establishing fair rules and free competition in securities trading. c) Participation in development and implementation of state policy in the field of insurance, facilitating development of insurance in Georgia, elaboration of insurance mechanisms, regulating and facilitating protection of insurance market, supervising and coordinating insurance activities, ensuring effectiveness and solvency of insurance organizations, protection of rights of insurers, insurants and the insured.

Article 3. Functions of the Agency

1. For the purpose of supervising commercial banks, non - bank depository institutions – credit unions, microfinance organizations, money remitters and currency exchange bureaus, the Agency, according to the set procedure, shall:

a) Exercise supervision of commercial banks, non - bank depository institutions – credit unions. This shall cover: issuance and revocation of licenses, inspection and regulation, imposing restrictions and sanctions;

b) Regulate microfinance organizations, currency exchange bureaus and money remitters through their registration, cancellation of registration, imposing restrictions and sanctions, inspection and setting minimum requirements related with facilitating prevention of illicit income legalization;

c) Maintain registry of bank and non - bank depository institutions, microfinance organizations, money remitters and currency exchange bureaus. d) Pursuant to the legislation set minimum capital requirement (including in monetary form), necessary for acquiring the license, rule for computation thereof and other terms; e) Request and obtain information on sources of the capital of commercial bank and direct, as well as beneficiary owners of significant share thereof; f) Set fit and proper criteria for administrators according to the Subparagraph (c), Paragraph 2, and Article 41 of the Law of Georgia on Activities of Commercial Banks; g) Set certain terms and restrictions upon issuing the license if requirements defined under Paragraph 2, Article 4 of the Law of Georgia on Activities of Commercial Banks are not met; h) Control solvency of bank and non - bank depository institutions; for this purpose it shall prohibit conducting active operations, distribution of profit, accruing and payment of dividends, payment of remuneration, bonuses and other similar compensations, require attraction of additional capital, increase norms for assets and loss reserves of contingent liabilities; i) Pursuant to legislation set reporting forms for bank and non - bank depository institutions and microfinance organizations, as well as timeframe for submission of such forms; j) Within the law framework develop methodology defining fixed ratio between assets and accepted depository liabilities of banks and non - bank depository institutions and set normative values; k) Set definite ratio between attracted financial resources and own capital of banks and non - bank depository institutions; l) For the purpose of licensing and regulating bank and non - bank depository institutions issue normative and methodological documents – regulation rules, manuals, instructions and requirements; m) Develop instructions, directives and other normative acts that are mandatory to be fulfilled by commercial banks and non - bank depository institutions; n) Periodically analyze and evaluate financial position of each commercial bank and non - bank depository institution and take measures provided for in effective legislation and other normative acts; o) Supervise commercial banks and non - bank depository institutions for the purpose of observing and timely and adequately fulfilling requirements of effective legislation, rules issued by the Agency, manuals, instructions and guidelines. p) Perform scheduled as well as special examinations of commercial banks, non - bank depository institutions and their subsidiaries. Conduct audit of accounting documents, components of financial statements and other materials, request any information within its competence from these entities. Examine settlement and accounting systems, cash desk and other materials of commercial banks and non - bank depository institutions, request necessary documents and information needed for fulfillment of assigned functions; in addition, examine compliance of activities of money remitters and currency exchange bureaus with the effective norms. q) In the event of revealing negligence of effective legislation, normative acts and the Agency requirements and incorrect operation, within the competence of the Agency take measures – impose sanctions, over banks, credit unions, microfinance organizations, money remitters and currency exchange bureaus, in conformance with the effective legislation and other normative acts.

r) Review incoming correspondence, applications and claims in relation with activities of bank and non - bank depository institutions, microfinance organizations, currency exchange bureaus and react respectively within its competence.

s) Make decisions on introduction of temporary administration in commercial banks and non – bank depository institutions, declaring those as insolvent and bankrupt and liquidation thereof.

t) Supervise liquidation process of commercial banks and credit unions in compliance with the effective legislation, normative acts and requirements of the Agency, set liquidation procedure for commercial banks and non - bank depository institutions.

u) Through temporary administrator or liquidator facilitate transfer of insolvent bank’s assets and liabilities or part thereof, according to the terms and procedure set by the Agency;

v) Provide respective authorities with information about potential offences and those organizations, which render banking, non - bank depository, microfinance, foreign currency exchange and money remittance services without license (registration).

x) Establish and manage bridge bank;

y) Draft changes and amendments for introduction to the Georgian legislation related with activities of banking and non – bank depository institutions, microfinance organizations, currency exchange bureaus and money remitters.

z) Within its competence cooperate with respective authorities of foreign states.

(i) Exercise authority granted by the Organic Law of Georgia on the National Bank of Georgia, Laws of Georgia on Activities of Commercial Banks, on Non – Bank Depository Institutions – Credit Unions, on Microfinance Organizations and other normative acts.

2. For the purpose of regulating the securities market of Georgia and controlling activities of market participants, assets administrator and specialized depositary, the Agency, in conformance with the procedure set under the law, shall:

a) Regulate relations arisen in the course of issuance and turnover of securities;

b) Approve emission prospectus for public offer of securities;

c) Issue or revoke licenses from regulated participants of securities market, perform regulation of securities market within its competence;

d) Ensure revealing, avoiding and preventing violations in the course of securities issuance and turnover; e) Perform monitoring, inspection, investigation and supervision of activities of regulated participants of securities market for the purpose of bringing them into compliance with the legislation on securities market.

f) Apply sanctions according to the set procedure for violation of legislation on securities market, publish information on such violations as well as on responsibility for those; in addition, discover, avoid and prevent violations in the field of securities emission and turnover and for this purpose conduct examinations pursuant to the rules of the Agency;

g) Use rights provided for in legislation on non - state provision of pension and other laws pertaining to investments, securities or rights of securities holders;

h) Pursuant to the law determine requirements for activities of those enterprises, whose securities are publicly offered and traded;

i) Adopt, amend and abolish rules according to the effective legislation and supervise fulfillment thereof;

j) In cases set under the law amend, suspend or introduce supplements in rules of self – regulated organizations;

k) Facilitate setting the data base on accountable enterprises, participants of securities market and functioning thereof;

l) Use authorities granted under the legislation on non - state provision of pensions for protection of lawful interests of investors and securities holders;

m) Organize training courses, issue or participate in publishing the specific reference materials, which have general content or specifically concern operation and regulation of securities market in Georgia;

n) Within its competence cooperate with the respective supervision authorities of other countries;

o) Exercise authorities determined under the Law of Georgia on Securities Market and other normative acts.

3. For the purpose of state regulation of insurance activities, the Agency, according to the procedure set under the law, shall:

a) For the purpose of state regulation of activities of the insurer the Agency shall:

a.a) Conduct licensing of insurance activities;

a.b) Maintain registry of insurer, non – commercial insurance organization (society of mutual insurance);

a.c) According to the law, set minimum capital requirement (including in monetary form), necessary for obtaining the license;

a.d) For the purpose of licensing and supervising insurers issue normative and methodological documents – regulations, manuals, instructions, requirements;

a.e) Control solvency of insurers; a.f) Determine the list of insurance reserves and funds, issue rules for their creation, placement and investment;

a.g) Periodically analyze and evaluate financial position of insurer and take measures provided for in the effective legislation and other normative acts;

a.h) Examine observance by insurer of requirements of the normative and methodological documents and other economic limits, as well as truthfulness of its reporting, for which the Agency sets reporting forms and timeframes for their submission and conducts on-site inspection of the insurer;

a.i) Review incoming correspondence, applications and claims in relation with activities of insurer and react respectively within its competence.

a.j) Supervise liquidation process of insurer in compliance with the effective legislation, normative acts and requirements of the Agency and set liquidation procedure.

a.k) Provide respective authorities with information about potential offences and those organizations, which render insurance services without license (registration).

a.l) Apply to the court with the request to liquidate the organization, which performs insurance business without license;

a.m) Draft changes and amendments for introduction to the Georgian legislation related with insurance activities.

a.n) Within its competence cooperate with respective authorities of foreign states.

a.o) Exercise authorities granted under the Law of Georgia on Insurance and other normative acts. b) In order to ensure state regulation of the founder of non-state pension scheme the Agency shall:

b.a) Perform licensing of founders of pension schemes, as well as of pension insurance participants, according to the procedure set under the Georgian legislation;

b.b) Conduct supervision over activities of founders pursuant to the procedure set under the legislation;

b.c) Set economic limits;

b.d) Examine activities of assets managing companies and specialized depositaries;

b.e) Perform expertise of pension schemes;

b.f) Set requirements for pension schemes and registration rules thereof;

b.g) Keep records on termination of pension scheme;

b.h) Perform evaluation of sustainability of the founder’s financial position;

b.i) Monitor and control fulfillment of measures prescribed for strengthening financial position of the founder; b.j) For the purpose of covering indebtedness of participants, file a claim in the court regarding bankruptcy of the founder;

b.k) Examine activities of founders of the pension scheme, assets managing companies and specialized depositaries;

b.l) Send instructions to the founder which are mandatory to fulfill;

b.m) Perform other functions provided for in the Law of Georgia on Non – State Pension Insurance and Provision.

4. For the purpose of facilitating prevention of illicit income legalization the Agency shall:

a) Cooperate with the Financial Monitoring Service and other supervisory bodies provided for in the Law of Georgia on Facilitating Prevention of Illicit Income Legalization;

b) Examine fulfillment of obligations determined under the Law of Georgia on Facilitating Prevention of Illicit Income Legalization and respective acts of the Financial Monitoring Service of Georgia;

c) In case of failure to fulfill obligations provided for in Subparagraph (b) of this Paragraph, immediately inform the Financial Monitoring Service about violation and impose sanctions determined by the law over the infringer.

Chapter III

Governance of the Agency

Article 4. Governance and Structure of the Agency

1. The Agency shall be governed by the Head, who shall be appointed (discharged) for the term of five years by the .

2. Person may be appointed as the Head of the Agency successively only twice.

3. Head of the Agency shall be discharged of his / her duties prior to expiration of his / her office term:

a) On the basis of personal application;

b) Due to occupation of position incompatible with the status of the Head of the Agency or engagement in the incompatible activity;

c) Upon declaration as incapable or partly incapable by the Court;

d) In case of termination of Georgian citizenship;

e) Upon validation of guilty verdict for the committed crime;

f) In the event of death; 4. Head of the agency shall have deputies who are to be appointed and discharged by the Head of the Agency.

5. Functions among deputies shall be allocated by the Head of the Agency.

6. In case of absence of the Head, his /her functions shall be performed by one of the deputies as assigned by the Head.

7. Deputy Heads of the Agency shall:

a) Perform functions defined by the Head of the Agency and ensure fulfillment of objectives set under this regulation and effective legislation;

b) Under the instruction of the Head guide and supervise work activities of the subordinated structural units;

c) Control fulfillment of tasks and orders of the Head of the Agency;

8. The Head of the Agency shall issue normative decree and individual instruction on the basis of the law and for the purpose of its enforcement.

9. Staffing schedule of the Agency and amounts of remunerations of the Agency employees shall be set by the Head of the Agency prior to establishing the Council of the Agency.

10. Manager of the Structural Unit of the Agency shall be appointed and discharged by the Head.

11. Manager of the structural unit shall directly be subordinated to the Head of the Agency and respective curator Deputy Head.

12. Manager of the structural unit of the Agency shall:

a) Allocate duties among employees of the subordinated structural unit;

b) Control fulfillment of duties by the employees of the subordinated structural unit;

c) Ensure control over authority exercised by structural units;

d) Submit proposals to the Head on work organization of the unit, motivation of employees or imposition of disciplinary measures.

13. Competence, functions and structure of the structural unit of the Agency shall be determined under the regulation of the structural unit, which is being approved by the Head of the Agency upon submission by the manager of the respective structural unit.

14. Structural units of the Agency shall be:

a) Securities Market Supervision Department;

b) Insurance Supervision Department;

c) Off – Site Supervision Department;

d) Revision Supervision Department;

e) Department of Legal Affairs, Methodology and International Relations; f) Department of Informational Technologies;

g) Licensing Department;

h) Liquidation Department;

i) Non – Bank Supervision department;

j) AML Inspection Department;

k) Department Inspecting Securities and Non – Bank Institutions;

l) Administrative Department;

m) Insurance and Banking Examination Department

15. Employees of the Agency shall be appointed and dismissed by the Head of the Agency.

Chapter IV

Property, Financing and Reporting of the Agency

Article 5. Logistical Support of the Agency

The National Bank of Georgia shall provide the Agency with premises, technical facilities, financial resources and other property required for implementation of authorities of the Agency provided for in the Georgian Legislation.

Article 6. Financing the Agency

1. The budget of the Agency, prior to the establishing the Council of the Agency, shall be approved by the Head of the Agency and submitted to the Council of the National Bank for considering it in the NBG budget.

2. The amount of the budget of the Financial Supervision Agency for the first year shall be defined in the amount not less than the sum of the budget of the Bank Supervision Department of the National Bank of Georgia and expenses related with securities market and insurance activities supervision of the Financial Monitoring Service. In addition, the National Bank Council may set a larger budget for the Agency.

3. Financial sources of the Agency shall be:

a) Budget of the Agency;

b) Revenues from other sources permitted by the Georgian legislation.

Article 7. Periodic Reporting Requirements 1. Pursuant to the effective legislation the agency shall perform accounting – reporting of financial economic activities and compile the balance sheet, which shall be approved by the Head of the Agency.

2. Inspection of financial – economic activities of the Agency shall be performed by the Chamber of Control of Georgia.

3. The Agency, prior to establishing the Agency Council, shall only be accountable to the Parliament of Georgia.

Chapter V

Reorganization and Liquidation of the Agency

Article 8. Reorganization and Liquidation of the Agency

Reorganization and liquidation of the Agency shall be performed according to the procedure set under the Georgian legislation.