(Co-authored by Régis Nogbou)
The West African Economic and Monetary Union, also known under the French acronym “UEMOA”, created on January 10, 1994, is a harmonized and integrated economic union of 8 West African countries: Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo (“UEMOA zone”). Its Member-States share, among other things, a common currency, the franc of the African financial community, better known as CFA Franc (XOF) – pegged to the euro at a fixed exchange rate (655.957 CFA to 1 euro), a harmonized business law, issued by the Organization for the Harmonization of Business Law in Africa (“OHADA”), as well as a common official language, French.
The UEMOA zone offers tremendous opportunities in various sectors, including the banking and financial sector. It is a very dynamic sub-Saharan African region with a GDP growth rate of 0.9% in 2020 (versus 5.8% in 2019, and 6.5% in 2018). However, the rate of banking in the zone remains relatively low, 39.7% in 2019 (extended banking rate, with a 60.1% financial inclusion rate in 2019), for a population of about 120 million.
This article provides a practical overview of the banking and financial regulatory framework of the UEMOA zone. It focuses on the sector regulators, and some of the requirements for setting up a credit institution.
I. UEMOA & UMOA
The banking sector of UEMOA Member-States is governed mainly by the regulations of the West African Monetary Union (known under the French acronym “UMOA”) and of the UEMOA (“Regional regulation”). The Regional regulation also deals with money laundering and terrorist financing issues. National laws and regulations of the Member-States remain applicable to other related areas, not directly covered by the Regional regulation, such as consumer protection and personal data protection, and supplement Regional regulation where appropriate.
UMOA is a group of West African countries, recognizing a common currency unit, the CFA Franc. UMOA was created by a treaty signed on November 14, 1973. It defines, regulates, and supervises, through its bodies, the banking and financial sectors within its Member-States. Seeking to extend the monetary solidarity binding them at the monetary level to the economic sector, UMOA Member-States decided to create the UEMOA. One of the objectives of the UEMOA treaty is to strengthen the competitiveness of the economic and financial activities of its Member-States. It therefore complements the UMOA Treaty.
For convenience, this paper will refer to the UEMOA and UMOA zone interchangeably.
II. The banking and financial sector regulation
Different institutions are involved in the regulation of the banking and financial sector, as well as the supervision of credit institutions operating in the UEMOA zone:
The UMOA Council of Ministers, the executive branch, which sets the legal and regulatory framework applicable to banking and financial activities;
The UMOA Banking Commission, responsible for overseeing and controlling credit institutions;
The West African Central Bank (also known under the French acronym “BCEAO”), the UMOA monetary authority, which sets, among other things, prudential and accounting regulations;
The Regional Council for Public Savings and Financial Markets (also known under the French acronym “CREPMF”), in charge of protecting savings invested in securities and any other investment in a publicly listed company throughout the UEMOA zone.
III. The legal framework of the banking and financial sector
There is a wide range of laws applicable to the banking sector within the UEMOA zone. The main law applicable to credit institutions operating within the UEMOA zone is the framework law issued by the UMOA Council of Ministers on September 19, 1989, on banking regulation (“Framework Law”). It sets out the conditions for the establishment, operation, oversight and supervision of credit institutions in the UEMOA zone. It also contains bankruptcy provisions pertaining to banks. Banking activities are also governed by: (i) Regulation No 15/2002/CM/UEMOA of September 19, 2002, on payment systems within the UEMOA Member-States; (ii) Regulation No 09/2010/CM/UEMOA of October 1, 2010, on external financial relations of UEMOA Member- States; (iii) Uniform law adopted on April 6, 2007, by the UMOA Council of Ministers on decentralized financial systems of UMOA ; (iv) CREPMF general regulation of November 28, 1997, on the organization, operation and control of the UMOA regional financial market ; & (v) Uniform law of March 28, 2008, adopted by the UMOA Council of Ministers, on anti-money laundering and terrorist financing rules in the UEMOA zone.
IV. Activities of a credit institution
Credit institutions are divided into 2 types: (i) banks; & (ii) banking financial institutions. To conduct banking operations, decentralized financial services, and offer or manage payment methods within the UEMOA zone, credit institutions must be licensed by the competent authority.
Licensing
Banking operations are subject to the approval of the Minister of Finance of the Member-State where the activities will be carried out. License applications are submitted to the BCEAO for processing. The license is granted by an order issued by the Minister of Finance, within a maximum period of six months, upon the approval of the UMOA Banking Commission. It is a single license valid in all of UMOA Member-States.
The license covers all the activities that fall within the definition of banking operations.
Banks are allowed to carry-out any of the banking activities. However, banking financial institutions can only carry-out banking activities for which they have been specially licensed.
Legal form, minimum share capital and headquarters of credit institutions
Banks must be formed as sociétés anonymes with a fixed share capital or, as sociétés cooperatives or sociétés mutualistes with a variable share capital by special authorization from the Minister of Finance, of the Member-state where the bank will be located, upon the approval of the UMOA Banking Commission. Banking financial institutions must be formed as sociétés anonymes with a fixed share capital, sociétés à responsabilité limitée or sociétés cooperatives or sociétés mutualistes with a variable share capital.
The minimum share capital of banks is set, by decision of the UMOA Council of Ministers, at CFA francs 10 billion (about USD 17,371,000) and CFA francs 3 billion (about USD 5,211,300) for banking financial institutions.
The headquarters of the bank or the banking financial institution must be located within the territory of one of the UEMOA Member-States.
Management of credit institutions
Credit institutions, or any of their subsidiaries, may not be managed, administered or under the leadership of national of a country that is not a Member-State of UMOA. However, the Minister of Finance, of the Member-State where the bank is located, can grant, upon the approval of the UMOA Banking Commission, individual exemptions. In practice, such exemptions are granted rather easily.
V. Anti-money laundering & terrorist financing
Uniform law of March 28, 2008, on anti-money laundering and terrorist financing sets the rules aiming to identify and prevent any money laundering and terrorist financing. It sets the rules to be followed by stakeholders at different levels of the banking and financial sector, including banks, microfinance institutions, agents providing financial services, as well as some professionals such as accountants and lawyers.
The banking market of the UEMOA zone has experienced in recent years a remarkable dynamism with the emergence of major players, such as some pan-African banking groups. Current trends point to growing competition, particularly among mobile banking services – a sector in which Africa is a leader - and an increase of cross-border transactions. Despite the financial crisis, the UEMOA zone remains a land of opportunities for the banking and financial sector.
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