In 1996, the National Assembly of Armenia endorsed a set of laws to regulate the relations in the banking system. These were the Armenian Laws on: "The Central Bank", "Banks and Banking" and "Bank Secrecy", which heralded the beginning of the banking system in Armenia.
The Armenian Law on "The Central Bank" sets out the objectives, authority, structure and management of the Central Bank. The Law provides that the Central Bank is a legal entity, the sole founder of which is the Republic of Armenia. The key objective of the Central Bank is ensuring price stability, which is achieved by developing, approving and conducting monetary policy programs. The Law further provides that the objectives of the Central Bank include creation of requisite conditions for stability, liquidity, solvency and normal functioning of the banking sector, and creating and developing an efficient payment and settlements system. The Law specifies the Central Bank's relationship with Government authorities, banks and other legal entities; it regulates the authority of the Central Bank as a currency agent, the circulation of the Armenian currency, currency control, and other relations essential to the economy.
The Armenian Law on "On Banks and Banking" regulates the activities of Armenian banks. The Law determines registration, licensing, regulation and termination of activities of banks, their branches, foreign bank branches and all affiliations, and terms of supervision of banking. It explicates the definitions 'bank', 'banking activity', 'bank deposit' and some other definitions; it regulates the corporate structure and management and the scope of financial, investment and subscription activities, and the prudential economic standards.
The Armenian Law on "On Bankruptcy of Banks, Credit Institutions and insurance companies" provides the definitions and features of insolvency and bankruptcy of banks and credit institutions operating in Armenia, the terms and conditions for implementing relevant preventive measures, and the peculiarities of insolvency and bankruptcy proceedings; it provides for the grounds to recognize a bank/credit institution insolvent, the ways of financial rehabilitation. The Law also determines the rights and liabilities of bank depositors and creditors, the temporary administration and the receiver, and other parties of a bankruptcy process.
The Armenian Law on "Banking Secrecy" designed to enhance customer confidence in the banking system and encourage the investment process determines the scope of information considered as bank secrecy, the legal grounds and procedure to divulge, maintain and provide such information; it provides for the rights and liabilities of parties under relations concerning bank secrecy, as well as the liability for infringement of this Law. It clearly describes the procedure and terms for providing information considered as bank secrecy to criminal prosecutors, court, tax authorities, heirs of customer and other parties.
The period 2002-2003 was momentous as a number of essential changes and innovations occurred in the banking legislation. On 29 May 2002, the Armenian Law on "On Credit Organizations" which gave the Central Bank authority to license and supervise the activities of credit institutions in Armenia.
Consistent with the legislative changes, the Central Bank initiated the drafting of appropriate regulatory and legal papers. This allowed specifying the terms and conditions for banks, branches of foreign banks and credit institutions in Armenia to implement compulsory measures in combating circulation of criminally obtained funds and terrorism financing.
- The changes introduced in March 2004 allowed regulation of four sets of issues:
- The procedure of carrying out inspection by the Central Bank was determined;
- The Central Bank determined the grounds, terms and conditions for holding the Central Bank-licensed parties liable;
- Changes were made to the procedure of creation of FX revaluation reserves of the Central Bank;
- The issues relating to the introduction of the deposit guarantee scheme, particularly the failure by the Deposit Guarantee Fund to remunerate a deposit and the events of deposit remuneration, were explicated in light of the Armenian Law on "On Bankruptcy of Banks, Credit Institutions and Insurance companies".
In March 2004, the changes in the Armenian Law on "On Banks and Banking" were attributable to the adoption of the Basle Principles of Banking Supervision and the resultant refinements in the prudential economic standards. In this connection, some other changes were made to the Armenian Law on "On Credit Organizations".
The changes in the Armenian Law on "On Banking Secrecy", considering the internationally accepted principles, define that the information on non-diligent debtor available with the Credit Registry will be published.
The Armenian Law on "Amendments and Addenda to the Armenian Law on "Bankruptcy of Banks, Credit Institutions and Insurance companies", was adopted to introduce important international principles in the legislation governing bankruptcy. This ensures the openness of process of the Central Bank-appointed temporary administration; clears up one of the grounds for insolvency, i.e. the depletion of 50 and more percent of core capital; describes the stock-taking and evaluation of the assets of a bank by the temporary administration. The Law explicates the mechanisms of sale of a bank, which were not regulated previously. The provisions saying that the Central Bank decisions shall not be appealed are removed from the Law. What's more, the grounds and procedure for appealing such decisions are defined. The priority of satisfaction of creditor claims was determined.
The activity of banks and credit institutions in Armenia is governed also by the Civil Code of Armenia, the Armenian Laws on "Funds Transfer by Payment Order", "On Currency Regulation and Currency Control", "Joint Stock Companies", "Companies with Limited Liability" and other laws and regulations pursuant to these laws.
Starting 2004, the banking legislation entered a new phase of development. In November 2004, the Armenian Law on "On Combating the legalization of Proceeds from crime and financing of Terrorizm" was adopted, which necessitated making a number of changes in the banking laws. Particularly, changes and supplements were made to the Armenian Law on "The Central Bank" vesting the Central Bank with another role of organizing and regulating the fight against legalization of criminally obtained proceeds and terrorism financing. Changes were made in other laws as well providing that the notaries, state registers of property rights, registries of legal entities, insurers, pawnshop organizers and other parties under the law shall report the information specified in the above said law to the Central Bank.
On 24 November 2004, the Armenian Law on "On Currency Regulation and Currency Control" in a new edition was adopted that explicated the definitions 'resident and non -resident', 'current currency transactions', 'movement of capital' and 'financial currency transactions'. It determined the cases of implementing transactions in Armenian currency and foreign currency in the territory of Armenia. It further provided that all pecuniary quotations in the sale of property, rendering of services and works should be made in the Armenian Dram. The Law delineates the scope of the bodies performing currency control.
In November 2004, the National Assembly endorsed the Armenian Law on "Guarantee of Remuneration of Bank Deposits of Individuals" pursuing to contribute to the reliability of the banking system, enhance the household confidence and defend the depositor interest. The Law provides a comprehensive regulatory framework for the guarantee of remuneration of the bank deposits of individuals. Upon the entry of this Law into effect, the Central Bank's decision on approving the Central Bank Regulation 20 "Mandatory Guarantee of Physical Entity Bank Deposits and Accounts" operated revoked.