Q&A with Esther Puigcercós Font, general manager, Associació de Bancs Andorrans (Andorran Banking Association)

Q: What are the main characteristics of the Andorran banking sector?

A: Andorran banking is mainly private banking. This is what the banks have done since they started. The banks have some commercial business, with some €7bn of loans, but they only come from the Andorran economy. The banks don’t lend abroad. The rest of the business is private banking, in which we have more than 85 years of experience with highly qualified personnel.

We have high solvency, capital adequacy and liquidity ratios. We offer a very wide portfolio of products and our diversification around the world. These are our main values.

Q: Banca Privada d’Andorra [BPA] was the third largest bank in the country by assets in 2013 before it was deemed a ‘primary money laundering concern’ by the US Department of the Treasury in 2015. How significant a reputation issue was this? And are there still repercussions for Andorra's banks?

A: The BPA case was a one-off, isolated case of alleged money laundering.

The Andorran government and regulators have done a good, quick job of resolving it because it was a big issue for the country. The Andorran institutions showed strong commitment and a high level of coordination in their collective response to the case. They passed the necessary legislation, which implemented the Bank Recovery and Resolution EU directive, thus avoiding the bail-out of the bank by taxpayers. Within this new framework, the resolution process was initiated, segregating BPA's cleared assets and liabilities to a third entity which was then sold to US investment company JC Flowers. This new bank is now operating normally [under the name Vall Banc]. For us this is a closed chapter.

Furthermore, in February 2016 the Andorran Banking Association [ABA] presented the results of the Andorran banking sector for the year 2015. The results reflected an increase in the banks' assets under management and the high level of trust that the clients have in Andorran entities.

We are aiming at presenting 2016 results sometime at the beginning of March.

Q: In 2016, the Andorran government signed the Automatic Exchange of Information [AEOI] agreement with the EU. How does this agreement fit into the country’s banks’ development towards transparency? What impact does this have on Andorran banks?

A: Andorra is a very old but also a very young country. Our constitution is from 1993 and, from a banking perspective, in the 1990s we issued a code of conduct in order to regulate ourselves according to best banking sector standards. However, [back] then there were very few requirements, which is why the ABA made the decision to apply standards in line with other jurisdictions. Since then we can talk about the evolution of our regulation towards transparency.

In 2009, Andorra signed the Paris Declaration, which represents one of the initial milestones in the Andorran path towards transparency and standardisation and through which the government scheduled transparency legislation that Andorra had to put in place [for] future years.

From then on, Andorra has signed 24 tax information exchange agreements, exceeding the minimum of 12 required by the Organisation for Economic Co-operation and Development, seven double taxation agreements, the monetary agreement with the EU [in 2011] and in February 2016 the automatic exchange of information agreement, also with the EU. All of this aligns Andorra with international standards in matters of transparency, money laundering and banking regulations.

These facts show that the transformation process has come a long way and that the banking sector has been preparing itself for years now for a business model through a strong internationalisation drive and higher value-added services by offering alternatives for the diversification of savings.

Q: You mentioned the 2011 monetary agreement with the EU. Andorra is not a member of the EU but through this agreement is allowed to issue euro coins and use it as its currency. In exchange, Andorra’s banks need to implement EU banking regulations. What is the timetable for these implementations?

A: Due to the international expansion of the Andorran banks, all of their subsidiaries are already compliant with their respective local regulations, which are mainly in the US and EU. And in the same way as EU members, Andorra is working on the implementation of the new regulations, [such as] MiFID [Markets in Financial Instruments Directive] and EMIR [European Market Infrastructure Regulation] according to the timetable set in the annex of the Monetary Agreement.

Q: How is not having a central bank impacting liquidity for Andorran banks?

A: Due to the lack of a central bank figure, the Andorran banking sector has always focused on high capital adequacy and liquidity ratios as its main principal feature. In fact, both ratios are well above the ratios required by the Andorran banking regulations.