The National Bank of Georgia is the country's central bank and, at the same time, the central supervisory authority of the financial sector. The Organic Law of Georgia on the National Bank grants it full authority to supervise every major participant of the banking and non-banking financial market — from commercial banks to virtual asset service providers. On this page we explain in detail the Bank's status and objectives, what its independence means, whom it supervises, which powers and measures it may use, and how its decisions can be challenged in court.
Status, objectives and independence of the National Bank
The National Bank is the central bank of Georgia, the bank of banks, the banker of the government and its fiscal agent. It is a legal entity of public law, established by the supreme representative body of Georgia, and its seat is Tbilisi. The Bank's primary objective is to ensure price stability. In addition, provided this does not endanger the primary objective, the Bank must ensure the stability and transparency of the financial system and promote sustainable economic growth in the country. Supervision of the financial sector is a direct function of the National Bank, exercised alongside monetary and exchange rate policy, the issue of banknotes, the management of official international reserves, the promotion of a safe and efficient payment system, the resolution of commercial banks and participation in crisis preparedness and crisis management.
The National Bank is independent in its activities: legislative, executive and other bodies may not interfere in its activities or monitor them, except in cases provided for by the Constitution and the law. The Bank is also economically independent and covers all of its expenses from its own funds. The state is not liable for the obligations of the National Bank, and the Bank is not liable for the obligations of the state, except as provided by law. This guarantee underpins the political independence of supervision.
Supervisory objectives and the protection of competition
From a supervisory perspective, the Bank's task is to promote the financial stability and transparency of the financial sector and to protect the rights of consumers and investors. To this end the Bank fosters the stable and efficient functioning of the financial system, the formation of a competitive environment, the control of systemic risk and the reduction of potential risks.
Within its supervisory mandate the Bank also ensures compliance with the requirements of the Georgian Law on Competition in its own sphere. It examines complaints about possible violations of competition by a financial sector representative, a loan-giving entity or a credit information bureau, as well as notifications of concentration. Where a violation is established, the Bank imposes a monetary fine on the infringer and may additionally apply another sanction or supervisory measure. In ensuring competition requirements the Bank is entitled to give priority to safeguarding financial stability.
Whom the National Bank supervises
The law grants the Bank full authority to supervise a broad spectrum of the financial market:
- the banking sector — commercial banks, microbanks, banking groups and non-bank deposit institutions;
- the lending sphere — microfinance organizations and loan-giving entities;
- the securities market — independent registrars, brokerage companies (other than insurance brokers), the stock exchange, central and specialized depositories, asset management companies, investment funds and authorized securitization special purpose entities;
- the payments sphere — payment system operators and payment service providers;
- other entities — accountable enterprises, the pension fund, currency exchange points, the credit information bureau and virtual asset service providers.
Beyond the grounds envisaged by the legislation, the Bank will refuse to register, license, authorize or recognize such an entity, or to permit the acquisition of a significant share in it, if: the step might threaten the stability of the financial sector; it could cause a breach of a requirement set by a binding decision or recommendation of an international organization; it could cause a breach of an agreement between Georgia and a foreign country; the interested person failed, at the Bank's request, to submit complete information on the origin of the funds needed to start the activity or to acquire the significant share; the person violates business, banking or financial legislation or pursues a business practice endangering the healthy functioning of a particular entity or the sector; or the group's ownership, governance or operational structure is not transparent enough and hampers effective individual or consolidated supervision.
Supervisory powers and measures
To perform its supervisory functions the National Bank issues resolutions and orders, conducts relevant measures, gives written instructions, imposes additional requirements and restrictions, and applies supervisory measures and sanctions. Within its competence the Bank may demand and receive any information from supervised entities, including confidential information. Information on imposed sanctions is published on the Bank's official website under a procedure set by the Bank. In a special case, where an entity lacks funds to cover its liquidation costs, the Bank may support the unhindered conduct of the liquidation process.
For the purpose of preventing money laundering and the financing of terrorism, the Bank supervises on a risk-based basis and is authorized to:
- demand information on the origin of the entity's capital, its ownership structure, and the direct and beneficial owners of a significant share;
- suspend or restrict certain operations of the entity and prohibit the distribution of profits, the accrual and payment of dividends, increases in remuneration, bonuses and other similar payments;
- impose a monetary fine, annul the registration, authorization or recognition, and revoke the license;
- suspend an administrator's signing authority, impose a monetary fine and demand his or her dismissal;
- transmit to the entity a list of persons whose activities contain or may contain money laundering or terrorism financing risk.
Correspondence between the Bank and a supervised entity may be conducted in hard copy or electronic form — the two forms have equal legal force. The Bank sets the rules for using electronic signatures; an electronic signature applied under the Bank's procedure has the same legal force as a handwritten signature on a hard-copy document. Where delivery of a document is impossible, the Bank's president or a vice-president may disseminate the official document publicly on the website — such notice is deemed served on the fifteenth working day after public dissemination. The Bank also sets consumer protection rules for the provision of services by financial sector representatives, loan-giving entities and virtual asset service providers, and publishes draft normative acts related to the financial sector for comments before adoption — except acts needed for resolution purposes, for maintaining financial stability, or requiring immediate effect.
Supervision of banks, microbanks and banking groups
Supervision of commercial banks, microbanks and non-bank deposit institutions covers the issue and revocation of licenses, including a conditional license for a commercial bank, inspection and regulation, written instructions, additional requirements and restrictions. The Bank examines these institutions and their subsidiaries and audits accounting records and financial statements; where signs of a crime are found, the materials are transferred to the relevant authorities. Supervision is conducted on a risk-based basis and includes setting minimum capital, assessing a rehabilitation plan, early intervention measures towards a commercial bank and a temporary administration regime towards a microbank. In exceptional cases the Bank may give conditional consent to the appointment of an administrator and set a period of no more than six months for the complete submission of information and documentation. A commercial bank, microbank or non-bank deposit institution may be declared insolvent or bankrupt only by decision of the National Bank.
In case of violation the Bank will increase the institution's mandatory reserve norms and loss reserve norms, suspend its active operations, prohibit profit distribution, dividend accrual and payment, increases in remuneration and bonuses, and require additional capital; it may suspend administrators' signing rights, fine them and demand their dismissal; it may fine the institution or revoke its license. A temporary administrator and a liquidator are appointed by the National Bank — they are accountable to the Bank, and the full powers of all organs of the institution, including the general meeting of shareholders, pass to them.
The purpose of supervising a banking group is to foster the healthy functioning of the banks and microbanks within the group. To this end the Bank conducts both on-site inspections and off-site supervision, audits individually and on a consolidated basis, assesses the group's risk profile, risk management framework and the effectiveness of internal controls, may demand simplification of an opaque ownership or group structure, and sets prudential requirements — on minimum capital, liquidity, the management of large risks and conflicts of interest, the ratio of capital to assets, disclosure, corporate governance, reporting and audit, and the fitness of administrators. The rule for consolidated supervision is determined by a normative act of the Bank.
Administrative norms and appeal of decisions
The Bank exercises its powers on the principles of equality and impartiality. The reasoning of its decisions must be objective and rational, and a measure must not exceed the level necessary to achieve the legitimate aim — the Bank must refrain from using its powers for purposes alien to them. If you wish to challenge an individual administrative-legal act of the National Bank, this is possible in court; however, the burden of proof lies with the plaintiff under the procedure established by administrative procedural legislation. With proper legal assistance this rule does not diminish the prospects of an appeal — what matters is that the claim is prepared in a timely and well-reasoned manner.