Relations with the supervisory organ: instructions, inspections, sanctions

For a subject operating in the financial sector, supervision is a daily reality rather than an exceptional measure. For providers of virtual asset services this relationship is defined by the organic law of Georgia on the National Bank: the Bank ensures supervision — through registration and its cancellation, inspection and regulation, the issuance of written instructions, and the imposition of additional requirements, restrictions and sanctions. On this page we explain what this means in practice for a supervised person and which instruments are engaged when.

Instructions and requirements: the language of daily supervision

The most frequent instrument of supervision is the written instruction. Beyond it, the Bank sets additional requirements through legal acts: it determines the rules of regulation deriving from the category of the service; establishes the minimum supervisory capital and its calculation; sets standards for the storage of assets and the management of risks — including operational and cyber-security risks; requires a general risk-management framework and effective internal control; and determines the accompanying information for transfers. For a supervised person this means: an instruction is a document to be performed, not a recommendation, and its immediate execution should be part of the process.

Inspection and the supply of information

The Bank may verify, on site or remotely, compliance with the requirements of legislation or of its own requirements; audit accounting documents, components of reporting and other materials; and demand and receive any information, including confidential information. Three practical questions are decisive in preparing for an inspection: which materials answer which requirement; who stands in the chain of responsible persons; and how performance is recorded. The Bank may also demand information on the sources of the origin of capital and on the owners of a significant share — these questions remain after entry as well.

Restrictions and sanctions

The strict instruments of supervision are engaged where a risk or a violation exists. The Bank may suspend or restrict for a provider, or a person connected with it, a particular type of activity or operations — including by types of virtual asset — where this creates heightened money-laundering or terrorism-financing risk or a risk of circumventing international sanctions, impedes the traceability of transactions or supervision. For violation of the law and of the legal acts of the Bank, the Bank imposes a sanction — including a monetary fine transferred to the state budget. Knowing the grounds for restriction allows the risks to be managed early — a sanction is always the last stage, not the first.

The institutional basis: the council and the functions

This relationship is institutionally grounded. The main task of the National Bank is to ensure price stability; it must ensure the stability and transparency of the financial system. Among its functions is the supervision of the financial sector — and it is on the basis of this function that the regulation of providers is carried out. The council of the Bank provides the supreme governance and oversight of the activity of the Bank: it defines the main directions of the supervision and regulation of the financial sector and issues legal acts. The practical requirements are thus born in the acts of the council — and their amendment is the object of a supervised person's permanent monitoring.

How we can help

We accompany you through the full supervisory cycle: building procedures for responding to instructions and requirements, preparing materials for inspections, assessing the risks connected with sanctions, and tracking amendments to the acts of the council. Contact us — we will assess your current position before the supervisor and build the needed processes at each level of the organisation.

The supervisory cycle inside the organisation

Within the walls of the organisation, supervision is reflected in three processes. First, instruction management: registration of every instruction, assignment of a responsible person, control of the performance deadline and recording of execution. Second, a map of requirements: the requirements established by the acts of the Bank must be gathered in a single list, so that before an inspection it is known what must be performed and which material confirms what. Third, tracking amendments: the acts of the council change, and updates must be reflected in the processes immediately, since ignorance of the requirements cannot become a ground of lawfulness during an inspection.

The existence of these three processes strengthens the position of a supervised person: where an organisation performs instructions in due time, systematically controls requirements and tracks amendments, supervision remains routine and not a crisis. In our experience, most sanctions arise precisely where these three processes do not exist.

The breadth of the object of supervision deserves separate mention: the powers of the Bank extend not only to the provider but to its governance structure as well — the holders of a significant share and the administrators. The Bank may, by a legal act, establish requirements for a significant-share holder, define the fitness criteria for an administrator and demand their materials. Moreover, the object of supervision is the whole operational side: the storage of assets, risk management, the adequacy of capital and the information connected with transfers. The centre of preparatory work is thus the entire organisation — from the governance level down to the operational level.

Regulatory Advocacy

Crypto Regulatory Engagement

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Regulatory Advocacy

Crypto Regulatory Engagement

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