Impact of Amendments to Bank and Tax Regulations on Business Environment

7 Aug, 2012

Activities of the financial institutions in Georgia have been seriously affected by significant amendments made to the banking and tax legislation of the country as well as its executive and related laws in Q4 2011 and in the first half of 2012.

Revaz Sakevarishvili, head of Econometer Analytical Center, has presented the analysis of the amendments at a meeting held in the Tbilisi Marriott Hotel with representatives of commercial banks, tax institutions, political parties, media and non-governmental organizations.  The analysis was made with the support from the Open Society Georgia Foundation (OSGF).

During the first part of the meeting Sakevarishvili briefly reviewed the impact of the changes on financial institutions and generally over a business environment.  He said the trend of tightening the regulation of financial activities was obvious.

Banking and financial legislation has paid special attention to Politically Exposed Persons (PEP) and people associated with them.  Financial services organizations have to meet a number of compliance requirements regarding PEPs.

Recent amendments call for the regulation of relatively smaller financial institutions by the National Bank of Georgia (NBG).  To date they have not been regulation by the NBG.  All types of financial institutions have now to abide by tougher rules and face increased penalties in case of breaking them.

 “Currency exchange offices have been assigned to pay special attention to unusual transactions, which make no apparent commercial sense or have no apparent legal purpose, identify the purpose of making such transactions and report on the results in writing”, said Sakevarishvili.

One of the most important factors that may lead to the loss of client confidence in banks is the memorandum signed between the Chamber of Control of Georgia and the NBG, which obliges the NBG to report to the Chamber of Control on financial transactions made by political parties and PEPs.  Sakevarishvili said “the decision actually totally ignores the notion of bank secrecy”.

Some meeting participants said that legislative amendments calling for payment of penalties by commercial banks, were politically motivated.

The report says in conclusion that the obvious political context of legislative amendments damages the stability of the country’s banking system and makes it more dependent on political processes, which ultimately leads to the decrease in the level of confidence in it and paves the way for other adverse processes.


See the full version of the report.