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Turmoil around Financial Supervision Agency

Disputes around introducing the Financial Supervision Agency have surfaced again. The Constitutional Court of Georgia has abstained from passing a rush decision on the suspended agency.

Essential court discussion has not been appointed yet. Meanwhile, the jobless staff of the Agency asks the Parliament to tackle issues with salaries and working conditions.

The Agency members “were forcibly suspended.” Therefore, according to the 32nd article of the Labor Code (payment of salaries for forcibly suspended job), these workers should fully receive their due salaries. Moreover, if they appeal to the court, they will definitely win the case, Gocha Aleksandria, Deputy Chairman of the Trade Unions of Georgia, told the newspaper Banks&Finances.

“They must be paid salaries despite the Constitutional Court’s decision on suspending the Financial Supervision Agency. The Agency members are forcibly delayed. According to the Labor Code, workers must fully receive their salaries if they are forcibly suspended. The State owes them wages of several months. If these workers apply to the court, they will definitely win the trial and we will assist them if necessary,” Gocha Aleksandria said.

“The board members have sent a letter to the Parliament Chairman of Georgia. The letter notes that in September 2015 the Parliament approved the board of the Financial Supervision Agency, the Board Chairman and the Agency head. The Agency started operation immediately and approved: 1) the agency statute; 2) the staff list 3) organizational structure of the agency and 4) the 2015 budget of the agency.

In October, the constitutional court suspended commissions to the Agency board and the Agency head for carrying our certain operations, but the officials remain authorized to continue working on a number of issues.

Consequently, the necessary working conditions for the Agency (a building for operation, computer hardware, payroll budget and so on), that was to be ensured by the National Bank of Georgia (NBG) by the law, has not bee fulfilled yet.

The salaries for the Agency Board members have not been determined either. “We ask you to instruct the due committee to monitor law enforcement,” the Agency members demanded from David Usupashvili.

The agency representatives have also met with representatives of the Parliament’s finance and budget committee. “Our main demand is not related to salaries. The Financial Supervision Agency demands due working conditions and monitoring of the law enforcement.

The constitutional court has suspended part of the commissions, but another part of the commissions remain valid. We do not discuss this issue. We demand that the law enforcement monitoring be carried out and due working conditions be created”, Irakli Kovzanadze noted and added the Agency representatives maintain their commissions, while they have not due building for assembly.

“They should receive due salaries. Other issues should be examined by lawyers whether their demand comply with the constitutional court’s decision”, Tamaz Mechiauri said. Meanwhile, lawyers ask for additional time to study the case and plan to make statements later. At this stage, they only confirm that the agency members must be paid salaries.

However, the NBG rejects satisfying the board members’ demands. Allocation of subsidies to the financial supervision agency from the NBG budget will be illegal and ungrounded, because the NBG keeps executing the financial supervision functions.

“The National Bank was instructed again to supervise the finance sector. Consequently, according to the existing legislation and the constitutional court’s decision, the NBG continues executing the financial sector regulations. It is worth noting, according to the staff list submitted by the agency board, the number of the agency office employees is to increase by 67 persons compared to the current quantity of employees in the NBG, who are responsible for supervising the finance sector. At the same time, according to the budget bill, the agency plans to increase administrative expenditures by 10 million GEL compared to the existing budget”, the NBG statement reads.

Constitutional Court not Hurrying

The constitutional court of Georgia passed a decision on suspension of the Financial Supervision Agency operation in October 2015. According to the Constitutional Court’s statement, the court plenum accepted an appeal of Georgian MPs (Zurab Abashidze, Giorgi Baramidze, David Bakradze and others. Total of 39 MPs) against the Georgian Parliament. The plaintiff party argued against amendments to a number of legislative acts, including into the Georgian organic law on National Bank. As reported, based on these amendments, the Financial Supervision Agency of Georgia was established as a legal entity of public law (LEPL) to execute the NBG functions for supervising the finance sector.

“Five members of the plenum decided that before a final resolution of the issue, enactment of the disputable norms could shake the finance-bank sector of Georgia and bring irreversible outcomes to concrete bodies (participants of banking process, investors, depositors). Therefore, the constitutional court suspended the operation of the financial supervision agency, before a final resolution of the issue, and the due functions were maintained to the National Bank”.

Under the legislation, the constitutional court must pass a decision in a 4-11 month period. According to Giorgi Gotsiridze, a lawyer for the Association of Young Lawyers of Georgia (GYLA), the 22nd article of the Georgian law on Constitutional Court, reads that the appeal discussion period must not exceed 9 months and the period may be extended for additional 2 months. This signifies ultimate period is 11 months.

If the case is considered to be a priority one, then the Constitutional Court is entitled to pass its final resolution within 4 months. For example, in Summer of 2015, the Constitutional Court considered the case of Gigi Ugulava to be a priority one and passed the verdict in about a month. As a result, Gigi Ugulava was released from prison for a day. In this case, the Constitutional Court has not considered the Financial Supervision Agency to be a priority case. The Banks&Finances was told at the court that the legal discussions have not been appointed yet and the legislation determines 9 month period for this case.

Presumed Fate of the Agency

The distrust to the NBG President Giorgi Kadagidze is a real motive for creating the Financial Supervision Agency. Consequently, the new agency was to expose reasons for extreme collapse of the GEL exchange rate and to stabilize the exchange rate. Additional goal of the agency was to recover the financial market. For many years, the NBG has supervised commercial banks, while other bodies of the financial market were in offside. The securities market remains undeveloped, that is one of the main instruments for success of the finance sector in any developed country. Neither pension funds nor the insurance sector has developed in Georgia. Therefore, nobody would assess the NBG performance as a success.

All these processes should be liberated from political tinctures and specific steps should be taken for the financial market development, financiers assert. It is not of much importance whether the financial supervision agency remains in the NBG structure or operates as a semi-independent structure. Both models successfully operate in the developed countries, financiers assure.

Therefore, if the NBG is liberated from Giorgi Kadagidze, the main opponent of the ruling Authorities associated with the United National Movement (UNM), the final decision of the constitutional court will not matter for the Authorities.

“Giorgi Kadagidze will complete his 7-year tenure as the NBG president in February of 2016. After Kadagidze leaves the NBG, the Georgian President must submit a new member of the NBG board to the Parliament. After that, the NBG board will elect the new president. Under the Georgian organic law on National Bank, the NBG board is a supreme body consisting of 7 members. A new member was approved to the board in December of 2014. Three members will complete their terms in December of 2016. This means that the old members of the NBG board will have to elect the new president. Therefore, if they find the new member acceptable, they will elect him/her as the NBG president. In other case, the current vice president Archil Mestvirishvili, who is from the team of Kadagidze and has the trust of the board members, will execute the commissions of the NBG President.”

At this stage, the NBG board members are: Giorgi Kadagidze, the NBG President, and the Board Chairman. He became the board member in February 2009. Before, he had chaired the Financial Supervision Agency. In 2009, the Agency was united into the NBG.

Archil Mestvirishvili, the Vice President, joined the board in December 2009.

Otar Nadaraia, another Vice President, joined the board in December 2009. He has been working at the NBG since 2003.

Lasha Jugheli is the Board Member since 2009. Prior to that, he was an assistant to Giorgi Kadagidze at the Financial Supervision Agency.

Vazha Jankarashvili, Board Member since May 2012. Before, he has worked on various positions at the Prosecutor’s Office.

Nikoloz Gongliashvili, Board Member since 2012. Before, he has worked at the prosecutor’s office and the Georgian Public Broadcaster (GPB).

Nikoloz Kavelashvili, Board Member since December 2014.

If Archil Mestvirishvili fulfills the NBG President’s commissions, he will remain in charge until December of 2016, when his membership term is finished. Supposedly, three new members will be elected to the board in January 2017. This means that the NBG board will have five new members and his new team will elect the new president of the NBG for a period of 7 years. This spring will cast light whether the NBG is liberated from political tensions and whether the Government will still have plans for enacting the new agency.