New Banking Legislation

By Linda Straker

Ralph Gonsalves, Chairman of the Eastern Caribbean Monetary Council, informed nationals of countries that use the Eastern Caribbean currency, that the Council has approved new banking legislation.

The House of Representatives approved the bill which was presented on Friday by Acting Finance Minister Oliver Joseph —  Prime Minister Dr Keith Mitchell who is also the Minister for Finance was attending the Spring meetings of the International Monetary Fund.

After much deliberations on the bill, Leader of Government Business, Gregory Bowen informed the House — despite the concerns at hand, members are unable to make any changes because the council has already approved the bill and it’s really for passage by member governments.

Gonsalves, in his 14 April address to the region, explained that the new banking legislation will provide for:

  • The issuance and revocation of licences by the Central Bank rather than the respective Ministers of Finance
  • Pre-emptive measures to deal with problem banks
  • Appropriate levels of capitalization for banks and credit institutions
  • Clear criteria for the persons who can be appointed as directors and managers of banks

Joseph told members of Parliament that the Banking Bill seeks to provide for the:

  • Regulation and supervision of banking businesses
  • Establishment of a single banking space
  • Ownership structures for licensed financial institutions
  • Licensing of financial holding companies
  • Corporate governance of licensed financial institutions
  • Framework for the official administration of licensed financial institutions and for incidental and related matters.

“The Central Bank will have the authority to issue and revoke licences. The issuance of one licence will authorise a financial institution to operate within the territorial space of the Currency Union, and all branches of a licensed financial institution across the Currency Union will be deemed to be one licensed financial institution,” Joseph continued, while explaining that the Central Bank shall inform the various Ministers for Finance in the respective territories of the receipt of an application for a licence and of any decision in relation to a licence.

According to the legislation, the minimum capital required for a bank will become $20 million, and that for credit or other financial institutions will be $5 million. “This is an increase from the existing $5 million and $1 million respectively. In an effort to mitigate risks arising from the engagement in certain activities the legislation imposes restrictions on certain activities of licensed financial institutions,” said the explanatory notes to the legislation.

The legislation provides for establishing framework for consolidated supervision of corporate groups, and in that respect allows for the examination of a licensed financial institution and its affiliates. “Supervisory measures to bring about corrective action when banks fail to meet prudential requirements, where there are regulatory violations, or where depositors are threatened in any other way, are set out,” Joseph explained.

These corrective action tools include:

  • Suspension of particular or all shareholders
  • Suspension or removal of directors and officers
  • Restricting the rate of interest on savings, and time deposits
  • Requiring the bank or affiliate to sell, liquidate, or otherwise dispose of an affiliate or part of its business
  • Appointing an observer to monitor the activities of the bank
  • Requiring mandatory action (prompt corrective action) in one or more areas for banks that are adequately capitalized but suffering material losses or are undercapitalized
  • The imposition of restrictions on or the revocation of the licence

Member of Parliament Tobias Clement expressed his concern about the impact the new legislation will have on consumers who in recent has faced increase banking fees for the various services offered at local banks. “We are paying for all kinds of fees, without warning sometimes, and I just want to know what kind of protection the ECCB will offer the consumers who are faced with these fees,” he enquired.

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