The_Banking_Act_of_Maurutius

The Banking Act 2004 Introduction The Banking Act 2004 is a modern piece of legislation which regulates the banking and non-banking business in Mauritius. It enshrines banking confidentiality and provides that requests for information would have to be authorized by a Judge of the Supreme Court. The Banking Act is also an act to amend and consolidate the laws relating to banking, to regulate institutions which carry on banking business and to provide for other related matters. This Act has been assent by SIR ANEROOD JUGNAUTH, then, The President of the Republic of Mauritius on the 12th October 2004. The Act contains 13 parts and 105 sections. The Banking Act shall be administered by the Bank of Mauritius. Proclamation of the Act By virtue of Proclamation No.39 of 2004 as published in the Government Gazette of 6 November 2004, sections 1,2 and 3(1) of PART I, sections 4 to 11, 12(1) to (4) and (6), 13 to 17, 18(1),(2) and (5) to (10) and 19 of PART II, PART III to PART VIII and PART XII and sections 93 to 104 of PART XIII of the Banking Act 2004 have come into operation on 10 November 2004. By virtue of Proclamation No. 6 of 2007 as published in the Government Gazette of 31 May 2007, sections 3(3) of Part I and 12(5) of Part II, Parts IX to XI of the Banking Act 2004 have come into operation on 1 June 2007. By virtue of Proclamation No. 12 of 2008 as published in the Government Gazette of 13 September 2008, section 18(3) and (4) of the Banking Act 2004 has come into operation on 15 September 2008. Section 3(2) of Part I of the Banking Act 2004 has not yet been proclaimed. Background In the late 1980’s and early 1990’s, the Mauritian financial sector was marked by the process of financial liberalization. Liberalization and market deregulation was important in order to develop and modernize the financial services sector and at the same time attempting to position Mauritius as a regional Financial Centre. Market reforms were necessary for the development of the financial services sector On 1st January 1988, The Bank of Mauritius was empowered by the Banking Act 1988 and the Bank of Mauritius Act to carry out the supervision and regulation of banks based in Mauritius. Both the Banking Act 1988 and Bank of Mauritius Act 1988 were repealed by a new Banking Act, which has been proclaimed in 2004, which is known by the Banking Act 2004, for a more updated and modern legislation. Banking legislation provides for prudential regulations with respect to bank's concentration of risk, weighted capital adequacy ratio, income recognition and clarification of loans and advances for provisioning purposes, maintenance of accounting and other records and internal control systems. Key aspects of The Banking Act 1. The legal framework for the regulation and supervision of financial institutions is provided partly by the Banking Act 2004. The Banking Act 2004 removed the distinction between Category 1 banks (commercial banks) and Category 2 banks (offshore banks) and provided for banking business to be conducted under a single license regime. 2. The basic objectives of the Banking Act are to maintain a sound banking system in Mauritius and to protect the interests of depositors. It incorporates the following principles of prudential regulation and supervision of banks: • Licensing of Banks; • Capital Adequacy; • Quality of Management; • Liquidity Control; • Concentration of Risk; • Role of External Auditors; • On-site Examinations; • Off-site Surveillance; • Control of Advertisements; • Confidentiality of Information; and • Identity of Customers. 3. The section 2 of the Act, that is, the interpretation section, defines words and terms that are to be used while interpreting the Act. For example: “bank” means a company incorporated under the Companies Act 2001, or a branch of a company incorporated abroad which is licensed by the central bank to carry on banking business or Islamic banking business, or both; “Financial institution” means any bank, non-bank deposit taking institution or cash dealer licensed by the central bank; 4. In August 2008, amendments were made to the Banking Act 2004 that now allows banks in Mauritius to provide Islamic Banking services. Many banks showed an immediate interest in setting up Islamic windows, thus paving the way for Islamic banking in Mauritius. With the introduction of Islamic finance, Mauritius has a great opportunity to diversify its financial sector and provide new services in the fields of banking, wealth management and investment based on Shari’ah Compliance. The need of the Act 1. The banking act of 2004 provides greater confidentiality for client information and any request for information will have to be authorized by a Judge in Chambers as stipulated in section 64(9) of the act. “The Director-General under the Prevention of Corruption Act 2002, the Chief Executive of the Financial Services Commission established under the Financial Services Act 2007, the Commissioner of Police, the Director-General of the Mauritius Revenue Authority established under the Mauritius Revenue Authority Act 2004, or any other competent authority in Mauritius or outside Mauritius who requires any information from a financial institution relating to the transactions and accounts of any person, may apply to a Judge in Chambers for an order of disclosure of such transactions and accounts or such part thereof as may be necessary.” 2. In respect of the opening of bank accounts, the proof of identity of the owner of the accounts will have to be provided as stipulated by section 55 of the act. (1) “Every financial institution shall only open accounts for deposits of money and securities, and rent out safe deposit boxes, where it is satisfied that it has established the true identity of the person in whose name the funds or securities are to be credited or deposited or the true identity of the lessee of the safe deposit box, as the case may be.” (2) “Every financial institution shall require that each of its accounts be properly named, at all times, so that the true owner of the accounts can be identified by the public and no name shall be allowed that is likely to mislead the public.” Impact on the financial services sector The financial services sector now comprises an array of institutions including well-established banks, insurance and pension companies, stockbrokers, investment companies, non-bank deposit-taking institutions, leasing companies, credit institutions, money changers and foreign exchange dealers. Prior to December 2004, banks were required to obtain a separate license and there were restrictions on using the domestic currency and operating in the domestic banking environment. The separate licensing requirements for banks engaged in “domestic” and “offshore” banking activities were removed by the new Banking Act, which came into effect in November 2004. There is a good and strong regulatory framework for banks in Mauritius. Besides the Bank of Mauritius Act (2004) and the Banking Act (2004), the Bank of Mauritius (BOM) has issued several Guidelines governing the day to day operations of banks. Since 31st March 2008, the Basel II Framework has been operational with the BOM issuing several Guidelines for the implementation of the Basel II principles. To conclude, the Bank of Mauritius is committed to continue its leading role in the development of the Mauritian banking and financial sector