Banking system: New framework ushered in

The way the banking system works is bound to know some changes with measures and legislations announced in Budget 2016-17. Firstly, a National Payment Systems Bill will be introduced regarding payment systems as well as the setting up of a National Payment Switch, among others.

The Finance Minister announced during his budget speech that a Deposit Insurance Scheme will be introduced to protect depositors and guarantee the repayment of their deposits to such extent as may be feasible, in case of failure of a bank or non-bank deposit taking institution licensed by the Bank of Mauritius. Likewise, there is will be the enactment of a legislation to set up an Asset Management Company which will take over, in a phased manner, non-performing loans from banks which have been secured by residential and commercial property.

Bank of Mauritius Act 

The Bank of Mauritius Act will be amended to: 

(i) grant central authority over bank holding companies and allow the Bank of Mauritius (BoM) to monitor intra group transactions and those between the group entities and related parties;

(ii) abolish the Banking Services Review Panel; 

(iii) include the Minister of Financial Services, Good Governance and Institutional Reforms as a member of the Financial Stability Committee; 

(iv) allow the reproduction of currency notes, bank notes and coins for educational and informational purposes; 

(v) provide for currency notes and coins to be issued after concurrence, instead of consultation, of the Minister of Finance; and 

(vi) allow the BoM to: 

(a)grant advances to financial institutions and such other entities only against securities issued by Government or the BoM;

(b)lease its old building to public agencies;

(c)extend the power to execute documents of the BoM to the Secretary and such other officers as may be approved by the Board; 

(d)issue Rules without approval of the Minister;

(e)coordinate and collaborate with the Financial Services Commission and Statistics Mauritius with a view to harmonising the rules and practices governing the collection, compilation and distribution of statistics; and

(f)use data maintained in the Mauritius Credit Information Bureau for supervisory purposes and financial stability assessment. 

After the legislation concerning the regulator, the Banking Act will be amended to:

(i) to remove “investment banking business” from the definition of “bank” so that only the Financial Services Commission (FSC) regulates this business.

(ii) to require a foreign bank willing to establish a branch or a subsidiary in Mauritius, to provide a statement of no objection from the regulatory authority in the applicant’s country for it to carry out banking business in Mauritius; 

(iii) to remove the supervision of credit unions from the purview of the Bank of Mauritius;

(iv) for subsidiaries of financial institutions incorporated outside Mauritius to submit to the BoM within one month after publication, a copy of their audited annual consolidated financial statements; 

(v) to make it mandatory for banks to rotate audit firms every 5 years; 

(vi) to allow a financial institution to make disclosures to its parent company or head office with regard to its affairs and client portfolio; 

(vii) to provide for a receiver to discontinue the operations of a bank which has been placed into receivership instead of continuing its operations as may be done currently; 

(viii) to disallow the receiver from restoring the financial institution back to its Board of Directors, since the latter bears the responsibility of bringing the financial institution into receivership; 

(ix) to enable a simplified licensing procedure for a temporary financial institution to take over the assets and liabilities of a financial institution which has been put into receivership by the BoM; 

(x) to restore the operation of a temporary financial institution to a maximum of 2 years instead of being determined by the central bank; 

(xi) to provide for the provisions of the Banking Act to prevail in the event of any conflict or inconsistency with provisions of other laws, other than the Bank of Mauritius Act; and 

(xii) to empower the BoM to :- 

(a)issue specific guidelines and/or instructions to ultimate and/or intermediate financial holding companies incorporated in Mauritius that have at least one subsidiary that is a bank or a non-bank deposit taking institutions which is classified as systemically important; 

(b)refuse an application for a banking licence from a group which already has a banking licence and is predominantly engaged in banking activities; and 

(c)carry out an independent valuation of the assets of a bank which holds collateral.