SUMMARY AND COMMENTS: CENTRAL BANK OF THE BAHAMAS BILL, 2020 (THE “BILL”)
July 23, 2020
By Alexandria Newton, Pupil
The Bill proposes to repeal the Central Bank of The Bahamas Act (Ch. 351) (the “Act”) as well as consolidate and modernize the law governing the Central Bank of The Bahamas (the “Bank”). The Bill will come into effect on such date as the Minister of Finance (the “Minister”) may appoint by Notice published in the Gazette[1].
1. Functions of the Bank
Reforming the legislative framework of a central bank after a crisis can boost the creditability of a country’s monetary policy.
The Bill noticeably expands on the functions of the Bank by including clearly defined and prioritized objectives, sufficient authority to achieve those objectives and provisions that underpin its autonomy. Some of its new defined functions include – (i) promote stable monetary, credit and balance of payment conditions in order to protect the exchange rate regime and facilitate orderly and balanced growth of the economy, (ii) act as the Resolution Authority for banks[2], (iii) determine and implement monetary policy and (iii) hold and manage all official external reserves of The Bahamas[3].
2. Currency
Under the Act, the currency of The Bahamas comprises of notes and coins issued by the Bank with the unit of currency being the Bahamian dollar divided into one hundred cents[4].
In contrast to the Act, the Bill mandates that the currency of The Bahamas shall comprise of notes, coins and electronic money issued by the Bank with the unit of currency being the Bahamian dollar divided into one hundred cents[5]. The Bill also gives the Bank the power to make regulations for the digital currency framework.
3. Advances to the Government
The Act currently gives the Bank the option to make temporary advances to the Government on such terms and conditions agreed upon by the Minister and the Bank.
Similarly, the Bill provides for advances to the Government but in contrast to the Act, it specifies the requirements by which the Bank may provide temporary loans to the Government particularly where – (i) the amount of the loans, which may be outstanding at any one time, taken together with any Treasury Bills or securities issued or guaranteed by the Government or a public corporation cannot exceed, in the aggregate, thirty per centum of the average ordinary revenue of the Government or thirty per centum of the estimated ordinary revenue of the Government whichever is less; (ii) the loan will mature within ninety-one days and (iii) the interest rate on the loan is based on market-related interest rates[6].
4. Subscription to Government securities from primary markets
There are no provisions in the Act as it pertains to subscriptions to Government securities from primary markets.
Under the Bill however, the Bank may only purchase or subscribe from primary markets Treasury Bills and securities used or guaranteed by the Government or any public corporation for the purpose of replacing maturing securities, implementing monetary policy, maintaining financial system stability or supporting the working of the clearing and settlement systems[7].
5. Power to fine
Under the Act, the Governor of the Bank is empowered by Section 21 to impose a fine on a bank that commits an offence under the Act.
The Bill vests the Bank with broad powers to impose a fine on a financial institution that the Bank believes to have committed an offence under the Bill[8].
6. Lender of last resort
According to the provisions of the Bill, the Bank may act as a lender of last resort to commercial banks[9]. To avoid potential conflicts of interest[10], the Bill specifies the parameters within which the Bank may grant loans or advances to a commercial bank. These include where – (i) the loans or advances will mature within ninety-one days; (ii) the interest rates on the loans or advances are more than those applied to loans or advances made pursuant to the powers of the Bank[11]; (iii) adequate collateral property is provided to the Bank by the commercial bank and (iv) the commercial bank, in the opinion of the Bank, is solvent and requests such loans or advances for the propose of improving liquidity conditions.
7. Coverage of shortfall in capital
There are no provisions in the Act as it pertains to the coverage of shortfall in the Bank’s capital.
The Bill however, provides for coverage where an external audit reveals a shortfall in the Bank’s capital. According to the provisions of the Bill, the Bank is required to transmit to the Minister a report concerning the causes and extent of the shortfall of the assets and request the Minister to make payments from the Consolidated Fund to the authorized capital for the purpose of increasing authorized capital to the amount prescribed in accordance with the Bill[12].
8. Accounting Standard
The Bank will now be mandated to prepare, in accordance with the Bill and the International Financial Reporting Standards, the statements of the accounts of the Bank to reflect its operations and financial conditions. Under the Act, on the other hand, there are no provisions as it pertains to accounting standards.
9. Committees
In an effort to limit the risk of undue interference and governmental pressure in exercise of the Bank’s powers, the Bill establishes several committees. They are as follows:
Audit Committee[13]
The Bill provides for the establishment of an Audit Committee that will generally be responsible for overseeing and advising on internal and external audits of the Bank and other matters in relation thereto. The committee members will be appointed by the Board of Directors of the Bank (the “Board”).
Investment Committee[14]
The Bill proposes to establish an Investment Committee that will be responsible for overseeing, advising and managing the external reserves of the Bank and its external reserve managers in accordance with the investment policy while also proposing nominees for the appointment of external reserve managers.
Monetary Policy Committee[15]
The Bill further proposes to establish a Monetary Policy Committee whose functions are to determine the monetary policy of the Bank, approve basic assessments of the conditions of the economy and the financial system as well as perform any other function as may be determined by the Board
Dormant Funds Investment Committee[16]
The Bill also provides for the establishment of a Dormant Funds Investment Committee whose functions are to prepare an investment policy and investment fund plan which must be submitted to the Board for approval.
10. Exemption
In relation to exemptions under the Act[17], the Bank is exempt from tax under the Real Property Tax Act (the “RPT Act”). The Bill, on the other hand, provides that the Bank is exempt from tax under the RPT Act and other taxes and levies on the import and domestic supply of gold, banknotes and coins.
11. Conflict of Interest
Under the Bill, the Bank is mandated to establish a code of conduct requiring that the Governor, directors and Bank employees avoid any situation likely to give rise to a conflict of their personal interest with the interest of the Bank[18].
12. The Bank may impose general penalties
The Bill establishes the circumstances and conditions by which the Bank may impose general penalties[19]. The Bill also empowers the Bank to designate certain contraventions and impose fixed penalties in relation to such violations[20]. Under the Bill, violations are classified as minor, serious and very serious and may attract a penalty of two thousand dollars, five thousand dollars or ten thousand dollars.
13. Institution of legal proceedings
With respect to the institution of legal proceedings, the Bill provides that a person may appeal to the Supreme Court of the Commonwealth of The Bahamas any decision of the Bank imposing a penalty in relation to a designated violation that is deemed serious or very serious.
14. Preferential Right
Under the Bill, Clause 59 gives the Bank an unconditional preferential right to use any money, bill of exchange, securities, gold and any other movable property or valuable of a debtor, in settlement of or as collateral for claims of the Bank against the debtor, if such valuable is in the possession of the Bank.
15. Immunity
Immunities of the Bank
Under the Bill, the Bank is granted certain immunities. For instance, where any legal action has been commenced in a court in The Bahamas, no order of attachment or writ of execution with regard to any property held by or deposited with the Bank may be granted before a final judgement in the action has been issued[21].
Immunities of officials and staff of the Bank
According to the Bill, no civil or criminal liability shall attach to a director, Deputy Governor, employee or agent of the Bank or correspondent acting under the direction of the Bank[22]. Such immunity will persist even after the termination of their respective functions or duties.
16. The Board
Under the Act, the Board members are appointed by the Governor-General of the Commonwealth of The Bahamas and will consist of a Governor and four directors. Pursuant to the Bill, on the other hand, the Board members are appointed by the Governor-General on the advice of the Minister after consultation with the Board and will consist of a Governor, two Deputy Governors of the Bank and six directors[23].
The summary does not constitute legal advice and is general and non-exhaustive in nature. It may not cover all material aspects of the legislation which could impact you or your clients. Please contact Graham Thompson if you have any questions on the legislation or require specific advice.
[1] The date of Gazette is the date upon which the Minister may appoint in accordance with Clause (1) of the Central Bank of The Bahamas Bill, 2020
[2] Under Clause 5 of the Central Bank of The Bahamas Bill, 2020 Resolution Authority means the authority which is responsible for the resolution of banks carrying on business in accordance with Section 2 of the Banks and Trust Companies Regulation Act, 2020.
[3] Clause 5 Central Bank of The Bahamas Bill, 2020
[4] Section 8 Central Bank of The Bahamas Act
[5] Clause 8 Central Bank of The Bahamas Bill, 2020
[6] Clause 21 (4) Central Bank of The Bahamas Bill,2020
[7] Clause 22 Central Bank of The Bahamas Bill,2020
[8] Clause 24 Central Bank of The Bahamas Bill,2020
[9] Clause 26 Central Bank of The Bahamas Bill, 2020
[10] See section on Conflict of Interest (item #10).
[11] Clause 23 Central Bank of The Bahamas Bill,2020
[12] Clause 33 Central Bank of The Bahamas Bill, 2020
[13] Schedule paragraph 9 Central Bank of The Bahamas Bill, 2020
[14] Schedule paragraph 10 Central Bank of The Bahamas Bill, 2020
[15] Schedule paragraph 11 Central Bank of The Bahamas Bill, 2020
[16] Schedule paragraph 12 Central Bank of The Bahamas Bill, 2020
[17] Section 41 Central Bank of The Bahamas Act
[18] Section 56 Central Bank of The Bahamas Act
[19] Section 46(1) Central Bank of The Bahamas Act
[20] The Bank under Clause 47(1)(b) Central Bank of The Bahamas Bill, 2020 may make regulations classifying each violation as a minor violation, a serious violation or a very serious violation.
[21] Clause 60 Central Bank of The Bahamas Bill, 2020
[22] Clause 61 Central Bank of The Bahamas Bill, 2020
[23] Schedule paragraph 2 Central Bank of The Bahamas Bill,2020