SUMMARY AND COMMENTS: PROTECTION OF DEPOSITORS (AMENDMENT) BILL, 2020July 27, 2020
Nassau, The Bahamas – The Bill proposes amendments to the Protection of Depositors Act (No. 40 of 1999) (“Principal Act”) with the stated objectives of the Bill being:
a. to enhance the corporate governance framework of the Deposit Insurance Corporation (the ‘Corporation’);
b. to enhance depositor protection;
c. to reduce the time within which the Corporation must make payouts to depositors following the failure of a member institution; and
d. to include co-operative credit unions in the membership of the Deposit Insurance Fund.
1. Deposit Insurance Fund
1.1. Clauses 2 – 7 of the Bill amend, repeal and insert provisions relating to Part II of the Principal Act which addresses the establishment, membership and funding of the Deposit Insurance Fund (the “Fund”).
1.2. Notably Clause 3 inserts a new subsection 3(3) into the Principal Act to make provision for the composition of the deposit insurance fund, providing that the Fund will now consist of:
a. initial contributions, special contributions and premiums paid by member institutions;
b. sums payable by the Central Bank under this Act;
c. sums voted by Parliament for the purposes of this Act;
d. any moneys borrowed by the Corporation for the purposes of this Act;
e. amounts realised from investment proceeds;
f. moneys that may accrue from fees or the operations of the Fund; and
g. dividends from the Liquidator consisting of income earned in the orderly liquidation process or from the sale of assets of a failed member institution.
1.3. Clause 5 repeals and replaces section 4 of the Principal Act, most notably the proposed replacement of section 4 now makes membership in the Fund compulsory for every cooperative credit union registered under the Bahamas Co-operative Credit Unions Act, 2015 (No. 9 of 2015).
1.4. Clause 6 of the Bill amends the Principal Act to provide for an increase in the annual premiums payable by members of the Fund from one twentieth of one percent to one tenth of one percent of insured deposits.
1.5. Clause 7 of the Bill makes an important amendment to section 6 of the Principal Act in that, inter alia, it aims to reduce, over a period prescribed by the Bill, the time within which the Corporation must make payouts to depositors. Whereas, the existing section 6(8) of the Principal Act prescribes that “payments to depositors of closed institutions shall commence not later than six months after closure of the member institution” clause 7(9) of the Bill proposes that section 6 (8) & (9) be deleted and replaced with a new section 6 (8) which provides that the applicable time period for the payments in respect of the insured deposits where a member institution’s:
i. banking license is revoked by the Central Bank;
ii. registration as a co-operative credit union is cancelled by the Central Bank;
iii. policy of deposit insurance is cancelled subsequent to the making of an insurable deposit; will be:
i. until 31 December 2022, twenty business days later;
ii. from 1 January 2023 until 31 December 2025, ten business days later;
iii. from 1 January 2026 until 31 December 2030, seven business days later.
2. Deposit Insurance Corporation
2.1. Clauses 8 – 18 of the Bill amend, repeal and insert provisions relating to Part III of the Principal Act which deals specifically with the Corporation. These clauses make alterations to the configuration, procedure, and function of the Corporation, the most notable of these changes are detailed below.
2.2. Clause 8 of the Bill amends section 7 of the Principal Act in order to, inter alia, give authorization to the Minister to lend funds out of the Consolidated Fund to the Corporation.
2.3. Clause 9 makes provisions for a board of directors of the Corporation who are to be responsible for the policy and management and business of the Corporation.
2.4. The Bill also makes provision for the Corporation to establish a Code of Conduct along with the proposed instances upon which directors must disclose their conflicts of inter-est.
2.5. Clause 15 of the Bill amends section 15 of the Principal Act by deleting and replacing paragraph 15(e) to inter alia —
a. provide for the restriction of the netting of insurance payments, due to depositors, to loan payments or instalments that are either due or past due at the time of the payout and to authorize the Corporation to set off deposits pledged as collateral; and
b. to authorize the Corporation to provide capital for a bridge institution and provide financing in the amount of insured deposits to an entity that acquires the business or all or part of the assets and liabilities of a member institution.
2.6. The Bill further makes provision for the amended procedure which is to be followed by the Corporation for the purpose of making deposit insurance payments to depositors.
2.7. The Bill also removes the requirement mandated by section 18 of the Principal Act that when an institution closes “all deposit accounts of the institution are frozen forthwith” the remaining requirement is “where an institution is closed, interest on deposits immediately ceases to accrue whether or not the date of maturity of the deposit was beyond the date of closure.”
2.8. Clause 18 of the Bill provides detailed requirements for the annual audit of the Corporation’s accounts, requirements include:
- the statement of accounts of the Corporation shall be audited annually by independent external auditors appointed by the Board with the approval of the Minister;
- for the Minister to table the Corporation’s annual report and statement of accounts in Parliament; and
- for the Corporation to publish on its website the reports and statement of the ac-counts submitted to the Minister under subsection.
3. Special Powers of The Corporation
3.1. Clauses 19 – 24 of the Bill amend, repeal and insert provisions relating to Part IV of the Principal Act which deals specifically with the Special Powers of The Corporation.
3.2. Clause 19 of the Bill repeals and replaces section 21 of the Principal Act and essentially proposes to condense all of the special powers of The Corporation into that section. Most notably the section as amended by clause 19 of The Bill provides that the Inspector of Banks and Trust Companies or other person appointed by the Central Bank may examine member institutions on behalf of the Corporation to enable the Corporation to assess inter alia the reliability of depositor records.
3.3. Sections 22 – 24 and section 26 of Part IV of the Principal Act are repealed by the Bill including, most notably the Corporation’s resolution powers and the “Offences under Part IV” found at section 26 of the Principal Act.
4.1. Clauses 25 – 28 of The Bill amend, repeal and insert provisions relating to Part V of the Principal Act which deals with Miscellaneous provisions.
4.2. These Clauses inter alia:
i. Amend the requirements for the finding of an offence in relation to a director, agent, servant, employee (including a former director, agent, servant or employee) of a member institution;
ii. Make provision for the Corporation to establish bye-laws and regulations on the recommendation of the Central Bank – the section provides guidance in relation to the purposes for which the Corporation may make bye-laws and regulations;
iii. Provide for significantly more specific and more far-reaching duties of confidentiality to be imposed on directors, officers, employees, or agents of the Corporation in respect of confidential information obtained in the performance of his or her duties or in the exercise of his or her functions.
5. New Schedule – Constitution and Functions of the Board
5.1. Clause 28 of the Bill inserts a new Schedule in the principal Act dealing with the Constitution and functions of the board of the Corporation.
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This 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.