SUMMARY AND HIGHLIGHTS: BANKS AND TRUST COMPANIES REGULATION BILL, 2020August 6, 2020
By Gabriel Brown, Pupil
Main Objectives of the Bill
The primary aims of the Banks and Trust Companies Regulation Bill, 2020 (“the Bill”), are to:
(i) repeal and supersede the Banks and Trust Companies Regulation Act, 2000 (Ch. 316) (“the Principal Act”);
(ii) consolidate and modernise the law regulating banks and trust companies within The Bahamas; and
(iii) provide for a special resolution framework for banks.
Part II – Banking and Trust Services
1. Clause 4 of the Bill makes provision for the mandatory acquisition of approval from the Central Bank of The Bahamas (“the Bank”), prior to the use of the words “bank”, “trust”, “trust company” etc., or any of their derivatives, in the description, or title under which a person, other than a licensee, is carrying on business from within The Bahamas. In this clause, the term “the Governor” (as seen in section 7 of the Principal Act), is substituted in every instance, by the term “the Bank”. Moreover, the terms “money transmission business” and “the business of a Registered Representative”, have been inserted in addition to banking and trust business, for which a licence or registration certificate may be refused or revoked by the Bank, under certain circumstances.
2. Clause 5 of the Bill amends section 3 of the Principal Act by the inclusion of “a money transmission business”, being added to banking and trust businesses, which are prohibited from carrying on business from within The Bahamas, without a licence. Registered Representatives are not included in this clause, as they are addressed specifically in Clause 13.
Application and Grant of a Licence
1. Clause 6 of the Bill makes provision for any company desirous of carrying on banking or trust business from within The Bahamas, to apply to the Bank for the grant of a licence. A new provision in subsection 3 of this clause, unseen in section 4 or elsewhere in the Principal Act, provides that a group of persons who propose to form a company for the purposes of carrying on banking or trust business, may apply to the Bank for an intimation as to whether or not the company will be authorized to carry on such business, upon its incorporation.
2. Clause 8 of the Bill is novel and reveals the criteria which the Bank shall consider when making its determination as to whether a person is or remains, a fit and proper person, having regard to all circumstances.
1. Clause 13 of the Bill expresses the requirements for any person to be registered as a Registered Representative. This clause amends section 3(3) of the Principal Act. Under the Principal Act, a licensee under the Financial and Corporate Service Providers Act, who was approved by the Governor, may be registered as a Registered Representative. This clause stipulates that a Financial and Corporate Service Provider must now apply to and be registered with the Bank, to carry on such business.
Part III – Ownership of Licensees
Transfer or other Disposition of Shares
1. Clause 15 of the Bill prohibits the issuance of any shares or other securities of any company that is a licensee under the Bill, or the transference or disposition of any issued share, without the prior approval of the Bank. This clause amends section 6 of the Principal Act by the introduction of clauses specific to a controller. It provides that no person shall become a controller or indirect controller of a licensee, without obtaining the prior approval of the Bank.
1. Clauses 16-19 of the Bill are new and make provisions in relation to the Bank having powers to grant new or object to existing approval of controllers and indirect controllers of licensees; to make directions concerning them; and offences, penalties, and defences regarding the same.
2. Clause 16 of the Bill allows the Bank to exercise its discretion in relation to the approval of an application by a person to become a controller of a licensee and the conditions upon which the approval may be granted. Inter alia, the clause states the criteria to be considered by the Bank, prior to its decision on whether or not it shall grant such an application. It provides that the Bank must be satisfied that:
a) the person is a fit and proper person;
b) having regard to the likely influence of the person, the licensee will (in the first instance) or will continue to conduct its business prudently and comply with the provisions of the Bill; and
c) it is in the best interest of the financial system of The Bahamas to approve the application.
3. Clause 17 of the Bill enables the Bank to object to an existing controller or indirect controller of a licensee by written notice, if the Bank is satisfied, inter alia, that:
a) the person has ceased to be a fit and proper person;
b) having regard to the likely influence of the person, there is a material risk that, the licensee:
i) will fail, or is failing to conduct its business prudently; or
ii) will fail, or is failing to comply with, the provisions of the Bill;
c) it is no longer in the best interest of the financial system of The Bahamas for the person to continue to be a controller or an indirect controller, as the case may be, of a licensee.
Part IV – Duties and Obligations of Licensees
1. Clause 20 of the Bill mandates the publishing of statements of accounts by licensees. This clause amends section 8 of the Principal Act by stipulating that every licensee shall provide the Bank with a copy of its annual financial statement within four months of the end of its financial year, unless the Bank has given prior written approval for an extension of time, such extension not to exceed sixty (60) days.
2. Clauses 21 and 22 of the Bill make provision for the appointment, powers, and duties of auditors.
3. Clause 21 notably repeals and replaces section 12 of the Principal Act which, provided that the appointment of an auditor, was subject to the approval of the Governor, who may at any time, withdraw such approval and require his replacement. Quite distinguishably, this clause negates the requirement of approval and provides that a licensee may appoint an auditor, while notifying the Bank thereof, within fourteen (14) days. Nonetheless, the Bank may require the replacement of said auditor at any time.
4. Clause 22 of the Bill is new and specifically makes provision for the powers and obligations of an auditor of a licensee, extending that which is present in the Principal Act. Inter alia, the clause provides that an auditor of a licensee shall give the Inspector immediate written notification of the following matters:
a) his intention to resign before the expiration of his term of office as auditor;
b) his intention not to seek to be reappointed as auditor; and
c) a decision to include a modification of his report on the licensee’s financial statements and, in particular, a qualification or denial of his opinion, or the statement of an adverse opinion.
5. Clause 23 of the Bill is novel and requires a licensee to notify the Bank of any material information that may negatively affect the fitness and propriety of a director or senior manager of the licensee.
6. Clause 25 of the Bill makes an important amendment to section 11 of the Principal Act by, inter alia, the insertion of the requirement that a licensee must immediately inform the Bank, where the licensee is or is likely to become insolvent or unable to meet its obligations, or has suspended or is about to suspend payments.
Part V – Supervision of Licensees and Registrants
1. Clause 29 of the Bill makes provision for sanctions authorized by the Bank. It evidently amends section 18 of the Principal Act, by transferring powers which were under the purview of the Governor to the jurisdiction of the Bank. Additionally, the power of revocation, now owed to the Bank under this clause, has been extended. Such extensive provisions allow the Bank, by order, to revoke the licence of a licensee:
a) if a licensee is, or appears likely to become unable to meet its obligations as they fall due; and
b) if it appears to the Bank that the licensee has furnished information or documents to the Bank in connection with its application for a licence, which is or are false or misleading in a material particular, or has failed to inform the Bank of a material change in respect of the information so furnished.
The clause further qualifies the Bank to appoint a Statutory Administrator over a bank, to manage the bank on its behalf and at its own expense. Moreover, the Bank is empowered to issue written directions that may require a licensee to cease or refrain from committing an act or pursuing a course of conduct etc., or to do anything required to be done. Inter alia, such directions include the power to restrict the licensee or its subsidiary from further lending; require the disposal of specified assets which it may hold; and require such action to be taken by the licensee, as the Bank considers necessary.
2. Clause 30 of the Bill is new and allows a licensee, Registered Representative, or money transmission agent, who has ceased to carry on business in respect of which a licence or certificate of registration was granted, to make an application to the Bank, to surrender the same.
3. Clause 31 of the Bill makes fresh provisions for the winding-up of non-banking licensees and registrants. It provides that notwithstanding sections 190(1) and 211 of the Companies Act (Ch. 308), trust companies and money transmission service providers, licenced under the Bill, and Registered Representatives and money transmission agents, registered with the Bank, must obtain the prior written approval of the Bank, before they may be voluntarily wound up or make any petition before the Supreme Court, to be wound up.
Part VI – Special Resolution Framework for Banks
The provisions made under this part of the Bill (Clauses 35-72), are new and distinct from the provisions of the Principal Act. These clauses are a cardinal segment of the Bill, as they form a substructure within the Bill, that addresses inter alia, the financial recovery, statutory administration, and liquidation of banks.
Recovery of Banks in Financial Distress, Etc.
1. Clause 35 of the Bill makes provision for the Bank to exercise the powers of a Statutory Administrator and liquidator in order to, inter alia:
a) maintain financial stability;
b) protect and enhance public confidence in the stability of the banking system of The Bahamas;
c) protect depositors, inclusive of ensuring prompt payouts of deposits of a bank in liquidation.
2. Clause 36 of the Bill provides that every bank shall periodically prepare and submit plans for the rapid and orderly recovery of such bank, founded upon various scenarios of financial distress or failure, whether on an individual or group basis. Failure to submit or resubmit such plans within the time period allotted by the Bank, may result in inter alia, more stringent prudential requirements, or restrictions on the growth, activities, or operations of the bank, or any other actions the Bank may determine, until the bank submits or resubmits a plan which, in the opinion of the Bank, provides remedy.
3. Clause 37 of the Bill makes provision for the Bank to exercise its option of preparing a resolution plan for a bank (including at a consolidated level, in consultation with any other domestic regulatory authority, or a Supervisory Authority), from the use of information and analysis, submitted by the bank.
1. Clause 38 of the Bill is salient as it allocates for the appointment of a Statutory Administrator. It provides that the Bank may appoint a Statutory Administrator, inter alia, that where:
a) in the opinion of the Bank, a bank:
i) has engaged or is engaging in any unsafe and unsound practice in such a manner as to weaken the bank’s condition, threaten depositors’ interests or dissipate the bank’s assets;
ii) is either in The Bahamas or elsewhere, contravening the provisions of this Bill or any other Act, or any order or regulations made under this Bill etc.; or
b) the bank’s capital level falls (or is likely to fall within 12 months), below the minimum regulatory capital required by the Bank;
c) the capital and value of the assets of the bank have or are likely to reach a level that may detrimentally affect its depositors or creditors, with no reasonable prospects of timely restoration of such capital and value;
d) the Bank has reasonable cause to believe that the bank or its directors, officers etc., has or is engaging in illegal activities in a manner which jeopardizes depositors’ interests;
e) the bank fails in any manner to cooperate with its external auditors; or
f) the bank fails to cooperate with the Bank to enable the Bank to perform its supervisory responsibilities, including through concealment or failure to submit for inspection, any of the bank’s books, papers, or records.
The Clause further provides that a Statutory Administrator may be appointed for a period not exceeding twelve (12) months, unless an extension is issued by the Bank, for a further period not exceeding twelve (12) months.
2. Clause 40 of the Bill outlines the general powers of the Statutory Administrator and provides that upon such appointment, the Statutory Administrator shall be vested with all powers, functions, and responsibilities of shareholders, directors, and officers of a bank, under statutory administration. Likewise, any action taken by or on behalf of the bank, shall be null and void, unless they are taken by or under the authority of the Statutory Administrator.
The Statutory Administrator’s full and exclusive powers to manage and operate the bank, include taking any action necessary or appropriate to, inter alia:
a) carry on the business of the bank;
b) exercise shareholder’s rights and powers;
c) continue or discontinue all of its operations;
d) remove any or all directors and officers;
e) execute any instrument in the name of the bank; and
f) initiate, defend and conduct any action to which the bank may be a party, in the name of the bank.
3. Clause 41 of the Bill provides that the Bank shall have oversight of the Statutory Administrator.
4. Clause 44 of the Bill authorises the Statutory Administrator to take immediate control of a bank that is under statutory administration. It requires him, immediately upon appointment, to secure the property, offices, books, records, and assets of the bank, in prevention of their dissipation by theft or other improper action, by taking actions including, but not limited to:
a) changing the locks and limiting access to the new keys to the bank’s external entrances and internal doors to offices which contain financial assets, information, etc.;
b) changing or establishing access codes to the bank’s computers and granting limited access to the same; and
c) issuing new photo identification passes to employees and controlling access to the bank’s premises;
5. Clause 46 of the Bill allows the Statutory Administrator to take certain actions to increase the bank’s capital, by issuing new shares to existing shareholders.
6. Clause 47 of the Bill makes provision for the Statutory Administrator to carry out a merger of a bank under statutory administration or to transfer in whole or in part, its shares, securities, assets, rights, and liabilities, to a purchaser, an asset management vehicle, or temporarily, to a bridge institution.
7. Clause 49 of the Bill provides for the Bank’s issuance of a licence to an incorporated body corporate, to carry on business as a bridge institution.
Liquidation of banks
1. Clause 58 of the Bill notably introduces the requirement that the liquidation of a bank shall be undertaken pursuant only to the provisions of the Bill and the Companies Act (Ch. 308), as modified by the Bill. It further enables the Bank to issue regulations, rules, orders, directions, etc., regarding the winding-up of a bank, pursuant to the Bill.
2. Clause 59 of the Bill mandates that a bank must obtain the prior written approval of the Bank, before they may be voluntarily wound up or make any petition before the Supreme Court, to be wound up. In consideration of its decision to approve the voluntary winding-up of a bank, the Bank must be satisfied that:
a) the bank is solvent and has sufficient liquid assets to repay its depositors and other creditors in full and without delay;
b) the winding-up has been approved by the holders of at least two-thirds of the issued voting shares of the bank; and
c) there are clear procedures in place for repayment of the bank’s depositors and creditors, within three days.
Upon approval of the winding-up of a bank, the clause provides that the bank shall:
a) surrender its license and all copies thereof to the Bank;
b) apply to the Supreme Court for its winding-up;
c) cease to do business;
d) repay in full, its depositors within three days and other creditors within a reasonable time; and
e) wind-up all operations which were commenced or undertaken prior to the receipt of the approval to wind-up.
3. Clause 60 of the Bill makes provision for the compulsory winding-up of a bank under statutory liquidation and the appointment of a liquidator.
4. Clause 61 of the Bill outlines the powers and duties of the liquidator, who shall become the sole legal representative of the bank and shall succeed to all rights and powers of the shareholders, directors, and officers responsible for the management of the bank.
5. Clause 67 of the Bill designates the priority of claims which may be made against a bank. It provides that allowed secured claims shall be paid to the extent of the realization of the security, or the security shall be delivered to the secured creditor. Correspondingly, the clause provides for a number of unsecured claims to have priority against the general assets of a bank that is being compulsorily wound-up, under the Bill. Inter alia, they consist of:
a) necessary and reasonable expenses incurred by the Statutory Administrator or liquidator, including professional fees;
b) credits extended to the bank by the Bank, until the appointment of the liquidator to the extent not sufficiently secured by collateral;
c) wages, salaries, etc., of the officers and employees of the bank, which accrued during the three months immediately preceding the appointment of a Statutory Administrator or liquidator, and do not exceed the amount of ten thousand dollars ($10,000.00); and
d) all taxes due and other imposts owing to the Government of The Bahamas.
6. Clauses 70 and 71 of the Bill make provisions for creditor and shareholder safeguards.
7. Clause 72 of the Bill introduces the office of an Independent Valuer, who must meet certain qualifications specified in writing, by the Bank.
Part VII – Miscellaneous
1. The Miscellaneous provisions under the Bill gives the Bank wide powers to, inter alia,:
i. publish certain disciplinary actions it takes pursuant to certain clauses in the Bill;
ii. prohibit individuals it deems unfit to perform regulated functions from doing so;
iii. issue warning notices to those it proposes will be the subject of a prohibition order;
iv. issue a variation or revocation of any prohibition order it issues under the Bill.
2. Clause 77 of the Bill outlines the confidentiality requirements of any person who has acquired information in their capacity as, inter alia, a director, officer, employee, or agent of any licensee or former licensee, counsel and attorney, consultant, or auditor of the Bank, or as an employee or agent of such counsel and attorney, consultant, or auditor.
3. Clause 78 of the Bill makes provision for the treatment of dormant accounts (a deposit account or other facility at a bank where the customer has initiated no transaction, for a period of seven years) held by banks.
4. Clause 80 of the Bill makes wide provision for a Magistrate’s powers of search.
5. Clause 81 of the Bill makes provision for the Attorney-General to issue a fiat, in that no prosecution in respect of any offence committed under the Bill, shall be instituted except by or with consent of the Attorney-General.
6. Clause 83 of the Bill states, inter alia, that the provisions of the Bill shall have effect, in addition to and not in derogation of any other provisions having the force of law in The Bahamas, provided however, that the provisions of the Act shall prevail to the extent of any inconsistency with other laws of general application.
7. Clause 84 of the Bill makes provision for and outlines the procedure relevant for appeals from any decision of the Bank, which are to be made to the Supreme Court.
8. Clause 85 of the Bill makes provision for fees and levy, which are further addressed in Schedule 2 of the Bill.
9. Clause 86 of the Bill makes provision of the repeal of the Principle Act.
10. Clause 87 of the Bill makes provision for the continuation of any licence, authority, approval, or exemption granted under the Principle Act, which is in force immediately before the coming into force of the Bill.
1. The Schedules are organised as follows:
i. The First Schedule – Inspection and Supervision of Banks and Trust Companies;
ii. The Second Schedule – Fees and Levies;
iii. The Third Schedule – Securities Transfer Instruments;
iv. The Fourth Schedule – Property Transfer Instruments.
 Clause 2 of the Bill defines a licensee as any person holding a licence under the provisions of the Bill and includes branches or subsidiaries of a licensee operating outside of The Bahamas.
 This substitution is common within the Bill, as it seeks to transfer many functions and obligations from the Governor, to the Bank.
 Clause 2 of the Bill defines a controller as, inter alia, a person who is able to exercise significant influence over the management of a licensee.
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.