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New Law Proposed To Deal With Failing Banks, Prevent Money Laundering

By: Justicia Shipena
Finance Minister Iipumbu Shiimi has tabled a bill in the National Assembly aimed at overhauling the Banking Institutions Act of 1998 in order to give more authority to the Bank of Namibia (BoN) in resolving failing banking institutions.
The bill aims to “enhance the Bank of Namibia’s powers to resolve failing banking institutions,” Shiimi said while tabling the bill in parliament.
According to Shiimi, the bill, which was drafted by the Ministry in conjunction with BoN, will establish the regulatory framework for microfinance banking institutions to improve access to financial services.
He continued miotivating that the bill will also establish the ideal proportion of domestic and foreign ownership in banking institutions.
He pointed out that the regulations pertaining to unlawful financial schemes will also be made clearer by this new bill.
The Minister said the financial regulatory structure ought to be efficient and adaptable to the requirements of the public.
“In this regard, the Banking Institutions Bill was drafted having regard to our national aspirations and international supervisory standards in banking regulation as provided by international standard setting bodies such as Basel Core Principles for Banking Supervision, the Financial Sector Assessment Programme/International Monetary Fund (IMF) and the Financial Action Task Force (FATF),” he explained.
The World Bank’s 2018 Financial System Stability Assessment for Namibia found serious flaws in the Financial Institutions Act, 1998 as amended, including a lack of sufficient stabilisation authority for the Bank of Namibia to handle failing financial institutions.
The analysis also showed that the central bank’s evaluation of directors and shareholders of banking institutions for fit and properness has to be improved.
“Another significant deficiency in the Act relates to a lack of definition of beneficial owner in relation to banking institutions as identified by the recent Mutual Evaluation conducted by the FATF/ESAAMLG in 2021,” Shiimi said.
Therefore, he stated that these flaws must be fixed, especially to stop Namibia from being placed on a greylist and to guarantee that banking institutions are effectively controlled.
The Minister explained that section one of the Bill deals with definitions that make the ideas employed in the Bill more clear with regard to beneficial owner.
He emphasised that the concept of “beneficial owner” is one of the crucial definitions included in the Bill.
“The current Act does not have provisions relating to beneficial owner. A definition of beneficial owner is necessary to ensure that the natural persons who are beneficial owners of banking institutions are subject to fit and proper assessment to determine their fitness to hold shares in a banking institution.”
There are no restrictions on foreign ownership of banking institutions under the present Act.
Two of the eight banking institutions have majority foreign-origin stockholders, according to Shiimi, and this is a stark reality.
“In line with our national aspiration of local empowerment, a desirable blend of local and foreign-owned banking institutions is required to ensure socio-economic development of Namibia,” he stated.
He continued by saying that one of the lessons from the global financial crisis was the need for regulatory standards to strengthen banking institutions and lower the likelihood of future failure.
Shiimi contended that the Bill establishes a duty for banking institutions to keep recovery plans in accordance with the best international practices.
The majority of Namibian banking institutions are owned by foreign parent companies, according to him, and it has been noted with concern that these parent companies meddle in the governance and management of the local banking institutions.
“This interference has a negative impact on institutional independence as well as on national economic development because commercial decisions are made in favour of foreign interests instead of national interests. It is proposed that the powers of the board of directors of banking institutions be strengthened to ensure their independence in executing their fiduciary functions.”
In order to deal with banking organisations that are operating their companies illegally or in a way that hurts their consumers, the central bank now lacks sufficient authority.
These flaws were exposed in 2017 during the SME Bank case and crisis simulation exercises.
Minister Shiimi therefore suggested that the BoN’s authority over banking institutions be expanded so that, among other things, the central bank could use an order to suspend or remove the directors or executive officers of banking institutions, particularly in situations where those directors or executive officers are suspected of facilitating illegal activities that are harmful to an institution.
“The order to suspend or remove a director or executive officer is a last resort and the concerned director or officer will be given an opportunity to be heard in accordance with the principles of natural justice,” he stated.
Additionally, he added, the appeal board was established to hear and decide appeals against Bank judgements in order to guarantee that people who were wronged by those decisions sought justice in the most affordable way possible.
“The Bill provides in detail how the Appeal Board should be constituted and the procedure to be followed by the Board.”
Shiimi stated in the bill’s introduction that countless public complaints about the excessive fees levied by banking institutions have been submitted to the central bank.
“Therefore, it is proposed that the Minister be empowered to make regulations relating to fees and charges imposed by banking institutions on their customers,” he added.
The Minister gave the August House his word that fees and charges will be regulated responsibly, without endangering the stability of the financial system.
Shiimi concluded that the Banking Institutions Bill will improve the regulatory and supervisory environment for banking institutions when it is enacted and will help to maintain financial stability.

Justicia Shipena

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