Economic risk
Transition to Interest Rate-Based Monetary Policy in Tanzania
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非洲
Regulatory risk
In a bid to enhance the regulatory framework governing banks and financial institutions, the Bank of Tanzania (BoT) has recently enacted the Banking and Financial Institutions (Compulsory Liquidation) Regulations, 2024 (the Regulations). The Regulations, published under Section 71 of the Banking and Financial Institutions Act, 2006 (BFIA), introduce a comprehensive framework for the compulsory liquidation process of banks and financial institutions in Tanzania.
In this legal update, we highlight key provisions of the Regulations which were enacted on 16th February 2024.
The following are some terms that have been defined under the Regulations:
Regulation 4 empowers the BoT to appoint a liquidator when a resolution plan calls for the liquidation of a bank or financial institution. The appointment of a liquidator under the Regulations shall have the same effect as a court-appointed liquidator.
The estate of the bank or financial institution under liquidation is responsible for covering the liquidation expenses. If the liquidation proceeds are insufficient to cover the administrative costs incurred by the liquidator, BoT will reimburse the deficit. Additionally, if BoT finds that the liquidator has not fulfilled their statutory duties, which includes taking custody and control of all properties and affairs of the institution under liquidation and maintaining a register of creditors, it has the authority to investigate the matter and take action as it deems necessary.
The Regulations grant extensive powers to the liquidator, including:
The liquidator must develop a comprehensive liquidation plan for the bank or financial institution under liquidation within thirty days of appointment. The liquidation plan must include:
Upon completing the liquidation process, the liquidator must take several crucial steps to finalise the proceedings. Firstly, the liquidator must prepare a comprehensive report detailing all assets realised, payments against claims, the valuer's opinion on unsold assets, and any unclaimed valuables. Unclaimed valuables are surrendered to BoT. Thereafter, they must prepare an audited statement of income, expenses, sources, and uses of funds, submitting it to BoT within thirty days. The liquidator must also publish liquidation completion details in two newspapers. If BoT is satisfied, they will release the liquidator and issue a certificate of release. Finally, the liquidator is required to inform the Registrar of Companies to remove the bank or financial institution's name from the Register of Companies.
It should be noted that the Regulations are to be read in conjunction with sections 61 and 41 of the BFIA which provides the primary legislative rules for compulsory liquidation and for the role of the Deposit Insurance Board as the liquidator.
The Regulations represent a significant step towards enhancing the regulatory framework governing banks and financial institutions undergoing compulsory liquidation. By providing clarity, structure, and accountability, the Regulations aim to facilitate the efficient resolution of distressed institutions while safeguarding the interests of creditors and depositors alike.
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