Majlis Boosts CBI’s Regulatory Clout

EghtesadOnline: Lawmakers defined new responsibilities for the Central Bank of Iran and law enforcement, as they ratified more enhanced regulatory measures to counter the operations of uncertified financial institutions.

News ID: ۷۳۹۱۸۷

14 January 2017

In the latest open session of the parliament on Wednesday, lawmakers reviewed components of the sixth five-year development plan (2016-21) sent to the Majlis Joint Committee, approving them 118- 64 with five MPs abstaining from the total of 231 present in the parliament.

The ratifications obligate the police force to shut down financial and credit institutions lacking a license from the central bank, Banker.ir reported.

According to the ratifications, CBI gets greater authority in addition to the ones it already has as part of its legal mandate and will use them to "exert inclusive supervision" over financial, banking and credit institutions to "improve transparency and reduce the ratio of non-performing loans to total gross loans".

As part of its extended power, the central bank will now be able to punish uncertified entities by limiting or prohibiting their dividend distribution to shareholders and temporarily stripping them of their voting rights in board meetings, Financial Tribune reported.

The CBI will also have the authority to temporarily suspend or altogether revoke the licenses of violating entities, limit or prevent them from allocating bonus payments to executives and declare chief executives and board members unfit to hold their positions.

More than 7,000 UFIs are said to be operating across the country over which the CBI has had little or no control. Officials with the bank have promised to end the activities of illegal institutions by the end of the current fiscal year in March.

The ratifications assert that the disciplinary panels of banks will be the authority dealing with violations, which will prevent the complete shutdown of the violating institution.

They also state that no individual or company is allowed to engage in any kind of banking, leasing or foreign exchange activities nor any entity with more than 50% of their shares owned by a bank or credit institution can establish investment funds or banks without first obtaining a license from the central bank.

The law also decrees any debt incurred by these institutions should be reimbursed by members of their board of trustees, board of directors, board of founders and their shareholders.

Other Measures

Single-branch Qarzol-Hassaneh (interest-free) funds throughout the country that absorb only up to 30 billion rials in savings ($926,7) per annum are exempt from these restrictions and will be able to continue their operations.

As an example of a subsidiary company affiliated to a bank or credit institution, Parsian Leasing Company is 60% owned by Bank Parsian while the rest of its shares are controlled by Parsian Electronic Business Company, which is also owned by the bank's parent company.

According to lawmakers, if the central bank deems a bank branch or an institution unregistered, law enforcement is obliged to stop their activities or close them down.

Furthermore, "any kind of advertisements for monetary and banking services will have to be based on guidelines that will be devised by the central bank and approved by the Cabinet, which will be implemented four months from the passage of the legislation".

Violating entities will be fined up to 10 times the amount they spend on their advertisements, which will be channeled to Treasury coffers.

CBI has also been obligated to make preparations in a way that "will annually decrease the ratio of non-performing loans over total gross loans by one percentage point".

Redirection of All Bank Accounts to CBI

Lawmakers also approved measures stipulating that all bank accounts belonging to executive branches of the administration in agent banks will have to be moved to the Central Bank of Iran.

As part of their Wednesday's open session, members of parliament approved Article 19 of the sixth five-year development plan (2016-21) with 171 ayes, 12 nays and five abstentions, reports banker.ir.

The plan offers a medium-term roadmap designed by the government and Majlis to help achieve sustainable growth, outlining strategies in its budget planning for the next five years.

The first act of the article is related to banks and credit institutions and the use of resources during the plan period in order to allocate loans with lower interest rates. It states that if any of these entities are obligated to offer loans at lower rates, its discrepancy with the official interest rates of 15% approved by the Money and Credit Council "must be accounted for and registered in the annual budget".

The second act asserts that "all bank accounts, namely rial and foreign exchange accounts, of ministries, institutions, companies, organizations and universities affiliated to the government as well as administrative credits of non-government public entities" will henceforth be opened strictly by the central bank and through the Treasury.

These entities are also bound to conduct all their transactions only through accounts opened at CBI. The central bank, on the other hand, is obligated to provide all the requirements for safeguarding the accounts and make it possible for the Treasury to have uninhibited access to all their information .

Furthermore, a directive will reportedly be approved by the Ministry of Economic Affairs and Finance, the central bank and MCC within three months of the law's implementation, which will outline how the accounts will be transferred to the central bank and its cost for agent banks.

CBI is bound to communicate the aforementioned directive to all banks and credit institutions. Any violations will be met with disciplinary action and if any other executive branches commit violations, "it will be deemed unlawful possession of public funds".

Lawmakers also removed Article 22 from the development plan, which dealt with increasing the capital of a number of banks, including Agriculture Bank, Bank Melli Iran, Sepah Bank and Post Bank.