Rouhani Sends Banking Reform Bills to Parliament

EghtesadOnline: Following an approval by the Cabinet and a presidential endorsement, the twin bills devised by the government to reform the banking system after almost 45 years have now been sent to the parliament.

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20 August 2017

President Hassan Rouhani officially delivered the Banking Reform Bill and the Central Bank Bill to Majlis Speaker Ali Larijani on Tuesday, Dolat.ir, the official news outlet of the administration, reported.

The bills have had a rocky journey on their way to the parliament and underwent many reviews and revisions before finally been approved by the Cabinet on July 23. The repeated delays had angered many lawmakers who threatened to ratify their own version of the reform agenda if the government continued its foot-dragging, Financial Tribune reported.

"More than four decades have passed since the first monetary and banking law of the country was approved and implemented in 1972. Since that time, the banking system has undergone many significant changes in all aspects and has assumed many key responsibilities," reads the brief preface sent to the parliament.

Under the circumstances, adds the statement, the current law which is not in keeping with the conditions and requirements of its time, cannot comprehensively address the current needs and that is why the new reform plan has been devised.

The Banking Reform Bill is the new blueprint expected to replace the current Usury-Free Banking Law. The last amendments to the Usury-Free Banking Law were made in 1983 while the law itself specifies that upgrades are needed every five years.

Problems facing the beleaguered banking system and the need for preparing lenders to overcome the post-sanctions challenges have prompted the government to prepare its own reform scheme after the previous parliament nearly passed a controversial bill criticized by the government and bankers.

Wide-Ranging Changes

The Banking Reform Bill outlines the procedures for banks and non-bank credit institutions to follow for obtaining a license from CBI. It explains all banking operations and services, notifies regulations for the establishment of foreign bank branches and sets limits on their investments.

Other articles put in place a professional set of criteria for appointing new top executives and board members, and makes provision for setting up internal risk and auditing committees while detailing lending and capital adequacy rules.

On the other hand, the Central Bank Bill, whose law was first passed in 1972, aims to update banking regulations. Improving the independence of CBI, enhancing monetary policymaking and enforcing CBI’s supervision over the money market are among its key goals.

Owing to the deleterious operations of illegal credit institutions whose imminent departure was announced by the central bank last week, the bill puts added emphasis on supervision and obliges credit institutions to "cooperate with CBI supervisors and investigators and provide them with all the relevant information within the framework of regulations".

It stresses that "CBI's oversight over credit institutions is comprehensive" meaning that in addition to evaluating the operational risks of the institution, it has the mandate to evaluate the risk emanating from the parent company that owns the credit institution.

The reform measures also include articles on bankruptcy and merger of banks and credit institutions, as CBI Governor Valiollah Seif had previously signaled that takeovers might begin in the foreseeable future.

The goal of these reforms is to "ensure the stability, health and sustainability of the monetary and banking regime and safeguard the interests of depositors".

In line with this, the bills also allow the Deposit Guarantee Fund, which guarantees people's deposits up to a ceiling, to continue with its operations and obligate "all credit institutions" to become a member and make a contribution.

Currency Change

Among all the articles in the twin bills, perhaps the measure that attracted most headlines when it was first passed by the Cabinet was the introduction of toman as the new official currency unit of Iran in place of rial.

"With the aim of enforcing utmost conformity of legal frameworks with the realities of the society, the currency unit of the country has been changed to toman from rial, which now only acts in an accounting and bureaucratic capacity and has no practical use in the society," the administration said in its briefing while justifying the currency change.

"Iran's currency unit is toman. Each toman equals 10 rials," it adds.

The Cabinet first approved the change in early December of last year, but it has to be approved by the parliament and ratified by the Guardians Council to become law.