Financial Institutions Act 2004

FINANCIAL INSTITUTIONS ACT, 2004. ARRANGEMENT OF SECTIONS. Sections PART I PRELIMINARY. 1. Short title. 2. Application of Act. 3. Interpretation. PART II LICENSING. 4. Prohibitions against transacting financial institution business. 5. Deposit advertisements. 6. Corporate powers outside Uganda. 7. Prohibitions against use of the word 'bank' or its derivatives. 8. Search and seizure. 9. Repayment of moneys by unauthorised persons. 10. Application for a licence. 11. Factors to be considered in making a decision to grant a licence. 12. Processing, granting and refusal of licence. 13. Licence fee. 14. Duration and display of licence. 15. Amendment and restriction of licence. 16. Failure to commence operations. 17. Revocation of licence. PART III SHAREHOLDING IN FINANCIAL INSTITUTIONS. 18. Prohibitions on share holding in financial institutions. 19. Persons who are not fit and proper not to become substantial shareholders. 20. Registrar not to register transfer of shares without permission of Central Bank. 21. Registration of shares in the names of nominees. 22. Registration of shares contrary to this Act. 23. Shareholders register and disclosure of interests in shares. 24.

shares in the names of nominees. 22. Registration of shares contrary to this Act. 23. Shareholders register and disclosure of interests in shares. 24.

Restriction of right to control financial institutions. 25. Penalties for violating provisions on share holding. PART IV CAPITAL REQUIREMENTS. 26. Minimum capital requirements for financial institutions. 27. Minimum ongoing capital requirements. 28. Minimum holding and computation of liquid assets. PART V PROHIBITIONS AND RESTRICTIONS. 29. Bar on lending where liquid assets are insufficient. 30. Restrictions on lending against own shares and debt instruments. 31. Restrictions on credit concentration. 32. Restrictions relating to reduction of capital. 33. Restrictions on inter institutional placements and loans. 34. Prohibitions on insider transactions. 35. Restriction on purchase of certain loans. 36. Restriction on externalisation of assets. 37. Engaging in trade, commerce, industry. 38. Investments in immovable property. 39. Restrictions on engaging in securities activities. 40. Foreign exchange holdings. 41. Core capital requirements for conducting foreign exchange business. 42. Net open position in foreign currencies. 43. Suspension of foreign exchange business. 44. Stored value cards. 45. Restrictions on a mortgage bank. PART VI ACCOUNTS AND FINANCIAL STATEMENTS. 46.

. Suspension of foreign exchange business. 44. Stored value cards. 45. Restrictions on a mortgage bank. PART VI ACCOUNTS AND FINANCIAL STATEMENTS. 46.

Financial ledgers and other financial records. 47. Entries in financial ledgers. 48. Submission of audited annual financial statements. 49. Disclosures to the Central Bank. 50. Publication of annual and quarterly financial statements. 51. Rectification of audited annual financial statements. PART VII CORPORATE GOVERNANCE. 52. Appointment of board of directors. 53. Disqualification of director. 54. Conflict of interest. 55. Responsibilities of the board. 56. Duties of directors. 57. Removal and suspension of directors. 58. Board Meetings. 59. Audit Committee of the board. 60. Asset and Liability Management Committee. 61. Internal Auditor. 62. External Auditors. 63. Approval of External Auditor. 64. Disqualification of External Auditor. 65. No change of External Auditor. 66. Insurance cover by External Auditor. 67. Time limit for External Auditor. 68. Duties of External Auditor to financial institution. 69. Duties of External Auditor to Central Bank. 70. External Auditors right to access financial records. 71. Information by External Auditors to Central Bank. 72. Audit report. 73. Qualified audit report. 74. Rejection of audit report. 75. Requirements on provisions. 76.

by External Auditors to Central Bank. 72. Audit report. 73. Qualified audit report. 74. Rejection of audit report. 75. Requirements on provisions. 76.

Special and further investigations by External Auditors. 77. Control over management. 78. Credit Reference Bureau. 78A. Financial institution to carry out credit check on customer applying for credit. PART VIII SUPERVISION. 79. Inspection of financial institutions. 80. Information to be provided by financial institutions. 81. Information for consolidated supervision. PART IX CORRECTIVE ACTIONS. 82. Intervention. 83. Modification, cancellation and upholding of orders. 84. Prompt mandatory corrective actions. 85. Adequately capitalised financial institutions suffering large losses. 86. Undercapitalised financial institutions. 87. Significantly undercapitalised financial institutions. 88. Management take over. 89. Powers of Central Bank on taking over management of financial institution. 90. Duties of a statutory manager. 91. Prohibition on legal proceedings against a financial institution under management of Central Bank. 92. Management by Central Bank not relief from contractual obligations. 93. Costs of management. PART X RECEIVERSHIP. 94. Placing of financial institution under receivership. 95. Options available to the receiver. 96.

ons. 93. Costs of management. PART X RECEIVERSHIP. 94. Placing of financial institution under receivership. 95. Options available to the receiver. 96.

Prohibitions on proceedings against a financial institution in receivership. PART XI LIQUIDATION. 97. Bar on liquidation or winding up proceedings. 98. Voluntary liquidation. 99. Liquidation by the Central Bank. 100. Powers of liquidator. 101. Stay of proceedings. 102. Invitation of claims from creditors. 103. Report on assets and liabilities by liquidator. 104. Creditors and contributories meeting. 105. Payment to creditors and ranking of claims. 106. Financial ledgers and financial records of liquidator. 107. Release of liquidator. PART XII THE DEPOSIT PROTECTION FUND. 108. Continuation of Deposit Protection Fund. 109. Purpose of the Fund. 110. Board of the Fund. 111. Contributions to the Fund by financial institutions. 111A. The Deposit Protection Fund under Microfinance Deposit-Taking Institutions Act to be merged with Fund. 111B. Finances of the Fund. 111C. Payments out of the Fund. 111D. Annual report of the Deposit Protection Fund. 111E. Financial year of the Fund. 111F. Public awareness. 111G. Regulations to operationalise the Fund. PART XIII AMALGAMATIONS, ARRANGEMENTS, AND AFFECTED TRANSACTIONS. 112. Amalgamations and arrangements. 113.

G. Regulations to operationalise the Fund. PART XIII AMALGAMATIONS, ARRANGEMENTS, AND AFFECTED TRANSACTIONS. 112. Amalgamations and arrangements. 113.

Reconstruction within group of companies. 114. Alteration of memorandum and articles. 115. Alteration of memorandum and articles of association in accordance with directions of Central Bank. PART XIIIA SPECIAL PROVISIONS ON ISLAMIC BANKING. 115A. Licensing of financial institutions to conduct Islamic financial business. 115B. Shari'ah Advisory Board. 115C. Sections 37 and 38 not to apply to Islamic banks. PART XIIIB CONDUCT OF BANCASSURANCE BY FINANCIAL INSTITUTIONS. 115D. Banks engaging in bancassurance business. PART XIV MISCELLANEOUS. 116. Branches. 117. Representative offices for foreign banks. 118. Freezing of accounts. 119. Unclaimed balances. 120. Disqualification of officers. 121. Officers deemed public officers. 122. Fines and penalties. 123. Obligations under Companies Act. 124. Protection of Central Bank. 125. Bank holidays. 126. Offences etc. 127. Powers to summon officers, directors and shareholders. 128. Recovery of civil penalties. 129. Control of money laundering. 130. Action against money laundering. 131. Regulations. 132. Amendment of Schedules. 133. Precedence of Act. 134. Repeal and saving. First Schedule Currency Point.

gainst money laundering. 131. Regulations. 132. Amendment of Schedules. 133. Precedence of Act. 134. Repeal and saving. First Schedule Currency Point.

Second Schedule Types of financial institutions. Third Schedule Criteria for determining whether a person is a fit and proper person to manage, control, become a director or substantial shareholder in a financial institution. FINANCIAL INSTITUTIONS ACT, 2004. Commencement: 26 March, 2004. An Act to revise and consolidate the law relating to financial institutions; to provide for the regulation, control and discipline of financial institutions by the Central Bank; to repeal the Financial Institutions Act, and to provide for other related matters. PART I PRELIMINARY. 1. Short title. This Act may be cited as the Financial Institutions Act, 2004. 2. Application of Act. (1) This Act applies to a financial institution defined in section 3 of this Act. (2) This Act shall not apply to a co-operative society registered under the Co-operative Societies Act, except a co-operative society established for the purpose of accepting deposits from the public. (3) This Act does not apply to a micro finance deposit-taking institution. 3. Interpretation.

d for the purpose of accepting deposits from the public. (3) This Act does not apply to a micro finance deposit-taking institution. 3. Interpretation.

(1) In this Act, unless the context otherwise requires— "acceptance house" means a company licensed to conduct the financial institution business in Uganda which is specified in the Second Schedule to this Act as its principal business and which consists mainly in the granting of acceptance facilities and economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "affiliate" in respect of any financial institution means any entity, corporate or unincorporated where five percent or more of any class of its voting shares or other voting participation is directly or indirectly owned or controlled by that financial institution or is held by it with power to vote; "agent" means a person contracted by a financial institution to provide financial institution business on behalf of the financial institution in accordance with this Act; "agent banking" means the conduct by a person of financial institution business on behalf of a financial institution as may be approved by the Central Bank; "associate" means— ( a ) in relation to a natural person— (i) where the relationship is through marriage, includes wife, husband, mother or father in law, wife or husband's sister, wife or husband's brother; (ii) where the relationship is through consanguinity includes father, mother, sister, brother, son, daughter, niece, nephew, grandson or granddaughter, maternal or paternal uncle or aunt or cousin german; (iii) any company of which that person is a director or a substantial shareholder; (iv) any person who is an employee or partner of that person; ( b ) in relation to a company, any company which enjoys common share holding or common shareholders with another company directly or indirectly; ( c ) in relation to trusts the trustees of any settlement in which that person is a beneficiary; "bank" means any company licensed to carry on financial institution business as its principal business, as specified in the Second Schedule to this Act and includes all branches and offices of that company in Uganda; "Bank of Uganda securities" includes bills and bonds issued by the Bank of Uganda; "board" in relation to the Central Bank means the board of directors of the Central Bank and in relation to a financial institution, means the board of directors of the financial institution; "branch" means a place of business which forms a legally dependent part of a financial institution and which conducts directly all or some of the operations inherent in the business of the financial institution; "building society" means a society formed for the purpose of raising by subscriptions of members a stock or fund from which to make advances to members and registered in accordance with the Building Societies Act; "Central Bank" means the Bank of Uganda existing under the Bank of Uganda Act; "commercial bank" means a company licensed to carry on financial institution business in Uganda and whose principal business consists mainly in the acceptance of call, demand, savings and time deposits withdrawable by cheque or otherwise, in the capacity of a bank, provision of overdrafts and short to medium term loans; provision of foreign exchange, participation in inter-bank clearing systems and the provision and assumption of guarantees, bonds and other warranties on behalf of others and economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "company" means a company incorporated or registered under the Companies Act and includes— ( a ) the Uganda Development Bank established by the Uganda Development Bank Act; ( b ) a building society duly incorporated under the Building Societies Act; and ( c ) any institution classified as a financial institution under this Act; "control" means the relationship between the parent undertaking and a subsidiary undertaking or similar relations between an individual and an undertaking or the power to determine the financial and operational policy of a financial institution pursuant to its charter or to an agreement, or direct or indirect influence by a person over decision making and the management of a financial institution; "core capital" means permanent shareholders equity in the form of issued and fully paid-up shares plus all disclosed reserves, less goodwill or any intangible assets; "credit accommodation" includes contractual commitments to lend or otherwise extend credit, letters of credit and guarantees issued on behalf of any persons; "credit institution" means any company licensed to carry on financial institution business in Uganda which is specified in the Second Schedule to this Act as its principal business, and any other body specified by the Central Bank to be a credit institution for the purposes of this Act; and includes all branches and offices of that company or body in Uganda; "currency point" has the value specified in the First Schedule to this Act; "demand deposits" means deposits which are repayable on demand and are withdrawable by cheque, draft, order or by other means; "demand liabilities" means the total deposit liabilities of a bank or non-bank institution which are denominated in any currency and payable upon demand; "deposit advertisement" means any advertisement containing an invitation to make a deposit or information, which is intended or might reasonably be presumed to be intended to lead directly or indirectly to the making of a deposit; "deposit substitutes" means funds received from the public through the issue, endorsement or acceptance of debt instruments of any kind other than deposits, or through the issue of participations, certificates of assignment, repurchase agreements or similar instruments including Islamic contracts specified for that purpose by the Central Bank by regulations; "director" means a natural person occupying the position of a director, by whatever name called, of a body corporate, and "board of directors" or "directors" refers to the directors of a body corporate as a body; "disclosed reserves" includes all reserves created or increased through share premiums, retained profits, after deducting all expenses, provisions, taxation, and dividends and general reserves if the disclosed reserves are permanent and unencumbered and thus able to absorb losses; "discount house" means a company licensed to carry on or conduct the financial institution business in Uganda which is specified in the Second Schedule to this Act as its principal business and which consists mainly in the acceptance of deposits from banks and other financial institutions, discounting of bills of exchange, bankers' acceptances and trade in money market making in a variety of short term financial instruments and economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "draft" means a bankers' draft payable on demand drawn by or on behalf of a bank upon itself whether payable at the head office or some other office of the bank; "entity" means a body corporate, trust, partnership, fund or organisation; "exposure" includes loans, advances, overdrafts, other extensions of credit and holding of papers as well as off balance sheet commitments such as acceptances, guarantees, underwriting, endorsements, placements, documentary credits, performance bonds and other contingent liabilities including Islamic contracts specified for that purpose by the Central Bank by regulations; "finance house" means a company licensed to conduct financial institution business in Uganda which is specified in the Second Schedule to this Act as its principal business and which consists mainly in acceptance of time deposits, hire purchase financing, operational and finance leasing, factoring, provision of short and medium term loans and any economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "financial institution" means a company licensed to carry on or conduct financial institutions business in Uganda and includes a commercial bank, merchant bank, mortgage bank, post office savings bank, credit institution, a building society, an acceptance house, a discount house, a finance house an Islamic financial institution or any institution which by regulations is classified as a financial institution by the Central Bank; "financial institution business" means the business of— ( a ) acceptance of deposits; ( b ) issue of deposit substitutes; ( c ) lending or extending money held on deposit or any part of that money including by way of— (i) consumer and mortgage credit; (ii) factoring with or without recourse; (iii) the financing of commercial transactions; (iv) the recovery by foreclosure or other means of amounts so lent, advanced or extended; (v) forfeiting, namely, the medium term discounting without recourse of bills, notes and other documents evidencing an exporter's claims on the person to whom the exports are sent; (vi) acceptance credits; ( d ) engaging in foreign exchange business, in particular buying and selling foreign currencies, including forward and option type contracts for the future sale of foreign currencies as a financial institution; ( e ) issuing and administering means of payment, including credit cards, travellers' cheques and banker's drafts; ( f ) providing money transmission services; ( g ) trading for own account or for account of customers in— (i) money market instruments, including bills of exchange and certificates of deposit; (ii) debt securities and other transferable securities; (iii) futures, options and other financial derivatives relating to debt securities or interest rates; ( h ) safe custody and administration of securities; ( i ) soliciting of or advertising for deposits; ( j ) money broking; ( k ) financial leasing if conducted by a financial institution; ( l ) merchant banking; ( m ) mortgage banking; ( n ) creating and administration of electronic units of payment in computer networks as a financial institution; ( o ) ...

g; ( m ) mortgage banking; ( n ) creating and administration of electronic units of payment in computer networks as a financial institution; ( o ) ...

( oa ) Islamic financial business; ( p ) transacting such other business as may be prescribed by the Central Bank.

( oa ) Islamic financial business; ( p ) transacting such other business as may be prescribed by the Central Bank.

"financial statements" includes the balance sheet, profit and loss accounts, statements of funds flow and notes to the financial statements; "fit and proper person" means fit and proper person as determined according to the criteria specified in the Third Schedule to this Act; "foreign bank" means a body corporate or entity incorporated or formed under the laws of a country other than Uganda that— ( a ) is a bank according to the laws of any foreign country where it carries on business; ( b ) carries on a business in a country other than Uganda that if carried out in Uganda, would be wholly or to a significant extent, financial institution business; ( c ) employs, to identify or describe its business, a name that includes the word "bank", "banque", "banking" or "bancaire", either alone or in combination with other words or any word or words in any language other than English or French corresponding generally to any such word; "foreign company" means a company not being a local company; "foreign currency" means a currency other than legal tender of Uganda; "foreign exchange business" means any facility offered, business undertaken or transaction executed with any person involving a foreign currency inclusive of any account facility, credit extension, lending, issue of guarantee, counter guarantee, purchase or sale of any money, instrument or asset by means of cash, cheque, draft, transfer or any other instrument denominated in a foreign currency including Islamic contracts specified for that purpose by the Central Bank by regulations; "forward transaction" or "forward purchase" or "forward buy" or "forward sale" means a transaction that is to be executed after more than two working days from the date the transaction is contracted or agreed; "government securities" includes treasury bills and government bonds issued by the Government of Uganda; "home country regulator" means the supervisory authority of the home country where the head office of the parent financial institution is based; "insider" means a director or person who has executive authority or a shareholder of a financial institution and includes any related person and any related interest of such person; "Islamic bank" means an Islamic financial institution which is a bank; "Islamic contract" means a contract which complies with the Shari'ah and satisfies any conditions specified by the Central Bank for that purpose; "Islamic financial business" means financial institution business which conforms to the Shari'ah and includes— ( a ) the business of receiving property into profit sharing investment accounts or of managing such accounts; ( b ) any other business of a financial institution which involves or is intended to involve the entry into one or more contracts under Shari'ah or otherwise carried out or purported to be carried out in accordance with the Shari'ah including— (i) equity or partnership financing, including Musharakah , Musharakah mutanaqisah and mudarabah ; (ii) lease based financing, including al-ijarah , al-ijarah muntahia bi al-tamlik and al-ijarah thumma al-bai ; (iii) sale based financing, including istisna `, bai ` bithaman ajil, bai ` salam , murabahah and musawamah ; (iv) currency exchange contracts; (v) fee based activity, including wakalah ; ( c ) the purchase of bills of exchange, certificates of Islamic deposit or other negotiable instruments; and ( d ) the acceptance or guarantee of any liability, obligation or duty of any person; ( e ) the business of providing finance by all means including through the acquisition, disposal or leasing of assets or through the provision of services which have similar economic effect and are economically equivalent to any other financial institution business; "Islamic financial institution" means a company licensed to carry on financial institution business in Uganda whose entire business comprises Islamic financial business and which has declared to the Central Bank that its entire operations are and will be conducted in accordance with the Shari'ah; "large exposure" means an exposure, which is equal to or exceeds 10 percent of a financial institution's core capital; "licence" means a licence issued under section 12 of this Act; "licensed" means licensed under this Act; "local company" means a company registered or incorporated under the Companies Act in which the majority shares and actual controlling interest are held by citizens of Uganda; "long position" or "long open position" or "overbought position" of a financial institution in a foreign currency means the holding by the financial institution of that foreign currency for its own account in excess of all its contractual spot, same day value and forward transaction commitments in that foreign currency or economically equivalent positions or holdings in respect of Islamic contracts; "management letter" means a letter written by the external auditor to the management of the financial institution pointing out apparent weaknesses in the internal controls which require management action to correct; "manager" means an officer of a financial institution empowered to control, direct, and influence decision making of the financial institution; "merchant bank" means a company licensed to carry on financial institution business in Uganda and whose business consists mainly in the acceptance of call and time deposits from corporate, institutional and international clients, withdrawable by cheque or otherwise and engaging in the financing of international trade, provision of corporate finance services, advisory services, provision of foreign exchange facilities; arranging finance, lending or otherwise extending credit or participation in syndicated loans or other financings, acting as guarantors and financing or lending in the institutional money markets and economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "merchant banking" means the business of a merchant bank; "micro finance deposit-taking institution" means a company licensed to carry on, conduct, engage in or transact microfinance business in Uganda; "microfinance business" means the business of accepting deposits from and providing short term loans or other credit to small micro enterprises and low income households, usually characterised by the use of collateral substitutes, such as group guarantees and economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "Minister" means the Minister responsible for finance; "money laundering" has the meaning assigned to it by section 130(2) of this Act; "mortgage bank" means a company licensed to carry on financial institutions business in Uganda and whose business consists mainly in the granting of loans for the acquisition, construction, enlargement, repair, improvement and maintenance of urban or rural real estate and for the substitution of mortgages taken out for that same purpose; acceptance of deposits of participation in mortgage loans and in special accounts; provision of guarantees, bonds or other forms of collateral connected with the operations in which they may take part and acting as an intermediary in loans extended in local and foreign currency and economically equivalent Islamic financial business subject to any restrictions specified by the Central Bank by regulations; "mortgage banking" means the business of a mortgage bank; "net open position" of a financial institution in a foreign currency means the sum of all its assets and liabilities inclusive of all its spot, same day value and forward transactions and its off balance sheet items in that foreign currency; "non-bank financial institution" includes a credit institution, a building society, an acceptance house, a discount house and a finance house and any other institution classified by the Central Bank as a non bank financial institution; "non-resident" means any person other than a resident; "off balance sheet items" includes all items not shown on the balance sheet but which constitute credit risk and such other risks as in guarantees, acceptances, performance bonds, letters of credit, and other off balance sheet items deemed to constitute risk as such by the Central Bank; "off balance sheet activities" includes activities which relate to off balance sheet items; "officer" includes a person who carries out or is empowered to carry out functions relating to the direction of a financial institution; "order" when used in conjunction with the word "cheque" or "draft", means an unconditional order in writing constituting a bill of exchange as defined in the Bills of Exchange Act; "person" means any individual, a personal representative, company, partnership, trust, fund, foundation or enterprise wherever located or incorporated; "personal representative" means a person who stands in a place of and represents another person and without limiting the generality of the foregoing, includes, as the circumstances require, a trustee, an executor, an administrator, a guardian, a tutor, a curator, an assignee, a receiver, an agent, or an attorney of any person; "place of business" means any premises including a branch, an agent or mobile unit, or such other premises as may be prescribed by the Central Bank by regulations, at which a financial institution transacts financial institutions business in Uganda and which is open to the public; "profit sharing investment accounts" means an account managed by a financial institution— ( a ) in relation to property of any kind including currency specified by the Central Bank by regulations, held for or within the account; ( b ) as part of its Islamic financial business; and ( c ) under the terms of an agreement where— (i) the account holder agrees to share any profit with the financial institution as manager of the account in accordance with a determined specified percentage or ratio; and (ii) the account holder agrees that he or she will bear any losses in the absence of negligence or breach of contract on the part of the financial institution; "prudential standard" means formal rules, bench marks and regulations set by the Central Bank; "public company" for the purposes of this Act means a company which is owned by at least 50 people and whose articles of association do not restrict the right to transfer its shares; "related person" or "group of related persons" means— ( a ) in relation to natural persons— (i) an associate or close relative of the person; (ii) any person who has entered into an agreement or arrangement with the first mentioned person, relating to the acquisition, holding or disposal of, or the exercising of voting rights in respect of shares in the financial institution in question; ( b ) in relation to a company means any— (i) subsidiary or holding company of that company, any other subsidiary of that holding company and any other company of which that holding company is a subsidiary; (ii) associate of the company; ( c ) in relation to a non-natural person which is not a company, means another non-natural person which would have been a subsidiary of the first mentioned non-natural person— (i) had the first-mentioned non-natural person been a company; or (ii) where that other non-natural person, is not a company, had both the first mentioned non-natural person and that other non-natural person been a company; ( d ) any person in accordance with whose direct or indirect directions or instructions the board of directors or where the non-natural person is not a company, the governing body of that non-natural person is accustomed to act; and ( e ) in relation to any person— (i) means any non-natural person of which the board of directors or, where that non-natural person is not a company, of which the governing body is accustomed to act in accordance with directions or instructions of the person first mentioned in this paragraph; and (ii) includes any trust controlled or administered by that person; "related interest" means interests of affiliates, associates and their related persons and the business interests of any of them; "representative office" means premises in Uganda from which any person conducts business or holds himself out as ready to conduct business as a representative of a foreign bank; "repurchase agreement" means an agreement between a seller and a buyer of securities, by which the seller agrees to repurchase the securities at an agreed upon price or interest rate or both, and usually at a stated price including Islamic contracts specified for that purpose by the Central Bank by regulations; "reputable financial institution" means a financial institution licensed to conduct banking or other financial institution business under the laws of any state, country or territory and which meets such other criteria as may be prescribed by the Central Bank; "reputable publicly held company" means a company that is financially strong, whose ownership is not concentrated in a few hands and which is of good public standing and meets such other criteria as may be prescribed by the Central Bank.

ership is not concentrated in a few hands and which is of good public standing and meets such other criteria as may be prescribed by the Central Bank.

"resident" mean— ( a ) an individual who is ordinarily resident in Uganda for one year or more; ( b ) the Government of Uganda and its diplomatic representations located outside of Uganda; ( c ) a company, firm or enterprise whose principal place of business or centre of control and management is located in Uganda; ( d ) a corporation, firm or enterprise incorporated or formed under the laws of Uganda; ( e ) a branch located within Uganda of a company, firm or other enterprise whose principal place of business is located outside of Uganda; except that "resident" does not include a foreign diplomatic representation or an accredited official of that representation located within Uganda, office of an organisation established by international treaty located within Uganda, or a branch located outside Uganda of a company, firm, or enterprise whose principal place of business is located in Uganda; "same day transaction" or "same day purchase" or "same day buy" or a "same day sale" means a transaction having a same day value; "same day value" means the transaction to which it is referred is to be executed on the very day it is contracted or agreed; "securities" includes— ( a ) debentures, stocks or bonds issued by or proposed to be issued by a Government; ( b ) debentures, stocks, bonds or notes issued or proposed to be issued by a body corporate; ( c ) any right, warrant, option or futures in respect of any debenture, stocks, shares, bonds, notes or in respect of commodities; or ( d ) any instrument commonly known as securities, but does not include bills of exchange, promissory notes or certificates of deposit issued by a financial institution; ( e ) any instrument which satisfies conditions prescribed for this purpose by the Central Bank by regulations; "significantly undercapitalised" has the meaning assigned to it in section 87(4) of this Act; "short position" or "short open position" or "oversold position" of a financial institution in a foreign currency means that the holding by the financial institution of that foreign currency for its own account is less than all its contractual spot, same day value and forward transaction commitments in that foreign currency or economically equivalent positions or holdings in respect of Islamic contracts; "spot transaction" or "spot purchase" or "spot buy" or "spot sale" means a transaction having a spot value; "spot value" means the transaction to which it is referred is to be executed two working days from the date it is contracted or agreed; "substantial shareholder" means any person who holds more than five percent of shares in the company; "supplementary capital" means general provisions which are held against future and current unidentified losses that are freely available to meet losses which subsequently materialise, and revaluation reserves on financial institution premises which arise periodically from independent valuation of those premises, and any other form of capital as may be determined from time to time by the Central Bank; "time deposits" means deposits repayable after a fixed period or after notice and includes saving deposits; "time liabilities" means deposit liabilities and other liabilities specified by the Central Bank by regulations other than demand liabilities of a financial institution which are denominated in any currency and are subject to payment after a fixed period of time or after notice; "total capital" means the sum of core capital and supplementary capital; "unsecured advances or unsecured credit facilities" means advances or credit facilities made without security or, in respect of any advance or credit facility made with security or any part of it which at any time exceeds the market value of the assets constituting that security, or where the Central Bank is satisfied that there is no established market value, on the basis of a valuation approved by the Central Bank; "value date" of a transaction means the date on which it is to be executed.

ed market value, on the basis of a valuation approved by the Central Bank; "value date" of a transaction means the date on which it is to be executed.

(2) In this Act, unless the context otherwise requires, a reference to loans or credit, lending, extension or provision of credit, credit accommodation or such similar terms, or to any instrument in that respect, collectively referred to as "credit provision", shall be interpreted to apply to— ( a ) any finance arrangement which satisfies the following conditions— (i) the arrangement provides for a person, in this section referred to as "the financier" to pay a sum of money, in this section referred to as "the capital" to another person, in this section referred to as "the customer"; (ii) the arrangement identifies assets, or a class of assets, which the customer acquires; (iii) the arrangement specifies a period at the end of which it ceases to have effect, in this section referred to as the "the finance term"; (iv) the customer undertakes under the arrangement to make a payment in respect of the capital referred to as "the capital payment" to the financier during or at the end of the finance term, whether in instalments or not and to pay to the financier other payments on one or more occasions during or at the end of the finance term, in this section referred to as "additional payments"; and (v) the arrangement satisfies such other conditions as may be specified by the Central Bank in regulations; and ( b ) any finance arrangement not included in subsection 2( a ) and satisfies the following conditions— (i) the arrangement provides for a customer to pay capital to the financier to purchase, lease, hire or otherwise acquire or use assets which are identified or of one or more classes which are identified; (ii) the financier agrees to sell, lease, hire or otherwise dispose of or allow the use of such assets or classes of assets to the customer or to pay a sum of money to another person to do so; and (iii) meets conditions ( a )(iii) to (v) apply; ( c ) any other provision of finance including through the acquisition, disposal or leasing of assets that is economically equivalent to credit provision.

) any other provision of finance including through the acquisition, disposal or leasing of assets that is economically equivalent to credit provision.

(3) In this Act, unless the context otherwise requires, a reference to guarantees or similar terms or a reference to any instrument in respect of guarantees or similar terms, in the Act referred to collectively as a "guarantee provision", shall be interpreted to apply to any arrangement which satisfies the following conditions— ( a ) the arrangement is economically equivalent to a guarantee provision; and ( b ) the arrangement satisfies such other conditions as may be specified by the Central Bank in regulations. PART II LICENSING. 4. Prohibitions against transacting financial institution business. (1) A person shall not transact any deposit taking or other financial institution business in Uganda without a valid licence granted for that purpose under this Act. (2) No person shall be granted a licence to transact business as a financial institution unless it is a company within the meaning of this Act. (2a) A person licensed to carry out financial institutions business may carry out the licensed business through an agent. (2b) The Central Bank shall, in consultation with the Minister make regulations in respect of agents and agent banking.

sed business through an agent. (2b) The Central Bank shall, in consultation with the Minister make regulations in respect of agents and agent banking.

(3) A financial institution shall not— ( a ) transact or holds itself out as conducting any financial institution business not specified in its licence; ( b ) effect any major changes or additions to its licensed business or principal activities without the approval of the Central Bank; ( c ) hold itself out as a financial institution listed in the Second Schedule or an Islamic bank or other Islamic financial institution unless it holds the appropriate licence; and ( d ) enter into Islamic contracts or otherwise conduct Islamic financial business which is not in accordance with this Act. (4) For purposes of this section "deposit" means a sum of money paid on terms— ( a ) under which it will be repaid, with or without interest, premium or other economic return, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and ( b ) which are not referable to the provision of property or services or the giving of security.

making the payment and the person receiving it; and ( b ) which are not referable to the provision of property or services or the giving of security.

(5) For the purposes of paragraph ( b ) of subsection (4), money is paid on terms which are referable to the provision of property or services or to the giving of security only if— ( a ) it is paid by way of advance or part payment under a contract for the sale, hire or other provisions of property or services, and is repayable only where the property or services is not or are not in fact sold, hired or otherwise provided; ( b ) it is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the nonperformance of a contract; or ( c ) without prejudice to paragraph ( b ), it is paid by way of security for the delivery up or return of any property whether in a particular state of repair or otherwise. (6) For the purposes of this section, "deposit" does not include— ( a ) a sum paid by the Central Bank or the sums paid to a cooperative society; or ( b ) a sum which is paid by a person to an associate of that person.

a ) a sum paid by the Central Bank or the sums paid to a cooperative society; or ( b ) a sum which is paid by a person to an associate of that person.

(7) For the purposes of this section, a business is a deposit taking business if— ( a ) in the course of the business money received by way of deposit is lent to others; or ( b ) any other activity of the business is financed, wholly or to any material extent, and out of the capital of or the interest on money received by way of deposit. (8) Notwithstanding subsection (7)( a ) and ( b ), a business is not a deposit taking business for the purposes of this section if any deposits accepted by the business, are accepted only on particular occasions, whether or not involving the issue of debentures or other securities. (9) For the purposes of subsection (7), all the activities, which a person carries on by way of business, shall be regarded as a single business carried on by him or her. (10) In determining, for the purposes of paragraph ( b ) of subsection (8), whether deposits are accepted only on particular occasions, regard shall be had to the frequency of those occasions and to any characteristics distinguishing them from each other.

only on particular occasions, regard shall be had to the frequency of those occasions and to any characteristics distinguishing them from each other.

(11) Any person who contravenes subsection (1) commits an offence and is liable on conviction to a fine not exceeding 350 currency points or imprisonment not exceeding two years or both. (12) A person convicted of an offence under subsection (11) of this section shall be disqualified from acquiring a licence under this Act and under any other law authorising the taking of deposits. 5. Deposit advertisements. (1) Any person who issues any advertisement, brochure, circular, or other document inviting or intended to induce any person to make a deposit which— ( a ) falsely represents that he or she is authorised to accept deposits or is otherwise licensed under this Act; ( b ) is contrary to the regulations issued by the Central Bank under this section, commits an offence under this Act and is liable on conviction to a fine not exceeding 350 currency points or imprisonment not exceeding two years or both. (2) The Central Bank may at any time direct in writing any person to withdraw, amend, or refrain from issuing any advertisement, brochure, circular or other document relating to deposits which, in its sole discretion, it considers to be misleading.

rom issuing any advertisement, brochure, circular or other document relating to deposits which, in its sole discretion, it considers to be misleading.

(3) Any person who, without lawful excuse, fails or refuses to comply with a direction under subsection (2) commits an offence and is liable on conviction to a fine not exceeding 50 currency points or imprisonment not exceeding one year or both. 6. Corporate powers outside Uganda. (1) A financial institution shall not open or set up a subsidiary, branch or representative office or transact financial institution business outside Uganda or acquire an interest in any undertaking conducting business outside Uganda, except with the consent of the Central Bank. (2) Before granting any approval under this section, the Central Bank may require to be satisfied as to the financial institution's capital adequacy and proposed business plans and may require such additional information as shall be specified by the Central Bank in regulations made under this Act.

and proposed business plans and may require such additional information as shall be specified by the Central Bank in regulations made under this Act.

(3) In the case of an acquisition referred to in subsection (1), the Central Bank shall, in accordance with regulations made under this Act, appoint a firm of accountants to examine and report on the financial position of the undertaking to be acquired, to ensure that the acquisition is not detrimental to the interests of the depositors of the acquiring financial institution. (4) After establishing the subsidiary, branch or representative office outside Uganda, the financial institution concerned shall, in writing, notify the Central Bank of— ( a ) any change of address of the subsidiary, branch or representative office in question; or ( b ) the closing of the subsidiary, branch or representative office; as soon as it occurs. (5) The provisions of subsections (1), (2) and (4) in so far as they are relevant, shall, with the necessary modifications, apply in respect of any controlling company. 7. Prohibitions against use of the word 'bank' or its derivatives.

all, with the necessary modifications, apply in respect of any controlling company. 7. Prohibitions against use of the word 'bank' or its derivatives.

(1) No person other than a person licensed as a commercial bank, merchant bank, mortgage bank, or post office bank under this Act, shall except with the consent of the Central Bank— ( a ) use the word "bank" or any other expression, name, title or symbol indicating or likely to create the impression that the person is conducting or is authorised to conduct business as a commercial bank, merchant bank, or post office savings bank under this Act; ( b ) make or continue to make any representation indicating the transaction of the business specified in paragraph ( a ) of this subsection in any bill head, letter-paper, notice, advertising or in any other manner.

ransaction of the business specified in paragraph ( a ) of this subsection in any bill head, letter-paper, notice, advertising or in any other manner.

(2) A financial institution may not be licensed under this Act with a name— ( a ) that is prohibited by an Act of Parliament; ( b ) that is in the opinion of the Central Bank, deceptively misdescriptive; ( c ) that is the same as or, in the opinion of the Central Bank, similar to, any existing trademark or trade name, or corporate name of a body corporate, except where the trade name or trade mark is being changed or the body corporate is being dissolved or is changing its corporate name and the consent to the use of the trade mark or trade name, or corporate name is signified to the Central Bank in such manner as the Central Bank may require; ( d ) that is the same as, or in the opinion of the Central Bank, substantially the same as or confusingly similar to, the known name under or by which any entity carries on business or is identified. (3) No company shall carry on business as a commercial bank, merchant bank, mortgage bank or post office savings bank unless it uses as part of its name the word "bank" or one of its derivatives.

ommercial bank, merchant bank, mortgage bank or post office savings bank unless it uses as part of its name the word "bank" or one of its derivatives.

(3a) A financial institution that is entitled under this Act to call itself a bank may describe its Islamic financing business as "Islamic banking business" and, if it is an Islamic financial institution, may describe itself as an "Islamic bank". (4) A person who contravenes subsection (1) or (3) of this section, commits an offence and is liable on conviction, to a fine not exceeding five currency points for every day during which the offence continues. 8. Search and seizure.

nce and is liable on conviction, to a fine not exceeding five currency points for every day during which the offence continues. 8. Search and seizure.

(1) The Central Bank may, at any time and without prior notice, if it has reason to believe that a person is transacting or carrying on business as a financial institution or taking deposits in contravention of section 4, in writing, authorise an officer of the Central Bank to— ( a ) enter any premises which the Central Bank has reason to believe are occupied or used by any person for the purpose of or in connection with the contravention of section 4; ( b ) search for any book, record statement, document or other item used, or which is believed to be used, in connection with the contravention of section 4; ( c ) seize or make a copy of any book, record, statement, documents or other item referred to in paragraph ( b ), or seize any money found on the premises; ( d ) question any person who is present on the premises referred to in paragraph ( a ), or the auditors, directors, members or partners of any person conducting business on the premises, in connection with the conducting of the business on the premises; ( e ) direct that the premises referred to in paragraph ( a ) or any part of it or anything on the premises, should be left undisturbed for as long as it is necessary to search the premises for any book, record, statement, document or item under paragraph ( b ); ( f ) by notice in writing addressed and delivered to any person who has control over or custody of any book, record, statement, document or other item referred to in paragraph ( b ), require the person to produce the book, record, statement, document or other item to the officer of the Central Bank issuing the notice, at the place, on the date and at the time specified in the notice; ( g ) examine any book, record, statement, document or other item referred to in paragraph ( b ) and may require from any person referred to in paragraph ( d ) an explanation regarding any entry in the book, record, statement, document or other item; ( h ) by notice in writing delivered to a financial institution, instruct the financial institution to freeze summarily any bank account or accounts of any person referred to in this subsection with the financial institution and to retain all moneys in that bank account or those accounts, pending the further instructions of the Central Bank; ( i ) by notice in writing delivered to any person referred to in this section, direct that the business of that person be summarily suspended, pending the investigation by the Central Bank under this section; ( j ) if any person has been convicted of an offence under subsection (11) of section 4, close down the business of that person.

k under this section; ( j ) if any person has been convicted of an offence under subsection (11) of section 4, close down the business of that person.

(2) If the officer of the Central Bank referred to in subsection (1) of this section performs a function under this section in the presence of any person affected by the performance of the function, the officer shall, at the request of the person affected, exhibit to the person the written authorisation referred to in that subsection. (3) No person shall— ( a ) hinder or obstruct an officer of the Central Bank authorised under subsection (1) in the performance of his or her functions; ( b ) refuse or fail to comply with any request made by an officer under subsection (1) in the performance of the officer's functions; ( c ) refuse or fail to answer any question which an officer under subsection (1) lawfully directs at that person in the performance of that officer's functions; ( d ) wilfully furnish false or misleading information to an officer under subsection (1); or ( e ) falsely give himself or herself out as an officer under subsection (1). (4) For the purposes of this section, "premises" includes any building or structure, or part of a building or structure, whether above or below the surface of the land or water, or any vehicle, vessel or aircraft.

uilding or structure, or part of a building or structure, whether above or below the surface of the land or water, or any vehicle, vessel or aircraft.

(5) Any person who contravenes any of the provisions of subsection (3) of this section commits an offence and is liable on conviction to a fine not exceeding 100 currency points or imprisonment not exceeding one year or both. 9. Repayment of moneys by unauthorised persons. (1) If the Central Bank is satisfied that a person has obtained any moneys in contravention of section 4, the Central Bank shall, in writing, direct the person to repay all the moneys obtained by him or her and all profits accruing to that person as a result of the illegally obtained monies or deposits, including any interest or other amounts which may be owing by that person in respect of those moneys— ( a ) to the respective persons from whom he or she has obtained the moneys; ( b ) in the manner and in accordance with the direction; and ( c ) within the period of time imposed by the Central Bank and specified in the direction.

) in the manner and in accordance with the direction; and ( c ) within the period of time imposed by the Central Bank and specified in the direction.

(2) Any person referred to in subsection (1) who refuses or fails to comply with a direction under that subsection, shall, for the purposes of section 223 of the Companies Act, be deemed to be unable to pay its debts, or for the purposes of the Bankruptcy Act be deemed to have committed an act of bankruptcy, as the case may be, and the Central Bank may apply to the High Court for the winding up, or for the sequestration of the estate, of that person, as the case may be. (3) Subsections (1) and (2) shall be in addition to, and not derogate from, any criminal liability under this Act or any other law, of a person referred to in those subsections. 10. Application for a licence. (1) A company proposing to transact or carry on business as a financial institution shall apply, in writing, to the Central Bank for a licence under this Act.

mpany proposing to transact or carry on business as a financial institution shall apply, in writing, to the Central Bank for a licence under this Act.

(2) An application for a licence under this section shall contain the following information— ( a ) the name and address of— (i) the proposed financial institution; (ii) the directors; (iii) the shareholders; ( b ) the nationality of directors; ( c ) the nationality and shareholding of each shareholder; ( d ) the proposed location where the financial institution is going to operate from; ( e ) the estimated number of persons to be employed; ( f ) the qualifications, experience, nationality and other relevant particulars of the proposed management and staff; ( g ) the capital structure and earning prospects of the financial institution; ( h ) the applicant's business, financial plans and earnings forecasts namely, balance sheet, income statement and cash flow, for at least three years and sufficient detail to describe the operating plan, demand for financial products and services and existing competition in the proposed market; ( i ) a summary of the applicant's board risk management policies and management operating procedures and systems that will ensure the integrity of its financial controls; ( j ) a description of the applicant's proposed organisational and management structure, reporting lines and responsibilities of its Board; ( k ) any other information relating to the viability of the financial institution or other matters as the applicant considers relevant to its application; ( l ) such other information the Central Bank may specify by regulations.

ion or other matters as the applicant considers relevant to its application; ( l ) such other information the Central Bank may specify by regulations.

(3) The following classes of licences shall expressly be included in the provisions of this law, the permitted main financial services provided or businesses conducted, particulars of which are more elaborately specified in the Second Schedule to this Act as— ( a ) the business of a commercial bank (Class 1); ( b ) the business of a post office savings bank (Class 2); ( c ) the business of a merchant bank (Class 3); ( d ) the business of a mortgage bank (Class 4); ( e ) the business of a credit institution (Class 5); ( f ) the business of an acceptance house (Class 6); ( g ) the business of a discount house (Class 7); ( h ) the business of a finance house (Class 8); ( i ) the business of an Islamic bank (Class 9); ( j ) the business of an Islamic financial institution which is a non-bank financial institution (Class 10). (4) The list of classes of licences specified in subsection (3) does not preclude the issue by the Central Bank of other classes of licence which by reason of the provision of other financial services fall within the scope of this Act.

issue by the Central Bank of other classes of licence which by reason of the provision of other financial services fall within the scope of this Act.

(5) Subject to subsections (3) and (4) of this section, the applicant shall state the class of licence in which it seeks to be licensed.

(5) Subject to subsections (3) and (4) of this section, the applicant shall state the class of licence in which it seeks to be licensed.

(6) An application under subsection (1) of this section shall be accompanied by— ( a ) the applicant's memorandum and articles of association or other instrument under which the company is incorporated, the certificate of incorporation and in the case of a person intending to conduct Islamic financial business, a statement stating that the business of the financial institution operations shall be conducted in accordance with the Shari'ah; ( b ) a certified copy of the resolution of the board of the applicant authorising the preparation and submission of the application; ( c ) a sworn declaration for all individuals proposing to become directors, shareholders, controllers or managers, issued in a form specified by the Central Bank in regulations made under this Act; ( d ) in the case of an applicant proposing to be an Islamic financial institution, a declaration signed by all the directors and persons proposing to become directors, in a form specified by the Central Bank in regulations made under this Act, to the effect that the entire business operations of the applicant will be conducted in accordance with the Shari'ah.

regulations made under this Act, to the effect that the entire business operations of the applicant will be conducted in accordance with the Shari'ah.

(7) Where an application under subsection (1) of this section does not provide all the relevant information or if clarification is necessary, the applicant may be called upon to provide that information or clarification to complete the application. (8) Any person who, in relation to an application for a licence under this Act, knowingly or recklessly provides the Central Bank or any other person with information which is false or misleading in a material particular, shall for purposes of this Act, cease to be a fit and proper person, without prejudice to that person being prosecuted under this Act. 11. Factors to be considered in making a decision to grant a licence.

proper person, without prejudice to that person being prosecuted under this Act. 11. Factors to be considered in making a decision to grant a licence.

The Central Bank shall, in considering an application for a licence under section 10 of this Act, require to be satisfied as to— ( a ) the financial condition and history of the applicant; ( b ) the nature of the business of the applicant including the range of services and products proposed; ( c ) the competence and integrity of the proposed management; ( d ) the adequacy of the applicant's capital structure, earning prospects, business plans, financial plans; ( e ) the convenience and needs of the community to be served; ( f ) geographical locations and branch distribution network of the proposed business; ( g ) whether the directors and officers of the applicant are fit and proper persons for the purpose of transacting business as a financial institution, according to the criteria set out in the Third Schedule to this Act and such other criteria as the Central Bank may determine; ( h ) the structure and shareholding of the group of companies of which the applicant forms a part or intends to form a part; ( i ) whether the applicant is or will be able to apply or maintain adequate, effective and proper internal control systems when conducting financial institution business under the licence; ( j ) whether public or economic interest will be served by the granting of the licence; ( k ) whether the promoters, controllers, and substantial shareholders are fit and proper persons; ( l ) whether the institution's business is or is required to be directed by at least two individuals; ( m ) the existence of a moratorium in force against the licensing of new financial institutions; ( n ) any other matter which the Central Bank may regard as relevant to the application or to the applicant.

licensing of new financial institutions; ( n ) any other matter which the Central Bank may regard as relevant to the application or to the applicant.

12. Processing, granting and refusal of licence. (1) The Central Bank shall, within six months after receipt of an application, or of the additional information or clarification referred to in subsection (7) of section 10 of this Act, investigate and prepare a detailed report in respect of each application. (2) The Central Bank shall within 14 days after the period referred to in subsection (1) of this section consider the application and the report, and shall— ( a ) grant the licence if it is satisfied that the application is in accordance with this Act; or ( b ) grant the applicant a conditional licence with such conditions as it may deem necessary; or ( c ) grant the applicant a limited licence covering only the part of financial institution business for which it is satisfied that the applicant meets the requirements of this Act; or ( d ) refuse to grant the licence for reasons that shall be stated in the letter of refusal. (3) The Central Bank shall, within seven days after its decision under subsection (2), inform the applicant of its dec This section of the article is only available for our subscribers.

seven days after its decision under subsection (2), inform the applicant of its dec This section of the article is only available for our subscribers.

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