A move is underway to bring operations of subsidiaries of banks and illegal banking activities in the name of cooperative societies under the strict surveillance of the Bangladesh Bank (BB) to ensure discipline in the financial sector, a top central bank official said.

The measures have been incorporated in the proposed amendment to Bank Company Act (BCA), 1991. The BB has recently prepared the draft amendment of BCA, 1991 in line with the suggestions of International Monetary Fund (IMF) and the World Bank (WB).

The Ministry of Finance (MoF) is now busy scrutinizing the amendment proposals of the BB made on BCA, 1991, sources said.

Presently, the scheduled banks and financial institutions have around 40 subsidiaries, which act as merchant banks or securities firms. The subsidiaries are now regulated by Securities and Exchange Commission (SEC).

However, the SEC is not authorized to monitor whether the subsidiaries invest excess fund of their parent organisations into share business or they make any illegal or unauthorised investment in the capital market, a BB official said.

The securities regulator only monitors the sale, buy and loan portfolios of dealers and clients as the subsidiaries are liable to provide the SEC with these information on regular basis.

"We want subsidiaries of banks are brought under the BCA, 1991 so that the central bank can lawfully oversee their entire activities of merchant banks and brokerage houses in stock business and lending to share investors," an Executive Director of BB told the FE on Monday.

"The clause 44 and 45 of BCA, 1991 have to be made applicable to all subsidiaries of banks and financial institutions for the sake of clarity," he added.

The BB will be empowered to take any legal action against errant subsidiaries if they are brought under BCA, 1991 and clauses 44 and 45 of the act are made applicable to merchant banks and brokerage houses.

The BB could even liquidate any merchant bank or brokerage house if they are found involved in any illegal financial transaction, stipulates clause 44 of BCA, 1991.

"Our objective is to enforce strict monitoring of BB on merchant banks and brokerage houses to protect the interest of share investors and establish good governance in the financial sector," another BB official said.

The proposed amendment to BCA, 1991 has suggested to bring illegal banking activities of cooperatives under watch as many cooperatives operating in the country use the word 'bank' after their names to attract general people to have confidence in them, it is alleged.

Besides, the cooperatives which collect deposits from persons other than their members will also come under the purview of clauses 44 and 45 of BCA, 1991, says one proposed amendment to the act.

The proposed clauses have given the BB adequate authority to make inspection of any bank, give it instruction or close it down, if needed.

Officials in the MoF said they have formed a high-powered committee to scrutinize the amendment proposal of BCA, 1991. After the examination is completed, the amendment would be placed in the cabinet and before the parliament respectively for approval.

"The amendment to the act is inevitable as the IMF has asked to amend the BCA, 1991 to become eligible for proposed $1.0 billion loan under its Extended Credit Facility (ECF) package," a top finance official told the FE.

Financial Express/Bangladesh/ 14th March 2012