The World Bank (WB) has said the proposed amendments to Bank Company Act and Financial Institute Act lack a holistic approach, risk management provisions and structural arrangement to deal with the local and global financial issues.

It has advised the Bangladesh Bank (BB) to redraft both the amendments to suit those well with the fundamental needs of the financial sector.

The findings of the World Bank have recently been submitted to Bangladesh Bank (BB) after a mission of WB styled, 'Central Bank Strengthening Project Implementation Support Mission', had completed its three-week visit to Bangladesh recently.

However, the WB has hailed the move to amend the acts.

"These amendments fail to incorporate new areas to strengthen the law such as effective minimum requirement for licencing and procedures, fit and proper requirements, systematic prompt corrective action and resolution process, become compliant with Basel Core Principles and include lessons learned from the global financial crisis," reads the report of WB on draft amendment of Bank Company Act (BCA), 1991.

Besides, the findings of WB said the proposed amendments also reflect a number of knee-jerk reactions to the current issues confronting BB supervisors instead of taking a holistic, strategic, long-term view for an effective and practical legal framework for the banking system.

"In many areas the amendments deal with controlling business decisions of banks rather than risk management and stability issues, the findings said further," the WB said.

The WB on the draft amendment to Financial Institute Act (FIA,) 1993 said the draft act suffers from serious policy, structural, drafting and definitional lapses.

"Key policy decisions such as the underlying legal reasoning for including certain type of business and excluding some in the definition of 'finance business', the regulatory role that BB will be assuming under the law, rationale for ownership control of these institutions, structural arrangement of these companies in relation to a bank, consumer protection aspects, the scope of rule making, safety net and resolution of failed institutions are absent and or unclear in the draft law," reads the WB report.

However, WB said the attempt to define the financial institutions by their activities, streamline provisions on licencing and other prudential measures, powers of BB dealing with sanctions and troubled institutions is a step in the right direction.

BB has recently drafted amendments to BCA, 1991 and FIA, 1993. The draft amendment of BCA, 1991 has restricted the number of directors of a bank to 13, while it reduced exposure of a bank to the capital market.

The proposed amendment to FIA, 1993 has fixed Cash Reserve Ratio (CRR) of a financial institution at 20 per cent, limited the number of directors to 13 and fixed the tenure of a director up to three years, sources said.

A senior official at the BB said they were scrutinising the recommendations of WB.

"The reasonable and realistic suggestions of WB will be accommodated in the way of amending both the acts," an Executive Director of BB told the FE on Monday.

He said under the prevailing financial crisis abroad, the BB is willing to tighten the regulations for local banking companies and financial institution.

The Daily Financial Express/Bangladesh/ 10th Jan 2012