Financial Crime World

Banking Regulation: Key Definitions

The Central Bank has outlined a set of key definitions to govern the banking industry in Uganda. The definitions aim to clarify and standardize terms used in the financial sector, promoting transparency and stability.

Affiliate

An affiliate refers to any subsidiary or holding company of a bank, as well as any other company that is controlled by the same entity.

  • Examples:
    • A bank’s subsidiary
    • A holding company that owns a majority stake in a bank
    • A company controlled by a bank’s board of directors

This term encompasses interests held by affiliates, associates, and their related persons, as well as business interests of these entities.

  • Examples:
    • Interests held by a bank’s subsidiary or holding company
    • Business interests of a bank’s associate companies
    • Interests held by individuals who are related to a bank’s owners or directors

Representative Office

A representative office is a premises in Uganda where a foreign bank conducts business or holds itself out as ready to conduct business.

  • Examples:
    • A foreign bank’s branch in Uganda
    • A foreign bank’s liaison office in Uganda

Repurchase Agreement

A repurchase agreement is an agreement between a seller and buyer of securities, whereby the seller agrees to repurchase the securities at an agreed-upon price or interest rate.

  • Examples:
    • An agreement between two parties to buy and sell government bonds
    • An agreement between two parties to buy and sell shares in a publicly traded company

Reputable Financial Institution

A reputable financial institution is one that meets specific criteria set by the Central Bank, including being licensed to conduct banking business under local laws.

  • Examples:
    • A bank licensed to operate in Uganda
    • An insurance company licensed to operate in Uganda
    • A microfinance institution licensed to operate in Uganda

Reputable Publicly Held Company

This term refers to a company that is financially strong, has a diversified ownership structure, and is of good public standing.

  • Examples:
    • A publicly traded company with a strong financial track record
    • A company with multiple shareholders from diverse backgrounds
    • A company with a positive reputation in the community

Resident

For purposes of this definition, a resident includes individuals who have lived in Uganda for at least one year, as well as companies, firms, or enterprises with their principal place of business or center of control located in the country.

  • Examples:
    • An individual who has lived in Uganda for more than a year
    • A company with its headquarters located in Uganda
    • A firm with most of its operations based in Uganda

Same Day Transaction

A same day transaction refers to a deal that is executed on the same day it is contracted or agreed upon.

  • Examples:
    • A trade between two parties where both parties agree to exchange securities immediately
    • A sale and purchase agreement where the buyer pays for the goods on the same day

Securities

This term includes government-issued bonds and stocks, as well as those issued by corporate entities. It also encompasses options, warrants, and futures contracts.

  • Examples:
    • Government bonds
    • Corporate stocks
    • Options to buy or sell securities at a future date

Significantly Undercapitalized

An institution is considered significantly undercapitalized if its capital base falls below a certain threshold, as defined in section 87(4) of the banking regulations.

  • Examples:
    • A bank with a capital base that is less than the minimum required by law
    • An insurance company with insufficient reserves to meet its liabilities

Short Position

A short position refers to a situation where a financial institution holds less foreign currency than its contractual commitments.

  • Examples:
    • A bank that has sold more foreign currency than it has in reserve
    • An individual who has borrowed more foreign currency than they have available

Spot Transaction

A spot transaction is one that is executed two working days from the date it was contracted or agreed upon.

  • Examples:
    • A trade between two parties where both parties agree to exchange securities in two working days
    • A sale and purchase agreement where the buyer pays for the goods after two working days

Substantial Shareholder

A substantial shareholder is any individual or entity that owns more than 5% of a bank’s shares.

  • Examples:
    • An individual who owns more than 5% of a bank’s shares
    • A company that owns more than 5% of a bank’s shares
    • A group of individuals who together own more than 5% of a bank’s shares

Supplementary Capital

This term includes general provisions, revaluation reserves, and other forms of capital as determined by the Central Bank.

  • Examples:
    • General provisions set aside for bad debts
    • Revaluation reserves from the sale of securities
    • Other forms of capital approved by the Central Bank

Time Deposits

Time deposits are deposits that can be withdrawn after a fixed period or with notice.

  • Examples:
    • A deposit placed in a savings account that requires a 30-day notice to withdraw
    • A certificate of deposit that matures in one year
    • A term deposit that can be withdrawn after three months

Unsecured Advances or Unsecured Credit Facilities

These terms refer to advances or credit facilities made without security, where the loan exceeds the market value of the collateral or there is no established market value.

  • Examples:
    • An unsecured personal loan from a bank
    • An unsecured credit facility provided by a financial institution
    • A loan that exceeds the value of the collateral offered as security