Bhutan’s Financial Regulatory Landscape: An Overview of the Financial Institutions Act, 1992
The Himalayan kingdom of Bhutan has a unique financial regulatory framework in place, governed by the Financial Institutions Act of 1992. This legislation lays down the rules for various financial services, including banking, insurance, and investment services. In this article, we will explore some of the crucial provisions of this act.
Definition of Financial Institutions
The Financial Institutions Act defines a “financial institution” as an entity that engages in one or more of the following activities:
- Deposit-taking
- Development banking
- Merchant banking
- Commercial finance
- Insurance
- Asset management
- Investment advice
- Securities underwriting
- Securities dealing
- Securities brokerage
- Investment company activities
- Other financial services (as classified by the Royal Monetary Authority of Bhutan, RMA)
Role of the Royal Monetary Authority of Bhutan
The RMA plays a crucial role in enforcing the provisions of the Act. No entity can engage in financial activities without a license from the RMA, unless the scope of their activities is limited and they are exempted from this requirement.
Licensing Requirements for Foreign Financial Institutions
Foreign financial institutions looking to provide services in Bhutan must set up offices in the country or partner with a licensed Bhutanese entity. To obtain a license, applicants must submit a business plan that demonstrates:
- The adequacy of proposed capital funds
- Managerial capacity
- Market area convenience
- Potential positive impact on competition
- Financial soundness of shareholders
The RMA may impose additional requirements if the applicant has non-resident qualifying holdings.
Licensing Process and Revocation
The licensing process involves a six-month approval window, and licenses are granted for an indefinite period but remain non-transferable. The RMA can revoke licenses issued for false or fraudulent statements, non-compliance with conditions, or infractions under Article 58.
Post-Licensure Requirements
After obtaining a license, financial institutions must comply with the Companies Act in registering their office, serving documents, and observing limited liability, among other requirements.
Conclusion
In conclusion, Bhutan’s Financial Institutions Act of 1992 aims to create a well-regulated financial sector where entities must meet stringent criteria to operate. This ensures investor protection and market fairness, making it an attractive destination for foreign investors.
Key Takeaways
- The Financial Institutions Act defines financial institutions as entities that engage in various financial services.
- The RMA plays a crucial role in enforcing the provisions of the Act and granting licenses to financial institutions.
- Foreign financial institutions must set up offices or partner with licensed Bhutanese entities to operate in the country.
- Licenses are granted for an indefinite period but remain non-transferable, and can be revoked if certain conditions are not met.