Financial Crime World

Uganda’s Financial Regulatory Landscape: A Look at the Central Bank and Key Legislation

Last Updated: December 12, 2023

Overview

AF Mpanga, a leading corporate commercial law firm in Uganda and the East African region, has built strong relationships with financial regulatory authorities in the country. This article sheds light on the role of the Central Bank of Uganda (BOU) and key regulations in the supervision, regulation, and maintenance of monetary stability in Ugandan banking.

Law and Practice

The financial sector in Uganda is governed by various laws and regulations, including the Financial Institutions Act, 2004. This legislation outlines the requirements for setting up, regulating, and disciplining financial institutions, including banks. The Central Bank of Uganda plays a critical role in the supervision, regulation, and maintenance of monetary stability in the country.

Legislative Framework

Key Laws and Regulations

  • Financial Institutions Act, 2004: The primary legislation governing banking in Uganda. It outlines the licensing, capital, and operating requirements for banks and other financial institutions.
  • Central Bank of Uganda Act: Provides the foundation for the regulatory functions of the Central Bank of Uganda.
  • Constitution of the Republic of Uganda: Establishes the mandate of the Central Bank of Uganda.

Authorization

Licenses and Application Process

  • Commercial bank license: Permits activities like accepting deposits, providing loans, granting guarantees, and facilitating foreign exchange business.
  • Merchant bank: Focuses on corporate finance advisory services.
  • Islamic banks: Adhere to Shari’ah law compliant banking practices.

Under the Financial Institutions Act, applicants must provide information on their reasons for the acquisition, financial strength, and regulatory clearance.

Control

Requirements for Acquiring or Increasing Control Over a Bank

Acquiring or increasing control over a Ugandan bank requires approval from the Central Bank of Uganda. This includes acquisitions of 5% or more of shares in a bank or taking control of a financial institution. Applicants must provide information on their financial strength and regulatory clearance.

Supervision

Corporate Governance Requirements

The Central Bank of Uganda sets corporate governance requirements for Ugandan banks. These include:

  • Minimum of five directors, with at least four independent non-executive directors and a chairperson who is an independent director.
  • Approval from the Central Bank of Uganda before appointing a director or any person in senior management.
  • Compliance with the fit and proper person criteria.

AML & KYC Requirements

Anti-Money Laundering and Customer Due Diligence

  • Anti-Money Laundering Act (AMLA): Legislation for combating money laundering.
  • Anti-Terrorism Act: Legislation for combating terrorist financing.

Ugandan banks must:

  • Identify customers
  • Implement risk assessment measures
  • Report and monitor suspicious transactions to the Financial Intelligence Authority (FIA).

Depositor Protection

Deposit Insurance Scheme

The Deposit Protection Fund (DPF) was established under the Financial Institutions Act to act as a deposit insurance scheme for customers of deposit-taking institutions licensed by the Central Bank of Uganda. This fund protects customers for up to UGX10 million (approximately USD2,643.04) per account against losses due to the failure of a licensed financial institution.

Bank Secrecy

Confidentiality and Banker-Customer Relationship

Confidentiality is a fundamental aspect of the banker-customer relationship in Ugandan law, and banks owe their customers a duty of confidentiality. This duty is protected by Article 27(2) of the Constitution, and banks must maintain appropriate confidentiality regarding all transactions with their customers. The duty of confidentiality can be overridden in specific circumstances, such as when disclosure is required by law or when it is in the public interest.