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Financial Institution’s Licence Revocation: When Do Banks Get Axed?

In Tanzania, financial institutions are subject to strict regulations to ensure stability and trust in the financial sector. The Banking and Financial Institutions Act of 2006 outlines the circumstances under which a bank’s licence can be revoked.

Circumstances for Licence Revocation

According to Section 12 (4) of the Act, a bank’s licence can be revoked if it:

  • Fails to commence operations within twelve months from the date the licence was granted, unless an extension is agreed upon in writing by the Bank.
  • Provides false or misleading information when applying for a licence.
  • Engages in a pattern of unsafe or unsound practices that threaten its financial condition or are detrimental to the interests of depositors.
  • Fails to comply with prudential requirements, terms and conditions of its licence, or remedial measures required under the Act.
  • Ceases to do business in Tanzania.
  • Is seized by the Bank, insolvent as determined by the Bank, or fails to pay an assessment made under section 67(5).

Consequences of Licence Revocation

When a bank’s licence is revoked:

  • Section 15 (5) of the Act requires the Bank to immediately arrange for publication of a notice of revocation in the Gazette and newspapers of general circulation.
  • The Bank must also take any other steps necessary to inform the public of such revocation.

Restrictions on Ownership and Control

Section 15 of the Act restricts ownership and control of banks and financial institutions, requiring prior approval from the Bank for transfers of ownership or control that result in more than five percent of voting shares. Additionally:

  • The Act prohibits individuals from owning or controlling a beneficial interest of more than twenty percent of the voting shares of any bank or financial institution.

Conclusion

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The Banking and Financial Institutions Act of 2006 provides a framework for regulating Tanzania’s financial sector, including circumstances under which a bank’s licence can be revoked. By understanding these provisions, investors and consumers can better navigate the complex world of banking and finance in Tanzania.