Banking (Part Three)

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Chapter 1- Conditions Governing the Establishment of Banks

ARTICLE 30
(a) – Establishment of banks, engagement in banking operations and the use of the word “Bank” in the title of credit institutions shall be entirely governed by the provisions of this Act;
(b) Definition of the term “banking operations” shall rest with the Currency and Credit Council;
(c) The establishment of a bank shall require prior approval of its Article of Association by the Currency and Credit Council and a permit from Bank Markazi Iran;
(d) Company registration authorities may not act upon an application for registration of a bank in Iran unless the application is accompanied by the permit issued by Bank Markazi Iran and a certified copy of the relevant Articles of Association as approved by the Currency and Credit Council;
(e) Any alteration in the Articles of Association of a bank shall require prior approval of the Currency and Credit Council;
(f) The establishment and closure of branches, sub-branches or agencies by banks in or out of the country shall be subject to regulations to be approved by the Currency and Credit Council.
NOTE
Banks which have been established prior to the passage of, and whose Articles of Association do not comply with the provision of, this Act shall modify their Articles of Association to comply with the provisions of this Act within one year of its passage and have the new Articles of Association approved by the Currency and Credit Council.

ARTICLE 31
(a) – Banks may only be incorporated as public joint-stock companies with registered shares;
(b) The Managing Director, the Chairman of the Board of Directors, the majority of the members of the Executive Board and the Board of Directors of Iranian banks shall be Iranian nationals;
(c) Any bank over 40 per cent of whose capital belongs to natural persons of foreign nationality or to foreign legal entities, shall, for the purposes of this Act, be regarded as a foreign bank and shall be registered as such. For the purpose of this Article, any legal entity not having 100 per cent of its capital owned by natural persons of Iranian nationality shall be regarded as foreign;
(d) Iranian banks may not transfer more than 40 per cent of their shares to foreign nationals or to legal entities not having 100 per cent of their capitals owned by Iranian nationals. Shares of Iranian banks may, under no circumstances, be transferred to foreign governments;
(e) As from the date of passage of this Act, foreign banks and foreign non-banking credit institutions engaged in conventional banking operations may be established only with the approval of the Houses of Parliament. A non-banking credit institution is one which does not use the word “bank” in its title but is considered by Bank Markazi Iran as an
intermediary for the supply and demand of funds and credits whose activities bear upon the volume and distribution of credits.

ARTICLE 32
(a) – The share capital of banks shall be solely payable in Iranian currency;
(b) The minimum share capital of Iranian banks shall be two hundred million rials, wholly subscribed and at least fifty per cent paid up. The paid up capital shall be deposited with Bank Markazi Iran prior to the submission of the application for registration. The minimum capital of foreign banks shall be two hundred million rials wholly deposited at Bank Markazi Iran prior to the submission of the application for registration;
(c) Bank Markazi Iran, may, with the approval of the Currency and Credit Council, prescribe the period within which the capital of Iranian banks shall be fully paid up and shall notify the banks for necessary action;
(d) Bank Markazi Iran may, with the approval of the Council of Ministers, Increase the minimum amount of the share capital (Section (b) of this Article) for all banks or for banks operating in special fields.

Chapter 2 – Terms and conditions Governing Banking Operations

ARTICLE 33
(a) – The ratio of and the rules governing appropriations to the Statutory Reserves of banks as well as the manner in which they may be utilized shall be determined by the Currency and Credit Council. Appropriation to the Statutory Reserves shall not be less than 15 or exceed 20 per cent of the annual net profits. Appropriations to the Statutory Reserve shall be optional once the accumulated total of such Reserve equals the capital of the bank;
(b) Should, as a result of losses sustained, the capital of a bank fall below the minimum amount prescribed in this Act, the bank shall restore the minimum capital in the manner determined by the Currency and Credit Council;
(c) The Currency and Credit Council shall prescribe an accounting system resulting in a balance sheet which will reflect all the assets and liabilities of the bank. All banks shall follow the system thus prescribed;
(d) The rates and methods of depreciation in respect of movable and immovable assets and preliminary and development expenses, as well as the amount of Contingency Reserves of banks, shall be determined by the Currency and Credit Council. All banks shall abide by the requirements thus prescribed;
(e) Banks shall have their balance sheets and profit and loss accounts certified by official Accountants;
(f) The period of and procedure for preservation of bank’s documents and books in their originals and also the procedure governing the preparation of films, photo-copies and the like thereof shall be in accordance with regulations prescribed by the Currency and Credit Council. Such films, photo-copies, etc, shall, after the lapse of the period prescribed in the said regulations, have the validity of the originals in court.

ARTICLE 34
Banks may not undertake the following operations:
1- purchase and sale of goods for trading purposes;
2- dealing in immovable property except in the case of banks established for this purpose;
3- purchase of shares or participation in the capital of any corporate body or purchase of local or foreign securities for their own account in excess of the amount prescribed in special directives and regulations to be drawn up by Bank Markazi Iran;
4- Granting of credits to members of their own organs and to organizations wherein the said members hold interest, and to other natural persons or legal entities in excess of the limits determined by Bank Markazi Iran in special directives or regulations;
5- Granting of credits to the members of the organs, heads of departments, and inspectors of Bank Markazi Iran, except as provided in regulations to be approved by the Currency and Credit Council in this respect;
6- Issuance of sight bills to the order of the bearer.
NOTE
Acquisition of immovable property in lieu of claims or for the purpose of providing working or living space for bank employees, and dealings in such property in accordance with conditions to be set forth by Bank Markazi Iran shall not be subject to the prohibition prescribed in Section 2 of this Article.

ARTICLE 35
(a) – Those convicted of theft, bribery, embezzlement, breach of trust, fraud, counterfeiting and dissimulation, drawing of cheques without cover, bankruptcy through omission or fraud shall be barred from responsible positions of any kind in banks. This restriction shall apply whether conviction has been ordained by local or foreign courts and whether the person in question has been the principal offender or an accomplice;
(b) Directors or managers of one bank may not own shares or accept positions in another bank without permission from Bank Markazi Iran;
(c) Every bank shall be responsible for and shall indemnify losses sustained by its clients as a result of its operations. The Managing director, the Chairman of the Board of Directors, the members of the
Executive Board and of the Board of Directors of every bank shall be responsible to shareholders and clients for losses incurred through their individual infraction of the provisions of the bank’s Article of Association or the provisions of, or the rules and regulations pertaining to this Act.
NOTE
The authority competent to define and adapt rulings issued by foreign courts in connection with Section (a) of this Article shall be the Ministry of Justice.

ARTICLE 36
Bank Markazi Iran shall determine the manner in which balance sheets and profit and loss accounts of banks and credit institutions are to be prepared.

ARTICLE 37
Banks shall comply with the provisions of this Act, and the regulations pertaining thereto, the directives of Bank Markazi Iran issued on the basis of this Act or the regulations pertaining to it, and the provisions of their own Articles of Association.

ARTICLE 38
(a) – All banks operating in Iran shall be taken to be members of the Bankers Association;
(b) The Bankers Association shall have legal entity and be financially independent and shall be managed according to Articles of Association to be approved by the Currency and Credit Council.
Chapter 3- Liquidation and Bankruptcy of Banks.

ARTICLE 39
In any of the following cases, the management of a bank may be entrusted to Bank Markazi Iran, other arrangements be made for its management, or its operation permit be invalidated upon the recommendation of the Governor of Bank Markazi Iran, the confirmation of the Currency and Credit Council and the approval of a board consisting of the Prime Minister and the Ministers of Finance, Economy and Justice;
(a) – Where the competent authorities of the bank so request;
(b) Where the bank has not commenced its operations within one year of the date of receipt of its establishment permit;
(c) Where the bank stops its operations without any justifiable reason, for a period exceeding one week;
(d) Where the bank fails to comply with the requirements of this Act and the regulations pertaining thereto, the directives of Bank Markazi Iran issued on the basis of this Act and the regulations pertaining to it, or its own Articles of Association;
(e) Where the bank is threatened by insolvency or is proved insolvent.
NOTE
As from the date its establishment permit is invalidated, a bank shall operate under instructions from Bank Markazi Iran.

ARTICLE 40
The manner in which banks, in cases referred to in Article 39, shall be managed as well as the invalidation of the operation permit, shall be according to regulations to be approved by the Finance committees of the Houses of Parliament.

ARTICLE 41
(a) – In cases where a bank’s failure or bankruptcy in pronounced, the Court shall seek the opinion of Bank Markazi Iran prior to arriving at any decision. Bank Markazi Iran shall submit its views to the Court in writing within one month of the date of receipt of the Court’s inquiry. The Court shall take the appropriate decision with due regard to the views of Bank Markazi Iran and the evidence on hand;
(b) Liquidation of a bankrupt bank shall rest with the Department of Bankruptcy;
(c) In all cases of dissolution or bankruptcy of banks, settlement shall be carried out with the supervision of a representative from Bank Markazi Iran;
(d) In the event of a bank’s dissolution or bankruptcy, repayment of savings and similar deposits up to a maximum amount of fifty thousand rials and that of current accounts and time deposits up to the same amount shall respectively have first and second preference over all other commitments and preferential debts of the bank.
(e) Upon dissolution or bankruptcy, a bank’s name shall be deleted from the registers of the Registration Office.
Chapter 4- Penal and /disciplinary Provisions

ARTICLE 42
(a) – Unless regulations to be drawn up by Bank Markazi Iran under Article 11 of this Act are complied with purchase or sale of foreign exchange, any banking operation resulting in foreign exchange transfers or commitments, and transfer of Iranian or foreign currency in to or out of the country shall be prohibited. Violators shall be liable for payment of cash fines of up to 50% of the amount involved;
(b) The establishment of banks engagement in banking operations and the use of the word “bank” by credit institutions on their titles is prohibited unless provisions in this Act have been complied with. Perpetrators shall be liable to disciplinary confinement of up to six months. Where necessary, the Public Prosecutor may, at the request of Bank Markazi Iran, order temporary closure of the institution until such time as its fate is decided upon by the court.

NOTE
In the aforesaid cases, penal prosecution shall depend upon charges brought by Bank Markazi Iran.

ARTICLE 43
Banks and credit institutions recognized by the Currency and Credit Council as having failed to observe the ratios referred to in Sections 2, 3, 5, and 6 of Article 14, shall pay an amount equivalent to 12% per annum of the amount involved.

ARTICLE 44
Violation of other provisions in this Act or regulations pertaining thereto, and the directives of Bank markazi Iran issued on the basis of this Act or regulations pertaining to it shall entail the following disciplinary punitive measures;
1- Written warning to violating managers or persons in charge;
2- Payment of an amount up to a maximum of two hundred thousand rials per day over the period of violation;
3- Temporary or permanent loss, on the part of the bank or the non-banking credit institution, of the right to engage in certain banking operations. The authority vested with the power to investigate violations referred to in this Article and to issue orders for disciplinary measures shall be the Banks Disciplinary Board which shall be composed of the prosecutor General’s representative, one representative from the Bankers Association and one of the members of the Currency and Credit council as nominated by the Council. The Secretary General of the Bank shall act as the prosecuting officer of the Board.
Orders issued by the Disciplinary Board may be referred to the Currency and Credit Council for reconsideration within ten days of the date the order is served. The Council’s verdict shall be final.
NOTE 1
Amounts referred to in Article 43 and in Section 2 of this Article, shall be collected from the bank or institution involved by Bank Markazi Iran and shall be credited to the public revenue account.
NOTE 2
Investigation into and determination of violations, determination of disciplinary measures for each type of violation, application for and methods of reconsideration, and the implementation of decisions by the Disciplinary Board and the Currency and Credit Council shall be on the basis of procedures to be approved by the Currency and Credit Council.

ARTICLE 45
All other legislation and regulations conflicting with the provisions of this Act shall be considered rescinded as of the date of enforcement of this Act. Prevailing laws and regulations considered by the Currency and Credit Council as not conflicting with the provisions of this Act shall continue to prevail until such time as regulations pertaining to this Act are drawn up.

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3 thoughts on “Banking (Part Three)

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