How To Protect Deposits In Bhutan

Transcription

1 South Asian Association for Regional Cooperation Seventh Meeting of the Inter-Governmental Expert Group (IGEG) on Financial Issues SAARC Secretariat, Kathmandu May 2014 SAARC/IGEG.07/25 Paper by Bhutan on Financial Safety Net: Deposit Insurance

2 1'{ru'11q3o}',10q' 8oi*,gq'^o1l DEPARTMENT OF SAARC & REGIONAL ORGANIZATIONS MINISTRY OF FOREIGN AFFAIRS ROYAL GOVERNMENT OF BHUTAN GYALYONG TSHOGKHANG THIMPHU No. M FAlsAARc/2s (i) / 2ot3 I 6 +4 The Ministry of Foreign Affairs, Royal Government of Bhutan presents its compliments to the Secretariat of the South Asian Association for Regional Cooperation, Kathmandu and has the honour to refer to the latter's Note Verbale No.SAARC letfl3g3l1ceg.06l2}t3 dated 28 October 2013, regardlng the Recommendations contained in the Report of the Sixth Meeting of the lnter- Governmentat Expert Group on Financial lssues held at the SAARC Secretariat, Kathmandu on23-24 April ln this regard, the Ministry of Foreign Affairs of Bhutan has the honour to forward herewith the paper on "Financial Safety Net" received from the Royal Monetary Authority of Bhutan. The Ministry of Foreign Affairs, Royal Government of Bhutan avails itself of this opportunity to renew to the Secretariat of the South Asian Association for Regional Cooperation the assurances of its highest consideration. The Secretariat, South Asian Association for Regional Cooperation, Kathmandu, NEPAL. ' ;.lt ',,1i1

3 Financial Protection Scheme Handbook Royal Monetary Authority of Bhutan L/u2072

4 Table of Contents 1. Introduction 2. Financial Protection Scheme in Bhutan 3. Membership 4. Coverage 5. Who is covered 6. Types ofproducts covered Protection limit 7 " 8. Joint account 9. Sole proprietorship, partnership and company account 10. Amalgation or merger of financial institutions 11. Funding 12. Payment to the depositors 13. Contact Details

5 INTRODUCTION The Deposit Protection is a system that protects depositors against the loss of their deposits in the event of a bank failure. The deposit protection Scheme contributes to the stability of a country's financial system. Such schemes are put in place to enhance consumer protection in the financial industry. It is usually sponsored by the government and is neither related or provided or managed by any insurance company. It was first introduced in the United States in 1933 after the Great Depression. Since Deposit insurance has been introduced in many countries under different models. For e.g. In Malaysia, the MDIC covers both conventional and Islamic banks deposits as well as insurance policies. In South Korea, KDIC became an integrated deposit insurer when the integrated'f,rnancial regulatory body was created in 1997 " THE FINANCIAL PROTECTION SCHEMES IN BHUTAN Legal framework: As per Article 249 of the Financial Services Act of Bhutan,2011 the Authority in consultation with the Royal Government of Bhutan may establish a Deposit Protection Agency. Article 250 of the Financial Services Act of Bhutan: All deposit taking institution in Bhutan shall be the members of the Deposit Protection Agency. Article 282 of the Financial Services Act of Bhutan: The Authority may establish and maintain a separate insurance guarantee scheme fund through regulations insurance business in line with the regulations issued by the Authority. What is Financial Protection? As per Article 249 of the Financial Services Act of Bhutan, 2011 (FSA) mandates RMA in consultation with the Royal Government of Bhutan to establish a deposit protection scheme in Bhutan. Financial Protection Bureau will be entrusted to administer the scheme as a unit under the RMA until a full fledged entity is established. The scheme shall cover bank depositors, insurance policyholders and small securities investors. However, the scheme will commence in a staggered manner with the banks to be covered initially and extended to the insurance companies and the securities subsequently. Financial Protection Scheme (FPS) is an insurance administered by the Royal Monetary Authority which will cover bank deposits and insurance policies holders up to a certain threshold in the event the bank or the insurance company fails.

6 What is the mandate of the FPS1 o To administer a deposit insurance system and insurance benefits protections system under the Provision of the FSA ; o To provide protection to small and unsophisticated depositors. o To maintain public confidence and promote stability of the financial system. What are the main functions of FPS Committee and RMA? o Administer the Financial Protection Scheme in Bhutan o Collection of premium fund from the financial institutions.. Reimburse depositors in case of a bank failure and insurance policy holders in case of the insurance company failure. o Educate and create public awareness on the role financial protection scheme.. Responsible for incorporating changes in the specific parameters of the scheme and the policy framework as and when required' o The RMA to professionally manage the funds' What are the benefits of the financial protection scheme to the depositors and the policy holders? o The scheme protects the depositors holding insured deposits with the banks. o The scheme is provided with no charge to the depositors. o In the event oflthe bank failure, the scheme will promptly reimburse depositors on their insured deposits' What are benefits of the deposits protection to the financial systems? o promotes public confidence in the financial systems by protecting the depositors against the loss of their deposits" MEMBERSHIP Which financial institutions are member of the Financial Protection Scheme? All financial institution in Bhutan licensed under the Financial Services Act, 20ll of the Royal Monetary Authority of Bhutan are required to be the member of the scheme. COVERAGE Is financial protection provided to all the depositors? yes, all depositors both individuals and business entities are protected if they hold deposit account with the banks.

7 Are deposits maintained with a bank by non-residents or Bhutanese living outside Bhutan protected? Yes, deposits maintained with the banks will be protected up to the maximum limit of Nu. 100,000 per depositor per bank. Are depositors required to apply or register for the deposit protection scheme? No, depositors do not need to apply or register for deposit protection scheme. It is provided automatically for deposits account maintained with the banks. Which types of deposits are protected? Saving Account deposits Current Account Fixed Deposits Foreign Currency deposits All instruments (draft, cheque and other payments instruments) made against deposits accounts holders" Which types are not protected? How would depositors know if their deposits are eligible for deposit protection? The banks shall provide information to the depositors whether a deposit is eligible or not eligible for deposit protection scheme. What is the deposit protection limit? The scheme protects eligible deposits up to maximum Nu. 100,000 (all deposit accounts added together) per depositor per bank will be covered. Why is the protection limit Nu. 100,000? Can I purchase additional protection if my deposit amount is more than Nu. 100,000? No, Deposit insurance cannot be purchased as it is not a general or life insurance product. What if a depositor has several deposit accounts with the same bank? All deposit accounts held by the same depositor will be added together and protected up to Nu 100,000

8 Type of Account Amount in Nu. What if a depositor's account 100,000? The deposit account will be added together a.poti*, subject to the maximum protection F.ot..tea by the FPS in a bank amount to less than the protection limit of Nu' and protected up to the actual amount held by the Iimit of Nu. 100,0001- Example Type of Account Amount in Nu. Fixed DePosits total DePosits Protected by the FPS what if a depositor has both foreign currency and Ngultrum deposit in the same bank? If a depositor has both foreign crrrency and Ngultrum deposit in the same bank, the total amount of deposit would U"'"ggr"gr:"Oand t'e frot""tln limit isup to Nu' 100'000 Examplb of Account USD 1,OOO l"r"u"tfiu. or lt[uigg! Fixed DePosits F-t..t.a by the FPS Exchange rate: 1 USD:Nu' 55'00

9 What if a depositor has several deposit accounts with different branches of the same bank? All deposit maintained by the same depositor in different branches of the same bank will be added together and protected up to Nu. 100,000i- Example Account Holder Type of Account Branch Karma Saving Paro 60,000 Current Bumthang 30,000 Fixed Deposits Chukha 80,000 Total Deposits 170,000 Protected by the FPS 100,000 Amount (Nu.or Nu. equi) If I hdve deposits in several banks, will all my deposits added together for deposit protection? No, deposits in different banks are protected separately. The protection limit of Nu. 100,000/- is applicable per depositor per bank. Example Account Type of A/c Bank Amount Protected Karma Saving A 60,000 60,000 Current B 30,000 30,000 Fixed Deposits c 150, ,000 Total Deposits 240,000 Protected bv the FPS 190,000 Do joint accounts benefit from separate deposit insurance protection? Yes, deposits held jointly are protected separately from other types of deposit accounts. In addition, joint accounts held with different joint account holders enjoy separate protection. However, the maximum protection for a joint account is Nu. 100,000 collectively and not Nu" 100,000 perjoint account holder.

10 Example Account Type of deposit Amount Protected Karma Individual 5,000 5,000 Karma and wife Jo nt (saving) 5,000 Jo nt (current) 5,000 10,000 Karma, wife and Son Jo nt 160, ,000 Karma, wife and daughter Joint 80,000 80,000 Total The total deposits insurance protection of Nu. 100,000 includes. Coverage of Nu. 5,000 for Karma's individual account o Coverage of Nu. 10,000 for Karma and wife's joint accounts o Coverage of Nu for Karma, wife and son's joint account o Coverage of Nu. 80,000 for Karma, wife and daughter's joint account For joint account, the deposits are eligible for separate deposit insurance protection provided: o Deposit account is placed as joint account o Deposit is maintained in an insurable deposit account o Details of each joint account holder are disclosed on the records of the member banks including the names, addresses and identity card numbers. What about the deposit maintained by sole proprietorship, partnerships professional practice or companies? Deposit maintained under the sole proprietorship, partnership or company or held by a depositor who carries on a professional practice are separately protected, provided that such ownership is disclosed on the records of the banks. In the case of partnership, professional practices or companies, the maximum protection for such entities is Nu. 100,000 collectively and not Nu. 100,000 per partner.

11 Example Account Type of deposit Type of A/c Amount Protected Karma Individual Savings 120, ,000 Karma,Sonam & company Professional practice Current 180, ,000 Karma Garments ComPanY Current 80,000 80,000 Total 280,000 There is total deposit insurance protection of Nu. 280,000 includes o Coverage of Nu. 100,000 for Karma's personal account maintained as an individual o Coverage of Nu.100,000 for Karma, Sonam Company o Coverage of Nu. 80,000 for Karma Garments AMALGAMATION OR MERGER OF THE FINANCIAL INSTITUTIONS What happens to insured deposits if two banks merge or amalagate? If a depositor has deposits with two or more member banks that merge or amalagante, the deposits will continue to be separately protected for two years or until maturity or full withdrawal of the deposits, whichever is earlier, after the date of amalgamation or acquisition. What happens to the insured deposits in an amalgation involving a non-member institution? If a depositor has deposits with a bank that is acquired by a non member institution, the deposits will continue to be protected for the remainder of the calendar year, or until maturity or full withdrawal of the deposits, which is earlier, after the date of the amalgation. How is financial protection scheme funded GPSX FPS is funded by annual premiums paid by the institutions. There is no direct cost to the depositors for deposit insurance protection. In an event the FPS is required to pay the depositors, the fund will be used to reimburse depositors on their insured deposits. How are premium calculated? The annual premium rate is calculated by multiplying the total insured deposits with the prescribed premium rate 0.I5o/o.

12 F-- Annual premium: total insured deposits x prescribed premium rate. When do banks pay annual premiums? The banks shall pay annual premiums by 1" July and l't January of each assessment year. What happens to premium paid by member banks? The premium funds shall be managed by the RMA. In what circumstances are payments to depositors made? The FPS will reimburse the depositors up to the protected amount of NU" 100,000 under three scenarios:- o In the event of a bank failure o Where a winding-order has been made. If a member bank is unable to reimburse insured deposits for a host of reasons. From which fund will deposits be reimbursed? How and when will reimbursement be made? The RMA will notifu the depositors through public announcement on the reimbursement procedures. Do depositors have to submit claims for reimbursement? No. they do not need to submit any claims. The RMA will reimburse depositors based on information obtained from the member banks regarding their insured deposits. What about the uninsured portion of the deposits? In the event of the liquidation of the institution, depositors may file a claim with the liquidator of \- the bank to recover any amount above the insured amount" Discluitner: Thi.s doc'tunenl is in u dru.li./brm and.solelj,.frtr tlte inteynul purpo,\e of tke Rll{. Lnder no circumstances', reproduclion of'tlis' document in S;urts or in.fitll,yhall be allov,ed. Contact'Details: Eden Dema (Mrs) Deputy Governor and BOD Royal Monetary Authority of Bhutan Bhutan. address: [email protected] Te I : LL7.3237L Ext. no : 2L7