The Protection of Depositors (Amendment) Act, 2020 (the “PODAA”) came into force on 1 September 2020. The PODAA was enacted to modify the Protection of Depositors Act, 1999 (the “Act”), which established the Deposit Insurance Fund (the “Fund”) for the protection and support of Bahamian Dollar depositors.
The primary purposes of the amendments implemented by the PODAA are, among other things, to (i) streamline the role and functions of the Deposit Insurance Corporation (the “Corporation”) which manages the Fund, (ii) provide enhanced protection for depositors and connected persons, and (iii) expand the class of financial institutions which are covered by the Fund.
Why is the Fund important?
The Fund was established in 1999 to provide a crucial financial safety net of up to $50,000.00 for Bahamian dollar depositors in the event that a licensed bank fails. The PODDA provides timely enhancements to a regime that is critical to the reliability and soundness of the banking system in The Bahamas.
The amendments contained in the PODAA (and the corresponding amendments to the Protection of Depositors Bye-laws, 1999 implemented by the Protection of Depositors (Amendment) Bye-laws, 2020) include the following:
- Co-operative credit unions are now included – The deposit insurance conferred by the Fund has been extended beyond licensed banks carrying on banking business in Bahamian currency to include cooperative credit unions that also deal in Bahamian currency.
- The amount of member contributions has increased – The amount which member institutions are required to contribute to the Fund has been increased from 1/20 of 1% to 1/10 of 1% of insured deposits.
- The triggers for payouts from the Fund have been expanded – Previously, depositors were only entitled to deposit insurance when the member institution with which they held a Bahamian dollar deposit closed. Now, the triggers for payments from the Fund have been expanded to include (i) revocation of a bank license, (ii) cancellation of registration as a credit union and (iii) the appointment of a liquidator (each a “Triggering Event”).
- The timeframe for payouts has been shortened – The timeframe for the making of payments from the Fund has been abbreviated. Payments must now be made within the following time periods after the issuance of a notice by the Central Bank that a Triggering Event has occurred: (i) until 31 December 2022, within 20 business days; (ii) from 1 January 2023 – 31 December 2025, within 10 business days; and (iii) from 1 January 2026 – 31 December 2030, within 7 business days.
- Enhanced corporate governance framework of the Corporation – The corporate governance framework of the Corporation has been enhanced by, among other things, the addition of more detailed provisions relating to the functioning of the Board of Directors of the Corporation.
- Increased financial reporting – The provisions relating to the financial records of the Corporation have been expanded to mandate that the auditors thereof must be independent, possess recognized international experience in the auditing of financial institutions and be members of The Bahamas Institute of Chartered Accountants in good standing. In addition, the accounts of the Corporation must be audited in accordance with the International Financial Reporting Standards.
- Mechanisms introduced to increase public awareness of the Fund and the Corporation – In addition to displaying a copy of its certificate of insurance in all branches, member institutions must now (i) provide brochures (received from the Corporation) to new depositors, (ii) include logos issued by the Corporation on their website and mobile applications, and (iii) incorporate a statement (confirming whether or not any financial product is insured under the Act) on their website as well as on all printed promotional material.
- Member institutions subject to increased scrutiny – The Inspector of Banks and Trust Companies is now empowered to examine the affairs of each member institution on behalf of the Corporation, to assess the reliability of depositor records and whether a member institution has the information technology systems and data in place to produce such records.
- Confidentiality provisions enhanced – The applicable confidentiality provisions have been enhanced and modernized to align with those found in other Bahamian statutes pertaining to the regulation of the financial services sector.
For more information, please contact, a member of our Firm’s Financial Services Practice Group.
The information contained in this article is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases.
Copyright ©2021 Higgs & Johnson. All rights reserved.