Banking Act Most Importants

Nepal Rastra Bank Act 2058 in Nepali & English Summary

Nepal Rastra Bank Act 2058 (नेपाल राष्ट्र बैंक ऐन २०५८)

Nepal Rastra Bank Act 2012 सर्ब प्रथम आएको र  यहि ऐनको अधिनमा रहेर वि. सं. 2013 बैशाख 14 गते Nepal Rastra Bank को स्थापना भयो । नेपाल राष्ट्र बैंकलाई नेपालको केन्द्रिय बैंकको रुपमा स्थापित गर्नु र भारतीय मुद्रालाई विस्थापित गर्ने मुख उदेश्य सहित Nepal Rastra Bank Act 2012 जारी गरिएको थियो। पछि यहि ऐन संशोधन भएर Nepal Rastra Bank Act 2058 भएको हो

Objectives of the Nepal Rastra Bank Act 2058

·         To establish Nepal Rastra Bank

·         To Manage and Operate Nepal Rastra Bank

·         To Formulate necessary monetary policy and foreign exchange (FOREX) policy.

·         To maintain a relationship with the government

·         To maintain the stability of the price

·         To consolidate the balance of payment

·         To develop an efficient system of payment

·         To regulate other banks and financial institutions. Such as –

-Issue license
-Issue Directives
-Inspection, supervision, and monitoring

·         To increase public trust in the banking system

·         To increase public banking access

·         To assign the role of a central bank such as

-Issuing banknotes/coins
-Act as a bank of bank & function as a lender of the last resort
-Act as financial advisor/agent of the Government of Nepal etc.

Objectives of Nepal Rastra Bank

·         To formulate necessary monetary policy and foreign exchange policy.

·         To maintain and promote financial stability and liquidity required in banking and financial sectors.

·         To develop a healthy secure and efficient system of payment.

[Explain these three points in details for 10 marks questions]

The objectives of Nepal Rastra Bank as per the above three points can be drawn as maintaining economic stability, sustainable economic development, the balance of payments (BoP), increase public trust and increase public access in the banking system.

Functions of Nepal Rastra Bank

·         To issue bank notes and coins

·         To formulate necessary monetary policy and implementation

·         Determination of foreign exchange (FOREX) rate

·         Management and operation of FOREX reserve

·         Issuing license to Bank and Financial Institutions

·         Act as a bank of bank & function as a lender of the last resort

·         Act as financial advisor/agent/banker of the Government of Nepal

·         Develop and promote an efficient payment system

·         Perform other activities required to obtain other objectives

[Note – write these functions only if asked for Nepal Rastra Bank, otherwise write functions of central bank]

Prohibited Functions of Nepal Rastra Bank

·         Not to accept deposit from the general public

·         Not to provide loan to the general public

·         Not to accept any kinds of financial gifts

·         Not to purchase any share capital of an organization and public enterprises

·         Not to operate any types of business

·         Not to acquire movable and immovable properties

Facilities to NRB by NRB Act 2058

·         Exemption of all types of taxes and charges on income gain and capital transactions

·         No need to pay the registration fee for registering activities

·         No requirement of revenue stamp on NRB related documents

·         Exemption on all types of fee, charges, customs, duty in the import of coin, gold, metals, papers, chemical which are later used for printing banknotes and minting coins.

Formation of NRB Board

There shall be Board of Directors in the bank consisting of the following members-

·         1 Board, 7 Members (4 internal + 3 External ) chaired by the Governor

·         Appointed by the Government of Nepal

·         5 years of tenure

·         Board members can be appointed any numbers of time

·         Oath by Cheif Justice

·         After retirement, board members can not work in other B&FIs at least for  three years

·         Member can give resign to Government of Nepal

Designation	Who?	Number
Chairperson	Governor	1
Member	Secretory of Ministry of Finance	1
Member	Deputy Governors	2
Director	Appointed by Government of Nepal from amongst the person renowned in the field of Economic, Monitory, Banking, Finance and Commercial Law	3
	Total	7

Functions/Duties/Rights/Power of Board

·         To frame monetary and foreign exchange policies

·         To take necessary decisions with regard to denominations of the banknotes, coins, the figures, size, metal, materials for printing notes, and other materials. Also, frame appropriate policies with regard to their issue.

·         To frame necessary policies for causing the supervision and inspection of B&FIs.

·         To frame the applicable policies for other B&FIs.

·         To frame policies with regards to the appointment, promotion, transfer, dismissal, remuneration, pension, provident fund, leave, code of conduct and other terms and conditions relating to the services of the employees of the bank.

·         To approve the necessary policy for the issue of license to commercial banks and financial institutions.

·         To approve the limit of the loan to be provided to the Government of Nepal by the bank.

·         To fix the amount, limit, terms and conditions about providing loan to the B&FIs.

·         To make a decision with regards to the bank’s membership to international organizations.

·         To frame the policy for investment and mobilizations of the Bank’s financial resources.

Appointment of the Governor

1.      Government of Nepal, the council of Minister shall appoint the Governor as per the recommendation from recommendation committee. Recommendation committee consists of three members chaired by the Minister of Finance, and the other two members ex-governor and renowned person in baking and financial sector.

2.      The committee recommends at least three candidates renowned in the field of economic, monetary, banking, finance, commerce, management commercial law and from among the deputy governor.

3.      5 years of tenure.

4.      Governor once appointed can be appointed for another one tenure,

5.      Governor takes oath from the chief justice.

6.      Governor can give resignation to the Government of Nepal.

7.      Governor cannot work in other B&FIs  after the retirement or after resignation.

8.      Government of Nepal, the council of Minister shall remove the governor, deputy governor, or other directors. To remove Governor, three members committee should be formed. The committee led by ex-chief justice and inspect the work of Governor for one month. If the committee finds the disqualification of the Governor then government of Nepal, the council of Minister can remove Governor.

Functions/Duties/Power of Governor

The functions, duties, and power of the governor shall be as follows

·         Implement decisions made by the board.

·         Operate and manage the bank.

·         Systematize the functions to be carried out by the bank.

·         Represent the Nepal Rastra Bank in the international platform.

·         Implement and cause to implement the policies relating to monetary and foreign exchange matters.

·         Fix the interest rate related policies of other B&FIs.

·         Formulate the policy related to the liquidity of the other B&FIs.

·         Formulate the terms and conditions of the gold and other precious metal related transactions.

·         To fix the fees and commission of B&FIs.

·         To take the decision about operating and expanding the branches of the B&FIs.

·         To make the necessary arrangement for the development & operation of the information system of other banks.

·         To formulate the policy relating the revocation of the license provided to commercial banks.

·         To take decisions on any other subject matter to the power delegated by the BOD.

Appointment of Deputy Governor

·         There shall be two deputy governors.

·         Government of Nepal, the council of Minister shall appoint deputy governors on the recommendation of Governor.

·         While making the recommendation for application of Deputy Governor, recommend double the number of the post falling vacant from among the special class officers of the banks on the basis of their performance and capability.

·         5 years of tenure.

·         No provision for reappointing.

·         Take oath from Governor.

·         After retirement, deputy governor cannot work in other B&FIs at least for  three years

Provisions relating to the Audit Committee

·         1 audit committee, 3 members chaired by Director, 1 member from the chief of the internal audit department, and 1 member from among the senior officer. 

Functions/Duties/Power of Audit Committee

·         Submit audit report to the NRB board.

·         The audit committee can recommend for the preparation of budget and audit procedure, support to prepare a periodic balance sheet and other documents.

·         Supervise the implementation of the NRB policies of measures.

·         Audit managerial and performance appraisal of the NRB entity.

·         Frame bylaws relating to audit under the provision of prevailing law.

Financial Management of the NRB

(Highlight 5 points)

1.      Capital of the bank

2.      Accounting System used to calculate income and expenditure of NRB

3.      Allocation of Income

4.      Allotment of Expenditure

5.      Budget

1. Capital of the bank – The capital of the bank shall be 5 billion rupees (5 Arab Rupiya).

2. Accounting System – The bank shall prepare an account of its profit and loss as per Nepal Accounting Standard and bank shall use International Accounting standard (IAS) as per the requirement.

3. Allocation of Income – The bank shall allocate the net income as follows

Title	Amount
Monetary Liability Fund	5%
Financial Stability Fund	5%
General Reserve Fund	Min. 10% and Max. up to cover the capital expenditure
Revaluation Fund	All the income form re-valuation of the foreign exchange
Government Reserve Fund	Rest of the income

4. Allocation of Expenses – The bank shall allocate the net loss as follows

·         All the general expenditure of general operation shall be debited from the General Reserve Fund (GRF).

·         All the capital debited from the General Reserve Fund (GRF).

·         Re-valuation loss shall be debited from the Revaluation Fund (RF).

5. Budget – Prepared by NRB and approve by NRB Board and sent to the Government of Nepal.

Relationship Between Government and NRB

(Chapter 8)

·         Work as bank of the government

·         Work as a financial agent of the government

·         Work as a financial advisor of the government

·         NRB provide consultation to reform the financial laws

·         Provide advice to the consultation relating to external debt (बाहय ऋण सम्बन्धि आवश्यक सुझाव दिन्छ।  ऋण आन्तरिक वा बाह्य हुन सक्छ)

·         Issuing currency for the government of Nepal

·         Policy formulator of the government of Nepal (Monetary Policy, FOREX policy)

·         Policy enforcer

·         System builder for payment, settlement house, credit creation, clearing house.

यी कामहरु नेपाल राष्ट्र बैंकले सरकारको तर्फबाट गरिदिनु पर्ने हुन्छ।

Conditions to declare problematic B&FIs by NRB

कुन कुन अवस्थामा नेपाल राष्ट्र बैंकले अरु बैंक तथा वित्तीय संस्थाहरुलाई समस्याग्रस्त घोषणा गर्न सक्छ?

·         Act against the interest of depositor, shareholder, and promoters.

·         Act of not fulfilling the financial liabilities.

·         If B&FIs are going toward insolvency (टाट पल्टिने अवस्थातिर जादै छ भने).

·         If B&FIs submit the fake document and acknowledge later. (while getting a license)

·         If B&FIs are unable to maintain the capital structure and capital fund.

·         If B&FIs initiate the process of volunteer liquidation undue delay. (स्वच्छिक बिघटनमा ढिलाई)

·         If B&FIs carry out the businesses which are restricted by NRB.

·         Unable to pay the due amount.

Action taken by NRB to Problematic B&FIs

·         Can issue an order to issue new shares.

·         NRB can suspend the right of voting for the shareholder.

·         Stop the dividend payment to any other amount to the shareholder.

·         Determine the limitation to the bonus, salary, compensation and other expenses.

·         Can maintain efficient arrangement to liquidity management/corporate governance.

·         Can limit the transaction of B&FIs.

·         Prohibit for doing specific business.

·         Can issue an order to remove director/manager/staff.

·         Can suspend the BOD.

·         Can issue an order to delist from the stock market.

Company Act 2063 (कम्पनि ऐन २०६३) | Objectives and Major Provisions

What is a company?

Company is an organization of firm incorporated under the provision of company law. Incorporation means the process of registering the firm, organization, institution under the provision of law. A company is also known as a legal or artificial person.

Features of the company 

·         Company is incorporated association

·         Company has limited liabilities

·         Perpetual succession (It lasts for long life until the liquidation and BOD keep changing)

·         Legal capacity to sue and to be sued

·         Contractual capacity

·         Common seal

·         It has its own signature

·         Ownership is divided into a unit of shares and share capital

·         Management by representative

·         Permanent existence

·         Registered office

·         Must have MOA, AOA

·         Driven by formalities (Operate formally)

·         Shares are transferable

Objectives of the Company Act 2064

·         To create dynamism into the economic development of the nation by promoting investment in industries, trade, and business.

·         To promote the use of economic liberalization.

·         To make legal provision relating to incorporation, operation, management, and administration of the company much simpler, easier and more transparent.

Major Provisions of the Company Act

·         It has the provision of the company incorporation in which various types of companies can be incorporated under its provision such as private, public, profit not distributing, investment, subsidiary, etc. (Laxmi capital is a subsidiary company of Laxmi Bank).

·         It has the provision to promote corporate good governance.

·         It defines the management tools of the company such as AOA, MOA, and BOD.

·         It creates the features of a legal person.

·         All the company must use suffix as Pvt. Ltd. or Ltd as per their nature.

·         Few types of companies should be incorporated only as a public company such as B &FIs, Insurance, Stock Market, Mutual Fund, Retirement funds, Telecommunication service providers which has capital more than 5 crores.

·         It has provision relating to the conversion of private company into public and vice versa.

·         Provision of Office of Company Registrar (OCR) can provide service from branch office and outlets.

·         It has the provision relating to share, capital, and debenture of companies.

·         It has the provision of Board of Director (BOD) formation, Types of director and their rights and liabilities and also BOD meeting procedures.

·         It has the provision of general meeting its types and agendas of the company.

·         It has the provision of account record keeping and auditing.

·         Provision of company winding up as per the voluntary, compulsory and with deregistration process.

-It has the special provision of de-registration

-If the company are defunct they need to submit/providing 0.5% (as a fee) of their capital should be submitted to OCR for deregistration from the time of the last amendment. यदि 0.5% तिर्न नसकेमा Fine Fee तिरेर पनि दर्ता खारेजी गर्न सक्छ।

·         It has provision relating to the protection of shareholders.

·         It has provision relating to private, holding (मुख्य कम्पनि), subsidiary and foreign company.

·         It has provision relating to control the use of ultra vires by BOD. (Company should not go beyond the AOA & MOA) (अधिकार क्षेत्रभन्दा बाहिरको काम गर्न पाउदैन व्यवस्था)

·         It has provision relating to a proceeding of lawsuits and punishment.

·         Provision of the substantial shareholder (आधारभूत शेयरधनि सम्बन्धि व्यवस्था).

-Hold more than 1% if capital is 25 Crore

-Hold more than 5% if capital is more than 25 Crore

(यदि कसैले २५ करोड पुजी भएको कम्पनिमा १ % भन्दा बढी होल्ड गर्छ वा २५ करोड भन्दा बढी कुल पुजी भएको कम्पनि यदि कसैले ५% शेयर होल्ड गर्छ भने तिनी हरुलाई आधारभूत शेयरधनि भनिन्छ।  आधारभूत शेयरधनि हरुको लागि छुट्टै विशिष्ट व्यवस्था गरिएको छ।)

·         Compulsory provision of company secretary for a company which has more than 1 crore capital

·         It is in compliance with the Money Laundering Prevention Act.

·         It has the provision of merger and acquisition of the company.

·         Development committee can be converted into the public company if the government gives permission.

Types of General Meeting 

·         First Annual General Meeting (FAGM)

·         Annual General Meeting (AGM)

·         Special/Extraordinary General Meeting (SGM).

1. First Annual General Meeting (FAGM) –

·         This meeting is held to approve all the documents which were submitted while registering the company.

2. Annual General Meeting (AGM)

·         Chairperson or director shall call the Annual General Meeting.

·         AGM should be conducted within 6 months after the end of the fiscal year.

·         It can be extended up to three months with the approval of OCR.

·         If a company can not conduct AGM within the predefined time, OCR schedule the time.

·         If the company still do not call for AGM, the stakeholders can file a case in court for calling up AGM.

Process of calling AGM

·         AGM notice should be published before 21 days of the AGM date mentioning the date/time, venue and agendas.

·         AGM notice should be published at least two times in the national level newspaper.

·         If any changes occur, notice should be published before 7 days of the AGM date.

·         AGM will be hosted by the secretary, chaired by president and minute must be approved by all the members.

·         This minutes’ copy should be submitted to OCR within 30 days from the date of approval.

(Same process in the case of banks)

3. Special General Meeting(SGM) 

·         Call by Board of Director, chairperson.

·         Three parties can call SGM with a written request – Auditor,  Shareholders (at least 10% of share capital with minimum 3 shareholders),  Shareholders (at least 25% of shareholders).

·         After the written request from the above three parties, the director or president must call a Special General Meeting within 30 days.

Process of calling SGM

·         SGM notice should be published before 15 days of the SGM date mentioning the date/time, venue and agendas.

·         AGM notice should be published at least two times in the national level newspaper.

·         If any changes occur, notice should be published before 7 days of the SGM date.

·         SGM will be hosted by the secretary, chaired by president and minute must be approved by all the members.

·         This minutes’ copy should be submitted to OCR within 30 days from the date of approval.

Agendas of SGM

·         Increase/decrease capital

·         Share buyback

·         Bonus share

·         About Merger/acquisition

·         Company name change etc

All the members of the BOD must attend the meeting physically. If not possible physically, use of video conference to use voting right.

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Possible Questions

Q) Write about the process of calling AGM defined by the company act 2064. 
Q) What are the provision relating to AOA and MOA defined by company act?
Q) What are the heading defined in AOA or MOA?
Q) What are the provision relating to the incorporation of the company? 

Answer- for this question explain the following three points in detail

-Nature of the company for incorporation
-Process of incorporation and required documents
-Provisions/conditions to refuse of company incorporation
-Nature of the company for incorporation

i)For private company

·         No limitation of capital

·         No need to disclose financial or audit report publicly

·         Must have minimum 1 and maximum 101 shareholders

ii)For public company

·         Minimum capital 1 crore

·         Need to publish prospectus publicly

·         Minimum 7 and maximum unlimited shareholders

·         Few special companies must be incorporated as public such as B&FIs, Insurance, Mutual funds, Retirement fund, Telecommunication service provider

iii)Profit not distributing company

·         Minimum shareholder 5 and maximum unlimited

·         Rest of the rules the same as a public company

– Required documents

·         Submit 2 copies of proposed MOA and AOA

·         Mutual agreement of promotors

·         Prior approval from respective office (NRB in case of B&FIs)

·         Details of the promotors

·         Application and required fees.

·         If promotor is a legal person (organization) then need to submit a copy of registration certificate.

·         In case of foreign promotor (person/institution) approval of investment, registration certificate and citizenship certificate.

Process of incorporation

·         Submit the application along with required documents and fees to the Office of Company Registrar (OCR).

·         The form can be submitted online as well.

·         OCR should provide a registration certificate within 7 days from the application received. Otherwise, provide refusal notice within 3 days after the registration timeline.

·         After approval, the company must be started within 1 year from the approval time.

·         For a foreign company, provide registration certificate within 30 days otherwise provide refusal notice within 7 days after the registration timeline.

-Provisions/conditions to refuse of company incorporation 

i) Due to name

·         If the name of the proposed company is same as other existing company.

·         If the proposed name is is similar to some other insolvent company [only for 5 years after the insolvent date].

·         If the name of the proposed company is almost similar to an existing company.

·         If the name of the proposed company is against the law, customs.

ii) Due to its objectives

·         If the objective of the company is against the law.

·         If the functions are against the law.

iii) Other reasons

·         If the required fees and documents are not properly submitted.

·         If AOA and MOA are not completely filled up.

Bank and Financial Institution Act 2073 – BAFIA 2073
Structure Nature – Regulating law
Total section 14
Last formation 2074/01/10 (2074 Baishakh 10)

Objectives if Bank and Financial Institution Act (BAFIA)

1.      To promote public trust towards B&FIs.

2.      To provide quality & reliable banking service.

3.      To protect the right and interest of depositors and investors.

4.      To protect from banking hazards/ and protect from banking risks.

5.      To promote the national economy by using/adopting economic liberalization.

6.      To make legal provision relating to incorporation, management, operation and winding up of B&FIs.

Features of BAFIA

NOTE- Features हरु लेख्दा Provision लाई आधार बनाएर लेख्ने!

1.      BAFIA is an umbrella banking law.

2.      It is integrated banking law/regulating law.

3.      BAFIA focused on financial good governance.

4.      Focused on maintaining financial stability.

5.      Compliance with Money Laundering Prevention Act.

6.      Allow to buyback shares.

7.      Provision to incorporate B&FIs only as a public company.

8.      Use of economic liberalization.

9.      Promotion of transparency and protection of deposits.

10.  It classifies B&FIs into 5 types and 4 classes.

11.  Two types of winding up provisions are outlined – such as Voluntary and Compulsory 

12.  Prohibited functions of B&FIs are clearly mentioned.

Major Provisions of BAFIA 2073 (मुख्य मुख्य व्यवस्थाहरु)

1. It has a provision of incorporation of Banks and Financial Institutions.

– Before the incorporation of the Banks and Financial Institution, it is necessary to get prior approval from Nepal Rastra Bank.

– Bank can be incorporated only as a public company.

– To get prior approval from NRB, it is required to submit related documents along with the application.

Documents needed

·         Memorandum of Association (MOA)

·         Article of Association (AOA)

·         Feasibility Study

·         Details of the promotors

– NRB shall provide approval within 120 days from the date of application received.

– NRB can refuse to provide prior approval in the following conditions.

·         Promotors are accused by criminal offenses such a money laundering, rape, banking offense, fraudulent, forgery, etc.

·         If the proposed name is the same as previously registered B&FIs.

·         If the objectives and functions are against the provision and law.

– Incorporation of B&FIs with a joint venture or foreign investment need to get prior approval from NRB.

– To expand branches, need to get prior approval from NRB.

– Incorporation od B&FIs is based on company act.

2. It has provision relating to the capital (Share, Stock) formation/ Share Transaction 

– All the B&FIs must submit their prospectus to NRB before issuing share capital.

– Must a lot their capital as per the following structure

·         Minimum 30% for the general public

·         Minimum 51% for promoters.

·         Maximum 0.5 for employees

-To make a share transaction, they must assign capital/share manager and notice it within 7 days of an agreement.

-Lock up period for converting promotor share into the public is defined as 10 years.

-Lock up period for the transaction of promotor share is defined as 5 years and to make a transaction of promotor share who holds more than 2% share capital of B&FIsmust ger prior approval from NRB.

-B&FIs can buy back their share if they fulfil the conditions which are outlined by law.

3. It has provision relating to the formation of BOD

·         BOD can be of 5-7 members

·         Members can be elected maximum 2 times

·         Independent members cannot be repeated

·         Only one member from a single family can be in BOD

·         BOD member cannot involve in other BFIs.

4. It defines the qualification of BOD.

·         For general director – at least masters degree in related field or Bachelors + 3 years work experience of 5 years of work experience in a related field.

·         Independent director – Masters degree for A and class Bank, a bachelor for C class and as per the NRB for D class.

5. Provision relating to rights, obligation, the responsibility of BOD

6. Provision relating to the appointment of CEO, his/her functions, rights and duties.

·         BOD can appoint CEO

·         CEO cab be elected two times

·         If no qualification of BOD, Masters degree as per the law, then CA or Bachelor with 10 years of experience can be CEO.

7. Provision relating to the punishment of BFI’s who operate without getting a license.

8. Provision relating to license for banking operation

·         For incorporation of BFIs, prior approval from NRB is needed.

·         Without getting a license, a bank cannot be incorporated

·         To ger bank license, required documents and application must be submitted.

·         Documents include AOA, MOA

·         NRB provides approval notice within 120 days or refusal notice within 90 days

9. Provision relating to the capital and capital fund

·         BFIs must maintain the capital fund and Capital Adequacy Ratio as per the direction of NRB

·         Must maintain a general reserve fund

·         Must maintain a foreign exchange reserve fund

·         Must maintain liquidity fund as per the direction of NRB

·         Dividend announcement and distribution as per the direction of NRB

·         NRB approval needed an increase and decrease of capital

10. Provision relating to the functions and prohibited functions as per their class

11. Compliance with Money laundering prevention act 2064

12. Provision relating to loan advancement, loan inspection, and loan recovery

13. Provision relating to the accounting, auditing, record management of the BFIs

14. Provision relating to the merger, acquisition of BFIs

15. Provision relating to the voluntary and compulsory winding up of BFIs

16. Provision relating to the punishment by NRB to other BFIs in the case of violation of the rules and regulation

17. Provision relating to the banking offense and punishment

18. Provision relating to the incorporation and operation of an infrastructure development bank

19. Provision relating to the rights of the depositors

20. Provision relating to the protection of depositors, transparency in the deposits, etc.

B&FIs can buy back their share in the following conditions

1.      If AOA contains the provision of share buyback.

2.      Is SGM make a resolution to buyback share capital.

3.      If the share capital is listed in the stock market.

4.      Can buyback only from profit.

5.      Only up to the amount of the 20% of general reserve funds.

6.      Need to get approval from NRB.

Procedure to get approval

·         Submit an application to NRB with its rationale why who, how much, where from and what rate?

·         NRB should provide the approval to buyback or refuse to provide approval based on the submitted document.

·         After getting approval from NRB, they must buyback share capital within the 6 months from the date of approval received or within 1 year from the date of a special resolution.

Method to buyback

·         Either from the stock market or directly with shareholder proportionally

·         After the buyback, they must deregister all the buyback share within 120 days.

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Questions 

1.      What is the provision relating the incorporation of the Bank and Financial Institution according to the BAFIA?

2.      What is the provision relating to the capital formation of the Bank and Financial Institution according to the BAFIA?

3.      What is the provision relating to the prior-approval of B&FIs according to BAFIA?

4.      Outline the provision of capital transaction/capital formation of B&FIs defined by BAFIA 2073.

Banking Offence and Punishment Act, 2064 – BOPA

What is banking offence?

Banking offence is such unauthorized activities that make losses to the banking system. It is also known as banking fraud. Banking fraud is the use of potentially illegal means to obtain money, assets and other property owned by financial institutions.

This types of offences are carryout by bankers, the board of directors valuators, bank clients in the operation of the banking business. Banking offence activities are outlined as below –

·         Misuse of authority

·         Misuse of credit

·         Unauthorized withdrawal and payment

·         Abuse of electronic means

·         Wrong valuation

·         Violation of banking norms and rules

·         Alteration of B&FIs account or making fraud, forgery in account

·         Misuse of banking means, property and resources

·         Unauthorized act against the interest and right of depositors and shareholders

·         Not to repay interest, principles and charges

In many instances, bank fraud is a criminal offence and it is also called white-collar crime [white-collar crime- financially motivated non-violentcrime].  To control these activities Banking Offence and Punishment Act is formulated.

Banking offences are categorized into two

1.      Act of Internal Fraud

2.      External Risk Factors 

Objectives of Banking Offence and Punishment Act 2064 [Amendment in 2073]

·         To clearly define the act of banking offence in the banking system.

·         To promote the trust of the general public in the overall banking and financial system of the country.

·         Protect and promote the rights and interest of depositors and shareholders.

·         Provide quality and reliable banking through healthy and sound banking.

·         Minimize risk relating to the banking and finance sector.

·         Make necessary legal provisions relating to the punishment on banking offences.

Banking offence full activities based on BOP Act 2064 and amendment 2073

1.      In sec., 2 more clarity is added as a definition of B&FIs closers person, Banking System, Dhukuti Karobar etc.

2.      New amendment widens the scope of BOP Act by covering Dhukuti. Securities. Insurance, Financial intermediary, Cooperatives, B&FIs, Commodity market etc.

The BOP Act 2064 outlined the following activities as banking offences 

1)Not to open an account of demand cash payment in an unauthorized manner [section 3]

·         Opening or knowingly allow opening an account with false documents.

·         Opening or knowingly allow opening an account in the name of a fictitious person or an organization.

·         Draw cheque to obtain or knowingly make the payment from an account where he/she has an apparent knowledge that the account does not have sufficient balance.

2)Not to make unauthorized withdrawals or payment
3)Not to obtain make payment by way of abuse or unauthorized use of electronic means
4)Not to avail or provide loans in an unauthorized manner
5)Not to misuse credit 
6)Not to misuse banking resources, means and assets
7)Not to make a loss by making an alteration in the account or ledger or by committing forgery or fraud
8)Not to make any activities with fraudulent to B&FIs and cooperatives
9)Not to derive a false valuation10)Not to carry out and cause to carry out irregular economic of financial transaction
11)Not to carry out Dhukuti Transaction
12)Not to carry out an illegal economic and financial transaction
13)Not to stop credit facility in the way to loss working project of the borrower [section 11]

Major Provisions Punishments

1.      Opening an account of demand cash payment in an unauthorized manner 

Recover the claim amount, fine as per claim amount and imprisonment up to 3 months

2) Not to stop credit facility in the way to loss working project of the borrower 

Recover the claim amount, fine as per claim amount depending upon the offence committed.

3) If anyone commits any offence specified under the section 5,6 or clause (d), (e), (f), (g), or (h) of section 7 or section 8,9,10,12 or section 14, he/she will be punished with the fine and imprisonment as stipulated on the basis of claimed amount and depending upon the degree of offence committed.

Claim Amount	Imprisonment	Fine	Compensation
Up to 10 lakhs	up to 1 year	As per claim amount	As per claim amount
10- 50 lakhs	2-3 years	As per claim amount	As per claim amount
50 - 100 lakhs	3-4 years	As per claim amount	As per claim amount
100 - 1000 lakhs	4-6 years	As per claim amount	As per claim amount
1000 - 5000 lakhs	6-8 years	As per claim amount	As per claim amount
5000 - 1 Arab	8-10 years	As per claim amount	As per claim amount
Above 1 Arab	10-20 years	As per claim amount	As per claim amount

4) If anyone commits any offence specified under clause (a), (b), (c) of section 7 or section 13 he/she shall be punished with the fine equivalent to claiming amount and imprisonment up to 4 years.

5) If claim amount is not clear – 10  lakhs fine and 2 years imprisonment

6) Section 12(a), 14(a), and 14(b) –  up to 50 lakhs 1-3 years, 50 lakhs to 5 crores 3-5 years, 5 crores to 50 crores 5-7 years and above 50 crores 7-9 years imprisonment.

7) For assistant, half the punishment of main convicted

8) If anyone involved only in an attempt of banking offence he/she will also be punished.

NRB IT Policy and IT Guidelines 2068 | Nepal Rastra Bank

Nepal Rastra Bank formulated the IT policy for own implementation and for all the other licenses bank and financial institutions. NRB also formulate the Nepal Rastra Bank information technology guidelines (NRB IT Guidelines). The main objectives of the NRB IT policy are –

1.      To ensure secure, stable and standard IT infrastructure.

2.      To ensure availability, integrity, and confidentiality of information.

3.      To enhance user awareness for efficient, effective and economic use of the IT system.

4.      To minimize IT-related risk.

5.      To facilitate the efficient operation of the information system in the financial sector.

NRB IT Policy

1.      Ensure efficient, effective and economic IT operation by implementing appropriate IT system, e.g Financial Information System (FIS), Management Information System (MIS), Enterprise Resource Planning (ERP) System, Real-time Gross Settlement System (RTGS), Scripless Security Settlement System (SSSS), etc.

2.      Maintain well-structured, secured physical IT infrastructure with proper documentation.

3.      Maintain multi-level security for information.

4.      Implement IT system audit.

5.      Develop, implement and maintain data backup and recovery policy.

6.      Establish and maintain efficient, effective and economic Disaster Recovery Planning (DRP) System as an instrument to “Fail Safe System” with minimum downtime. Also, develop and maintain Business Continuity Planning (BCP).

7.      Develop and implement IT outsourcing and third-party involvement mechanism.

8.      Maintain uniform and legitimate IT infrastructure for all the offices.

9.      Provide IT Directive to licenses bank and financial institutions.

10.  Set a standard for IT procurement and shall be reviewed as per the technological changes.

11.  Promulgate” NRB IT Code of conduct” for proper usage of NRB IT resources.

12.  Strengthen the IT capacity building for employees.

NRB IT Guidelines 2068

The use of information technology by financial sector has changed the way they are doing business. It has become a part of the business rather than supporting factor for business and has created challenges of managing and governing it. Issues of tackling with changes in limiting access to system and data from one to another, maintain an adequate internal control system, limiting access to system and data from unauthorized access, securing electronic transactions, meeting legal requirements, managing outsourcing services, and managing other IT related risks have been emerged in the banking sector.

1) IT Governance

·         A bank should us IT resources in an efficient, effective, and economical manner so that all business requirements are met.

·         IT-related risks should be considered in risk management policy.

·         A bank needs to carry out a detail risk analysis before adopting new technology/system since it can potentially introduce new risk exposure.

·         A bank should constantly monitor and measure IT functions and report to an appropriate level of management.

2) Information Security

·         A bank should harden their system i.e should be configured with the highest level of security setting on OS, firewall and system software.

·         A bank should develop and maintain a comprehensive computer virus protection mechanism.

·         A bank should develop strong cryptography and end-to-end encryption to protect customer PINs, user’s password and other sensitive data in network and storage.

·         CCTV system should be installed in all the ATMs with an appropriate lighting system.

·         A bank should implement adequate security measures to secure their web applications and databases to protect from cyber threats.

3) Information Security Education

·         A bank should develop an information security awareness program and periodically conduct to its employees, vendors, customers, and other concern authorities.

·         A bank should ensure that customers are adequately educated so that they can operate banking operation securely.

·         A bank should use appropriate customer authentication system to authenticate customers before the accessing system.

4) Information Disclosure and Grievance Handling

·         A bank should publish clear information about the dispute or problem resolution process in case of any security breaches and fraudulent access to customers account.

·         A bank should publish customer privacy and security policy, fee & commission on their website.

·         A bank shall be responsible for grievance handling in case of customer complaints.

·         A bank should provide clear information to their customer about the risks and benefits of using e-banking, online banking, mobile banking.

5) Outsourcing Management

·         A bank should ensure that their service providers are capable of delivering the level of performance, service reliability, capability and security needs that are required.

·         A bank should evaluate the economic, social and political risk factors before doing an outsourcing agreement.

·         A bank should ensure that the availability and quality of the banking services are not adversely affected by the outsourcing agreement.

6) IT Operations

·         Board and higher management should oversee the functioning of IT operation and should ensure a safe IT operation environment.

·         A bank should be able to ensure that they have adequate recourses in terms of hardware, software, and other operating capabilities to deliver timely, reliable, secure information.

·         A bank should conduct a periodic risk assessment of their IT environment.

·         There should be documented standard for administering application system.

7)  It Disaster Recovery and Business Continuity Planning 

·         The introduction of the electronic delivery channel and 24/7 service availability has increased the demand for business continuity planning (BCP) framework.

·         A BCP should consider all the probable man-made and natural disaster, security threats, regularity requirements, dependencies in outsourcing activities.

·         A bank should maintain an efficient, effective and economic disaster recovery system as an instrument to “Fail Safe System” with minimum downtime.

8) Information System Acquisition, Development, and Implementation

·         Many software fails due to inadequate system testing and bad system design.

·         An application that handles financial information of customer’s data should inter-alia, satisfy security requirements.

·         All the vulnerabilities, loopholes and defects should be fixed before the implementation of the system.

9) Information System Audit

·         To ensure the effectiveness of the implemented controls framework and adequacy of the adopted security plan and procedures, a bank should conduct IS audit periodically.

·         If the bank does not have enough staff, then expert from outside the bank should be appointed as IS auditor.

10) Fraud Management

·         A bank should identify and document all the electronic attacks and submit a report to Nepal Rastra Bank.

·         Customer should be made aware of fraud along with fraud identification, avoidance and protection measures.

These guidelines to regulate and guide IT related activities in commercial banks with the objectives to strengthening banks for tackling with emerging cyber frauds, managing information technology prudently and mitigating risk aroused from the implementation of information technology.

Foreign Exchange Regulation Act 2019 | विदेशी विनिमय नियमन ऐन २०१९

Objectives of Foreign Exchange Regulation Act 2019

·         To regulate foreign exchange related transactions.

·         To maintain the economic interest of the general public.

·         To promote the use of foreign exchange for the payment and receive of foreign trade.

·         To promote foreign investment and technology transfer,

·         To promote the use of foreign currency in loan exchange.

·         To maintain the balance of payment (BoP) in the nation.

Scopes

·         Use of foreign exchange investment and technology transfer.

·         Foreign exchange (buying & selling of FOREX).

·         Use of foreign exchange for the payment/receive of foreign trade.

·         Use of foreign currency in loan exchange (transaction) with foreign entities.

·         Regulations of foreign-related transactions.

Major Provisions

·         Clarifications fo various foreign exchange related terms like foreign exchange, convertible currency.

FOREX->

Foreign Currencies

Convertible Currencies

Foreign Negotiable Instruments

Example – All the deposits, landing, balance, foreign, negotiable instrument, international cheques, draft/travel cheque, electric fund transfer tools, credit cards, letter of credit, bills of exchange, etc.

·         The provision relating to a license for the transaction of foreign exchange.

·         Foreign exchange regulation act assigned to NRB as a regulation for Foreign Exchange transactions.

·         The provision relating to the use of foreign exchange in foreign trade to pay or receive.

·         Provision relating to lending borrowing loan, repatriation (the sending of money back to one’s own country) of investment and payment on technology transfer in the form of foreign exchange.

·         Provision relating to investigation and seized of confiscation of suspicious foreign exchange which is used by violating the legal provision.

·         Provision relating to the permission of NRB to be obtained for opening the bank account in abroad bu Nepali Citizen.

·         Provision of reward to information provider as up to 20% of the claim amount realized by the court.

·         Provision of punishment on foreign exchange related offense. Maximum fine up to 3 times of claim amount and imprisonment up to 3 years.

·         Person/B&FIs, firms or company must make foreign exchange transaction only with the licensed company.

What are the punishments

Act ct doing Foreign exchange transaction by violating the provision of acts/rules and directing by any person, firms of an institution is called foreign exchange related offense.

e.g Hundi

Punishment – Fine 3 times of claim amount. If the claim amount is not clear then fine up to 2 lakhs.

In case of violation of export, fine up to 2 times of claim amount.

In case of import, fine up to 3 times of claim amount. For accomplice, half the punishment of the main convicted.

For a constitutional person, political appointed authority, double the punishment but imprisonment only up to extra 2 years.

The weakness of Foreign Exchange Regulating Act

1.      Handed over all rights to NRB.

2.      The tradition of Foreign Exchange use should be increased.

3.      The investigation team should be specialized.

4.      Provision should be in compliance with the money laundering prevention act.

Income Tax Act 2058 | आयकर ऐन 2058

Income Tax Act 2058 acts for regulating all the tax-related matters in Nepal.

Revenue

1.      Tax Revenue – Direct Tax(Income Tax) and Indirect Tax

2.      Non Tax Revenue

Objectives of the income tax 2058

1.      To confine all the matters of income in a single law

2.      To develop the taxpayer-friendly environment

3.      To integrate the Nepalese tax system with foreign practice

4.      To widen the tax scope

5.      To protect the rights of the taxpayer, define the responsibility of the admin

6.      To harmonize the tax system, rate, and facilities

7.      To collect revenue

Features of the income tax act 2058

1.      use of scheduler and global tax system

2.      Focuses on self-assignment tax system/method

3.      Specialization in tax-rates – use of different tax rates in different fields

4.      Carious tax related facilities or concessions are outlined

5.      Simplification to depreciation calculation

6.      Taxing to capital gain

7.      Provision of loss-set-off and carrying forward

8.      Measures to control tax evasion

9.      Less discriminatory power to tax administrator

10.  Separate provision for baking and insurance business

11.  It defines the base of income tax

12.  Taxpayers are categorized as a resident and a non-resident person

13.  Administrative review and appeal

Tax Exemption Organizations Defined by Income Tax 2058

1.      Social religious, education, charitable organizations (registered with the non-profit motive)

2.      Registered as a tax-exempt organization in the Inland Revenue Department (IRD)

3.      An amateur sport association

4.      Political parties registered in the election commission (No need to register in Inland Revenue Department (IRD)

5.      Microfinance that carries social motives

6.      Nepal government and its bodies like municipality, District Coordination Committee (DCC), etc.

7.      Nepal Rastra Bank

Bases of Income Taxation

1.      An income year is a fiscal year (Shrawan 1 – Asar Last)

2.      Tax payer – resident, and non-resident

3.      Source of income – Employment remuneration,  Business, Investment, Windfall Gain

4.      Tax accounting – cash and accrual

Resident Person and Non-Resident Person

1.      Resident

——- In Case of Natural Person ———

·         Normal place of abode in Nepal

·         Who lives at least 183 days in Nepal in the income year

·         Government officials working in Nepal and posted abroad

——- In Case of Company ———

·         Incorporated under the provision of the law of Nepal

·         Effective management in Nepal during the income year

·         Partnership firm/company (like joint venture)

——- In Case of Trust ———

·         Established in Nepal under the provision of law

·         Trustee who is a resident of Nepal

——- Other ———

·         Foreign government and political sub-divisions of foreign government established in Nepal

·         An entity established under the provision of the treaty

·         A foreign permanent establishment of non-residence situated in Nepal

All the natural person and artificial person except above-mentioned criteria are known as non-resident of Nepal.

Income Tax Rate in Nepal

Income Tax rates in Nepal for 2076/2077 (Individual and Couple). The tax threshold slabs for the Fiscal year 2076/77 is increased after the budget speech 2076/77. Tax rates for resident person non-resident person are given below.

Particulars(slabs)	Taxable Amount (For individual)	Rate (For individual)	Taxable Amount (For Couple)	Rate (For Couple)
1 st Slab	Up to 4,00,000	1 % (SST)	Up to 4,50,000	1 % (SST)
2 nd Slab	Up to 5,00,000	10 % (SST)	Up to 5,50,000	10 % (SST)
3 rd Slab	Up to 7,00,000	20 % (SST)	Up to 7,50,000	20 % (SST)
4 th Slab	Up to 20,00,000	30 % (SST)	Up to 20,00,000	30 % (SST)
5th Slab	Above 20,00,000	36% (SST) (+20% of previous rate, which is 6)	Above 20,00,000	36 % (SST) (+20% of previous rate, which is 6)

SST – Social Security Tax 

25% for non-resident

No tax for Windfall gain in literature, sports, education (national & international) up to 500,000 else 25% tax.

Provision for a deduction for income from business (Section 13-21)

·         Depreciation

·         Pollution control

·         General Expense

·         Trading stock

·         R&D

·         Donation

Negotiable Instrument Act 2034 | विनिमेय अधिकार पत्र ऐन २०३४

What is a Negotiable Instrument?

·         A negotiable instrument is the written documents transferable by delivery.

·         It is a kind of written document/deed which can be used for business or monetary dealing with discharge value.

Features of the Negotiable Instrument

·         Written document

·         It has the right of ownership

·         It creates the right and liabilities to the parties.

·         Easy for negotiable/transfer.

·         It has legal consideration.

·         It indicates its parties such as a drawer, drawee and payee.

·         It has the nature to discharge unconditionally.

Objectives of the Negotiable Instrument Act 2034

·         To make systematic banking transactions by using the negotiable instrument.

·         To define a negotiable instrument and its nature.

·         To regulate or make legal provisions relating to the use of the negotiable instrument.

Types of Negotiable Instrument

Basis	Types
By Law	1) Promissory Note (प्रतिज्ञा पत्र ) 2) Bills of Exchange (अधिकार/विनिमेय पत्र/आदेश पत्र )
By Custom/Uses	1) Good For Payment 2) Bank Circulars (परिपत्र ) 3) Dividend Warrants (लाभांश ) 4) Share Warrants

1) Promissory Note 

A promissory note is a written agreement (document) to pay a specific amount to a specific party at a future date or on demand. It is written document except for government banknote having promise to pay. It has two parties – Maker and Payee.

It is a promise paper which creates absolute liabilities to the maker. There is no requirement for acceptance and no requirement to notice of dishonor.

2) Bills of Exchange 

Bills of Exchange is a kind of written document containing an unconditional order to pay an amount of negotiable instrument. It is an instrument of order to pay unconditionally in a certain date, period at the time of demand. It has three parties drawer, drawee and payee. It creates conditional liabilities to the maker. It is necessary to accept by the drawee and need to notice of dishonor.

(उदाहरणको लागि यदि चेक Reject भएको छ भने चेक धनिलाई कारण सहित खबर गर्नु पर्छ )

Examples of Bills of Exchange

1.      Cheque – Bills of exchange drawn on a certain bank payable on demand.

2.      Draft – Bills of exchange drawn on a certain bank/other bank/branches by other banks payable on demand. Bills of exchange drawn by a bank payable on demand from its one office to another office or to the order of a certain person.

Major Provisions of the Negotiable Instrument Act 2034

1. Clarification of negotiable instrument and its parties.

2. It has the provision related to use of the negotiable instrument, its parties and rights and liabilities of parties.

3. It has the provision relating to the endorsement of negotiable instruments.

Endorsement – Act of signing in a negotiable instrument for the purpose of negotiation. An endorsement is a process to create a contract among the parties. It is a way to transfer title. It can be complete only after transferring or submitting to others by endorsement.

चेकमा सहि गरिसकेपछि Drawer, Drawee र Payee को बिचमा एक किसिमको Contract भएको मानिन्छ।

Types of endorsement

1.      The endorsement in the blank – Sign in blank check without writing amount.

2.      The endorsement in full – Sing in check with amount and payee name.

3.      Joint endorsement – some account need one or more than one’s signature.

4.      Qualified endorsement – some cheque need a sign of a specific person to be qualified.

5.      Conditional endorsement – some time conditions are mentioned in the negotiable instrument. 

हाम्रो प्रचलित कानुनले अहिलेसम्म endorsement in the blank र endorsement in full मात्र उल्लेख गरेको छ। Joint endorsement, Qualified endorsement र Conditional endorsement लाई endorsement in full ले नै समेट्छ।

4. It has provision relating to the presentation of the negotiable instrument.

5. It has provision relating to the payment of interest and discharges from liabilities to parties.

6. A provision relating to dishonor of negotiable instrument.

-If drawee refuses to pay the amount of negotiable instrument it becomes dishonor.

-Dishonor may create as per
– by non-acceptance
– by non-payment

– by creating an obstacle to present and payment of the negotiable instrument.
-Notice of dishonor should be provided to the drawer by any means.
-Some conditions are outlined where no requirement to make notice of dishonor.

Provision of punishment  

– Compensate claim amount (cheque amount) and other expenses or interest which are made a claim.

-If cheque becomes dishonor due to insufficient balance, compensate cheque amount and other claim expenses, interest and fine up to 3000 or three months imprisonment or both.

7. It has provision relating notary public to approve/certified dishonor of negotiable instrument.

8. Provision of cross cheque and its payment.

9. Provision of use of a foreign negotiable instrument.

The weakness of the Negotiable Instrument Act 2034

1.      Need to amend as per the time.

2.      Need to increase the scope.

3.      Punishment should be increased.

 

 

 

Money Laundering Prevention Act 2064 (MLP Act Note)

What is money laundering act?

·         Money laundering is the process of concealing the source of illicit property.

·         It is the act of decorating the illegal property with the veil and legitimate sources.

·         It is the act of converting or changing the source and nature of the black (illegally earned proceeds) into the clean or white property.

·         It is a serious financial crime. It is also known as white-collar crime.

white collar crime is financially motivated, nonviolent crime committed by businesses and government professionals

Features of Money Laundering Act

1.      Organized crime – There are multiple parties involved in many laundering. A single person can not commit many laundering.

2.      It may cross border crime – involvement of two more countries

3.      Essence/presence of illicit property – there must be black money

4.      It is white collar crime 

5.      Followed by 3 major steps – It must be in the cyclic form of placement, layering, integration.

#Placement – Placement is the process of scattering illicit money in different places as much as possible. This is usually done in those areas where there is no need for revealing income source.

#Layering – Layering is the process of creating multiple transactions so as to cover up the illicit property.

#Integration – Integration is the process of mixing up illicit money with a legal/white/clean property.

Placement, layering, and Integration are also called money laundering cycle. 

6. It is predicated offense – this crime is committed only after other crime

What are the money laundering and terrorist financing offense?

#Money Laundering Offence 

1.      Acts of converting, transferring property by any mean knowing that it is proceeds of crime.

2.      Acts of concealing or changing the nature, source, position, ownership of property knowing that it is proceeds of crime.

3.      Acts of acquiring, using, or processing illicit property knowing that is proceeds of crime.

4.      Conspire, abet, assist, facilitation and association to money laundering.

#Terrorist Financing Offence 

1.      Acts of providing or collecting funds by knowing, willful, illegally, directly or indirectly with the intention of use in terrorist financing.

2.      Acts os support or attempt to support terrorist activity.

3.      Conspire, abet, assist, facilitation to support any resources or participate as an accomplice to commit terrorist activity of financing.

Punishment Provisions of Money Laundering & Terrorist Financing

For Natural Person

1.      For money laundering offense – fine 2 times the amount of crime and 2-10 years of imprisonment.

2.      For terrorist financing offense – fine 3 times and 3-20 years of imprisonment.

3.      If the claim amount is not clear – fine up to 1 crore and 3-20 years of imprisonment.

4.      For accomplice – half the punishment of main convicted.

5.      For higher authority or reporting unit, a civil servant- 10% more punishment.

6.      Confiscation of all the crime amount of money laundering and terrorist financing.

For Artificial Person (Organization)

1.      Fine 5 times the amount fine for a natural person and restriction of public procurement for a specific period of time.

2.      Restriction to produce and purchase for a specific period of time.

3.      Recovery of all the losses.

4.      Cancellation of license.

5.      De-registration of company.

Major provisions of the Money Laundering Prevention Act

1.      Reporting unit and reporting procedure – Reporting units are those institutions which are assigned to report their financial transactions. It includes – all the financial and non-financial firms, professional and businesses. (e.g. B&FIs, Casinos, Real Estate)

2.      It defines money laundering and terrorist financing offenses.

3.      Restriction to open account of a fictitious person (imaginary person).

4.      Restriction to make anonymous transactions.

5.      Restriction to operate shell Banking. (Shell banking – carrying out banking operation by registering in registrar office but without physical existence)

6.       Provision of customer due diligence (CDD) – All the B&FIs and other firms who carry out the financial transaction must use Know Your Customer (KYC) to maintain customer due diligence (CDD).

7.      Monitoring and record keeping of cross border corresponding baking.  (Corresponding Baking – correspond ko aadharma euta deshko bank le arko deshko bank lai transaction garaune)

8.      Institutional provision for the prevention of Money Laundering and Terrorist Financing. (DLMI, FIU)

9.      Provision of seizing confiscation of suspicious property and visa/travel documents of a suspicious person while investigation.

10.  Provision of punishment of ML and TF offense as per natural person and legal person.

11.  Free/open time limitation for ML and TF case to case the file.

12.  Provision of rewarding to information providers as 10 lakhs or 10% of the crime amount whichever is less.

13.  Provision relating punishment of to false FIR providers as up to 10,000 fines.

14.  Provision to prepare “National Risk Assessment Report” periodically.

15.  Provision of reporting of suspicious transaction to FIU promptly by report unit.

Major Achievements After Formation of MLP Act 2064

1.      Reporting unit.

2.      Max. use of KYC for CDD.

3.      Need to disclose the source of income properly.

4.      Restriction to operate shell banking.

5.      Establishment and operation of FIU (Financial Information Unit).

6.      Establishment od DMLI (Department of Money Laundering Investigation).

7.      Support to control capital flight.

8.      Compliance with other laws.

9.      Support to promote financial good governance.

10.  Support to control ML and TF.

Weaknesses of MLP Act 2064

1.      Lack of specialization in investigation

2.      The dilemma in functional jurisdiction

3.      Complex provision

4.      Open border

5.      Maximum use of Indian currency

6.      Problem in compliance with other legal provisions

7.      Political and crime nexus provision

 Know Your Customer (KCY)? | के हो ग्राहक पहिचान ?

Know Your Customer is a form issued by the Nepal Rastra Bank for bank and financial institutions to maintain an individual’s record of their clients. This is the unified directives of Nepal Rastra Bank.

Objective/Importance/Benefits of KYC

1.      To gather information about customer details.

2.      To gather information related to customer business.

3.      To control the money laundering.

4.      To control terrorist financing.

5.      To minimize operating risk.

6.      To compliance regulations.

7.      To make secured business.

8.      To protect bank and customers.

9.      To launch new products.

10.  To Expand business. KYC is a pool to earn profit in the business.

11.  To control the misuse of the banking system.

When KYC?

1.      While opening the bank account.

2.      While making a deposit.

3.      While advancing the loan.

4.      While remitting fund.

5.      While making foreign exchange transactions.

6.      While doing funded and non-funded business.

7.      While changing the signature.

8.      While activating account.

9.      While changing the nominees.

Sources of KYC

1.      Customer him/her self.

2.      Family members of the customer.

3.      Close friends.

4.      Organization/Office where the customer works.

5.      Government offices (Registrar’s Office, Tax Offices, PAN, Related department).

6.      Social networking.

7.      Yello pages.

8.      Magazines, newspapers, local people

KYC for a natural person

·         Name, address (permanent, temporary)

·         Occupation, address of the office, PAN

·         Phone number, email address

·         If the customer is staying in a rented room, then details of the house owner

·         Parents name, grandfather’s name

·         location map of the address

·         Income source, frequency, and Appx. amount of transaction in a year

KYC for a legal person (Organization)

·         Name, address, PAN, VAT

·         Registration date, the office of the registrant’s and address

·         Objectives, branches, location, audio report, AOA and MOA.

·         License number, date of the license issue, name of the issuing office

·         Annual income, Frequency, and Appx. amount of transaction in a year

·         Minute of the bank account opening agenda

·         Details of the power of attorney

·         Authorized capital, paid-up capital