Regulatory Alerts2020-12-09 | 13298Addressing Banks’ Breaches Relating to the Marketing of Preferred Shares
The Central Bank of Lebanon issued Basic Decision No. 13298 to address banks' breaches in marketing preferred shares as interest-guaranteed to individual investors without adequate risk disclosure. The Decision mandates that affected banks pay the agreed profit rates to these customers, while non-compliant institutions must either establish a provision or a reserve with the Central Bank equivalent to three times their unpaid profits until settlement. This measure, enacted pending the Capital Market Authority's Penalty Committee appointment, subjects non-compliance to administrative penalties under Article 208 of the Monetary and Banking Law.
Basic Circular No. 156 For Banks
We enclose herewith a copy of Basic Decision No. 13298 dated 9/12/2020 regarding the addressing of banks' breaches in the marketing of preferred shares.
Beirut, 9 January 2021 Governor of the Central Bank of Lebanon
Riad T. Salam
Basic Decision No. 13298 Addressing Banks' Breaches in the Marketing of Preferred Shares
The Governor of the Central Bank of Lebanon, Pursuant to the Monetary and Banking Law, particularly Articles 70, 174, and 208 thereof, Pursuant to Law No. 161 dated 17/8/2011 regarding Financial Markets, And in reference to Capital Market Authority (CMA) Decision No. 6/12/20 dated 6/10/2020 regarding breaches by certain banks in marketing preferred shares issued by them, whereby such shares were marketed to natural persons (individuals) on the basis that they are interest-guaranteed, without clear disclosure to them of the risks associated with these shares, And since the "Penalty Committee" of the Capital Market Authority has not yet appointed its members, Pursuant to Basic Decision No. 11947 dated 12/2/2015 and its amendments regarding the principles of conducting banking and financial operations with customers, And to mitigate legal risks that may arise from any bank violating procedures for dealing with customers, thereby affecting reputation and the banks themselves, Pursuant to the decision of the Central Council of the Central Bank of Lebanon taken in its meeting held on 9/12/2020,
Decides as follows:
Article One: Banks that have not paid the profit rates for the year 2019 and subsequent years due to preferred shares issued by them, which were marketed to natural persons (individuals) on the basis that they are interest-guaranteed, shall pay an interest to such customers at a rate corresponding to the rate agreed upon with them in the terms of issuance of these shares.
Article Two: Banks that do not comply with the provisions of Article One above shall:
- Either establish a specific provision in the currency of issuance of these shares, equivalent to three times the total unpaid profits due to the marketed preferred shares in violation of the principles, until their status is settled.
- Or establish a specific reserve with the Central Bank of Lebanon, without any interest, in the currency of issuance of these shares, equivalent to three times the total unpaid profits due to these shares, until their status is settled.
Article Three: A bank that does not comply with the provisions of this Decision is subject to administrative penalties under Article 208 of the Monetary and Banking Law.
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Article Four: The Banking Supervision Committee shall monitor the implementation of the provisions of this Decision.
Article Five: This Decision shall take effect upon its issuance. Article Six: This Decision shall be published in the Official Gazette.
Beirut, 9 January 2021 Governor of the Central Bank of Lebanon
Riad T. Salam