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2016-01-01

Circular No. 64: Government Payment Authorizations

The Palestine Monetary Authority issued Circular No. 64 (2016) to regulate the investment and settlement mechanisms for government payment authorizations. The directive mandates that banks obtain prior written approval for investment ceilings, adhere to maximum discount rates of 8% for Shekel-denominated instruments and LIBOR plus 3% for US Dollar-denominated ones, and utilize specific SWIFT message formats and real-time settlement systems for transactions. Additionally, banks must disclose these investments in monthly reports, report monthly volumes and trust account balances to the Authority, and maintain strict confidentiality regarding designated trust accounts without dual regulatory approval.

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Palestine Monetary Authority

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Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Circular No. (64 / 2016)

To all banks operating in Palestine Date: 2016/04/20

Subject: Government Payment Authorizations

In light of the Ministry of Finance's issuance of government payment authorizations and the determination of procedures for handling them pursuant to their letter No. (W.M./A 1894) dated 2016/03/24, and to regulate the investment and settlement mechanism for such authorizations, banks are required to adhere to the following procedures:

First: Bank's Mechanism for Handling Government Payment Authorizations:

  1. If a bank wishes to invest in government payment authorizations, it must submit a request to the Monetary Authority to obtain its prior written approval for an investment ceiling for these authorizations.

  2. The bank has the right to discount these authorizations (at the bank's discretion), and they shall be treated as investments in government payment authorizations. They shall be retained to be collected from the drawn bank on the maturity date.

  3. Inquire with the Ministry of Finance regarding each instrument before discounting it in favor of the beneficiary, in accordance with the mechanism outlined in the aforementioned Ministry of Finance letter.

  4. The maximum discount rate for authorizations issued in Shekels shall be 8%, and for those issued in US Dollars, it shall be (LIBOR 6 months + 3%) annually.

  5. The discount interest shall be collected from the holders of the authorizations (the beneficiary).

  6. Discounted government payment authorizations held by banks shall be disclosed in monthly financial statements (Call Reports) as investments within the investment securities portfolio, and their risk shall be weighted at 0% for capital adequacy calculation purposes. In the event of applying Basel II requirements, they shall be treated in accordance with the specific instructions issued therefor.

Second: Settlement Procedures

  1. Exchange of payment authorizations shall be conducted through national clearing houses or according to a mutually agreed exchange mechanism between banks, supported by delivery and receipt schedules between banks, without having any impact on check clearing operations or their results.

  2. Settlement of financial obligations arising from payment authorizations by the drawn bank shall be carried out using the real-time settlement system, by sending any of the approved SWIFT financial messages on the maturity date or on the receipt date if it is later than the maturity date.

  3. Use SWIFT MT103 messages if the ultimate beneficiary is the bank's client and the submitter of the payment authorization, and SWIFT MT202 messages if the ultimate beneficiary of the instrument is the submitting bank (instrument endorsed in favor of the bank).

  4. Use the identification code (GOVB) REC Code in SWIFT messages issued by the drawn bank for payment authorization settlement purposes, along with any other appropriate enhancement messages.

  5. Adhere to the enhancement mechanisms issued by the Ministry of Finance related to the handling and disbursement of payment authorizations.

Palestine Monetary Authority

www.pma.ps

Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2409922 | Email: info@pma.ps

Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825292 | Fax: +970 8 2844487 | Email: info@pma.ps

Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2409922 | Email: info@pma.ps

Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825292 | Fax: +970 8 2844487 | Email: info@pma.ps

  1. Disclose government payment authorizations invested in by the bank on the credit inquiry program in accordance with instructions issued for this purpose.

  2. Provide the Monetary Authority with a report at the end of each month detailing the bank's investment volume in government payment authorizations, and the authorizations held for collection in favor of the beneficiary on the maturity date.

  3. The bank for which the Ministry of Finance has opened an account under the name "Government Payment Authorizations Trusts" must provide the Monetary Authority at the end of each month with a statement of the balance of this account and the value of the authorizations drawn against it that have been settled.

  4. The bank for which the Ministry of Finance has opened an account under the name "Government Payment Authorizations Trusts" must not disclose this account without obtaining approval from both the Ministry of Finance and the Monetary Authority.

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