Palestine Monetary Authority

Instructions No. (2010/5)

To all banks operating in Palestine
Date: Tuesday, May 11, 2010

Subject: Automated Banking and Outsourcing

Pursuant to the provisions of Chapters Four and Six of Banking Law No. (2) of 2002, please find attached the instructions governing the following:

(1/5): Automated Banking.
(2/5): Transfer of Funds and Valuable Documents.
(3/5): Outsourcing Operations.
(4/5): Competent Courts.

The provisions of these instructions shall take effect from the date of their issuance, and all banks are required to take the necessary measures to rectify and settle their status to ensure full compliance.

Supervision and Inspection Department
Palestine Monetary Authority

Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps

(1/5) Automated Banking

All banks must comply with the following:

Provide a banking system (Core System) that meets all banking operational needs for recording, posting, and documenting financial and banking transactions, where all information and transactions from direct and indirect facilities, deposits, credit and debit balances, and all treasury and other financial operations are recorded.
The banking system (Core System) must be hosted on a primary server or more at the General/Regional Headquarters in Palestine.
Connect the bank's branches and offices within Palestine to a single Interbranch information network, such that all financial transactions conducted at branches and offices are recorded at the main or regional center in Palestine instantly and exclusively.
The main center for any branch of banks operating in Palestine is considered the center licensed to operate as a main center by the Monetary Authority.
Foreign banks are not permitted to record any transactions or operations between their branches operating in Palestine and their external branches or main center located outside Palestine on the basis that they are connected to a single Interbranch network.
Automatically generate all required financial and statistical reports according to Monetary Authority instructions from the banking system.
Provide ATM services to the public in every branch and office, and ensure the provision of withdrawal services in the three main currencies circulating in Palestine (Jordanian Dinar, US Dollar, Israeli Shekel) around the clock, and publicly announce the locations of the bank's ATMs.

(2/5) Transfer of Funds and Valuable Documents

All banks must comply with the following:

Establish clear written policies and procedures regarding the transfer of funds, precious metals, and valuable documents (such as cash checks, shares, bonds, promissory notes, and other securities) between the bank's branches and management and/or any other party.
Policies and procedures must include a monitoring system for fund transfers that covers:

a. Inventory of transferred funds and documents. b. Levels and responsibilities of authorized personnel for executing these operations.
c. Insurance for transferred funds.
d. Authorities and mechanisms for determining the timing and route of the transfer operation.
Transfer funds and valuable documents inside a sealed container and via a dedicated armored vehicle equipped for fund transfers.
If the bank wishes to contract with an external company or party to execute fund or valuable document transfer operations, it must comply with the outsourcing instructions.
A bank may, in cooperation with another bank or multiple banks, transfer funds under agreements concluded between the concerned parties, in compliance with the outsourcing instructions.

(3/5) Outsourcing Operations

Based on Article (5) of the Monetary Authority Law No. (2) of 1997, and to mitigate operational risks, the following instructions govern outsourcing operations:

(1/3/5) Definition:

Outsourcing operations refer to the process of a bank entrusting a natural or legal person to perform tasks or operations on behalf of the bank that are typically performed by the bank's internal departments and divisions. This definition includes outsourcing certain tasks to the bank's subsidiaries or affiliates, and does not include purchase, supply, and construction contracts or agreements related to non-banking secondary services.

(2/3/5) Principles and Mechanisms for Deciding on Outsourcing

Banks must comply with the following:

The decision to outsource tasks or operations to external parties must be based on a feasibility study of the bank's outsourcing, confirming that it benefits the bank in terms of improving service and operational quality, reducing operational and service costs, mitigating risks, or other considerations that may affect this decision.
Prepare a clear internal policy based on the study mentioned in the above paragraph.
Management must approve the aforementioned policy after being fully informed of all studies, risks, and justifications for it.
Submit an application to obtain prior approval from the Monetary Authority when wishing to contract for outsourcing operations, attaching the bank's board of directors' resolution, policies, studies, and a draft of the agreement between the bank and the company.
Obtain Monetary Authority approval for any amendments to outsourcing agreements previously approved by the Monetary Authority.

(3/3/5) Operational Risk Management

Outsourcing does not constitute a delegation of the bank's responsibilities to the Monetary Authority or to a third party. Therefore, bank management remains responsible for the safety of the bank's operations and their freedom from any risks that may affect its financial position. All banks must comply with the following:

Take all measures and arrangements to ensure that tasks and operations outsourced to a third party are subjected to the bank's risk analysis processes, and ensure that outsourcing will not prevent the bank from fulfilling its obligations to customers, the Monetary Authority, or any other party.

(4/3/5) Contractual Conditions

The relationship with companies undertaking outsourcing operations shall be governed by legal contracts that comply with the laws and instructions in force in Palestine, and these contracts must include the following:

The company's commitment to maintain the confidentiality of information obtained as a result of performing operations for the bank, and not to disclose it to any party or reveal it except with the bank's prior consent, within the limits permitted by the laws and instructions in force in Palestine.
The company's commitment to directly notify the bank of any circumstances or events that may affect its ability to fulfill its contractual obligations with the bank.
The company's commitment to prepare plans and arrangements to address any emergency situations, including Business Continuity and Contingency Plans to continue fulfilling its contractual obligations, and to provide the bank with copies thereof.

(4/5) Competent Courts

Pursuant to the provisions of Banking Law No. (2) of 2002, all banks must comply with the following:

Palestinian courts are the sole competent courts to hear disputes arising between the bank and its customers, except for disputed transactions with non-resident customers, which may be referred to courts outside Palestine.
Comply with the resolutions and instructions of the Supreme Judiciary Council in Palestine regarding courts and their jurisdictions.
Amend credit facility contracts and account opening applications to comply with paragraph (1) of item (4/5).
Execute decisions regarding the attachment of any balances or accounts at banks operating in Palestine, provided that such decisions are issued by Palestinian courts.
The execution of any foreign court judgment attaching any balances within Palestine requires referring to the competent Palestinian judicial authorities.
No bank is permitted to disclose any data or information regarding its customers to any foreign court except in accordance with the laws in force in Palestine.