Law No. (2) of 1997 Concerning the Palestine Monetary Authority

The Twenty-First Issue, Palestinian Facts, January 1998 5 Law No. (2) of 1997 Concerning the Palestine Monetary Authority The President of the Executive Committee of the Palestine Liberation Organization, The President of the Palestinian National Authority, Having reviewed the Exchange Law No. 26 of 1941 in force in Gaza Strip governorates, And the Banks Law No. 94 of 1966 in force in West Bank governorates, And Resolution No. 184 of 1994 establishing the Palestine Monetary Authority, And upon the proposal of the Governor of the Palestine Monetary Authority, And upon the draft law submitted by the Council of Ministers, And based on the approval of the Legislative Council, We have enacted the following law:

Chapter One: Definitions and General Provisions
Article (1)
In applying the provisions of this law, the following words and expressions shall have the meanings assigned to them below unless the context indicates otherwise:
National Authority: The Palestinian National Authority.
Council of Ministers: The Council of Ministers of the National Authority.
Legislative Council: The Palestinian Legislative Council.
Monetary Authority: The Palestine Monetary Authority.
Board: The Board of Directors of the Monetary Authority.
Governor: The Governor of the Monetary Authority.
Deputy Governor: The Deputy Governor of the Monetary Authority.
Member: A member of the Board of Directors of the Monetary Authority.
Spouse: The husband or wife.
Licensed Bank: Any bank licensed to conduct banking transactions in Palestine according to the provisions of the Banks Law.
Specialized Credit Institution: Any institution or corporate body established in Palestine, with its main objective of granting loans for specific purposes determined by the Council of Ministers and considered by it, for the purposes of this law, as a specialized credit institution. Public Institution: Any authority, body, or other public entity in Palestine possessing legal personality. Financial Companies: Any company whose articles of association and registration contract stipulate that among its objectives are conducting financial transactions related to financing development and investment projects, managing investment portfolios, foreign exchange operations, and precious metals according to the provisions of the Banks Law. Exchange Operations: Conducted by any person licensed to practice exchange operations according to the provisions of the Exchange Law. Convertible Currency: Any currency that can be traded in local and international financial markets, freely converted at prices consistent with the International Monetary Fund Agreement. Currency and Credit Law: The law concerning the issuance, regulation, and supervision of currency and credit.

Article (2)
Pursuant to this law, an authority named "The Palestine Monetary Authority" is established. It shall possess independent legal personality and full legal capacity to conduct all acts and transactions ensuring the achievement of its purposes, including owning necessary real and movable property, exercising its activities, and disposing of them in accordance with the law.

Article (3)
The Monetary Authority and its transactions are exempt from all government taxes and fees, including import stamp duties.

Article (4)
The main headquarters of the Monetary Authority shall be in Jerusalem, and its temporary headquarters may be located elsewhere as determined by the National Authority. The Monetary Authority may open branches in Palestinian governorates, close them, and appoint agents or correspondents domestically and internationally as work conditions require.

Article (5)
Objectives, Functions, and Powers of the Monetary Authority The Monetary Authority aims to ensure banking system stability, maintain monetary stability, and encourage economic growth in Palestine. To achieve these objectives according to the National Authority's general policy, it shall perform the following in accordance with legal conditions and arrangements:
-1 Exercise the privilege of issuing national currency and coins in a timely manner, according to the Currency and Credit Law.
-2 Regulate banking activities, issue and cancel bank licenses, supervise and monitor them, and impose penalties.
-3 Prepare, organize, and publish the balance of payments.
-4 Provide liquidity to banks within legally prescribed limits.
-5 Formulate, organize, and implement monetary, credit, and foreign exchange policies according to the Currency and Credit Law.
-6 Maintain and manage the National Authority's reserves of gold and foreign currencies.
-7 Provide financial and economic advice to the National Authority, conduct regular economic and monetary analyses, and publish results.
-8 Perform the role of financial agent for the National Authority and Palestinian public institutions domestically and internationally.
-9 Formulate and implement regulations, resolutions, and directives ensuring an effective, safe, and sound banking system.
-10 Regulate the quantity, quality, and cost of credit to respond to economic growth requirements and monetary stability according to the Currency and Credit Law.
-11 Act as a bank for licensed banks, specialized credit institutions, and financial companies, supervising them to ensure financial stability and protect depositors' rights.
-12 Regulate the exchange profession, financial companies, development and investment funds; issue related licenses; supervise and monitor them.
-13 Perform any other tasks assigned by legislation, law, or agreement, provided they do not conflict with this law.

Article (6)
Without prejudice to the provisions of this law, the Monetary Authority may:
-1 Issue, manage, and hold bonds on behalf of the National Authority, purchase them from individuals, banks, and other entities, and sell them to achieve its monetary policy.
-2 Conduct transactions related to its activities.
-3 Grant licenses to banks or their branches, approve mergers, closures, office openings, or license withdrawals.
-4 Sell movable or real property acquired as settlement of due debts.
-5 Purchase, lease, sell, and maintain its buildings and equipment.
-6 Regulate, control, monitor, protect, and manage circulating banknotes and coins according to the Currency and Credit Law.
-7 Impose appropriate fees on any type of services it provides.
-8 Terminate all operations and activities conducted before the issuance of this law that conflict with its provisions.

The Twenty-First Issue, Palestinian Facts, January 1998 6
Article (7)
a- The Monetary Authority shall not:
-1 Provide financial assistance, whether direct, as a grant, or as an emergency commitment, except within the limits specified in this law.
-2 Engage in any commercial activities or purchase shares of financial companies or institutions, except as necessary for its operations.
-3 Purchase or lease any real estate, except what it deems necessary for its operations. b- Exception to the above, the Monetary Authority may:
-1 Hold a stake in any institution or participate in institutions conducting other activities deemed necessary by the Monetary Authority for performing its functions, including international monetary and financial institutions. -2 Invest its financial resources in liquid debt securities issued by creditworthy entities and collect due debts. -3 Obtain, for the purpose of collecting due debts, the interests and rights mentioned in this article, provided it disposes of them as quickly as possible. -4 Establish pension and savings funds and provide loans to its employees according to the law.

Chapter Two: Financial Provisions
Article (8)
a- The authorized capital of the Monetary Authority shall be fifteen million US dollars, or its equivalent in circulating currencies, paid by the National Authority. The capital may be increased by a decision of the President of the National Authority based on the Board's recommendation. b- The capital is non-transferable and non-mortgageable, and shall not be reduced except by law.

Article (9)
If the annual financial statement shows that the Monetary Authority's assets are less than its total capital and liabilities, the deficit shall be covered from a special reserve. If insufficient, the National Authority shall pay the difference in cash or issue tradable debt securities at prevailing Palestinian interest rates and transfer them to the Monetary Authority.

Article (10)
Following the previous article, after deducting all liabilities and expenses, specifically:
-1 Reserve for bad and doubtful debts.
-2 Depreciation of assets and operating expenses for the financial year.
-3 Pension and savings funds.
-4 Any special reserves for other expected expenses or to offset any shortfall in the Monetary Authority's assets.
The net profits for each financial year are determined after settling debt securities issued according to the previous article.

Article (11)
a- At the end of each financial year, net profits are transferred to the capital account until the authorized capital is fully covered. b- Once the capital is fully covered, an amount equivalent to 25% of net profits is credited to the general reserve account until the balance in this account doubles the capital. The general reserve shall not be used except to reduce losses incurred by the Monetary Authority.

Article (12)
After deducting all liabilities and expenses, completing transfers to the general reserve, net profits accrue to the National Authority's treasury.

Article (13)
If, based on its balance sheet and with the approval of the President of the National Authority, the Monetary Authority determines that its financial position will be negatively affected, the profit distribution mentioned in previous articles shall not be mandatory as a result.

Chapter Three: Administration
Article (14)
a- The Monetary Authority shall be managed by a Board of Directors consisting of nine members, chaired by the Governor and including:
.1 The Deputy Governor.
.2 A representative of the Ministry of Finance.
.3 Six senior specialists in banking, financial, economic, and legal affairs capable of contributing to achieving the Monetary Authority's objectives. None shall be employees of the banking sector. b- All Board members must be known for integrity and high competence in banking, financial, or economic affairs.

Article (15)
a- The Governor and Deputy Governor are appointed by the President of the National Authority based on the Council of Ministers' nomination. b- The Ministry of Finance representative is appointed by the President based on the Ministry's nomination. c- The remaining Board members are appointed as follows:
.1 Two members by the President of the National Authority.
.2 Three members nominated by the Council of Ministers and appointed by the President.
.3 One member nominated by the Governor and appointed by the President. d- The term of office for the Governor and Deputy Governor is four years, and for Board members is three years. e- The Governor, Deputy Governor, or a member may be reappointed. f- If the position of Governor, Deputy Governor, or any member becomes vacant before expiration, a replacement is appointed according to Article 14 and paragraph (a) of this article for the remaining term.

Article (16)
Only a Palestinian citizen may be appointed as Governor, Deputy Governor, or member. They must take the following oath before the President of the National Authority:
"I swear by Almighty God that I shall be loyal to the Palestinian Nation, and devote all my abilities to performing the duties entrusted to me as Governor/Deputy Governor/Board Member, with utmost honesty, integrity, and sincerity. I shall uphold the law and maintain the confidentiality of all decisions and transactions I become aware of regarding the Monetary Authority's affairs, unless the law provides otherwise."

Article (17)
a- The Board is the supreme authority for issuing decisions in the Monetary Authority, tasked with approving its policies and supervising operational management to serve the National Authority's approved economic policy. It enjoys full powers to achieve its purposes according to this law, before the President of the Palestinian National Authority. b- The Board is responsible to the President of the Palestinian National Authority.

Article (18)
Board Powers
According to this law, the Board's powers include:
-1 Determining monetary, credit, and investment policies of the Monetary Authority and supervising their proper execution.
-2 Deciding matters related to currency issuance and withdrawal from circulation according to the Currency and Credit Law.
-3 Licensing banks operating in Palestine, withdrawing licenses, imposing penalties, approving mergers, and opening branches.
-4 Licensing foreign bank branches and representative offices, withdrawing their licenses.
-5 Licensing specialized credit institutions and financial companies.
-6 Determining the mandatory reserve ratio banks must maintain at the Monetary Authority, setting discount rates, interest, fees charged by the Monetary Authority, and open market operation limits. -7 Approving the Monetary Authority's regulations and bylaws, and endorsing internal policies governing its administration and operations. -8 Approving staff regulations and organizational structure. -9 Establishing, closing, or abolishing branches, offices, and agencies of the Monetary Authority. -10 Approving amounts, conditions, and terms for issuing and trading securities. -11 Approving and applying policies related to foreign exchange operations and determining the commercial paper discount system. -12 Establishing reserves for bad and doubtful debts after completing legal procedures. -13 Recommending any increases in the Monetary Authority's capital. -14 Formulating principles for the Monetary Authority's dealings with banks. -15 Approving the annual budget of the Monetary Authority. -16 Endorsing the annual report, final accounts, and profit and loss statements. -17 Approving appointments of General Managers, regional managers, and bank consultants. -18 Formulating regulations governing housing loans provided by the Monetary Authority to its employees. -19 Appointing consultants for the Monetary Authority for fixed terms under conditions approved by the Board. -20 Appointing General and Executive Managers based on the Governor's recommendation. -21 Appointing an external statutory auditor for the Monetary Authority, who submits his report to the Board and provides a copy to the President of the National Authority and the Council of Ministers. -22 Performing all other acts within its jurisdiction.

Article (19)
a- The salary and other financial benefits of the Governor, Deputy Governor, and Board members' allowances are determined by a decision of the President of the National Authority. b- Salaries, allowances, and bonuses for Board members or Monetary Authority employees shall not be paid based on achieved profits.

Article (20)
a- The Board shall convene upon the Governor's or Deputy Governor's request, or may convene on its own. At least one-third of the members must submit a written request to the Governor or Deputy Governor (if absent). The invitation must state the meeting's date, place, and agenda at least five days prior. In urgent cases, shorter notice is permitted. b- The Board shall hold at least one ordinary meeting per month. c- The Governor chairs the Board meetings; in his absence, the Deputy Governor presides.

Article (21)
a- The Board's meetings are valid only if at least two-thirds of its members attend, including the Governor or Deputy Governor. b- The Board takes decisions by a majority of its members unless otherwise specified. In case of a tie, the vote of the meeting chair prevails.

Article (22)
a- Board deliberations are confidential, but the Board may make some public with all members' consent. b- In cases requiring unanimous consent, the Board's decision is valid even if one seat is vacant.

Article (23)
a- The Governor, Deputy Governor, and members must submit regular and complete statements to the Board after appointment and annually thereafter regarding direct or indirect commercial and financial interests pertaining to them, their spouses, or minor children. b- Any member with an interest in a subject under discussion must declare it and withdraw before deliberation begins. He shall not participate in the decision, nor be counted for quorum purposes during that meeting.

Article (24)
Governor's Powers
According to the law, the Governor is the chief executive responsible for managing the Monetary Authority's affairs and accountable to the Board for executing its decisions. The Governor represents the Monetary Authority in relations with the National Authority, local and foreign entities, courts, and before the Board. The Governor shall in particular:
-1 Keep the Board informed of decisions and procedures on important matters.
-2 Co-sign currency notes with the Minister of Finance according to the Currency and Credit Law.
-3 Sign contracts imposing financial obligations on the Monetary Authority.
-4 Act as the Monetary Authority's cashier according to approved regulations/directives or jointly with others.
-5 Sign alone reports, financial statements, and important documents according to approved regulations/directives or Board decisions.
-6 Represent the Monetary Authority before specialized committees of the Legislative Council examining its affairs or related laws, unless another appointment is decided.
-7 Publish any data or statements concerning the Monetary Authority's policies and procedures.
-8 May delegate in writing some of his powers to the Deputy Governor or other employees, remaining accountable to the Board.

Article (25)
The Governor shall submit a periodic report to the Board every three months, and as needed, regarding the Monetary Authority's management and operations, banking system status, money and financial market conditions, foreign exchange markets, and all events/conditions affecting or expected to affect the Monetary Authority.

Article (26)
According to the law, in cases of extreme necessity and inability to convene the Board, a three-member committee comprising the Governor, Deputy Governor, and a third member appointed by the Board may take decisions on matters within the Board's jurisdiction under Article 18. The Board must be convened within five days of the decision to be notified, and may annul the committee's decision.

Article (27)
a- The Deputy Governor assists the Governor in performing duties and functions, exercising all powers and responsibilities during his absence for any reason. b- The President of the National Authority may appoint a committee member to temporarily perform the Governor's functions until one returns, for no more than three months.

Article (28)
a- The Governor and Deputy Governor shall devote themselves full-time to the Monetary Authority. Neither may hold any other paid or unpaid position, nor work for any banking/financial institution during the year following their service. b- No Board member or Monetary Authority employee may accept any gifts, aid, or credits for themselves or related persons if it affects or implies reduced loyalty to their duties. c- No Monetary Authority employee may perform other paid or unpaid work.

Article (29)
a- The Board may consult experts as needed, determine their allowances, and invite them to meetings without voting rights. b- The Governor may, with Board approval, appoint an advisory committee of non-employees, defining its tasks and remuneration.

Article (30)
Resignation
The Governor, Deputy Governor, and members may submit their resignation to the President of the National Authority. A replacement is appointed within three months, and the resignation takes effect thirty days after acceptance.

Article (31)
a- The services of the Governor, Deputy Governor, or any member automatically terminate in any of the following cases:
-1 If convicted of a felony or misdemeanor involving honor or trust.
-2 If declared bankrupt.
-3 If losing legal capacity or dismissed by a court order. b- The President of the National Authority may terminate services in any of the following cases:
-1 Absence from three consecutive Board meetings without acceptable excuse.
-2 Gross negligence or causing significant harm to the Monetary Authority's interests.
-3 Violation of this law or any other banking-related legislation.

Article (32)
Without prejudice to Article 18(21), an external statutory auditor is appointed by the President of the National Authority based on the Council of Ministers' nomination to audit the Monetary Authority's accounts, verify annual balance sheets, profit and loss statements, and other financial statements. The auditor submits his report to the President and Council of Ministers. The Monetary Authority must provide the auditor with necessary records, books, and documents.

Article (33)
No member, employee, agent, auditor, or correspondent may disclose, announce, use, or share any data or information concerning the Monetary Authority's or clients' affairs obtained by virtue of their office, unless required for performing duties under specific official instructions or judicial execution.

Chapter Four: Relationship with the National Authority
Article (34)
Without prejudice to this law:
-1 The Monetary Authority may accept deposits from the National Authority and public institutions, acting as a depositary to receive funds, open accounts, and perform related banking services. It shall disburse funds within deposited amounts upon payment orders. The Monetary Authority may agree to pay interest on these deposits. -2 The Monetary Authority may authorize other financial institutions to accept such deposits under its conditions.

Article (35)
According to the law, the Monetary Authority acts as a financial agent for the National Authority in:
-1 Marketing, managing, and transferring debt securities issued by the National Authority and public institutions, acting as their registrar.
-2 Executing payment transactions for accounts of the National Authority and public institutions held at the Monetary Authority.
-3 Any tasks assigned by the National Authority consistent with its objectives and functions. b- The Monetary Authority may, in agreement with the Ministry of Finance, perform all duties related to registering, monitoring, and managing external debt for the National Authority and public institutions, according to conditions set by the National Authority and aligned with laws and regulations.

Article (36)
a- The Monetary Authority may, upon the Minister of Finance's request, provide interest-free loans to the treasury to cover any seasonal deficit arising from National Authority expenditures exceeding revenues. The loan shall not exceed 10% of estimated local revenues in the applicable budget law at the time of request. b- The loan shall be for three months, renewable for another three months, and must be repaid within twelve months at most from the request date. c- Specific loan terms are agreed between the Ministry of Finance and the Monetary Authority, based on prevailing monetary and credit conditions at the time.

Article (37)
a- The President of the National Authority and Council of Ministers consult the Governor when discussing monetary/credit policy or negotiating foreign loans/grants to the National Authority or public institutions, to assess their impact on monetary stability and balance of payments. b- The Council of Ministers and Minister of Finance consult the Governor when discussing financial policies affecting monetary/credit conditions in Palestine.

Article (38)
The Monetary Authority may purchase or sell debt securities issued by the National Authority in the secondary market, directly or indirectly through repurchase agreements.

Article (39)
The Monetary Authority submits a detailed report to the President of the National Authority and Council of Ministers every three months regarding its operations, activities, and monetary/banking status. It also submits a summary report within three months of the end of each financial year, including audited annual balance sheet, profit and loss account, and other financial statements.

Chapter Five: Relationship with Banks
Article (40)
a- Subject to this law, banking activities may not be conducted without licensing from the Monetary Authority. Licensed banks are registered in a dedicated register, and the licensing decision is published in the Official Gazette. b- The Monetary Authority formulates necessary regulations and directives, issued by the President of the National Authority based on the Board's recommendation, and published in the Official Gazette. c- Existing banks must regularize their status according to these regulations and directives within a period determined by the Monetary Authority, not less than three years.

Article (41)
The Board formulates regulations and directives governing bank account confidentiality, information/data exchange between banks regarding client liabilities and facilities granted by the Monetary Authority, in accordance with the Banks Law.

Article (42)
a- Unlicensed banks registered according to this law may not use "bank" or similar terms in their trade names or advertising in a way that misleads the public about their nature. b- Violators are punishable by imprisonment up to three months, a fine not exceeding $250,000 USD (or equivalent), or both, unless another law prescribes a heavier penalty.

Article (43)
Licensed banks must request the Monetary Authority's approval for amendments to their establishment contract or articles of association. Amendments take effect only after being endorsed on the margin of the bank's specific register.

Article (44)
a- No licensed bank may cease operations or merge with another without obtaining licensing from the Monetary Authority. b- The license is issued only if the Monetary Authority verifies that the bank has fulfilled or settled all obligations to its clients and creditors in an acceptable manner.

Article (45)
a- The Monetary Authority may strike off a licensed bank from the register in any of the following cases:

1. Upon request by the concerned bank.
2. If it does not conduct business within one year of notification of its registration decision.
3. If declared bankrupt or liquidated.
4. If merged with another bank without the Monetary Authority's approval.
5. If repeated violations of this law or other legislation threaten depositors' interests.
   b- Before striking off, the Monetary Authority requests comments from the concerned bank within two weeks of notification. c- The strike-off decision automatically withdraws the license and takes effect upon publication in the Official Gazette, unless another date is specified. d- The bank has the right to appeal the strike-off decision in court according to the law.

Article (46)
a- The Monetary Authority exercises supervision over banks, conducting inspections to verify financial stability and compliance with laws, regulations, resolutions, and directives. Banks must cooperate fully with Monetary Authority inspections...