Law No. (9) of 2010

Concerning Banks

President of the State of Palestine President of the Executive Committee of the Palestine Liberation Organization President of the Palestinian National Authority

Having reviewed the amended Basic Law of 2003, particularly Article (43) thereof, Having reviewed the Palestine Monetary Authority Law No. (2) of 1997 and its amendments, Having reviewed the Banks Law No. (2) of 2002, Based on what was approved by the Council of Ministers in its session held on 22/03/2010, Based on public interest proposals, And the powers vested in us, In the name of the Palestinian Arab People,

We have issued the following Law Decision:

Chapter One

Definitions and General Provisions

Article (1)

The following words and phrases shall have the meanings assigned to them below when they appear in this Law, unless the context indicates otherwise:

• The Authority: The Palestine Monetary Authority.
• The Governor: The Governor of the Palestine Monetary Authority.
• The Council: The Board of Directors of the Authority.
• Person: A natural or legal person.
• Banking Activities: The activity involving licensed banks accepting deposits from the public or other funding sources payable on demand, for the purpose of investment and granting credit.

Banking work also includes the activities practiced by specialized banks and the activities practiced by Islamic banks, or any work permitted by this Law.

Bank: A public joint-stock company licensed to practice banking activities in Palestine in accordance with the provisions of this Law.

Local Bank: A bank whose main center is in Palestine.

Islamic Bank: A bank licensed to practice banking activities in accordance with the provisions and principles of Islamic Sharia, and any other activities that do not conflict with the provisions of this Law.

Incoming Bank (Foreign): A bank whose main center is outside Palestine and which is licensed to practice banking work in Palestine in accordance with the provisions of this Law.

Specialized Bank: A bank that provides specialized banking services as determined by the Authority by instructions.

Branch or Office: A workplace that forms a legally subordinate part of a bank and practices all or some of the banking activities, according to instructions issued by the Authority.

Representation Office: A workplace that has obtained prior approval from the Authority and whose activities are limited to providing information and related activities, studying markets and investment opportunities, without practicing any banking work.

Specialized Lending Institutions: Every institution or corporate body of civil society bodies registered and licensed in Palestine, whose main activity is granting loans for special purposes according to a system for this purpose.

Home Country: The country of the incoming bank where its general administration and main center are located.

Supervisory Authority: Any body or authority other than the Authority and directly responsible for licensing and supervising other non-banking financial institutions within Palestine.

Supervisory Authority in the Home Country: The body or authority directly responsible for supervising the administrations and branches of incoming banks in the bank's country.

Significant Shareholding: The holding by a person or a group of persons acting together or having a common interest, or related by kinship up to the second degree, who own directly or indirectly a percentage equivalent to or exceeding (10%) of the company's shares or voting power.

Control: The relationship whereby a person or group of persons achieves any of the following:

1. A person or a group of persons acting together or having a common interest or related by kinship up to the second degree, own directly or indirectly a percentage of (20%) or more of the company's shares or voting power.
2. The ability to select the majority of the company's directors.
3. Having direct or indirect ability to exercise effective influence on the company, its board of directors, its senior officials, or the decisions issued by them.

Subsidiary Company: A company in which the bank or a person or group of persons holding a significant shareholding together or having a common interest or related by kinship up to the second degree own more than (50%) of its shares or voting power, or any percentage of ownership that enables that person or group of persons to exercise control over the company's management and draw its general policies.

Joint Venture (Affiliate): A company controlled by the bank by a percentage of (20%) to (50%) of shares or voting power, or which shares with the bank in being controlled by another person by a percentage ranging between (20%) to less than (50%) of shares or voting power, without the controlling person issuing consolidated financial statements.

Capital Base: The sum of the values of the elements specified by the Authority for supervisory purposes.

Deposit: Liquid cash amounts or values obtained through any means of payment which are deposited with the bank by any person, and which the bank is free to dispose of while respecting the return of the amount to the depositor unless otherwise agreed, provided that this is by a written agreement between the bank and the person specifying the nature of the deposit and the amount of interest or return, if any.

Credit: All types of direct and indirect financing granted by Islamic banks, all types of direct and indirect facilities granted by banks of all kinds, and loans granted by specialized lending institutions and bonds and debt instruments purchased by banks, as well as acceptances issued or guaranteed by banks, with the bank's right to recover their amounts with their interest or returns and any other dues owed to them.

Exposure: All forms of direct and indirect credit granted to a single person and repayments and debt instruments issued by the same person and purchased by the bank, in addition to the bank's investments in this person whether in the form of equity rights, or any other investments.

Credit Concentration: The total exposure to a single person or a group of persons acting together or having a common interest or related by kinship up to the second degree, as determined by the Authority by instructions.

Related Parties: A natural or legal person who is linked to the bank by relationships specified by the Authority by instructions issued by it, and in particular the following relationships:

1. Being a member of the Board of Directors or a senior official in the bank, and members of the Sharia Supervisory Board for Islamic banks.
2. Owning a significant shareholding directly or indirectly.

Article (2)

Objectives of the Law and Scope of Application

The Law aims to achieve the following:

a. Maintaining local price stability. b. Maintaining a stable and distinguished financial system based on disciplined professional market competition. c. Maintaining a safe, sound, and stable banking apparatus, and enhancing public confidence in banks and specialized lending institutions.

Article (3)

The Authority

The Authority is the sole body authorized to formulate and implement monetary policy, and for this purpose, it shall do the following:

1. Granting the necessary licenses for banks and their types and specialized lending institutions in accordance with the provisions of this Law.
2. Supervising and overseeing banks and their types and specialized lending institutions.
3. Creating a national payment system or any other systems, and regulating work in them and supervising them.
4. Issuing debt instruments, certificates, bonds, or deeds or any other Islamic financial instruments, and it has the authority to issue deposit certificates and Islamic deeds to regulate and manage liquidity and achieve goals within its jurisdiction, and to regulate all procedures for these issuances including their issuance conditions, maturity, interest, profits, and circulation according to instructions issued by the Authority.
5. Taking all measures that ensure the achievement of the objectives mentioned in Article (2) in accordance with the provisions of this Law.

Article (4)

Use of the Term "Bank"

1. It is prohibited for any person in Palestine to use the word "bank" or "mصرف" or its synonyms or any other similar expression in any language in its documents, data, commercial address, names, and advertising unless it holds a license from the Authority. Unless this use is pursuant to any effective legislation or international agreement to which the Palestinian National Authority is a party.
2. The representation office of an incoming bank is allowed to use the name of the incoming bank, provided that the term "representation office" is used in the name text.

Article (5)

The Central Register

1. The Authority shall keep a central register to register banks of all kinds, representation offices, specialized lending institutions, and bankers, containing all information related to them.
2. The Authority shall publish at the beginning of each year in the Official Gazette at the expense of the license applicant, in addition to three newspapers daily, a comprehensive list including all banks licensed to practice banking activities in Palestine and all licensed specialized lending institutions and all licensed bankers. It shall also publish any approvals for new licenses immediately in the Official Gazette, in addition to publishing any changes that may occur to the list periodically.

Chapter Two

Licensing

Article (6)

Licensing

1. It is prohibited for any person to practice any banking activities in Palestine without obtaining a written license issued by the Authority.

2. It is prohibited to register any company whose goal is to practice banking work in Palestine with the Companies Registrar unless it obtains prior written preliminary approval from the Authority.

3. Any person wishing to practice banking work in Palestine must submit an application for a license to the Authority.

4. Any person wishing to practice specialized lending activity in Palestine must apply for a license from the Authority.

5. The Authority shall issue instructions clarifying the details of information and documents, including them and attaching them to the license application, and covering branches, transfers, suspension of work, closure, and activities permitted to be submitted through them.

6. The license for the bank is issued according to the instructions issued by the Authority and is granted for an indefinite period and is non-transferable.

7. The license to practice banking activities is granted exclusively to a public joint-stock company according to the two proposals currently in force in Palestine, while incoming banks wishing to be licensed as a project are granted the license according to the law, and the Authority may exempt the specialized bank from this provision.

8. The shares of the founders of the local bank must be less than (20%) of the capital and not exceed (50%), and the rest of the capital must be offered for public subscription.

9. In the event that the subscription in the capital is not completed, the Authority has the right to allow the founders to cover the rest of the capital, extend the subscription period, reduce the capital, or cancel the license.

10. The Authority has full authority to request any person to provide it with its books, documents, and accounts in case there is suspicion that it is practicing banking activities or specialized lending institution activities without a license, and it has the authority, pursuant to a decision issued by the Public Prosecutor or his representative, to enter places suspected of practicing banking activities without a license to examine their accounts, books, documents, and other records.

11. The Authority may request the Public Prosecutor or his representative to close any place where it is found that banking activities or specialized lending institution activities are being practiced without the necessary licenses from the Authority, such closure being temporary or permanent in case a violation of the provisions of this Law is proven.

Article (7)

License Applications and Conditions for Granting

1. The founders' committee submits a written bank license application to the Authority according to the form and content of the model prepared by the Authority for this purpose, along with the documents approved by the Authority by instructions.

2. The memorandum of association and articles of association of the applicants must comply with the requirements of this Law and the regulations and instructions issued pursuant to it, and prior written approval from the Authority must be obtained on them before proceeding with registration, and no amendments to them are allowed without obtaining prior written approval from the Authority.

3. The Authority decides to grant the license to the bank based on the following conditions:

   a. Compliance of the founders' committee with this Law and the regulations and instructions issued pursuant to it, and the relevant effective legislation in Palestine.

b. None of the founders or applicants have been convicted of any of the crimes mentioned in Article (28) paragraph (4) item (e) of this Law.

c. The proposed capital must be suitable for the nature and size of the required activity type, and the capital must in no case be less than the minimum determined by the Authority.

d. The feasibility study and future expectations of the applicant's financial situation must be well documented, and its financial assets must be sufficient to support its activities and maintain sufficient liquidity at all times to ensure the safety of operations.

e. The members of the founders' committee, those establishing the bank, and the external auditor must meet the requirements, qualifications, competence, experience, financial solvency, and good reputation as determined by the Authority, ensuring the efficient and effective conduct of activities.

f. The organizational and administrative structure, as well as the proposed policies and procedures for risk management, internal control, and compliance, must be suitable for practicing various operations and activities.

g. The ownership structure and organizational and administrative structure must not hinder the effectiveness of supervision.

h. Accounting policies and procedures must be suitable for the financial activity and sufficient to prepare financial data according to the instructions of this Law.

i. Additional conditions specified below as determined by the Authority in case the applicant is a subsidiary of a foreign bank or a foreign holding company or an incoming bank seeking to work in Palestine as a project:

1. It must be subject to an appropriate level of consolidated supervision by the Supervisory Authority in the Home Country.

2. Approval from the Supervisory Authority in the Home Country for establishing a subsidiary or branch.

3. The parent bank must provide a written commitment confirming its responsibility for the obligations incurred by its branches in Palestine and undertaking to guarantee the solvency of these branches.

4. The Home Country must adopt the principle of reciprocity regarding the opening of branches and subsidiaries of local banks, and the Authority may require the availability of understandings with the Supervisory Authority in the Home Country regarding the exchange of financial information and risk management practices in the Home Country and other aspects of mutual interest.

5. It must be registered according to the legal requirements for licensing foreign companies in Palestine.

6. Granting the license must not have a negative impact on the safety and stability of the banking apparatus according to the Authority's estimates. This is in case it conflicts with the Authority's trends and policies regarding licensing new banks.

7. The Authority has the right to impose any other conditions it deems necessary to achieve the objectives of this Law and to ensure the applicant's compliance with the provisions of this Law and the regulations, instructions, and decisions issued pursuant to it.

8. In case of applying for a branch for a bank operating in Palestine, the Authority has the right to apply any of the provisions of this Article and Article (8) of this Law as it deems appropriate.

Article (8) License Granting Procedures

1. The Authority shall respond in writing to the applicant within one month from the date of receipt, regarding the completeness of his application, and the response message must include the deficiencies that must be provided to the Authority to decide on the application. The deficiencies must be completed within three months from the date of the response message. Otherwise, it is considered a withdrawal by the applicant of his application.

2. The Authority shall take a decision on the submitted application within three months from the date of its completion. It shall notify the applicant in writing of its decision of preliminary approval or rejection via registered mail or any other means it deems appropriate, explaining the reasons for rejection in case of rejection.

3. In case preliminary approval is issued, the Authority grants the applicant a period of six months to complete the procedures for commencing work. Upon the expiration of this period, the readiness for granting final approval is evaluated.

4. The Authority has the right to extend the specified period to complete the procedures for commencing work when necessary for a period not exceeding six additional months and for one time only, and the granted preliminary approval is automatically cancelled if the procedures for commencing work are not completed during it.

5. Upon granting final approval to the bank, it must practice its activities within thirty days from the date of granting this approval. An extension for thirty additional days may be granted if the Authority deems it necessary.

6. If the bank to which final approval was granted does not practice its activities within the period specified in paragraph (5) of this Article, including the extension, the Authority has the right to cancel the license issued by it.

7. The founders' committee of a bank whose application was rejected has the right to appeal to the competent court.

Article (9) Branches and Representation Offices for Local Banks

No local bank may open, transfer, suspend work, or close a branch or office of its own inside or outside Palestine, or open, transfer, suspend work, or close a representation office of its own abroad, or convert a branch to an office or vice versa without obtaining prior written approval from the Authority.

Article (10) Branches and Representation Offices for Incoming (Foreign) Banks

1. No incoming bank operating in Palestine as a branch may open an additional branch or office, transfer, suspend work, or close a branch or office of its own in Palestine or convert a branch to an office or vice versa without obtaining prior written approval from the Authority.

2. The Authority has the right to grant approval to banks not registered in Palestine to open representation offices for them in Palestine, according to special instructions issued by it.

3. When the term "bank" or "banker" is used to refer to an incoming bank operating as a branch, the provisions of Article (7) of this Law must apply to it. In case the incoming bank has more than one branch in Palestine, these branches are treated as a single unit for applying the provisions of this Law.

Article (11) Fees and Service Charges

1. The Authority shall collect from persons subject to the provisions of this Law the fees listed below, the amount of which shall be determined by a system issued for this purpose:

   a. License application fee. b. Lump-sum license fee. c. Annual fees for the main branch, branch, and affiliated offices of the bank for each year the license is in effect.

2. The Authority shall collect a financial fee for services provided to persons subject to its supervision according to this Law, specified by instructions issued for this purpose.

3. The Authority may exempt branches and offices of banks temporarily closed or suspended from paying annual license fees throughout the period of closure or suspension.

Article (12) Suspension of Bank Activities

No bank may terminate or suspend its activities in Palestine, or cease performing some or all of the activities practiced and permitted by this Law without obtaining prior written approval from the Authority. The Authority has the right to set procedures and conditions for terminating work to ensure the preservation of depositors' rights and the stability of the banking apparatus in Palestine.

Chapter Three

Practicing Banking Activities

Article (13) Permitted Banking Activities

1. Banks may practice the following banking activities and activities as determined by the Authority:

   a. Accepting deposits of all kinds, whether with interest or returns or without them. b. Providing credit in all its types and forms. c. Financial leasing. d. Buying and selling money market instruments (spot and forward), debt securities, current accounts, or commission accounts. e. Buying and selling debts, with or without recourse. f. Providing clearing, settlement, collection, money transfer, bonds, and payment instruments services. g. Buying and selling foreign currencies. h. Issuing and managing payment instruments, including credit and debit cards, and checks of all kinds. i. Discounting bills of exchange and other commercial papers. j. Providing banking services in accordance with the provisions and principles of Islamic Sharia after obtaining prior written approval from the Authority. k. Providing safekeeping services for valuables, managing precious assets including securities. l. Providing services as a manager of an investment station, or financial advisor and agent, or consultant. m. Providing banking consulting services to clients. n. Providing banking insurance services as an agent. o. Providing financial information services. p. Providing electronic banking services. q. Interbank lending. r. Managing subscription operations on behalf of others, provided that prior written approval is obtained from the Authority. s. Investing in equity rights according to the requirements of Article (18) of this Law. t. Any derived activities not mentioned herein and any other financial activities approved by the Authority that do not conflict with the provisions of this Law.

2. Islamic banks may practice the following additional activities as determined by the Authority by instructions issued by it:

   a. Banking activities that comply with the provisions and principles of Islamic Sharia. b. Acting as an agent for safekeeping in the field of social services and providing loans. c. Acting as a trustee to manage estates and execute wills in accordance with Sharia provisions. d. Establishing companies in various fields, especially those required for Islamic banking activities, with prior written approval from the Authority. e. Owning, selling, investing, leasing, and renting real estate and properties, including reclaiming owned or rented land, provided that prior written approval is obtained from the Authority. f. Creating special funds for risk protection for the benefit of the Islamic bank or its clients, with prior written approval from the Authority. g. Issuing and trading deeds or any other Islamic financial instruments, provided that prior written approval is obtained from the Authority. h. Any other work that complies with the instructions and decisions issued by the Authority in a manner that does not conflict with the provisions and principles of Islamic Sharia.

3. The Authority shall determine by instructions issued for this purpose the permitted and prohibited activities to be practiced by specialized lending institutions.

Article (14) Prohibited Activities

Banks are prohibited from doing the following:

1. Entering into any transactions or practices of any kind, alone or in concert with other parties, establishing a dominant position in the money, financial, or foreign exchange markets in Palestine.

2. Practicing commercial or industrial activities or any other activities using what is permitted in Articles (13) and (15) of this Law.

3. Owning or dealing in real estate or properties by purchase, sale, or exchange, except:

   a. Real estate designated for managing the bank's business or serving its employees, provided that this real estate does not exceed a specific percentage of the bank's capital base to be determined by instructions issued by the Authority. b. Real estate or properties owned by the bank pursuant to Article (15) of this Law. c. The bank owning real estate and property pursuant to Article (13) paragraph (1) item (c). d. Islamic banks owning real estate and property for the purpose of practicing their specific banking activities, pursuant to Article (13) paragraph (2) item (e) of this Law.

4. Providing credit in any form to any person not resident in Palestine in violation of the Authority's instructions on the matter.

5. Providing credit in any form to any person for the purpose of using it outside Palestine without obtaining prior written approval from the Authority.

6. Purchasing shares, bonds, or any securities issued by institutions outside Palestine without prior written approval from the Authority.

Article (15) Holding Movable and Immovable Property in Satisfaction of Debt

As an exception to the provisions of Article (14), banks may hold movable or immovable property in satisfaction of credit granted or purchased by them that has defaulted and has not been repaid, even if its value exceeds the percentage specified by the Authority. The bank must dispose of these shares or assets according to instructions issued by the Authority.

Article (16) Credit Concentration Risks

1. No bank may grant credit to a person if it leads to the following:

   a. The exposure volume to the person reaching (10%) or more of the bank's capital base without obtaining prior written approval from the Authority. b. The exposure volume to the person or the sum of credit concentrations according to item (a) of this Article exceeding the percentage specified by the Authority by instructions issued by it.

2. Credit concentration risks are taken into account when calculating the exposure ratio for the purposes of this Article and any instructions related to it.

3. The banks specified in this Article apply on an individual basis as well as on a consolidated basis wherever the Authority's instructions require it.

4. The Authority may require the bank to obtain adequate guarantees or increase them in the cases specified in this Article.

Article (17) Credit Granted to Related Parties

1. Credit is granted to related parties according to the specified instructions issued by the Authority.

2. Credit granted to related parties must be consistent with the credit policy approved by the bank's Board of Directors, and related parties must not receive preferential risk terms over the terms applied to the bank's operations, except for errors and lending programs applied to bank employees after obtaining prior written approval from the Authority.

3. In all cases, the total concentration for related parties must not exceed a percentage specified by the Authority by the instructions issued by it, taking into account the concentration ratios specified in Article (16) of this Law for a single person.

4. The Authority has the right to request the bank to obtain adequate guarantees for any credit granted to related parties.

Article (18) Investment in Equity Rights

1. No bank may hold, alone or in agreement with one or more persons, equity shares in another person in a project or in the exceptional case of obtaining:

   a. If the value of shares or total exposure in the other person or project exceeds 10% of the bank's capital base. b. If the ownership percentage in the office exceeds 10% of the shares. c. If the value of investment in shares exceeds 5% of the nominal capital of the other person or project.

2. The total investments of the bank in equity rights must not exceed 50% of its capital base.

3. Prior written approval from the Authority must be obtained for any investment in non-traded shares in securities markets, according to instructions issued by the Authority.

4. The bank may hold investment shares or a joint venture or establish a subsidiary according to the conditions specified by the Authority by instructions issued by it.

Article (19) Outsourcing Agreements

1. The Authority shall set by instructions the conditions under which outsourcing arrangements with another service provider are permitted, provided that the bank puts in place comprehensive policies for managing and monitoring outsourcing operations, and that prior written approval from the Authority is obtained on proposed outsourcing arrangements and on any new, modified, or renewed arrangements.

2. The bank's management responsibility remains fully intact regardless of any activity performed by the third-party outsourcing service provider.

Chapter Four

Islamic Banks

Article (20)

Islamic Bank Activities

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1. Islamic banks shall conduct all their operations and activities in accordance with the provisions and principles of Islamic Sharia, and shall not rely on the Sharia Supervisory Board of the Bank, and that which does not conflict with this Law and the regulations, instructions, and decisions of the Monetary Authority issued pursuant to it.

2. Islamic banks are prohibited from dealing with the following: A. Paying or receiving interest on credit in all its types and forms, whether it is borrowing or lending, including any fees paid by the lender not related to effort deserving compensation. B. Interest on sales within the framework of banking work in cases of exchange related to execution at a future date, as well as the interest it entails.

Article (21) Provisions Specific to Islamic Banks

The Monetary Authority shall issue the instructions and decisions it deems necessary to regulate the operations of Islamic banks in accordance with the provisions of this Law.

Article (22) Disclosure Requirements for Account Holders

Islamic banks must disclose to the holders of investment accounts opened at the bank the aspects of investment of the funds of those accounts and in accordance with what the Monetary Authority determines by instructions issued by it.

Article (23) The Supreme Sharia Supervisory Board

1. The Monetary Authority shall establish an independent, non-executive body, called the Supreme Sharia Supervisory Board for Islamic Banks and Financing Institutions, which shall be appointed by decision of the Council.

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