Financial Institutions Act 1991
Act 22 of 1991
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FINANCIAL INSTITUTIONS ACT 1991
Financial Institutions Act 1991 Arrangement of Sections
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FINANCIAL INSTITUTIONS ACT 1991
Arrangement of Sections
Section
PART I - PRELIMINARY 5
1 Short title..........................................................................................................5
2 Interpretation....................................................................................................5
PART II - LICENSING OF FINANCIAL INSTITUTIONS 6
3 Licence required to do banking business .........................................................6
4 Existing financial institutions deemed licensed ...............................................7
5 Application for licence.....................................................................................7
6 Consideration of application ............................................................................7
7 Determination of application ...........................................................................8
8 Revocation of licence.......................................................................................8
PART III - CAPITAL AND RESERVES 9
9 Minimum capital and reserves .........................................................................9
10 Restrictions on dividends...............................................................................10
PART IV - SUPERVISION OF FINANCIAL INSTITUTIONS 10
11 Reserve Bank to supervise financial institutions ...........................................10
12 Inspection.......................................................................................................10
13 Persons debarred from management ..............................................................10
14 Restrictions on landing and other activities ...................................................11
Arrangement of Sections Financial Institutions Act 1991
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PART V - CONTROL OVER FINANCIAL INSTITUTIONS 12
15 Powers of Reserve Bank ................................................................................12
PART VI - MISCELLANEOUS 13
16 Retention of Cheques etc. for 7 years.............................................................13
17 Disclosure of acquired knowledge .................................................................13
18 Non-application to credit unions etc. .............................................................13
19 Indemnity .......................................................................................................14
20 Operation of Companies Act..........................................................................14
21 Regulations.....................................................................................................14
PART VII - REPEAL 14
22 Repeal.............................................................................................................14
SCHEDULE 15
Financial Institutions Act 1991 Section 1
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FINANCIAL INSTITUTIONS ACT 1991
Act 22 of 1991
AN ACT TO REGULATE THE LICENSING AND SUPERVISION OF
FINANCIAL INSTITUTIONS IN TONGA AND FOR PURPOSES
CONNECTED THEREWITH
I assent,
TU'IPELEHAKE,
30th April, 1992
[30th October, 1991]
BE IT ENACTED by the King and Legislative Assembly of Tonga in the Legislature
of the Kingdom as follows: —
PART I - PRELIMINARY
1 Short title
This Act may be cited as the Financial Institutions Act 1991.
2 Interpretation
In this Act, unless the context otherwise requires —
Section 3 Financial Institutions Act 1991
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“banking” has the meaning given to it by the National Reserve Bank of
Tonga Act 1988;
“banking business” has the meaning given to it by the National Reserve
Bank of Tonga Act 1988;
“body corporate” means a company incorporated in Tonga or elsewhere
under any law for the time being in force relating to the formation and
registration of companies, or a corporation established in Tonga or
elsewhere under any other written law;
“financial Institution” has the meaning given to it by the National
Reserve Bank of Tonga Act 1988;
“licensed financial institution” means a financial institution licensed
under the provisions of this Act;
“Ministry” means the Ministry of Finance.
“Reserve Bank” means the National Reserve Bank of Tonga established
under the National Reserve Bank of Tonga Act 1988;
PART II - LICENSING OF FINANCIAL INSTITUTIONS
3 Licence required to do banking business
(1) Subject to section 18, no person shall advertise for or solicit deposits or do
banking business in Tonga without being in possession of a current valid
licence granted under section 7.
(2) If the Reserve Bank has reason to believe that any person is contravening
the provisions of subsection (1) it may cause an examination of the books,
accounts and records of such person to find out if that is the case.
(3) Any person who —
(a) contravenes the provisions of subsection (1); or
(b) refuses, on request, to make available for examination the books,
accounts and records referred to in subsection (2);
is guilty of an offence and liable on conviction to a fine not
exceeding $2000.
(4) A person holding funds which he has obtained in contravention of
subsection (1) shall repay such funds as directed by the Reserve Bank.
Any person who fails to comply with any such direction is guilty of an
offence end is liable on conviction to a fine not exceeding $25,000.
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4 Existing financial institutions deemed licensed
(1) Notwithstanding the provisions of any other written law, the financial
institutions specified in the Schedule shall —
(a) be deemed to be licensed under section 7 on the coming into force
of this Act;
(b) be issued with a licence accordingly; and
(c) be subject to the provisions of this Act.
(2) The financial institutions specified in the Schedule shall comply with the
provisions of this Act within 6 months of the coming into force of
this Act.
5 Application for licence
(1) Any person desirous of commencing banking business in Tonga after the
commencement of this Act shall, before commencing such business, apply
for and obtain a licence to do so.
(2) An application for a licence under this section: —
(a) shall be made in writing to the Ministry in such form as shall be
specified by the Reserve Bank.
(b) shall be accompanied by the payment of a fee of $3,000.
(3)
(a) The Ministry shall refer any application received pursuant to
subsection (2)(a) to the Reserve Bank within 14 days for
investigation and consideration.
(b) Every person who makes an application under subsection (2)(a)
shall furnish to the Reserve Bank such information, and such
documents, authenticated in such manner as the Reserve Bank may
specify, as may be required by the Reserve Bank to assist it to
consider the application.
(4) Any person who knowingly with intent to deceive furnishes any
information or document which is false or misleading in any material
particular in connection with an application under this Act is guilty of an
offence and is liable on conviction to a fine not exceeding $5,000.
6 Consideration of application
In considering any application for a licence referred to it by the Ministry
pursuant to subsection (3) (a) of section 5 the Reserve Bank shall have
regard to —
Section 7 Financial Institutions Act 1991
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(a) the adequacy and structure of the applicants capital;
(b) the ability of the applicant to carry on the proposed business, and
the character and experience of its management;
(c) in any case where the applicant is a body corporate incorporated
outside Tonga, or a subsidiary of such body corporate, the relevant
law and regulatory requirements relating to the licensing and
supervision of financial institutions in its country of
incorporation; and
(d) such ether matters as the Reserve Bank considers relevant.
7 Determination of application
(1) Within 3 months after receipt of an application from the Ministry pursuant
to subsection (3) (a) of section 5, and all other relevant information and
documents, the Reserve Bank shall advise the Ministry of its findings in
regard to the application.
(2) The Reserve Bank's findings referred to in subsection (1) shall be
submitted by the Ministry to his Majesty in Council as soon as possible.
(3) The Ministry shall, as soon as may be after receipt of the Reserve Bank's
findings, and with the approval of His Majesty in Council —
(a) issue to the applicant a licence to carry on banking business subject
to such terms and conditions as may be specified in the licence; or
(b) inform the applicant that its application is refused, in which case the
application fee shall be refunded in full.
(4) No person other than a body corporate shall be granted a licence to do
banking business under this Act.
(5) A copy of the licence issued under this section shall be displayed and kept
displayed conspicuously in a public part of all places of business of the
financial institution in Tonga.
(6) The licenced financial institution shall pay an annual fee of $3,000 on
each anniversary of the date of the grant of the licence.
(7) The licence shall remain valid unless revoked in accordance with section
8 or 15.
8 Revocation of licence
(1) The Ministry may, on the recommendation of the Reserve Bank and with
the approval of His Majesty in Council, revoke a licence issued to a
financial institution under section 7 —
(a) if the licensee —
Financial Institutions Act 1991 Section 9
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(i) requests revocation of the licence;
(ii) fails to commence business within a reasonable time
following the issue of the licence;
(iii) ceases to carry on business in Tonga;
(iv) contravenes the terms and conditions of its licence or the
provisions of this Act;
(v) is subject to voluntary or involuntary winding up proceedings
or has a receiver appointed; or
(b) in the circumstances specified in section 15.
(2)
(a) The Ministry shall give the licensee notice in writing of its intention
to revoke the licence, and shall afford the licensee an opportunity to
submit to the Ministry reasons why the licence should not
be revoked.
(b) The Ministry shall forward to the Reserve Bank for consideration
any submission received under subsection (2) (a). The Reserve
Bank shall advise the Ministry of its findings in this regard.
PART III - CAPITAL AND RESERVES
9 Minimum capital and reserves
(1) Every financial institution licensed under this Act shall maintain —
(a) if incorporated in Tonga, paid up capital and unimpaired reserves;
and
(b) if incorporated abroad assigned capital;
in such minimum proportion of its liabilities to the public as the Reserve
Bank may specify.
(2) The Reserve Bank may specify the minimum amount of paid up or
assigned capital required by a financial institution for the issue of a
licence under section 7.
(3) The proportion specified under subsection (1) shall be not less than 5
percent for a licensee incorporated in Tonga.
(4) The computation and form of the capital required to be held under
subsections (1) and (2) shall be determined by the Reserve Bank after
consultation with the financial institution concerned.
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10 Restrictions on dividends
(1) No licensed financial institution shall declare or pay any dividend or make
any other transfer from profits if this would contravene the provisions of
section 9 or any specification made thereunder.
(2) Any licensed financial institution which contravenes subsection (1) shall
be guilty of an offence and liable on conviction to a fine not exceeding
$5,000.
PART IV - SUPERVISION OF FINANCIAL INSTITUTIONS
11 Reserve Bank to supervise financial institutions
(l) The Reserve Bank shall undertake the prudential supervision of licensed
financial institutions in order to maintain public confidence in the
operation and stability of the financial system and to protect the interests
of depositors.
(2) To enable the Reserve Bank to undertake the functions conferred by
subsection (1) the Reserve Bank may require licensed financial
institutions to supply to the Reserve Bank such returns, financial accounts
or information relating to their business as may be specified by the
Reserve Bank.
12 Inspection
(1) The Reserve Bank may, from time to time, inspect or cause the inspection
of the books, accounts and transactions of any licensed financial
institution and such institution shall facilitate such inspection.
(2) The Reserve Bank shall carry out the inspection referred to in subsection
(1) if it has reason to believe that a licensed financial institution —
(a) is conducting its business in an unlawful or imprudent manner; or
(b) is in danger of becoming insolvent or about to suspend payment.
13 Persons debarred from management
(1) No person shall be appointed or elected as a director or to the
management of a licensed financial institution who —
(a) has acted in similar positions in a financial institution in Tonga or
elsewhere which has had its licence revoked or which has been
wound up by a court; or
Financial Institutions Act 1991 Section 14
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(b) has been sentenced by a court in any country for an offence
involving dishonesty; or
(c) is or becomes bankrupt or enters into a scheme of arrangement with
his creditors.
(2) Any person who accepts an appointment in contravention of subsection
(1) is guilty of an offence and liable on conviction to a fine not exceeding
$5,000 or imprisonment for a period not exceeding two years.
(3) Any person appointed or elected as a director or to the management of a
licensed financial institution shall cease to hold such office if he becomes
subject to any disqualification specified in subsection (1).
14 Restrictions on landing and other activities
(1) A licensed financial institution shall not in Tonga —
(a) grant to any person, or group of persons which group is under the
control or influence of one and the same person, any advance, credit
facility or guarantee which in total is at any time more than 30
percent of the sum of the issued capital and published reserves of
the licensed financial institution unless —
(i) the transactions are between banks, or branches of a bank, or
relate to purchases of telegraphic transfers or bills of
exchange payable outside Tonga;
(ii) the transactions are granted to, or guaranteed by, the
Government of Tonga or such foreign government as the
Reserve Bank may specify;
(b) lend against the security of its own shares;
(c) grant to any of its directors any advance, credit facility or guarantee
unless granted on substantially the same terms, including interest
rates and security, as those prevailing at the time for comparable
transactions by the financial institution with members of the general
public;
(d) deal in the buying, selling or bartering of goods except in
connection with the realisation of security given to or held by it, or
engage in trade;
(e) own, to an aggregate value exceeding 25 percent of the sum of its
paid up capital and unimpaired reserves, the share capital of or
other ownership interest in any commercial, agricultural, industrial
or other undertaking except —
(i) those formed to undertake nominee, executor or trustee
functions for the account of customers, if approved in writing
by the Reserve Bank; and
Section 15 Financial Institutions Act 1991
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(ii) in connection with the realisation of security given to or held
by it and any such ownership interest shall be disposed of at
the earliest suitable opportunity.
(2) Any financial institution specified in the Schedule which is in
contravention of subsection (1) shall rectify such contravention within 18
months of the coming into force of this Act, or such further period as the
Reserve Bank may allow.
PART V - CONTROL OVER FINANCIAL INSTITUTIONS
15 Powers of Reserve Bank
(1) Where —
(a) a licensed financial institution informs the Reserve Bank that it is
insolvent or likely to become so, or is likely to suspend payment; or
(b) an inspection carried out in terms of section 12(2) reveals that
action needs to be taken to protect the interests of depositors or in
the public interest;
the Reserve Bank shall exercise one or more of the powers specified in
subsection (2).
(2) The powers referred to in subsection (1) are —
(a) to require the licensed financial institution to take whatever action
in relation to its business as the Reserve Bank may specify;
(b) to appoint a person to advise the licensed financial institution on the
proper conduct of its business;
(c) to take control of, or appoint a person to take control of, the
business of the licensed financial institution;
(d) to present a petition to the Supreme Court for the winding up of the
licensed financial institution by the court;
(e) to recommend to the Ministry the revocation of the licensed
financial institution's licence.
(f) to fix the remuneration to be paid by the licensed financial
institution to a person appointed under paragraph (b) or (c) of this
subsection.
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PART VI - MISCELLANEOUS
16 Retention of Cheques etc. for 7 years
(1) All cheques and bank drafts in the possession of the licensed financial
institution on which they are drawn and all bills of exchange or
promissory notes in the possession of a licensed financial institution and
made payable at that institution shall be retained by that institution until
the expiration of the period of 7 years from the date thereof in the case of
documents payable on demand or from the due date thereof in the case of
all other documents.
(2) This section shall apply to cheques, drafts, bills and notes received by a
licensed financial institution either before or after the commencement of
this Act.
17 Disclosure of acquired knowledge
(1) No person who has acquired knowledge in his capacity as director,
manager, officer, employee, auditor or agent of any licensed financial
institution, or when exercising any function or performing any duty under
section 11 or 15, shall disclose to any person any information in respect of
a customer of that financial institution except —
(a) with the written authorisation of the customer or his legal personal
representative; or
(b) when lawfully required to do so by any court of competent
jurisdiction in Tonga or under the provisions of any written law; or
(c) for the purpose of the performance of his duties under this Act; or
(d) to provide a person, upon a legitimate business request, a general
credit rating a copy of which shall be provided to the customer
concerned upon his request.
(2) Any person who contravenes subsection (1) shall be guilty of an offence
and liable on conviction to a fine not exceeding $2,000 or to
imprisonment for a period not exceeding one year.
18 Non-application to credit unions etc.
(1) Subject to the provisions of subsection (2), this Act shall not apply to —
(a) credit unions established under the Credit Union Act 1977; or
(b) cooperative societies established under the Cooperative Societies
Act 1973.
Section 19 Financial Institutions Act 1991
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(2) Notwithstanding the provisions of subsection (1) His Majesty in Council
may by order apply any section or subsection of this Act to a credit union
or cooperative society referred to in subsection (1).
19 Indemnity
No director or officer of the Reserve Bank, or person duly appointed or
authorised by the Reserve Bank, shall incur any liability as a result of anything
done in good faith in the exercise of any power or the performance of any duty
under this Act.
20 Operation of Companies Act.
Nothing in this Act shall exempt a licensed financial institution from the
provisions of the Companies Act, save that where there is any conflict between
the provisions of this Act and the provisions of the Companies Act, the
provisions of this Act shall prevail.
21 Regulations
His Majesty in Council may make regulations, not inconsistent with this Act,
generally for giving effect to this Act, and in particular but without limiting the
generality of the foregoing, for or in relation to —
(a) the procedures to be followed if a licence is revoked pursuant to
section 8;
(b) the format, audit requirements, timing of submission and
publication of returns and financial accounts to be supplied by
licensed financial institutions pursuant to section 11;
(c) the procedures to be followed if all or any of the powers referred to
in section 15(2) are exercised;
(d) compliance by licensed financial institutions with the provisions of
section 16 and the admissibility in evidence of copies of documents
referred to therein.
PART VII - REPEAL
22 Repeal
Section 9(7) and section 10 of the Bank of Tonga Act 1972 are hereby repealed.
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Schedule
The Bank of Tonga established under the Bank of Tonga Act 1972.
The Tonga Development Bank established under the Tonga Development Bank
Act 1977.
Passed in the Legislative Assembly this 30th day of October, 1991.
