Central Bank of Myanmar issues directives for non-bank financial institutions
On 26 January 2021 the Central Bank of Myanmar (“CBM”) issued Notification 1/2021 (“NBFI Directive”) in relation to non-bank financial institutions (“NBFI”). The NBFI Directive, which came into effect immediately, sets outs regulations on the establishment, operations and business conduct of NBFIs. NBFI refers to an entity registered under the Financial Institutional Law of Myanmar 2016.
The NBFI Directive applies to all NBFIs carrying out finance company, leasing and factoring business (“NBFI Business”). The issuance of NBFI Directive has far reaching implications for NBFI operations in Myanmar and goes a long way to formalise foreign investments in the NBFI sector and signal the gradual opening of the sector to foreign players.
NBFI Registration Certificate
Any entity who wishes to carry on NBFI business shall apply to the CBM for a registration certificate in order to operate in Myanmar. CBM shall either issue or refuse to issue registration certificate within six months from receiving the application. Where CBM refuses to issue a registration certificate, a written reason for the refusal must be provided. Furthermore, CBM may vary terms and conditions of the registration certificate that has been issued.
The NBFI Directives sets out the specific requirements for a NBFI registration certificate which includes, corporate documents of the registered company under the Myanmar Companies law 2017 (“MCL 2017”), along with the descriptions of the types of services, feasibility study, business plan (budget forecast for three financial years), details of shareholders, directors, and organisational structure.
The NBFI Directive also sets out circumstances where the registration certification will be revoked, including failure to commence activities within 12 months from the date of receipt of the registration certificate, conducting activities other than NBFI business and using misleading information to apply for a registration certificate.
Any person who carries on NBFI business without a registration certificate will be punished with imprisonment of two years to five years and a fine of MMK500 million.
Permissible and Prohibited Activities
A NBFI may only engage in NBFI activity specified in the registration certificate issued by the CBM. Further, the NBFI Directives makes it clear that NBFIs shall not accept a deposits in accordance with the Financial Institutional Law of Myanmar 2016. Deposits have been defined as a sum of money paid on terms under which it will be repaid or it is repayable, either wholly or in part, with any consideration in money or money’s worth and such repayment being either, on demand or at a time or in circumstances agreed by the person or an entity making the payment and the person receiving it.
Notification Requirements and Prior Approval Requirements
|Notification Requirements||Prior Approval Requirements|
|Change of address of head office and branch||Transfer or selling of 10% or above of the voting shares|
|Change of board of directors||Sale, disposal or transfer of the whole or part of the business|
|Change of constitutional documents||Change of head office or branches from one township to another|
|Appointment of agents or outsourcing arrangement or any changes of to the appointments or arrangement||Opening of new branches and closing of branches|
|Any information CBM may deem necessary||Change of company name and logo|
|Capital increasement, changes of share ratio and changes in constitution|
|Change of ownership and company status from domestic company to foreign company or ceasing of status of a foreign company|
|Any information CBM may deem necessary|
Compliance Requirements and Penalty for Non-Compliance
With regards to compliance requirements, a NBFI is required to submit periodic reports on its lending rates to the CBM in a format that is specified by CBM. Further, NBFIs must carry out their accounting and financial reporting in accordance with International Accounting Standard and International Financial Reporting Standards. A copy of the financial statements that has been audited by an external auditor must be submitted to the CBM within three months from the end of the financial year. Additional documents or information may be required by CBM as they deem necessary.
The NBFI Directive also sets out that NBFI’s senior management must have experience in finance or other relevant business, though this requirement does not apply to substantial shareholders of the NBFI. Further, no person shall be appointed or continue as a member of senior management if they are, subject to any investigation or inquiry relating to fraud, deceit, dishonesty or any improper conduct by any regulatory body or professional association, and have been found guilty, of unsound mind, and have been declared bankrupt.
Any non-compliance of the NBFI Directive is an offence punishable by one or more administrative penalties which includes, warnings, fines, restriction order for operation and suspension or permanent termination.
In conclusion, there is no express prohibition under the current Financial Institution Law 2016 that a foreign company is not allowed to carry out NBFI business. However, in practice, only 100 % local entities are issued registration certificate by CBM. The NBFI Directive, further stated that any change of ownership interest of the company and change of status of the company from local to foreign company or ceasing as a foreign company would need prior approval from CBM. Under MCL 2017, a foreign ownership of up to 35% is defined as a local company.
Therefore, the issuance of the NBFI Directive is seen as a step forward towards CBM looking to regulate new and existing NBFIs. Indeed it may signal the gradual opening of the sector to foreign players, consistent with the liberalisation of other financial services in Myanmar.
If you have any questions or require any additional information, please contact Thuzar Tin or the ZICO Law Myanmar partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.