General

No person may carry on banking business in Solomon Islands without a license issued under Financial Institutions Act, 1998. Supervision of Financial Institutions is a responsibility of the Central Bank of Solomon Islands which has responsibility for execution of the provisions of the Financial Institutions Act. 

The definitions of Financial Institution, bank and credit institution are as follows: 

Because of the special nature of banking business and the high degree of trust and confidence placed on banks and financial institutions, an exceptionally high standard of care is required by the regulatory and supervisory authorities, to protect the public against the risk of doing business with structurally unsound or imprudently conducted institutions. Prudent banking is the responsibility of the bank directors and management; the Central Bank exercises supervision to ensure that these responsibilities are carried out. Supervision sets prudential standards and these standards apply to all facets of banking practices including an assessment of directors and management personnel in terms of their professional repute, business and other connections, as well as the financial structure, support capability and proven competence of the institutions concerned. 

Applications for licenses to carry on banking business are therefore subjected to thorough scrutiny, and the subsequent performance of licensed institutions is kept under close observation by bank supervision utilizing internationally accepted standards.

Capital Requirements

The decision to issue a license to a financial institution to carry on banking business in Solomon Islands will depend on a number of factors including the business plan submitted by the applicant. The authorities attach considerable importance to the adequacy of a financial institutions' capital to support its projected operations, and  to the maintenance at all times of the minimum unimpaired capital relative to the assumed exposures. Capital is  impaired if the total realizable value of assets is less than liabilities plus capital. The computation of the institution's capital, the adequacy and the type of such capital is at the discretion of the Central Bank, as stipulated in Section 7 of Financial Institutions Act. 

Under the Financial Institutions Act the absolute minimum paid-up or assigned capital requirement for issuance of a license is as stipulated below:

However, the initial capital required will also depend on the business plan projections and will be expected to allow for growth over the first few years. The ability of major shareholders to contribute further capital when needed will also be taken into consideration.

Method of Applying for License

It is recommended that applicants appoint an established public accountant or legal firm familiar with Solomon Islands laws and institutions to represent them in the formal matters required for consideration of the application, and that reference is made to the Financial Institutions Act 1998 which contains the statutory requirements for licensing. 

The application, to be made under s.5 of the Financial Institutions Act 1998, should be in the form of a letter, addressed to the Governor of the Central Bank of Solomon Islands. It must be signed by the authorized representative of the applicant, and evidence of his authority is to be provided (e.g. power of attorney), certified copy of Board resolution etc. It should specify the class of license applied for (i.e. bank or credit institution) as defined under the Financial Institutions Act. The application is to be sent to the Governor of the Central Bank of Solomon Islands accompanied by the following:-  

Agreement to establish a financial institution to be signed by the promoters before a notary public stating the following:

1. The name proposed;
2. The location of the principal office;
3. The number of directors and the names and addresses of the directors;
4. The amount of authorized share capital and the division thereof into shares of a fixed amount;
5. The amount of share capital to be subscribed and to be paid up upon establishment, and the names of the subscribers;
6. the name of one of the promoters who is authorized to sign the application.
7. Biographical information on the promoters, substantial shareholders and directors of the proposed institution accompanied by references from independent persons and/or companies on the financial standing and good repute of the promoters, substantial shareholders and directors. These must include at least one reference for each person from a reputable bank.
8. A detailed feasibility study highlighting the objectives, operations and the financial viability of the proposed institution together with a sound implementation program.

The study should include:

1. A business plan indicating the financial services it is intended to offer. As an applicant is expected to have undertaken market research, a detailed analysis of market demand for the intended services should be included; and
2. Projected balance sheet, profit and loss and cash flow statements for the first three (3) years of operation accompanied by the assumptions behind the projections.
3. Proposed staff training program.
4. Proposed network of correspondent arrangements and evidence that proposed correspondents are willing to transact with the new Institution.
5. A description of the proposed internal control and accounting system, and the proposed systems for the control and management of risk.
6. An organization chart showing the proposed structure of the financial institution at inception, and in the third year of operation.
7. A list of the proposed principal officers of the institution stating their:
   1. Names, addresses and citizenship;
   2. Qualifications, business connections and experience;
   3. Proposed lawyers and auditors. 
   4. The Directors and principal officers nominated should be of good reputation and be known in the financial community as people with expertise in banking.

Limit of Shareholding

The authorities take the view that no single shareholder (or group of associated shareholders) should be in a position to exercise control or undue influence over the policies or operations of the proposed financial institution. This is in line with the overall objective of ensuring that depositor confidence is maintained. To conform with the policy regarding ownership spread it is expected that no person (or group of associated persons), should own more than twenty percent (20%) of the voting shares of the proposed institution, that there will be at least five (5) directors on the board and that director representation will be in proportion to the shareholding of the person(s) concerned to ensure representation from a broad range of shareholders. 

For purposes of determining the ownership limit, a "person" shall include an individual, or company, partnership, association or group of individuals whether incorporated or not. With respect to "associated persons" the following are deemed to be associates of a person:

1. Any relative by blood or marriage of an individual (namely, his spouse and the individual's parents, grandparents, children, grandchildren, brothers, sisters);
2. Any partner of a person;
3. Any corporation in which a person (whether an individual or not) is in a position to exercise control;
4. Any corporation wherein a person (an individual) is an officer or director and
5. Any officer or director of a person (where the person is not an individual).

In the case of an application from a foreign financial institution to incorporate a branch or subsidiary in Solomon Islands, consideration will be given for up to 100% ownership by the parent institution. 

Restriction on Names

Restriction on the use of the word "bank" by other than a licensed bank is governed by s.24 of the Financial Institutions Act. 

Consideration of Applications

In considering the application the Central Bank shall have regard to the economic advantage of Solomon Islands, the need for and the viability of the financial institution proposed, its ownership spread, the financial capacity, history and qualifications of the applicant, promoters, substantial shareholders and management, their character and experience, the proposed financial institution's accounting, risk management and internal control systems, the adequacy and the structure of its capital and the business activities it intends to undertake.  

Where the application is made by a foreign financial institution, the Central Bank will also consider the quality of supervision exercised by its home supervisor and whether this is done on a consolidated basis, other matters to be considered in this context are set out in section 5(6) of the Act. 

The Central Bank will consider the application and may cause necessary investigation and inquiries to assess the merits of the application, and may require further information from the applicant before formulating a decision on whether or not to issue a license. 

A time limit of four months from the time of making formal application, and the provision of all other additional relevant information that the Central Bank may require, is provided for the Central Bank to decide on the license application. There is no provision for appeal against the decision on the issue of a license. 

Requirements Following Approval of Application

If the license application is approved in principle, the following documents are required to be submitted to the Central Bank:

1. A certified copy of the Company's Certificate of Incorporation.
2. A certified copy of the company's Memorandum and Articles of Association.
3. An affidavit signed by the Company Secretary that the initial capital has been paid up, supported by a certificate of balance issued by a bank in Solomon Islands showing the amount of the capitalization standing to the credit of the financial institution.
4. A letter from the proposed external auditor of the financial institution confirming that appointment will be accepted.
5. An affidavit in respect of each director and principal officer that he has not been:
   1. A director or executive officer of a financial institution which has been placed in receivership or liquidation or whose license has been revoked.
   2. Convicted in a court of law of any offence involving fraud or dishonesty.
   3. Declared insolvent or bankrupt under any law.
   4. An undertaking by the directors that the proposed financial institution will observe the prudential standards prescribed from time to time by the Central Bank: such other requirements as may be formulated by the Central Bank to suit a particular application.

When all procedures and requirements are fulfilled to the satisfaction of the Central Bank the applicant will be so notified, and on payment of the prescribed license fee the appropriate license will be issued. The licensee is then authorized to commence business and will be expected to do so within six (6) months of the issue of license. Failure to commence business within such period may result in revocation of the license.   

Updated on: Sun, Sep 2009 at 23:40