The document discusses regulations around shareholding and capital requirements for financial institutions in Uganda. It states that no individual or group can own more than 49% of a financial institution's shares. Minimum capital requirements are also specified, such as commercial banks needing a minimum paid-up cash capital of UGX 10 billion, to be increased to UGX 25 billion by 2013. Non-bank financial institutions must have a minimum capital of UGX 500 million. These regulations aim to promote stability in the financial system.

1. REGULATORY FRAME WORK
OF FINANCIAL INSTITUTIONS;
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2. WEEK ONE  Overview of the Regulations of Financial Institutions in Uganda.
WEEK TWO  Licensing
WEEK THREE  Shareholding of Financial Institutions and Capital Requirement
WEEK FOUR  Prohibition and Restrictions, Accounts and Financial Statements.
WEEK FIVE  Corporate Governance
WEEK SIX  CONTINUOUS ASSESSMENT TEST ONE (CAT 1)
WEEK SEVEN  Supervision and Corrective Actions
WEEK EIGHT  Receivership and Liquidation
WEEK NINE  Deposit Protection Fund and, Amalgamation, Arrangements, and
affected Transaction
WEEK TEN  CONTINUOUS ASSESSMENT TEST TWO (CAT II)
WEEK ELEVEN  Islamic Banking in Uganda
WEEK TWELVE  Financial Institutions Reforms
WEEK
THIRTEEN
 Money Laundering

3. WEEK ONE
Overview of the Regulations of Financial Institutions in
Uganda;
Introduction
• BOU has the mandate to supervise and regulate the operations of financial institutions in the country.
• These include Commercial Banks, Credit Institutions, Micro Finance Deposit-Taking Institutions
(MDIs), and Forex Bureaus.
• A number of acts and regulations govern this mandate and the supervision of financial institutions.
• BOU Acts
• 1. BOU Act, 1969; BOU Act, 2000;
• Supervision Acts
• 1. FI Act, 2004; FI Act (Amended ) 2016
• 2. MDI Act, 2003;

4. Supervision Regulations (Continuations)
1. FI Anti Money Laundering Act, 2013;
2. FI Anti Money Laundering Regulations,
2010;
3. FI Capital Adequacy Regulations, 2005;
4. FI Consolidated, 2010;
5. FI Corporate Governance Regulations,
2005;
6. FI Credit Classification Regulations,
2005;
7. FI Credit Concentration Exposure Limits,
2005;
8. FI Credit Reference Regulations, 2005;
9. FI External Auditors, 2010;
10. FI Foreign Exchange, 2010;
11. FI Insider Lending Limits, 2005;
12. FI License Regulations, 2005;
13. FI Liquidity Regulations, 2005;
14. FI Ownership Control Regulations, 2005;
15. FX Act, 2004;
Other Acts and Regulations
1. FX Regulations, 2006;
2. MDI Regulations, 2004;
3. Intervention Policy, 1997;
4. Mobile Money Guideline 2013;
5. External Auditor Appointment Guidelines for
Forex Bureaus;

5. Objectives
• The main objectives of financial institutions regulations are:
1. To maintain confidence in the financial system (market confidence)
2. To protect and enhance of stability of the financial system
(financial stability).
3. To secure the appropriate degree of protection for consumers
(consumer protection).

6. WEEK TWO
Licensing of Financial Institutions;
• Definition
• License is a document that describes the policies and guidelines
pertaining to the licensing of financial institutions in Uganda.
• It states that the main objective of the regulation is to facilitate the
development of a strong and viable financial sector in order to enhance
an economic growth in Uganda that is well capitalized and well
managed.
• The document, in particular, provides information on the criteria for
granting a license and the conditions under which the license can be
revoked. Some of the salient features of the guidelines are:

7. Granting of Licenses to Financial Institutions like; CBs
• Bank of Uganda (BoU) is mandated to license all commercial banks in
Uganda.
• An institution that wishes to operate as a commercial bank makes an
application to BoU.
• BoU reviews the application by considering factors such as;
• The fit and properness of the promoters of the bank
• The convenience and needs of the community to be served;
• The structure and shareholding of the group of companies of which the applicant
forms a part or intends to form a part;
• Whether the applicant is or will be able to apply or maintain adequate, effective
and proper internal control systems when conducting financial institution business
under the license;
• Etc.
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12/15/2022 Prepared by Ssewankambo Tonny

8. How to obtain a financial institution license;
• A licence is obtained by applying in writing to the central bank. The
application must contain the following information , among others :
i. The name and address of the proposed Financial Institution ,its directors
and shareholders
ii. The nationality of the directors
iii. The nationality and shareholding of each shareholder
iv. The proposed location where the institution is going to operate from
v. The estimated number of employees
vi. The capital structure and earning prospects of the Financial Institution
vii. The class of license in which the applicant seeks to be licensed .
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9. The application for a license must be accompanied by the
following:
• The applicants memorandum and articles of association and a Certificate of
Incorporation .
• A certified copy of the resolution of the board of the applicant authorizing the
preparation and submission of the application
• A declaration of all individuals proposing to be directors, shareholders, and
managers
• Financial history of the applicant , nature of business of the applicant,
competence and integrity of the proposed management.
• Any person who gives false or misleading information in relation to the
application automatically ceases to be a fit and proper person to manage and
control a Financial Institution and in addition will be subject to criminal
prosecution.
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10. Processing of the Application;
• The Central Bank is obliged to investigate and prepare a detailed
report in respect of the application within six months after receipt
of the same
• After expiry of the 6 months , the central bank should make the
decision whether or not to grant the license within 14 days .
• The decision should be communicated to the applicant within 7
days of its making and it should be in writing.
• A person aggrieved by the decision of the central bank may
appeal to the high court within 30 days where the decision may
be affirmed of set aside.
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11. After issuing the license;
• A financial institution should not engage in any business other
than that specified in its license.
• Every financial institution which has been granted a license must
pay an annual fee which is prescribed by the Central Bank on or
before 31st January of each year.
• Failure to comply attracts a late payment penalty.
• A license fee is paid only grant of the license.
• Financial institutions which were licensed before commencement
of the FIA 2004 (26TH /03/04) were required to submit their
licenses to the central bank within 3 months for classification.
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12. Revocation of the license;
• Failure of the institution to commence operations within 2 months of granting the licence.
• When the company has failed or ceased to carry on business
• Where the company is unable to pay its liabilities as they mature
• Where it has gone into liquidation / wound up/dissolved
• If the company is carrying on business in a manner which is risky….
• Where it contravenes the FIA or any other financial law
• Where it is engaged in serous deception of the central bank or the general public about its
financial condition ,ownership, mgt…
• If the company amalgamates/sold/transfers its assets and liabilities to another without the
consent of the central bank.
• Where it fails to comply with any condition or direction stipulated by the central bank
• Failure to fulfill any of the licensing conditions .
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13. WEEK THREE
Shareholding of Financial Institutions and Capital
Requirement;
Shareholdings;
• No individual or group of related persons can own more than 49% of the
shares of a financial institution. (Exception has been made for reputable
publicly held companies and reputable financial institutions e.g…….….).
S.18 (1)
• Any person or group of related persons who own more than 49% of the
shares of a financial institution at the commencement of the Act were
required to reduce their share holding in a period not exceeding seven
years in accordance with a Plan of Action to be agreed to with the Central
Bank. S.18 (6)
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14. Shareholdings (Continued);
2. The Act empowers the Central Bank to order any person to reduce
his/her shareholding in a financial institution
• Act introduces prohibitions on shareholding, registration of shares and
restrictions on the right to control financial institutions in order to counteract
any attempts by individuals or groups of individuals to obtain direct or
indirect control of the financial institution.
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15. Capital Requirement
• Minimum capital requirements for financial institutions
• (1) A person proposing to transact financial institution business in the capacity of a bank in
Uganda shall have a minimum paid-up cash capital of not less than two hundred thousand
currency points invested initially in such liquid assets in Uganda as the Central Bank may
approve.
• (2) The minimum capital funds unimpaired by losses of a bank shall at any time not be less
than two hundred thousand currency points.
• (3) A person proposing to transact business as a non- bank financial institution shall have a
minimum paid up cash capital of not less than fifty thousand currency points invested in such
liquid assets in Uganda as the Central Bank may approve.
• (4) The minimum capital funds unimpaired by losses of a non-bank financial institution shall
at any time not be less than fifty thousand currency points.
• (5) The Minister, on the advice of the Central Bank, may from time to time revise the
minimum capital requirements of financial institutions by a statutory instrument, which shall
immediately be laid before Parliament

16. Continuation;
The minimum capital requirements for banks (which must be
unimpaired by losses) was increased from Ugs.2,000,000,000/= to
Ugs.4,000,000,000/= (two hundred thousand currency points) by 1st
January 2003, currently at UGX 10 billion, since March 2011 to be
increased to UGX 25 billion, by 1st January 2013.
Non-banking financial institutions (Credit Institutions) were required to
have a minimum capital fund (unimpaired by losses) of
Ugs.1,000,000,000/= (fifty thousand currency points) by 1st January
2001 and Ugs. 500,000,000 for MDIs
New minimum on-going capital requirements (core capital of 8 percent
and total capital of at least 12 percent of total risk adjusted assets) and a
ban on lending where liquid assets are insufficient were introduced in
the FIA 2006.

17. Continuation;
• Minimum on going capital requirements
A financial institution shall at all times maintain—
a) A core capital of not less than eight percent of total risk adjusted assets plus risk
adjusted off balance sheet items as may be determined by the Central Bank by
statutory instrument;
b) A total capital of not less than twelve percent of its total risk adjusted assets plus
risk adjusted off balance sheet items as may be determined by the Central Bank by
statutory instrument.
c) The Central Bank may prescribe higher on-going capital requirements for a specific
financial institution if the supervisory review process reveals existing risks in the
financial institution warranting the increase.

18. Continuation;
• Minimum holding and computation of liquid assets
1. A financial institution shall maintain a minimum holding of liquid assets, as determined by
the Central Bank in accordance with subsection (2) of this section.
2. Subject to subsections (1) and (2) of section 26, the minimum holding of liquid assets under
this section shall be expressed as a proportion of the demand and time liabilities of a
financial institution and shall not exceed thirty percent of such demand and time liabilities,
3. The Central bank shall prescribe the minimum amount of liquid assets to be held by a
financial institution, including the off-setting of general or specified liquid assets against
demand and time liabilities;
4. In computing the minimum amount of liquid assets to be held by a financial institution
operating in Uganda and elsewhere, all offices or branches of that financial institution in
Uganda shall be deemed to constitute one institution.
5. A financial institution which contravenes this section is liable to pay, to the Central Bank, a
civil penalty of one-tenth of one percent of the amount of the deficiency for every day on
which the deficiency continues.

19. Continuation;
• The capital requirement sets a framework on how banks must handle
their capital in relation to their assets.
• Internationally, the Bank for International Settlements' Basel Committee
on Banking Supervision influences each country's capital requirements.
• In 1988, the Committee decided to introduce a capital measurement
system commonly referred to as the Basel Capital Accords.
• The latest capital adequacy framework is commonly known as Basel III.
• This updated framework is intended to be more risk sensitive than the
original one, but is also a lot more complex.

20. WEEK FOUR
Prohibition and Restrictions, Accounts and Financial
Statements.
Financial Institutions are prohibited and restricted by the FI Act 2004 when
conducting banking services;
• Bar on lending where liquid assets are insufficient
• Restrictions on lending against own shares and debt instruments.
• Restrictions on credit concentration
• Restrictions relating to reduction of capital
• Restrictions on inter institutional placements and loans
• Prohibitions on insider transactions
• Restriction on purchase of certain loans
• Restriction on externalization of assets

21. Continuation;
Engaging in trade, commerce, industry
Investments in immovable property
Restrictions on engaging in securities activities
Foreign exchange holdings
Core capital requirements for conducting foreign exchange business
Net open position in foreign currencies
Suspension of foreign exchange business
Stored value cards
Restrictions on a mortgage bank et cl,.

22. Accounts and Financial Statements;
• Financial ledgers and other financial records
1. A financial institution shall at all times keep financial ledgers and other financial records.
2. The financial year of every financial institution shall be the period of twelve months ending
on the 31st December in each calendar year and if different, such FIs should change its
financial year to comply with subsection (2).
3. The financial ledgers and other financial records shall be kept in Uganda and shall comply
with the requirements of; the Companies Act, International Accounting Standards, and such
other requirements as the Central Bank may in writing prescribe.
4. All accounting entries in financial ledgers and all financial records to be kept by a financial
institution shall be kept and recorded in the English language.
5. A financial institution shall preserve the financial ledgers and other financial records for a
period of not less than ten years.
6. For the purposes of this section, ‘financial records’ include any book, computer record,
report, statement or document relating to the business affairs, transactions, and property of
a financial institution.
7. Every financial institution shall maintain non-financial records which are as necessary.

23. Continuation;
Entries in financial ledgers
• No person shall with intent to deceive or mislead in any financial ledger, record,
report, statement or other document relating to the business affairs, transactions,
property, assets, liabilities or accounts of a financial institution—
• (a) make a false entry knowing the entry to be false,
• (b) omit an entry or cause an entry to be omitted; or
• (c) alter, abstract, conceal, remove or destroy an entry, or cause an entry to be
altered, abstracted, concealed, removed or destroyed.
• A financial institution shall indicate in its profit and loss account any civil penalty
levied against it under this Act.
• A person who contravenes subsection (1) or (2) of this section commits an offence
and is liable on conviction to a fine not exceeding one hundred currency points or
imprisonment not exceeding five years or both.

24. Continuation;
Submission of audited annual financial statements
• A financial institution shall within a period of three months after the end
of ts financial year, submit to the Central Bank its audited annual
financial statements approved by its board of directors together with the
auditors’ report and the management letter.
• The form and contents of the audited annual financial statements
required under this section shall comply with the requirements in the
regulations made by the Central Bank under section 131 of this Act.
• A financial institution which fails to submit the audited annual financial
statements within the period prescribed in subsection (1) of this section
shall pay to the Central Bank a civil penalty of twenty currency points for
every day on which the default continues.

25. Continuation;
Disclosures to the Central Bank
• The audited annual financial statements shall at least disclose the following—
i. the name of any person or group of related persons who hold five percent or more
of the total voting rights in the financial institution;
ii. the number of borrowers and the aggregate amount of advances or credit facilities
exceeding twenty five per cent of core capital lent to a single person or group of
related persons.
iii. the names and amount of any lending to directors, shareholders and companies in
which the directors and shareholders directly or indirectly have an interest; and
iv. the range of interest rates and performance status of such insider loans during the
reporting period.

26. Continuation;
• Publication of annual and quarterly financial statements
• A financial institution shall within four months after the end of its financial year, publish its
audited annual financial statements together with the auditors report, in a newspaper
circulating in the whole of Uganda in the format prescribed in the regulations or in such other
format as may be prescribed by notice to the financial institution issued by the Central Bank.
• A financial institution shall exhibit on a half yearly basis, in the banking hall of each of its
offices and branches a copy of its un-audited financial statement stating the fact that they
are not audited.
• A financial institution shall exhibit throughout the year in a conspicuous place in the banking
hall of each of its offices and branches a copy of its audited annual financial statements
together with the auditor’s report.
• A financial institution which fails to publish the audited annual financial statements within the
period prescribed in subsection (1) of this section shall pay to the Central Bank a civil
penalty of twenty currency points for each day on which the default continues et cl,.

27. WEEK FIVE
Corporate Governance
Corporate governance definition;
• Corporate governance requirements are intended to encourage the bank to be well
managed, and is an indirect way of achieving other objectives.
• As many banks are relatively large, with many divisions, it is important for
management to maintain a close watch on all operations.
• Investors and clients will often hold higher management accountable for missteps,
as these individuals are expected to be aware of all activities of the institution.
• To be a body corporate (i.e. not an individual, a partnership, trust or other
unincorporated entity)
• To be incorporated locally, and/or to be incorporated under as a particular type of
body corporate, rather than being incorporated in a foreign jurisdiction.
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28. Continuation;
The Act introduced provisions on corporate governance covering among others the following
areas:
• Appointment of Board of Directors;
• Disqualification of the Board
• Responsibilities and duties of the Board;
• Conflict of interest
• Responsibilities of the Board
• Duties of Directors
• Removal and suspension of directors
• Board Meetings
• The creation of Audit Committee and
• Assets/Liability Management committee (ALCO);
• Internal Auditors
• External Auditors

29. Continuation;
• Approval of External Auditors
• Disqualification of External Auditors
• No change of External Auditors
• Insurance cover by External Auditor
• Time limit for External Auditor
• Duties of External Auditor to financial institution
• Duties of External Auditor to Central Bank
• External Auditors right to access financial records
• Information by External Auditors to Central Bank
• The Audit report
• Qualified audit report
• Rejection of audit report
• Requirements on provisions
• Control over management
• Special and further investigations by External Auditors
• The establishment of the Credit Reference Bureau
These provisions were intended to strengthen accountability and transparency in financial institutions.

30. WEEK SIX
CONTINUOUS ASSESSMENT
TEST ONE (CAT 1)

31. WEEK SEVEN
Supervision and Corrective Actions
Supervision;
Inspection of financial institutions
• The Central Bank may, periodically or at any time at its discretion, cause an inspection to be made, by
an officer of the Central Bank or other person appointed by the Central Bank, of any financial institution
and of its financial records and books of accounts on the premises of the financial institution and shall
provide to that financial institution a copy of the report on inspection.
• The financial institution shall furnish to the officer making an inspection, all such books of accounts and
financial records and other documents as well as assets as officer may require.
• Any officer of a financial institution who fails to furnish any document in his or her custody or power,
commits an offence and is liable on conviction to a fine not exceeding fifty currency points or
imprisonment not exceeding six months or both.
• An officer of the Central Bank shall after inspection prepare and submit a report which shall draw
attention to any breach or contravention of this Act, regulations, notices or directions issued under this
Act, any weaknesses in systems control and procedures or in the manner of conduct of the business of
the financial institution inspected, any mismanagement, and such other matter relating to the business
of the financial institution not consistent with sound banking practice.

32. Continuation;
Information to be provided by financial institutions.
1. A financial institution shall furnish to the Central Bank, all information and data of its
operations in Uganda including periodic returns and the audited balance sheet and
profit and loss account et cl., may require for the proper discharge of its functions
under this Act.
2. A financial institution shall report to the Central Bank all loans granted or extended
to its insiders at least once every month.
3. Any financial institution which, without reasonable cause, fails to comply with
subsection (1) or (2) of this section, or submits inaccurate returns, shall pay to the
Central Bank a civil penalty of fifty currency points per day of default.
4. The Central Bank may impose restrictions on the operations of a financial institution
which fails to provide information or which provides false information.
5. (5) The Central Bank may, upon request made to it by any monetary or financial
regulatory authority in the ordinary course of its business, disclose any of the
information provided by Fis.

33. Continuation;
Information for consolidated supervision
1. The Central Bank shall, if it deems necessary for the safety and soundness of the financial
institution, or for the safety of the depositors or require in writing any affiliates, associates,
holding or subsidiary companies or any person who controls a financial institution to
provide the Central Bank or its appointed agent such information or documents as may be
necessary within the period specified in the notice.
2. The Central Bank may appoint a competent person to carry out an examination of the
operations and affairs of the affiliate, associate, holding or subsidiary company of a
financial institution.
3. Any person who fails, refuses, omits or neglects to provide information requested under
subsection (1) and/or (2) commits an offence and is liable on conviction to a fine not
exceeding two hundred and fifty currency points or imprisonment not exceeding two years
or both; and an additional fine not exceeding fifty currency points for each day on which the
offence continues.
4. Any substantial shareholder or director of a financial institution change.

34. CORRECTIVE ACTIONS.
Intervention
If the Central Bank has reason to believe or finds that the affairs of the financial
institution are conducted in a manner detrimental to the interests of the depositors or
prejudicial to the interests of the financial institution or in contravention of this Act, the
Central Bank may, without prejudice to any other course of action—
(a) order in writing that the financial institution takes remedial action to comply with this
Act or regulations, notices, or orders issued under this Act;
(b) issue directions regarding measures to be taken to improve the management,
financial soundness or business methods of the financial institution;
(c) require the directors or management of the financial institution to execute an
agreement concerning their implementation of orders
(d) perform or appoint an agent to perform a special examination of the financial
institution to determine the financial condition of the institution.

35. Continuation;
Where a financial institution fails, refuses or neglects to comply with an order, direction, or
agreement issued or made under subsection (1) then the Central Bank may do any or all of the
following—
(a) initiate a legally binding cease and desist order,
(b) remove or suspend any person from the management of the affairs of the financial
institution;
(c) impose penalties on the offending member of the management to be met personally;
(d) appoint a person who, in the opinion of the Central Bank is, suitably qualified and
competent to manage the affairs of the financial institution for such period as shall be
necessary to rectify the problem;
(f) require the financial institution to reconstitute its board of directors;
(g) withhold approvals on establishment of new branches; within such period as shall be
specified
(h) withdraw the foreign exchange dealers’ license;
(i) require the financial institution to add such capital as may be specified;
(j) impose any other sanctions as the Central Bank may deem appropriate in the
circumstances.

36. Continuation;
• Modification, cancellation and upholding of orders
• Prompt mandatory corrective actions
• Adequately capitalised financial institutions suffering large losses
• Undercapitalised financial institutions
• Significantly undercapitalised financial institutions
• Management take-over
• Powers of Central Bank on taking over management of financialinstitution
• Duties of a statutory manager
• Prohibition on legal proceedings against a financial institution under
• management of Central Bank
• Management by Central Bank not relief from contractual obligations
• Costs of management

37. WEEK EIGHT
Receivership and Liquidation
RECEIVERSHIP.
Placing of financial institution under receivership
1. Central Bank may close a financial institution and place it under receivership.
a) (a) if the Central Bank determines that there is a likelihood that the financial
institution will not be able to meet the demands of its depositors or pay its
obligations in the normal course of business;
b) (b) if the Central Bank determines that the financial institution has incurred or is
likely to incur losses that will deplete all or substantially all of its capital;
c) (c) if it is significantly under capitalised.
2. If a financial institution is placed under receivership, the Central Bank shall become
the receiver of the closed financial institution.

38. Continuation;
Options available to the receiver
1. The Central Bank shall, within twelve months from the date of taking over as a receiver,
consider and implement any or all of the following
(a) arrange a merger with another financial institution
(b) arrange for the purchase of assets and assumption of all or some of the liabilities by other
financial institutions;
(c) arrange to sell the financial institution;
(d) liquidate the assets of the financial institution.
2. The Central Bank shall take the action in consideration of;
(a) is most likely to result in marshalling the greatest amount of the financial institution’s assets;
(b) protects the interests of depositors including their interest in the unprotected deposit
amounts; or
(c) minimises costs to the Deposit Protection Fund and losses to other creditors; or
(d) ensures stability of the financial sector.

39. Continuation;
• Prohibitions on proceedings against a financial
institution in receivership
• Where a financial institution is placed under receivership—
• (i) no steps may be taken by any person to enforce any
security over the property of the financial institution;
• (ii) no other proceedings and no execution or other legal
process may be commenced or continued against the
financial institution or its property.

40. LIQUIDATION
Bar on liquidation or winding up proceedings
1. No proceedings for the winding up or liquidation of a financial institution shall be
commenced or continued except;
(a) where the proceedings are commenced by the Central Bank or its authorized
agent; or
(b) where the proceedings are commenced by a financial institution undersection 98.
2. A financial institution shall obtain the approval of the Central Bank before
commencing.
3. The following are also observed; Voluntary liquidation, Liquidation by the Central
Bank, powers of the liquidator, Stay of proceedings, Invitation of claims from creditors,
Report on assets and liabilities by liquidator, Creditors and contributories meeting,
Payment to Creditors and ranking of claims, Financial ledgers and financial records of
liquidator and Release of liquidator

41. WEEK NINE
Deposit Protection Fund, and Amalgamation, Arrangements,
and affected Transaction
THE DEPOSIT PROTECTION FUND.
Establishment of Deposit Protection Fund
(1) The Fund in the Central Bank known as the Deposit Protection Fund.
(2) The Fund shall be managed and controlled by the Central Bank
(3) FIs shall contribute to the fund.
(4) The Minister may, from time to time, by notice in the Gazette, fix the size of the Fund sufficient to
protect the interests of depositors.
(5) The Fund shall consist of—
(a) moneys contributed to the Fund by financial institutions under section 109;
(b) income credited to the Fund under subsection (6) of this section;
(c) money borrowed for purposes of the Fund under subsection (4).
(6) The money constituting the Fund shall be placed in an account with the Central Bank to be invested.
(7) There shall be chargeable to the Fund the administrative expenses of the Central Bank.

42. Continuation;
Contributions to the Fund
1. Every financial institution shall be a contributor to the Fund.
2. The Central Bank shall serve on a financial institution a notice specifying the amount and the period,
3. A financial institution which for any reason fails to pay its contribution to the Fund within the period
specified in a notice issued under subsection (2) shall be liable to pay to the Fund a civil penalty
interest charge of one half per cent of the unpaid amount for every day outside the notice period on
which the amount remains unpaid.
4. The minimum annual amount of contribution to the Fund under this section shall not be less than 0.2
per cent of the average weighted deposit liabilities of the financial institution in its previous financial
year; except that the Central Bank may from time to time issue statutory instruments varying the
percentage and advising on the basis of weighting.
5. If the Central Bank finds that the affairs of a financial institution are being conducted in a manner
detrimental to the interests of depositors or the financial institution and it is of the opinion that the
continued conduct may cause loss to the Fund, the Central Bank may, by notice, increase the
contributions of that financial institution beyond the rate set out in subsection (4) of this section.
6. The increased contributions effected under subsection (5) shall be risk adjusted contributions based
on the quarterly ratings resulting from the Central Bank’s off-site surveillance reports.
7. A financial institution whose overall performance shows an unsatisfactory or marginal rating shall be
charged on a quarterly.

43. Continuation;
Protection of deposits and payments out of the Fund
(1) The amount being the aggregate credit balance of any accounts maintained by a customer
at a FI less any liability of the customer to FI, shall be a protected deposit.
(2) The liquidator to set off any liability of a depositor in a financial institution.
(3) A customer of a FIs may, if it becomes closed, lodge a claim with the Central.
(4) The Central Bank shall make payment of the protected deposit to customers after ninety
days of closure of the financial institution.
(5) The Central Bank may, before paying any claim lodged, require the claimant to furnish it
with such documentary proof.
(6) The Central Bank or its appointed liquidator may direct the Deposit Protection Fund to
withhold payment of insolvent customer.
(7) The Central Bank may carry out inspections and ascertain the type, number and values of
the protected deposits.
(8) “Customer” includes any person entitled to a deposit as trustee or a person holding any
deposits jointly.
(9) No person or authority shall pay a depositor of a failed or closed financial institution any
money in excess of the protected deposits under the Deposit Protection Fund.

44. Continuation;
Annual Report of the Deposit Protection Fund
(1) The Central Bank shall, within four months after the close of
each financial year, submit audited financial statements and an
annual report of its operation of the Deposit Protection Fund to
the Minister and contributing banks.
(2) The financial year of the Fund shall be the same as the
financial year prescribed for financial institutions in this Act.
(3) The financial statements shall be prepared and audited within
four months after the end of the financial year.

45. AMALGAMATIONS, ARRANGEMENTS AND AFFECTED
TRANSACTIONS.
Amalgamations and arrangements
• No amalgamation or arrangement which involves a financial institution as
one of the principal parties to the relevant transaction, and no
arrangement for the transfer of all or any part of the assets and liabilities
of a financial institution to another person, shall have legal force unless
the prior consent of the Central Bank.
• Recognizing the fact that the safeguards of licensing may be swept away
by a change in ownership of a financial institution any form of
compromise, amalgamation, arrangement etc. of and between financial
institutions can only be done or effected with the prior consent of the
Central Bank.

46. Continuation;
Reconstruction within group of companies
• No reconstruction of companies within a group of which a financial institution or
subsidiary of a financial institution is a member shall be effected without the prior
written approval of the Central Bank.
Alteration of memorandum and articles
• No alteration under the Companies Act, of the memorandum of association or articles
of association of a company registered as a financial institution;
• Alteration of memorandum and articles of association in accordance
• with directions of Central Bank

47. WEEK TEN
CONTINUOUS ASSESSMENT
TEST TWO (CAT 2)

48. WEEK ELEVEN
Islamic Banking in Uganda
What is Islamic banking?
In essence, it is a banking system based on the principles of Islamic or Sharia law.
Revolve around the value of a sound currency and fairness in transactional dealings.
Islamic banking transactions are guided by morals and value system as derived from
Sharia Law, and these demand: transparency and full disclosure between parties to a
transaction; good faith in conduct by the parties to a transaction; and participation in
transactions that do no harm to the wider society.
Consequently, transactions in Islamic Banking are often viewed as a culturally distinct
but religiously motivated form of ethical investing.
A financial institution that is entitled under this Act to call itself a bank may describe its
Islamic financing business as “Islamic banking business” and, if it is an Islamic
financial institution, may describe itself as an “Islamic bank.”

49. Continuation;
Licensing of financial institutions to conduct Islamic financial business
1. On the commencement of this Act, an already licensed financial institution carrying on
business, may apply to the Central Bank in accordance with this Act to carry on Islamic
financial business in addition to its existing licensed business.
• 35
2. Notwithstanding subsection (1), an already licensed financial institution which is permitted to
carry out Islamic banking shall carry out that business through an Islamic window.
3. For the purposes of subsection (2), an “Islamic window” means the part of a financial
institution, other than an Islamic financial institution, which conducts Islamic financial business.
4. For the avoidance of doubt, a financial institution shall, in respect of Islamic financial
business carried on by it, be subject to the provisions of this Act.
5. The Central Bank shall, in consultation with the Minister, by statutory instrument, make
special provisions for the licensing and operation of Islamic banking.

50. Continuation;
Shari’ah Advisory Board
1. Every financial institution which conducts Islamic financial business shall appoint
and maintain a Shari’ah Advisory Board.
2. There shall be a Central Shari’ah Advisory Council in the Bank of Uganda to —
(a) advise the Bank of Uganda on matters of regulations and supervision of Islamic
banking systems in Uganda; and
(b) approve any product to be offered by financial institutions conducting Islamic
banking.
3. For the purposes of subsection (1), a “Shari’ah Advisory Board” means a Board
appointed by a financial institution in accordance with this Act to advise, approve and
review activities of a Islamic financial business in order to ensure that the financial
institution complies with the Sharia’h.”

51. Continuation;
4. The Central Bank, in consultation with the Minister, shall make regulations in
respect of Shari’ah Advisory Boards including—
(a) the size, functions, duties and responsibilities, governance and conduct of
Shari’ah Advisory Boards;
(b) the competency, interests and terms of engagement of a members of a
Shari’ah Advisory Board; and
(c) the policies, procedures, record-keeping, reviews, reporting and disclosure.
5. Notwithstanding subsection (2), the appointment, maintenance, operation and
conduct of a Shari’ah Advisory Board shall at all times be carried out in
accordance with any applicable rules and policies of the respective financial
institution and be the responsibility of the board of directors of the financial
institution.

52. Continuation;
Islamic banking is rested on the following principles;
a) Prohibition of payment and receipt of interest; Islamic banking prohibits charging
a fixed interest rates on borrowed funds.
b) Mutuality of risk sharing-profit and loss; In Islamic Banking, the Banks and their
customers are partners, and share in a predetermined and agreed ratio, the profits or
losses arising from this “joint venture”.
c) Prohibition of investment in harmful sectors / Businesses; Islamic Banking
integrates Islamic moral and ethical value systems, and as such, prohibits the financing
of harmful products and or activities such as casinos, nightclubs or any such activity.
d) Prohibition of uncertainty and speculation There are strict rules in Islamic
finance or banking against transactions that are highly uncertain or speculative or that
may cause any injustice or deceit against any of the parties.
e) Conducted based on Shari’ah Law; application by concepts derived from the
Quran and the writings of Islamic scholars

53. Continuation;
How Islamic banking will operate in Uganda
a) Mobilization of Deposits: Under the existing legal and regulatory framework in Uganda
allows for customer deposit mobilization through the following arrangements:
b) Profit-Sharing Investment Accounts; invest funds on their behalf of customers either
in projects and then share profits/losses arising from the investments.
c) Profit Earning Investment Accounts; With these accounts, the customer earns a profit
on their deposits held with the financial institution.
d) Non-profit-bearing deposit accounts; The depositor does not earn any profit on their
deposits.
e) Disbursement of Credit:
f) Sale Based Financing (Cost-Plus Mark-up); The selling price includes the original cost
plus a negotiated profit margin.
g) Lease Based Financing: where the financial institution purchases an asset directly
from a supplier and leases it to the customer for a certain period at a fixed rental charge.
h) Equity Partnership: Financing; these contracts are based on Profit or Loss Sharing
arrangements through: Trust Financing and Partnership as indicated below:

54. WEEK TWELVE
Financial Institutions Reforms;
Introduction;
• An Act to amend the Financial Institutions Act, 2004, to provide for bancassurance; to
provide for agent banking; to provide for special access to the Credit Reference
Bureau by other accredited credit providers and service providers; to reform the
Deposit Protection Fund.
• Definition of bancassurance;
• Banc assurance means using a financial institution and its branches, sales network
and customer relationships to sell insurance products.”

55. Continuation;
CONDUCT OF BANCASSURANCE BY FINANCIAL INSTITUTIONS
Banks engaging in bancassurance business
1) A financial institution shall not engage in bancassurance or Islamic insurance
business in Uganda as a principal or agent without prior written authorisation by the
Central Bank.
2) A financial institution wishing to engage in the business of bancassurance or Islamic
insurance shall do so in a format and manner prescribed by the Insurance Regulatory
Authority of Uganda after consultation with the Central Bank.
3) Subject to subsections (1) and (2), the bancassurance or Islamic insurance business
activities of any financial institution shall comply with the Insurance Act.
4) For the purposes of this section “bancassurance” means using a financial institution
and its branches, sales network and customer relationships to sell insurance products.”

56. Agent Banking;
• Definitions;
• “Agent” means a person contracted by a financial institution to provide financial
institution business on behalf of the financial institution in accordance with this Act;
• “Agent banking” means the conduct by a person of financial institution business on
behalf of a financial institution as may be approved by the Central Bank”
• A person licensed to carry out financial institutions business may carry out the
licensed business through an agent.
• The Central Bank shall, in consultation with the Minister make regulations in respect
of agents and agent banking.”
• The place or places at which the licensee is authorised to conduct the business and in
the case of a financial institution permitted to conduct agent banking, the licence shall
indicate the word “Agents”.”

57. Continuation;
• Agent banking is simply third party banking. This is where our
customers are able to carry out bank transactions at any
Financial Institution.
• Agents are selected and appraised by Financial Institution and
then approved by Bank of Uganda.
• Upon approval, the Bank signs contracts with the agents, train
them and brand their premises prior to carrying transactions.
• Agent banker can either be a sole proprietorships, Partnerships,
Limited liability companies, Cooperative Societies, Microfinance
Institutions or any other entity which the Central Bank may
deem fit.

58. Services offered by Agent Banking
Agent banking offer the following services in line with the
agent Banking regulation;
1. Cash Deposit
2. Cash Withdraw
3. Account Opening and Loan Application Initiation
4. School fees collection
5. Third party payments (UMEME, NWSC, URA, KCCA)
6. Customer to non-customer payments
7. Balance Inquiries, Mini / Full statements

59. Benefits of Agent Banking services
1) Enhanced convenience by taking banking to
customers’ neighborhoods
2) Improve customer service through extended banking
hours.
3) Increasing accessibility to our services especially in the
rural areas through increased outreach.
4) Delivering tailor made solutions to meet the needs of
our customers.

60. Credit Reference Bureau;
• Credit reference bureau” means a legal entity established as a company that allows
financial institutions and MDIs to exchange information on their clients’ repayment
history and current debt profiles and which compiles a database that collects, stores,
consolidates and processes information related to persons, companies and
enterprises;
• “credit reference bureau business” means the business of disseminating credit
information among financial institutions or micro finance deposit-taking institutions for
their businesses;
• “credit information” means the history of an individual or entity with regard to credit
and financial obligations that a credit reference bureau may collect from financial
institutions or micro finance deposit-taking institutions;

61. Continuation;
The Central Bank may, in consultation with the Minister, make regulations providing for
the access and use of the Credit Reference Bureau by other credit providers.
• Where the Central Bank considers it necessary, and after consultation with the
Minister, the Central Bank may, under the provisions of subsection (1), establish more
than one Credit Reference Bureau.
• The Central Bank may license a Biometric Identification Service Provider for purposes
of the Credit Reference Bureaus established under subsection (1).
• Biometric Identification Service Provider means a legal entity established as a limited
liability company and licensed by the Central Bank to collect, compile, consolidate,
process and store biometric and personal identification data to identify persons,
companies and enterprises for purposes of 22.

62. Continuation;
(1) The Central Bank or its appointed agent or any other person authorised by the
Central Bank shall establish a Credit Reference Bureau for the purpose of
disseminating credit information among financial institutions for their business.
(2) All financial institutions shall promptly report to the Credit Reference Bureau—
(a) all the details of non-performing loans classified as doubtful or loss in their portfolio,
the customer has not made any satisfactory proposals for repayment of the debt
following formal demand, and the customer has been given at least twenty-eight days’
notice of the intention to disclose that information to the Credit Reference Bureau;
(b) information on customers involved in financial malpractices including bouncing of
cheques due to lack of funds and fraud.
(3) No information shall be divulged by any financial institution to the Credit Reference
Bureau without the customers’ consent.
(4) Any customer of a financial institution has a right to know what
• information is held on him or her by the Credit Reference Bureau.

63. Continuation;
Financial institution to carry out credit check on customer applying
for credit
(1) Unless the Central Bank directs otherwise, every financial institution
shall perform a credit check on a customer who applies for credit from the
financial institution.
(2) Notwithstanding subsection (2), the Central Bank may, by statutory
instrument, after consultation with the Minister, prescribe other
circumstances requiring a financial institution to perform a credit check on
a customer.”
A financial institution shall report to the Central Bank all loans and other
credit granted or extended to insiders at least once every quarter of the
financial year.”

64. Rationale of Credit Reference Bureau;
• Timely and accurate information on borrowers’ debt profile and repayment history
reduces information asymmetry between borrowers and lenders and enables lenders
to make informed decisions about allocation of credit which reduces default
probabilities of borrowers and contributes to financial stability and efficient allocation
of resources in an economy;
• When financial institutions compete with each other for customers, multiple borrowing
and over indebtedness increases and loan default may rise unless the financial
institutions have well developed credit information systems;
• Information in credit registries is vital for the development of a credit culture where
borrowers seek to protect their reputation collateral by meeting their obligations in a
timely manner and borrowers can also use the good repayment record as collateral
for new credit; and
• Credit reference bureaus provide the necessary infrastructure to ensure information
integrity, security and up-to-date information on borrowers.

65. Obligations of a credit reference bureau
• A credit reference bureau shall—
• Implement strict quality control procedures in order to ensure the quality of its
database and the continuity of its services;
• Utilise the information collected solely for the purposes set out in these Regulations;
• Provide authentic, legitimate, reliable, accurate, truthful and current information that
reflects the existing situation of the holder at any given time and if the information is
found to be illicit, inaccurate or no longer valid, the credit reference bureau shall
promptly take the corrective measures necessary to remedy the deficiencies;
• Provide to the Central Bank, unrestricted access to all the information managed by
the credit reference bureau and
• Observe, through its shareholders, directors and officers, a perpetual duty
• of confidentiality with regard to the information divulged to them by financial
institutions and MDIs.

66. WEEK THIRTEEN;
Money Laundering
WHAT IS MONEY LAUNDERING?
• Money Laundering involves disguising the true origin of
monies. These may have been obtained from drug trafficking
and or from other serious crimes such as fraud and terrorism.
Stages of Money Laundering include;
• Placement
• Layering
• Integration

67. 67
STAGES OF MONEY LAUNDERING
• Placement - The physical disposal of cash proceeds derived from illegal
activity.
• This is the movement of cash from its source. On occasion the source can be easily
disguised or misrepresented. This is followed by placing it into circulation through
financial institutions, casinos, shops, bureau de change and other businesses, both
local and abroad. The process of placement can be carried out through many processes
including:
• Currency Smuggling
• Bank Complicity
• Currency Exchanges
• Securities Brokers
• Blending of Funds
• Asset Purchase
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68. Layering;
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• Layering - separating illicit proceeds from their source by
creating complex layers of financial transactions designed to
disguise the audit trail and provide anonymity.
• The purpose of this stage is to make it more difficult to detect
and uncover a laundering activity. It is meant to make the
trailing of illegal proceeds difficult for the law enforcement
agencies. The known methods are:
• Cash converted into Monetary Instruments
• Material assets bought with cash then sold

69. Integration;
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• Integration - The provision of apparent legitimacy to criminally derived wealth.
• This is the movement of previously laundered money into the economy mainly through
the banking system and thus such monies appear to be normal business earnings.
• Property Dealing – The sale of property to integrate laundered money back into the
economy is a common practice amongst criminals. For instance, many criminal groups
use shell companies to buy property; hence proceeds from the sale would be considered
legitimate.
• Front Companies and False Loans – Front companies that are incorporated in countries
with corporate secrecy laws, in which criminals lend themselves their own laundered
proceeds in an apparently legitimate transaction.
• Foreign Bank Complicity – Money laundering using known foreign banks represents a
higher order of sophistication and presents a very difficult target for law enforcement.
• False Import/Export Invoices

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71. 71
WHY ARE BANKS CONCERNED?
• Reputational Risk
• Regulatory demands
• Criminal Prosecution
• Investigation
• Moral Obligation
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72. Control of money laundering;
A financial institution in Uganda shall—
(a) demand proof of and record the identity of its clients or customers, whether usual or
occasional, when establishing business relations or conducting transactions, in
particular opening of accounts or issuing of passbooks, entering into fiduciary
transactions, renting of safe deposit boxes, or performing large cash transactions;
(b) together with its directors, officers and employees report promptly to the national
law enforcement agencies any suspected money laundering activity related to any
account held with the financial institution.
(2) Any financial institution or director, officer or employee of a financial institution
which or who contravenes subsection (1) of this section, as applicable, commits an
offence and is liable on conviction to a fine not exceeding two hundred and fifty
currency points

73. Action against money laundering
(1) A financial institution shall promptly report to the national law
enforcement agencies any suspected money laundering activity
related to any account held with the financial institution.
(2) For purposes of this Act, ‘money laundering’ shall cover all
activities and procedures designed to change the identity of
illegally obtained money so that it appears to have originated
from a legitimate source.
(3) Any financial institution which contravenes the provisions of
this section commits an offence and is liable, on conviction, to a
fine not exceeding two hundred and fifty currency points.

74. MONEY LAUNDERING PREVENTION MEASURES;
1. Identification of clients, customers, other persons and other antimoney laundering
measures
2. Maintenance of records
3. Recording and reporting cash and monetary transactions
4. Reporting suspicious transactions
5. Cross border movements of currency and negotiable bearer instruments
6. Availability of records
7. Admissibility of records
8. Electronic funds transfers
9. Obligations of confidentiality not an impediment
10. Immunity from liability
11. Refraining from doing business with money launderers
12. Continuing the transaction