ISLAMABAD: The Finance Ministry has uploaded the proposed State Bank of Pakistan (SBP) Amendment Act, 2021, and stated that in light of international best practices and domestic experiences, legal framework of the central bank is being amended to increase functional and administrative autonomy of the central bank.

According to the salient changes of the proposed bill, the legal framework of the SBP is being amended to: (i) clearly define the objectives of the SBP to improve its accountability; (ii) outline the SBP’s functions in line with its objectives; (iii) provide necessary financial resources to help achieve objectives; (iv) increase functional and administrative autonomy of SBP; (v) improve transparency in operations of the SBP; (vi) strengthen accountability by making oversight functions stronger and enhancing reporting requirements.

The law states that by defining objectives more specifically, the SBP accountability is being enhanced and second, in order to achieve these objectives, the SBP functions are being suitably aligned and the SBP is being provided with sufficient financial resources; (i) share capital; (ii) sufficiency of capital and reserves; (iii) recapitalisation; and (iv) distribution of profits.

Functional/institutional autonomy of the SBP is also being strengthened with no new government borrowing; (ii) Quasi-fiscal operations, defined as monetary actions taken on behalf of the government, shall be discontinued; (iii) Changed mechanism for coordination between the SBP and the government. The governor and the finance minister shall establish a close liaison with each other and shall keep each other fully informed on all matters which jointly concern the bank and the Finance Division; (iv) no suit, prosecution or any other legal proceeding including for damages shall lie against the bank, the Board of Directors or member thereof, governor, deputy governors, member of any board committee and monetary policy committee, officers and employees of the bank for any act of commission or omission done in exercise or performance of any functions, power or duty conferred or imposed by or under this Act upon such persons or any rules and regulations made thereunder or any legislation administered by the Bank unless such act is done in bad faith and with mala fide intent.

The governor, deputy governors, directors, members of any Board committee and monetary policy committee, officers and employees of the Bank shall not be liable in their personal capacity for any act of commission or omission done in their official capacity in good faith and in case of any such proceedings as mentioned in sub-section (i), they shall be indemnified by the Bank which shall bear all the expenses thereof, till final decision of the case; (ii) no action, inquiry, investigation or proceedings shall be taken by the NAB, the FIA or provincial investigation agency, bureau, authority or institution by whatever name called without prior consent of the Board of Directors of State Bank; (iii) Also applicable mutatis mutandis to the former directors, governors, deputy governors.

Further, administrative autonomy is being strengthened in terms of appointment.

President on the recommendations of the government would appoint non-executive directors of the board and the Secretary Finance no longer ex-officio member of the SBP Board; (ii) President on recommendation of the government would appoint Governor SBP; (iii) Federal Government from a panel of three recommended by the governor following consultation with the Finance Minister would appoint Deputy Governors.

Three Deputy Governors would be appointed.

The law proposed further, administrative autonomy is being strengthened in terms of office.

The law proposes two five-year terms in office of non-executive directors of the board would be; (ii) two five years terms of External Members of MPC; (iii) Five-year terms of governor; eligible for a second five-year term; (iv) Five years terms of deputy governors; eligible for a second five-year term.

Further, administrative autonomy is being strengthened in terms of removal.

The law proposes that the president, inter alia, for serious misconduct as determined by a court of law can remove non-executive directors of the board and government, inter alia for serious misconduct as determined by a court of law can remove external members of MPC.

Likewise, president, inter alia, for serious misconduct as determined by a court of law can remove governor and federal government inter alia, for serious misconduct as determined by a court of law, on the recommendation of the governor with approval of the board can remove the deputy governors.

The law states that the transparency and controls are being enhanced through Executive Committee that would make policy decisions related to the bank’s core functions as well as administration and management matters, it will be consisting of governor, deputy governors, executive directors and other officers as needed and only governor and deputy governors have the right to vote.

There is comprehensive provision for the appointment of external auditors by the Audit Committee and their responsibilities.

Audit Committee comprising three or more non-executive board members would be constituted by the board.

Responsibilities, duties and terms of reference will be defined by the board (to include some mandatory functions) chief internal auditor to be appointed by the board as an employee of the bank on the recommendation of the Audit Committee.

No person appointed under Section 10A shall act as a representative of any commercial, financial, agricultural, industrial or other interest, or receive or accept directions there from, in respect of duties to be performed under this Act.

Every such person shall fully and promptly disclose to the Board any interest, whether personal, commercial, financial, agricultural, industrial or other, which he or any dependent member of his family may directly or indirectly hold or be connected with and which becomes the subject of consideration by the Board, and shall recuse themselves from any Board deliberations and voting related thereto.

The governor shall submit annual report before the Parliament regarding the achievement of the Bank's objectives, conduct of monetary policy, state of the economy, and the financial system.

In addition, the Parliament may require any senior official to attend at such additional times as may be required.

The Bank shall, not less than twice a year, publish and submit to the Parliament and the Minister of Finance, a state of the economy report.

Copyright Business Recorder, 2021

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