Draft Law on Investment Banking has been submitted
On December 28, 2016, several parliament members including Javkhlan.B, submitted the bill of law on Investment Banking (the “Draft Law”) to the Parliament of Mongolia. However, the Draft Law was not included in the agenda of the matters to be discussed in the spring session of the parliament, the Draft Law had put to be discussed in the economic standing committee of the parliament and general discussion of the parliament session within April 2017.
Main points of the Draft Law are:
- only foreign banks can establish an investment bank;
- the foreign bank that intends to incorporate a bank in Mongolia is required to establish its representative office and carry out its operation at least one year before opening the bank.
- operation by investment banking is limited by certain banking and financial activities that are specifically permitted by law, such as, to issue long-term debt, to conduct transactions related to its borrower’s account, to issue guarantee and warranty, to buy and sell loans and securities, underwriting, etc.
- the minimum share capital of the investment bank is MNT500 billion (approx. USD200 million);
- the minimum amount for a single loan and guarantee or warranty is MNT100 billion (approx. USD40 million)
- one of the independent directors of the board of investment bank must be a Mongolian citizen;
- Mongol Bank must consider any potential adverse effect to the national security in issuing its permission to establish an investment bank;
- Mongol Bank will issue its decision on permission within 90 days;
- The matters not specifically regulated by Investment Banking Law shall be governed by the Banking Law (2010) and other applicable laws.
The restrictions stated in the Draft Law are only applicable to the bank fully-owned by a foreign bank, and it appears that restrictions will not apply if a foreign bank owns the share interest less than 100% in such bank.
We assume that financial experts in the area and foreign banks which already established their representative office in Mongolia will deliver their opinion on the Draft Law.
Our opinion is that, without enacting the separate law, it is preferable to regulate the operation and licensing of the foreign bank’s branches or fully owned subsidiaries through the amendment of the existing financial and banking laws and regulations. Therefore, it is insignificant, if the definite global terminology “investment banking” is used as an instrument to regulate the operation and licensing procedures of foreign banks. If it is deemed necessary to enact the separate act by the legislators, it would be appropriate to formulate the law by modifying and rephrasing it, without collision and conjunction with the other laws and regulations.
