On 4 September 2013, the Central Bank of Solomon Islands (CBSI) approved Prudential Guideline No. 8: Disclosure on Interest Rates, Fees and Charges (PG 8).
PG 8 applies to commercial banks and credit institutions (financial institutions) operating in the Solomon Islands, and applies to all:
- new contracts for loan and deposit products entered into; and
- existing contracts for loan or deposit products whose terms are renewed, extended or modified,
on or after the issuance of PG 8.
PG 8 is intended to apply to both retail and commercial banking customers.
PG 8 sets out minimum requirements for disclosure of interest rates, fees and charges for financial and credit institution products and services in Solomon Islands, and has the express aims of:
- promoting sound financial structures;
- strengthening consumer protection; and
- improving financial literacy.
PG 8 will become effective on 1 November 2013.
What obligations does PG 8 implement?
The key obligations introduced by PG 8 include:
- interest rates and fees and other charges on all loan and deposit products, must be publicly disclosed and should be publicly displayed in each office, branch or agency of a financial institution in Solomon Islands in written format, through brochures, booklets or displays;
- financial institutions must ensure that the public is made aware of the revised interest rates, fees or other charges at least 30 (calendar) days before the effective date of the change, by:
- posting a notice detailing the proposed changes in a conspicuous place in all offices, branches and agencies of the financial institution; and
- publishing in a newspaper in general circulation in Solomon Islands, a notice detailing the proposed changes, once a week for 4 weeks;
- financial institutions must ensure that customers are fully aware of terms and conditions, interest rates and fees and charges of a product and service before acquiring it;
- content of the pre-contractual disclosure documents and contract documents are now specified;
- quarterly statements of account are to be provided free of charge on request from the customer;
- the imposition of a new fee or increase in existing fees on loan and deposit products requires notification to CBSI at least 30 calendar days prior to the effective date of the change (with an explanation for the change or introduction of the new interest rate, fee or charge); and
- each financial institution is required to submit to CBSI not later than 30 calendar days following implementation of PG 8, information on banking products and services with applicable interest rates, fees and other charges, in the standard template provided by CBSI.
What does this mean for banks in the Solomon Islands?
- Financial institutions must review the PG 8 and the impact on their ordinary business and should update internal policies accordingly.
- Customer terms and conditions, contracts and loan documentation should be updated to reflect PG 8.
- Financial institutions now have ongoing reporting obligations to CBSI in respect of interest rates, fees and charges for loan and deposit products.
- Financial institutions must fulfil obligations to customers, consumers in general, and the CBSI at all times otherwise sanctions may apply.
Consequences of non-compliance
CBSI monitors compliance with PG 8.
Any financial institution failing to comply with the requirements of PG 8 or to submit reports to CBSI which are materially inaccurate will be considered as following unsound or unsafe practices as provided in section 16(1)(a) of the Financial Institutions Act 1998 (FIA).
CBSI may pursue any or all corrective measures as provided in section 16 of the FIA to enforce the provisions of PG 8, including:
- issuing an order to cease and desist from the unsound and unsafe practices; and
- taking action to replace or strengthen the management of the offending financial institution.
Where to from here?
The key date for your calendar is 1 November 2013. Please contact us if you require further information, or for assistance in meeting the requirements of PG 8.