Introduction to Bangladesh’s Financial Regulatory Landscape#
Overview of the Financial Sector#
Bangladesh has a diverse financial sector crucial for its economic development. It includes commercial and specialized banks (conventional and Islamic), Non-Bank Financial Institutions (NBFIs), insurance companies, Microfinance Institutions (MFIs), securities market intermediaries, and payment system operators.
The banking system is central, featuring state-owned, private, foreign, and digital banks. NBFIs offer services like leasing and investment finance. The insurance sector provides life and non-life coverage. Bangladesh’s microfinance sector is globally recognized. The capital market, with the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), facilitates capital raising. Payment System Operators (PSOs) and Payment Service Providers (PSPs), including Mobile Financial Services (MFS), are advancing digital transactions.
Key Regulatory Authorities and Jurisdictions#
Understanding the roles of several regulatory bodies is essential:
- Bangladesh Bank (BB): The central bank, established under the Bangladesh Bank Order, 1972, is the primary regulator for banks, NBFIs, PSOs, and PSPs. It manages monetary policy, foreign exchange, and financial stability.
- Bangladesh Securities and Exchange Commission (BSEC): Established by the Bangladesh Securities and Exchange Commission Act, 1993, BSEC regulates the capital market, including stock exchanges, brokers, asset managers, and other intermediaries.
- Insurance Development and Regulatory Authority (IDRA): Created by the IDRA Act, 2010, IDRA supervises insurance companies and intermediaries.
- Microcredit Regulatory Authority (MRA): Established under the Microcredit Regulatory Authority Act, 2006, MRA oversees MFIs, particularly NGOs.
- Bangladesh Financial Intelligence Unit (BFIU): Operating under the Money Laundering Prevention Act, 2012, and the Anti-Terrorism Act, 2009, BFIU combats money laundering and terrorism financing, issuing guidelines for all reporting financial institutions.
Entities offering diverse services might need approvals from multiple regulators.
Governing Legal Framework Overview#
The legal framework includes Acts of Parliament, subordinate legislation (Rules, Regulations), and directives (Guidelines, Circulars) from regulatory authorities.
Key legislation includes:
- Banking: Bank Company Act, 1991 (amended 2023); Bangladesh Bank Order, 1972; Offshore Banking Act, 2024.
- NBFIs: ; Finance Company Act, 2023.
- Securities Market: BSEC Act, 1993; Securities and Exchange Ordinance, 1969; various BSEC Rules.
- Insurance: Insurance Act, 2010; IDRA Act, 2010.
- Microfinance: Microcredit Regulatory Authority Act, 2006; MRA Rules, 2010.
- Payment Systems: Bangladesh Payment and Settlement Systems Regulations, 2014 (BPSSR 2014); Payment and Settlement System Act, 2024.
- Cross-cutting: Money Laundering Prevention Act, 2012; Anti-Terrorism Act, 2009; Foreign Exchange Regulation Act, 1947; Companies Act, 1994.
The regulatory landscape is dynamic, with ongoing modernization efforts.
Table 1: Overview of Financial Services Regulators and Key Legislation
| Regulator | Key Regulated Entities | Primary Governing Legislation |
|---|---|---|
| Bangladesh Bank (BB) | Banks (Conventional, Islamic, Digital, Specialized, Foreign), NBFIs, PSOs, PSPs | Bangladesh Bank Order, 1972; Bank Company Act, 1991; Finance Company Act, 2023; Payment and Settlement System Act, 2024; BPSSR 2014; Offshore Banking Act, 2024; FERA, 1947 |
| Bangladesh Securities and Exchange Commission (BSEC) | Stock Exchanges, Brokers, Dealers, AMCs, Merchant Banks, Custodians, Credit Rating Agencies | BSEC Act, 1993; Securities and Exchange Ordinance, 1969; Various BSEC Rules (Public Issue, Broker, AMC etc.) |
| Insurance Development and Regulatory Authority (IDRA) | Life & Non-Life Insurance Companies, Insurance Agents, Brokers | IDRA Act, 2010; Insurance Act, 2010 |
| Microcredit Regulatory Authority (MRA) | Microfinance Institutions (primarily NGO-MFIs) | Microcredit Regulatory Authority Act, 2006; MRA Rules, 2010 |
| Bangladesh Financial Intelligence Unit (BFIU) | All Reporting Organizations (Banks, NBFIs, Securities, Insurance, MFIs, etc.) | Money Laundering Prevention Act, 2012; Anti-Terrorism Act, 2009 (as amended) |
Licensing Requirements by Financial Service Type#
Banking Services (Commercial, Islamic, Digital, Specialized)#
- Regulator: Bangladesh Bank (BB)
- Governing Law: Bank Company Act, 1991; Bangladesh Bank Order, 1972; Guidelines for Establishment of New Banks; Guideline for Establishing Digital Banks; Offshore Banking Act, 2024; Companies Act, 1994.
- Key Requirements: Public limited company; minimum capital (e.g., BDT 500 crore for PCBs, BDT 125 crore for Digital Banks); “fit and proper” sponsors; detailed application to BB leading to Letter of Intent (LOI), incorporation, and final license. Islamic banks need Shariah compliance. Digital banks focus on tech-driven, branchless operations. Specialized banks serve specific economic purposes. Offshore Banking Units (OBUs) require a separate license.
Non-Bank Financial Institution (NBFI) Services#
- Regulator: Bangladesh Bank (BB)
- Governing Law: Finance Company Act, 2023, Companies Act, 1994
- Key Requirements: Company incorporated under Companies Act, 1994; minimum capital (e.g., BDT 100 crore); permitted activities include lending, leasing, investment finance; “fit and proper” sponsors; application to BB for LOI and final license.
Insurance Services (Life and Non-Life)#
- Regulator: Insurance Development and Regulatory Authority (IDRA)
- Governing Law: Insurance Act, 2010; IDRA Act, 2010; Companies Act, 1994.
- Key Requirements: Public limited company; minimum capital (e.g., BDT 30 crore for Life, BDT 40 crore for Non-Life); statutory deposit with BB; “fit and proper” sponsors/directors; application to IDRA for registration; adequate reinsurance.
Microfinance Institution (MFI) Services#
- Regulator: Microcredit Regulatory Authority (MRA)
- Governing Law: Microcredit Regulatory Authority Act, 2006; MRA Rules, 2010.
- Key Requirements: Primarily NGOs; microcredit as a primary objective; minimum operational track record and outreach often required; meet MRA standards (governance, management, etc.); application to MRA for license.
Securities Market Intermediary Services (Brokerage, Merchant Banking, Asset Management, etc.)#
- Regulator: Bangladesh Securities and Exchange Commission (BSEC)
- Governing Law: BSEC Act, 1993; Securities and Exchange Ordinance, 1969; Specific rules for each intermediary type.
- Key Requirements (Vary by Type): Company incorporation; minimum capital/net worth; adequate infrastructure & personnel; “fit and proper” directors/management; application to BSEC for registration/license. Stock Brokers need exchange membership.
Payment System Operators (PSO) and Payment Service Providers (PSP)#
- Regulator: Bangladesh Bank (BB), Payment Systems Department (PSD)
- Governing Law: Bangladesh Payment and Settlement Systems Regulations, 2014 (BPSSR 2014); Payment and Settlement System Act, 2024; Guidelines for Trust Fund Management.
- Key Requirements: Company incorporated in Bangladesh (or bank/NBFI/MFI subsidiary); minimum capital as per BB; robust IT infrastructure and security (data localization); “fit and proper” directors/management; application to BB (PSD); Trust Fund management for PSPs handling customer funds; AML/CFT compliance.
Common Requirements Across Financial Services#
Several common themes apply across financial services licensing:
Legal Structure and Incorporation#
Most are public limited companies under the Companies Act, 1994. MFIs are often NGOs. Memorandum and Articles must align with licensed activities.
Minimum Capital Requirements#
Regulators mandate specific minimum paid-up capital. Ongoing Capital Adequacy Ratio (CAR) requirements are common, especially for Banks and NBFIs.
Fit and Proper Criteria for Directors and Senior Management#
Sponsors, directors, and key management undergo assessment for integrity, financial soundness, competence, and absence of conflicts of interest.
Business Plan and Feasibility Study#
A comprehensive business plan covering market analysis, services, operations, financial projections, risk management, and governance is required.
Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) Compliance#
Mandatory compliance with the Money Laundering Prevention Act, 2012, and Anti-Terrorism Act, 2009, overseen by BFIU. This includes KYC/CDD, transaction monitoring, reporting, and appointing a CAMLCO.
Corporate Governance Standards#
Emphasis on board composition (independent directors, separation of Chair/CEO roles), board committees (Audit, Risk Management), internal controls, and transparency.
IT Infrastructure and Cybersecurity#
Adequate IT systems, data security, cybersecurity measures, and disaster recovery plans are essential, especially for digital services. Data localization may be required.
The Licensing Application Process#
Pre-Application Phase#
Conduct thorough research, develop a strategic plan, assemble a qualified team, arrange capital, and consider preliminary consultation with the regulator.
Formal Application Submission#
Submit the prescribed application form with all required documentation (business plan, financials, sponsor details, MOA/AOA, IT plans, AML/CFT framework, etc.) to the relevant regulator.
Regulatory Review and Due Diligence#
The regulator screens for completeness, conducts a detailed assessment, performs due diligence on personnel, may consult other agencies, issue queries, and conduct interviews or pre-licensing inspections.
Decision and Post-Licensing Formalities#
A Letter of Intent (LOI) or in-principle approval may be issued. The applicant then incorporates the company (if not done), fulfills LOI conditions (capital, infrastructure, CEO appointment), and applies for the final license. Upon satisfaction, the license is granted, and business can commence.
Potential Timelines and Costs#
Timelines vary (6 months to over 2 years). Costs include application/licensing fees, capital investment, professional fees, and infrastructure costs.
Common Pitfalls and Challenges#
Incomplete applications, failure to meet “fit and proper” criteria, insufficient capital, weak business models, inadequate technology, poor understanding of local regulations, and delays in responding to queries.
Specific Considerations for Foreign Entities#
Entry Options#
Locally incorporated subsidiary (most common), branch office (for banks, insurance, PSOs/PSPs subject to approval), or joint venture.
Regulatory Approvals#
- Bangladesh Investment Development Authority (BIDA): General registration for foreign investment.
- Sector-Specific Regulator: Primary license from BB, BSEC, IDRA, or MRA.
- Bangladesh Bank (Foreign Exchange Aspects): Approval for capital inflow, profit repatriation, foreign currency accounts, and external debt.
Additional Requirements and Scrutiny#
Home country regulatory clearance for the parent company, due diligence on the parent, specific capital requirements (assigned capital for branches), potential expectations for local management, data localization, and full compliance with all Bangladeshi laws.
Profit Repatriation and Foreign Exchange Controls#
Repatriation of profits/dividends is allowed subject to procedures under FERA, 1947, and BB’s GFET.
Post-Licensing Obligations and Compliance#
Licensed institutions face ongoing oversight:
Prudential Requirements#
Maintaining capital adequacy (CAR), liquidity ratios (SLR, CRR), asset quality standards, and robust risk management.
Reporting Requirements#
Regular financial and prudential returns, AML/CFT reports to BFIU, statistical reporting, and notification of significant events.
Corporate Governance#
Continuous adherence to governance guidelines, board effectiveness, and transparency.
AML/CFT Compliance#
Ongoing implementation of AML/CFT policies, staff training, and cooperation with BFIU.
Consumer Protection#
Adherence to fair practices codes, transparent fees, and effective grievance redressal.
Regulatory Inspections and Audits#
Subject to on-site inspections, off-site supervision, and annual external audits.
Compliance with Circulars and Directives#
Staying updated and implementing new regulatory issuances.
License Renewal#
Some licenses require periodic renewal.
Failure to comply can lead to penalties, including license suspension or revocation.