Financial Institutions Act 2003

Guide to the Financial Institutions Act, 2003

A Practical Guide for Investors, Banks and Financial Services Businesses in The Gambia

The Gambia Financial Institutions Act 2003 establishes the legal framework for licensing, regulation, supervision, governance and liquidation of banks and financial institutions in The Gambia. It is particularly important for investors seeking to acquire, establish or invest in banks, finance companies, leasing companies, investment managers and other regulated financial institutions.

PART I – PRELIMINARY

Scope of the Act

Definition of Financial Institution

Section 2

A financial institution includes entities carrying on banking business, factoring, project financing, equipment leasing, debt administration, fund management, investment management, pension fund management and other designated financial services activities.

Investor Consideration

Before acquiring a business operating in the financial sector, investors should determine whether the target falls within the statutory definition of a financial institution and therefore requires licensing and regulatory approval. Section 2.

PART II – LICENCES

Licensing Requirements

Banking Business Requires a Licence

Section 3(1)

No local financial institution may carry on banking business in or outside The Gambia, and no foreign financial institution may carry on banking business in The Gambia, without a licence issued by the Central Bank.

Eligible Applicants

Section 3(2)(a)-(b)

A licence may only be issued to:

• A company incorporated under the Companies Act; or

• A foreign financial institution.

Penalty for Unlicensed Banking

Section 3(3)

Operating a banking business without a licence is an offence punishable by a fine and/or imprisonment.

Licensing Process

Application Requirements

Section 4(2)(a)-(h)

Applicants must provide:

• Memorandum and Articles of Association;

• Proposed directors and management details;

• Significant shareholder information;

• Proposed business locations;

• Nature of the proposed business;

• Capital information; and

• Additional information requested by the Central Bank.

Regulatory Assessment

Section 4(3)(a)-(g)

The Central Bank will assess:

• Financial condition and history;

• Character and experience of promoters;

• Capital adequacy;

• Community needs;

• Profitability prospects;

• Effects on competition; and

• Any other relevant considerations.

Minimum Capital Requirement

Section 4(4)

A licence will not be granted unless minimum capital requirements prescribed by the Central Bank are satisfied.

INVESTOR ENTRY INTO THE BANKING SECTOR

Share Ownership Restrictions

Acquisition of Significant Interests

Section 8(2)

No person may acquire more than 10% of the voting shares of a financial institution, directly or indirectly, without the prior written approval of the Central Bank.

Share Transfer Restrictions

Section 8(4)

A financial institution cannot register a transfer that would result in a person controlling more than 10% of voting shares without Central Bank approval.

Investor Implication

Private equity firms, strategic investors and financial groups must obtain regulatory approval before acquiring significant shareholdings in a Gambian financial institution. Section 8(2)-(4).

Mergers and Acquisitions

Prior Regulatory Approval Required

Section 8(5)(a)-(e)

A licensed financial institution cannot, without Central Bank approval:

• Merge or consolidate;

• Transfer substantial assets or liabilities;

• Reduce paid-up capital;

• Change its name; or

• Amend its constitutional documents.

Regulatory Criteria

Section 8(6)(a)-(b)

The Central Bank considers:

• Whether the resulting institution satisfies licensing requirements; and

• Whether competition will be materially affected.

Due Diligence Checklist

Investors should review:

✅ Regulatory approvals

✅ Capital adequacy

✅ Ownership structure

✅ Historical compliance issues

✅ Ongoing supervisory actions

✅ Governance arrangements

PART III – ISLAMIC FINANCIAL INSTITUTIONS

Islamic Banking

Islamic Banking Licence

Section 12(1)

No institution may carry on Islamic banking business without a specific licence issued by the Central Bank.

Sharia Compliance

Section 12(2)(c)

Islamic institutions must not engage in usury or activities inconsistent with Sharia principles.

Profit Allocation

Section 13(a)-(b)

The Act regulates allocation of profits between investors, depositors and the institution.

Investor Opportunity

The Act provides a dedicated framework for Islamic finance investments and Sharia-compliant banking operations. Sections 12-17.

PART IV – FINANCIAL REQUIREMENTS AND LIMITATIONS

Capital Requirements

Minimum Capital

Section 18(1)-(2)

Financial institutions must maintain unimpaired capital at levels prescribed by the Central Bank and aligned with internationally accepted standards.

Investor Importance

Capital adequacy is one of the most important indicators reviewed during acquisitions, investment rounds and regulatory approvals. Section 18.

Reserve Accounts

Statutory Reserve

Section 19(1)

Institutions must maintain a Reserve Account and transfer prescribed amounts from annual profits before paying dividends.

Dividend Restriction

Sections 19(1) and 22

Dividend payments cannot impair capital or required reserves.

Liquidity Requirements

Minimum Liquid Assets

Section 20(1)

Financial institutions must maintain liquid assets at levels prescribed by the Central Bank.

Regulatory Penalties

Sections 20(5)-(7)

Institutions that fail to satisfy liquidity requirements may be subject to daily penalties and additional sanctions.

Investor Focus

Investors should assess:

• Liquidity ratios;

• Regulatory compliance history;

• Capital position; and

• Prudential returns filed with the Central Bank.

Lending Restrictions

Large Exposure Limits

Section 23(1)(a)

A bank may not grant credit exceeding 25% of its unimpaired capital and reserve account to a person and associated persons unless statutory exceptions apply.

Insider Lending Restrictions

Section 23(1)(c)-(d)

Strict restrictions apply to lending to:

• Directors;

• Officers;

• Employees;

• Related parties; and

• Associated persons.

Governance Significance

Related-party lending is a key area of regulatory scrutiny during examinations and acquisitions. Section 23.

PART V – FINANCIAL INFORMATION, AUDIT AND EXAMINATION

Financial Reporting

Monthly and Quarterly Returns

Section 24(1)(a)-(b)

Financial institutions must submit prescribed financial statements and returns to the Central Bank.

Audits

Annual Audit Requirement

Section 25(1)-(5)

Every institution must:

• Prepare annual financial statements;

• Appoint an approved auditor; and

• Submit audited accounts to the Central Bank.

Investor Due Diligence

Review:

• Auditor opinions;

• Qualified audit findings;

• Regulatory correspondence;

• Financial statement disclosures.

Regulatory Examinations

Examination Powers

Section 26(1)-(2)

The Central Bank may examine institutions, affiliates and associates to determine financial soundness and compliance.

Production of Records

Section 27(1)(a)-(b)

Financial institutions must provide:

• Books;

• Accounts;

• Records;

• Policies;

• Operational manuals; and

• Requested information.

Corrective Measures

Unsound Institutions

Section 28(1)(a)-(c)

The Central Bank may:

• Require corrective action;

• Appoint advisors;

• Suspend licences.

Investor Warning

Active supervisory measures may indicate operational, capital or governance concerns and should be investigated thoroughly during due diligence. Section 28.

PART VI – DIRECTORS AND OFFICERS

Corporate Governance

Director Qualification Requirements

Section 30(1)(a)-(e)

Certain persons are disqualified from serving as directors or officers, including bankrupt persons and persons convicted of offences involving dishonesty.

Duty of Care

Fiduciary Obligations

Section 31(1)(a)-(b)

Directors and officers must:

• Act honestly and in good faith; and

• Exercise reasonable care, diligence and skill.

Conflict of Interest

Disclosure Requirements

Section 32(1)-(4)

Directors and officers with material interests in contracts must:

• Disclose those interests;

• Withdraw from deliberations; and

• Refrain from voting.

Investor Assessment

Strong governance systems reduce regulatory and operational risk.

Key review areas:

✅ Board independence

✅ Related-party transactions

✅ Conflict management procedures

✅ Internal controls

✅ Compliance culture

PART VII – INSOLVENCY, WINDING UP AND LIQUIDATION

Voluntary Liquidation

Central Bank Approval

Section 36(1)-(3)

Financial institutions cannot voluntarily liquidate without prior approval from the Central Bank.

Seizure of Financial Institutions

Grounds for Seizure

Section 42(a)-(e)

The Central Bank may seize a financial institution where:

• Capital is impaired;

• Business is conducted unlawfully;

• Examinations are obstructed;

• Operations are unsafe or unsound;

• Corrective directions are ignored.

Powers on Seizure

Section 45(2)(a)-(g)

The Central Bank assumes full management and control of the institution.

Compulsory Liquidation

Court Process

Section 49(1)

Compulsory liquidation may only be ordered by the High Court on petition by the Central Bank.

Priority of Claims

Section 55(1)(a)-(f)

Priority is generally given to:

1. Liquidation expenses;

2. Taxes;

3. Central Bank claims;

4. Employee claims;

5. Deposits up to prescribed limits;

6. Other deposits.

PART VIII – MISCELLANEOUS

Banking Confidentiality

Confidential Customer Information

Section 60(1)-(4)

The Act protects customer information and limits disclosures except where authorised by law.

Unsafe and Unsound Practices

Regulatory Intervention

Section 64(1)-(4)

The Central Bank may direct institutions to cease unsafe practices, restrict operations or remove responsible personnel.

Investor Compliance Checklist

Requirement

Section

Banking licence required

s. 3

Licensing application requirements

s. 4

Approval for acquisitions over 10% voting control

s. 8(2)

Approval for mergers and reorganisations

s. 8(5)

Islamic banking licence

s. 12

Capital adequacy requirements

s. 18

Reserve account obligations

s. 19

Liquidity requirements

s. 20

Lending and exposure limits

s. 23

Financial reporting obligations

s. 24

Annual audits

s. 25

Regulatory examinations

ss. 26-27

Governance requirements

ss. 30-32

Regulatory intervention powers

ss. 28, 42 and 64

Liquidation framework

ss. 36-58

Key takeaway: For investors, the most critical provisions are Sections 3-8 (licensing and ownership), Sections 18-23 (capital, liquidity and prudential requirements), Sections 24-28 (supervision), and Sections 42-58 (resolution and liquidation). These provisions largely determine acquisition risk, regulatory approval requirements and the long-term viability of a financial institution.