ISLAMABAD: Apropos of the media reports related to the recently introduced draft State Bank Amendment Act 2021, it is a misconception that SBP will be empowered unabatedly through the proposed act to share financial or non-financial private information with any entity, particularly outside the country. For the exchange of information, specific protocols are followed. Exchange of information through mutual Memorandum of Understandings (MoUs) is standard international practice, and central banks enter into MoUs for sharing of information both with domestic and foreign regulatory bodies. Such sharing is necessary for adequate supervision of subsidiaries and overseas operations of the financial institutions across jurisdictions. Notably, the proposed amendments allow SBP to enter into MoUs with domestic and international supervisory authorities only after the Federal Government’s prior approval. It is pertinent to mention that the SBP already has longstanding MoUs / arrangements with several international regulatory bodies/central banks after the Federal Government’s approval.
Similarly, Indemnity (protection against loss or other financial burdens) to the officials and staff members of the Central Bank from legal challenges on actions taken in good faith is quite common in the central bank laws, is considered an international best practice, and such an indemnity is an important aspect to ensure functional autonomy of the central bank officials and staff. Such provisions also exist in other domestic laws. Further, several central banks’ laws specify that action or proceedings cannot be instituted in any court to secure the review or revocation of the central bank’s order. A review of 20 central bank laws worldwide, including SAARC countries (India, Bangladesh, Sri Lanka, Bhutan, Nepal and Maldives), shows that specific provision of indemnity to the senior officials and staff against actions taken in good faith is aligned with international standards. Furthermore, it is incorrect to say that bodies like NAB and FIA etc, will not have jurisdiction over SBP officials. The only change is the requirement of approval of the SBP Board to initiate proceedings.
Also, 14 central bank laws explicitly prohibit the Government from instructing the central bank to provide an autonomous legal framework to achieve their set objectives.
Therefore, it is misleading to assert that the proposed SBP Act envisions no accountability for SBP. It is important to note that the proposed SBP Amendments Act 2021 clarifies the objectives of the SBP and, therefore, also makes the SBP more accountable for achieving those objectives. The proposed amendments also have a specific new clause on accountability, ensuring that SBP is answerable to the Parliament. Under this clause, the Governor shall submit an annual report before the Parliament regarding the achievements of the bank’s objectives, the conduct of monetary policy, state of the economy and financial stability. Also, as part of the accountability process, the Parliament may require any senior official of the central bank to attend at such additional times as may be required. Several other central banks have also adopted similar accountability mechanisms requiring the submission of a report of the economy and appearing of the Governor or other senior officials before the Parliament.