Bangladesh Enacts Payment and Settlement System Act, 2024: Strengthening Financial Security and Consumer Protection

On 4 July 2024, the Bangladesh National Parliament passed the Payment and Settlement System Act, 2024. This legislation aims to mitigate risks in financial transactions and safeguard consumer interests by regulating, integrating, and overseeing payment, clearing, and settlement systems. The act will enter into effect when the government publishes it in the official gazette.

The act’s statement of objectives and reasons highlights the absence of existing laws in Bangladesh specifically governing payment and settlement systems. Currently, all payment and settlement activities are conducted under the Bangladesh Payment and Settlement Systems Regulations, 2014 and the Regulations on Electronic Fund Transfers, 2014 issued by the Bangladesh Bank under Article 7A(e) of the Bangladesh Bank Order-1972. Due to the lack of a dedicated legal framework, banks operate under agreements with the Bangladesh Bank, complying with these regulations under the Contract Act-1872. Additionally, there is no existing law to regulate the payment activities of non-bank financial institutions. The new act aims to bring non-bank payment service providers under a legal framework alongside banks, thereby protecting consumer interests and enhancing the overall integrity of the financial system.

The act stipulates that no individual, institution, or company can issue, purchase, or sell “advance payment documents” without the approval of the Bangladesh Bank. Moreover, online and offline platforms are prohibited from accepting investments, offering loans, holding funds, or engaging in financial transactions with the public without authorization from the Bangladesh Bank. Violating these provisions could result in a penalty of up to five years’ imprisonment, a fine of up to BDT5 million, or both.

The act also mandates that no banking institution may participate in, operate, or provide electronic payment services in any payment system without the Bangladesh Bank’s approval. Similarly, no individual, institution, or company may operate a payment system or provide payment services without obtaining a license from the Bangladesh Bank. Violations of these provisions carry a maximum penalty of five years’ imprisonment or a fine of up to BDT5 million, or both. Offenses under this law are designated as cognizable, non-bailable, and non-compoundable. The act’s statement of objectives and reasons highlights the absence of existing laws in Bangladesh specifically governing payment and settlement systems. Currently, all payment and settlement activities are conducted under the Bangladesh Payment and Settlement Systems Regulations, 2014 and the Regulations on Electronic Fund Transfers, 2014 issued by the Bangladesh Bank under Article 7A(e) of the Bangladesh Bank Order-1972. Due to the lack of a dedicated legal framework, banks operate under agreements with the Bangladesh Bank, complying with these regulations under the Contract Act-1872. Additionally, there was no existing law to regulate the payment activities of non-bank financial institutions. The new act aims to bring non-bank payment service providers under a legal framework alongside banks, thereby protecting consumer interests and enhancing the overall integrity of the financial system.