Nepal's Regulatory Framework for Financial Services

Nepal's Regulatory Framework for Financial Services is the set of laws, rules and institutions that govern the financial sector in Nepal. The financial sector in Nepal consists of various types of financial intermediaries, such as banks, financial institutions, cooperatives, microfinance institutions, insurance companies, capital market entities, etc. The regulatory framework for financial services aims to ensure the stability, efficiency, transparency and inclusiveness of the financial system, as well as to protect the interests of the financial consumers and the public.

The main laws that regulate the financial sector in Nepal are:

•  The Nepal Rastra Bank Act, 2002 (2058), which establishes the Nepal Rastra Bank (NRB) as the central bank and the monetary authority of Nepal. The NRB is responsible for formulating and implementing monetary policy, supervising and regulating banks and financial institutions, issuing currency, managing foreign exchange reserves, providing refinance facilities, etc.

•  The Banks and Financial Institutions Act, 2017 (2073), which provides the legal framework for licensing, regulating and supervising banks and financial institutions in Nepal. The act also defines the types, functions and governance of banks and financial institutions, as well as their prudential norms, risk management, consumer protection, merger and acquisition, etc.

•  The Cooperative Act, 2017 (2074), which provides the legal framework for establishing, regulating and supervising cooperatives in Nepal. The act also defines the types, functions and governance of cooperatives, as well as their audit, supervision, liquidation, etc.

•  The Microfinance Act, 2018 (2075), which provides the legal framework for licensing, regulating and supervising microfinance institutions in Nepal. The act also defines the types, functions and governance of microfinance institutions, as well as their prudential norms, risk management, consumer protection, etc.

•  The Insurance Act, 2017 (2074), which provides the legal framework for licensing, regulating and supervising insurance companies in Nepal. The act also defines the types, functions and governance of insurance companies, as well as their prudential norms, risk management, consumer protection, etc.

•  The Securities Act, 2007 (2063), which provides the legal framework for regulating and developing the capital market in Nepal. The act also establishes the Securities Board of Nepal (SEBON) as the regulator of the capital market. The SEBON is responsible for licensing, regulating and supervising securities issuers, intermediaries and market infrastructures.

The main institutions that regulate the financial sector in Nepal are:

•  The Nepal Rastra Bank (NRB), which is the central bank and the monetary authority of Nepal. The NRB has various departments that perform its functions, such as monetary policy department, banking regulation department, foreign exchange department, research department, etc.

•  The Banks and Financial Institutions Regulation Department (BFIRD), which is a department under the NRB that regulates banks and financial institutions in Nepal. The BFIRD issues licenses to banks and financial institutions; issues directives/circulars/notices; regulates merger and acquisition; provides refinance to banks and financial institutions; publishes monthly and quarterly statistics/reports; handles grievances of financial consumers; etc.

•  The Department of Cooperatives (DOC), which is a department under the Ministry of Agriculture and Livestock Development that regulates cooperatives in Nepal. The DOC registers cooperatives; issues directives/circulars/notices; conducts audit/supervision/inspection; handles grievances of cooperative members; etc.

•  The Microfinance Institutions Regulation Department (MFRD), which is a department under the NRB that regulates microfinance institutions in Nepal. The MFRD issues licenses to microfinance institutions; issues directives/circulars/notices; conducts supervision/inspection; handles grievances of microfinance consumers; etc.

•  The Insurance Board (IB), which is an autonomous body under the Ministry of Finance that regulates insurance companies in Nepal. The IB issues licenses to insurance companies; issues directives/circulars/notices; conducts supervision/inspection; handles grievances of insurance consumers; etc.

•  The Securities Board of Nepal (SEBON), which is an autonomous body under the Ministry of Finance that regulates the capital market in Nepal. The SEBON issues licenses to securities issuers/intermediaries/market infrastructures; issues directives/circulars/notices; conducts supervision/inspection/enforcement; handles grievances of securities investors; etc.