Bahrain is set to strengthen cheque regulations and banking procedures to reduce disputes and crack down on financial malpractices.
Parliament is set to debate and vote on amendments to the 1987 Commercial Law to address challenges related to cheque transactions, joint bank accounts and financial obligations.
The proposed revisions aim to enhance financial security, ensure fair banking practices and reduce altercations over cheque issuance and settlement.
The amendments – originally presented by Parliament’s financial and economic affairs committee chairman MP Ahmed Al Salloom and turned into a proper legislation by the government – have received support from key government institutions, including the Industry and Commerce Ministry, Justice, Islamic Affairs and Endowments Ministry, Central Bank of Bahrain (CBB), Bahrain Chamber, and the Bahrain Businessmen’s Association.
One of the proposed changes involves joint bank accounts, particularly in cases of death or legal incapacitation of one of the account holders.
Under the new provisions:
* Surviving account holders must notify the bank within 10 days of the co-owner’s death or loss of legal capacity.
* The bank must freeze withdrawals corresponding to the deceased or incapacitated person’s share until a legal successor is appointed.
This measure aims to prevent unauthorised withdrawals and ensure fair distribution of funds to legal heirs.
The legislative amendments also seek to strengthen the rights of cheque holders and establish tougher rules for cheque authentication and clearance. Key updates include:
1. Cheque endorsement and payment refusal:
A bill holder has the right to claim payment from endorsers, issuers, and other obligated parties if a cheque is not honoured upon maturity.
A drawee (bank) may partially or fully approve a cheque as a guarantee that the required funds are available at the time of endorsement.
A bank cannot refuse to certify a cheque if the drawer or holder requests it and the account holds sufficient funds.
Once a cheque is certified, the corresponding funds remain frozen in the account until the cheque is presented for payment.
2. Handling opposition and non-payment:
If a bank receives a dispute or opposition, it must stop payment of the cheque and hold the necessary funds in reserve until the matter is resolved.
If a cheque is not honoured, the holder may claim their rights against the issuer and endorsers by:
* Obtaining a statement from the drawee (bank) confirming the cheque was presented, but not paid.
* Receiving a statement from the clearing house, indicating that the cheque was presented within the legal time frame, but was not fully covered.
“These updates enhance transparency and provide clear legal grounds for payment enforcement,” said Mr Al Salloom.
“To curb financial malpractices, the new law prohibits issuing blank cheques as a form of credit security or guarantee.”
Mr Al Salloom said the Industry and Commerce Ministry, in collaboration with the CBB, would enforce the provision to protect consumers and businesses. Banks and financial institutions will be required to adhere to these regulations, he added.
Industry and Commerce Minister Abdulla bin Adel Fakhro said the proposal would eliminate issues related to partial payments, ensuring that cheques are either fully honoured or legally contested.
It would also reduce disputes and legal complaints, creating a fairer and more flexible business environment, he added.
Justice, Islamic Affairs and Endowments Minister Nawaf Al Maawda expressed no objections to the amendments, acknowledging that they aligned with justice principles and financial regulations.
The CBB supported the government’s opinion, highlighting the importance of strengthening financial laws to protect all parties involved in cheque transactions.
The Bahrain Chamber backed the initiative, however, it stressed the need to revisit the role of consumer protection authorities in handling cheque disputes, as such matters often fall under commercial and civil laws.
It also suggested providing businesses with access to Bahrain’s credit rating system to better assess financial risks when dealing with cheques.
“There should be strict legal penalties for cheque fraud to maintain confidence in Bahrain’s financial system,” the chamber added.
MPs are also set to vote on amendments to the 2006 Legislation and Legal Opinion Commission Set-up Law to have it review all contracts exceeding BD100,000 before they are signed by any ministry or government body.
The government-drafted legislation, based on a parliamentary proposal, has seen objections from the Cabinet and the commission as they asserted it would create unnecessary bureaucratic procedures.
“Ministries and government bodies may decide to sign urgent contracts and having them reviewed may see significant time lost and thus result in higher costs or delays to work,” said the Cabinet.
mohammed@gdnmedia.bh
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