Chapter III: Organisation of Banking Business

* According to the new amendments, this Section now includes the provisions of Section (1) (Scope of Application) and Section (2) (Capital of Banks) of Chapter III before amendment.

Article 54*:

Banks are those institutions whose basic and usual functions involve the receipt of deposits for use in banking operations, such as: the discount, purchase and sale of commercial papers, granting of loans and advances, issuing and collecting cheques, placing of public and private loans, dealing in foreign exchange and precious metals, and any other credit operations or operations considered by the Law of Commerce or by custom as banking operations. For the purposes of implementation of the provisions of this Law, and unless otherwise provided, the branches of any bank operating in the State of Kuwait shall be considered as one bank.

* Text of Article (54) was amended by virtue of the Decree Law No. (130) of 1977.

Article 55*:

The provisions of this Chapter shall not apply to:

1. Public credit institutions set up by law.
2. Financial and investment institutions and companies even if they are permitted by their articles of association to receive deposits and execute investment operations and some banking operations.
3. Real estate companies which undertake the partition of land or the construction of buildings and the sale thereof on credit.

The Board of Directors of the Central Bank may - upon approval of the Minister of Finance - subject all or some of the institutions and companies referred to in this Article to all or some of the provisions of this Chapter, or to any rules which the Board of Directors may draw up for purposes of supervision and which are in harmony with the nature of the activities of such institutions and companies.

The opinion of the Central Bank shall be sought in respect of the Articles of Association and Memorandums of Agreement relating to financial and investment companies, or amendments thereto, in order to ascertain the economic viability of such companies.

* Text of Article (55) was amended by virtue of the Decree Law No. (130) of 1977. As may be noticed, the last paragraph is an addition to the text.

Article 56*:

1. Without prejudice to the provisions of the Law of Commercial Companies, wherever they are not in conflict with the provisions of this Law, banking may only be practiced by institutions set up in the form of joint-stock companies, the shares of which are placed for public subscription.
2. Banks founded or co-founded by the Government, and branches of foreign banks licensed to operate in the State of Kuwait, may be exempted from the provisions of the preceding Item by a decision of the Council of Ministers.
   Any foreign bank may open one or more branches in the State of Kuwait by virtue of a decision of the Board of Directors of the Central Bank as per the rules and regulations set by the Board of Directors in this respect.
   The foreign bank should specify the branch it considers as its headquarters in the State of Kuwait.
   All Kuwait-based branches of the same foreign bank shall be deemed as one bank in the application of the provisions hereof.
   Funds allocated for the branch of a foreign bank in the State of Kuwait shall not be less than fifteen million Kuwaiti Dinars and may be increased by a decision of the Board of Directors of the Central Bank. The Board of Directors of the Central Bank may exempt foreign banks’ branches operating in the State of Kuwait from regulatory capital ratio requirements as determined by the banks’ activities or other regulatory ratios according to regulations set in this regard by the Central Bank of Kuwait.
   The Board of Directors of the Central Bank shall lay down the principles, rules and regulations to be complied with in regard to the operations of branches of foreign banks in the State of Kuwait.
3. Before the formalities of incorporation are processed, the applications to establish banks should be presented to the Board of Directors of the Central Bank to issue the necessary recommendation.

* Text of Article (56) was amended by virtue of the Decree Law No. (130) of 1977, whereby Paragraph (3) has been added. Text of this Article was further amended by virtue of the Law No. (28) of 2004 issued on 27 January 2004 and published in the Official Gazette “Al-Kuwait Al- Youm”, Edition No. 653 dated 15 February 2004. Paragraph (2) was amended by virtue of the Law No. (3) of 2014 issued on 29 January 2014 and published in the Official Gazette “Al-Kuwait Al- Youm”, Edition No. 1169 dated 02 February 2014.

Article (56 bis)*:

The Board of Directors of the Central Bank may approve the opening of foreign bank representative offices to carry out, inter alia, market studies and to advertise the services rendered by the foreign banks they represent, provided that the activity of the representative office shall be restricted to representation of the said entities in the State of Kuwait as per the regulations set by the Board of Directors of the Central Bank of Kuwait. Representative offices of the foreign banks may not carry out any banking or financial business.

* Provisions of Article (56) have been added by virtue of the Law No. (3) of 2014.

Article 57*:

1. The paid-up capital of any bank shall not be less than seventy- five million Dinars.
2. Unless by prior authorization of the Central Bank, the direct or indirect ownership by any single natural person or legal entity in a Kuwaiti bank shall not exceed five percent of the bank’s capital.

Governmental bodies and bodies with independent or attached budgets are exempted from these provisions. Where single ownership exceeds the above percentage for any reason whatsoever, the concerned natural person or legal entity shall dispose of the excess within the period defined by the Central Bank.

Violation of this provision results in the shareholder not availing of the excess equity in regard to voting rights in the bank’s General Assembly and directing the bank.

The Board of Directors of the Central Bank shall lay down the bases and rules defining the concept of indirect ownership. The provisions of this Article do not apply to cases existing before the application of this Law.

* Text of Article (57) was amended by virtue of the Decree Law No. (130) of 1977. Text of this Article was further amended by virtue of the Law No. (28) of 2004.

Article 58:

If the capital of a bank falls below the minimum limit referred to in the preceding Article, the bank shall cover the deficit within such period as may be fixed by the Central Bank, provided that the period shall not exceed one year from the date the bank concerned is notified.

The Central Bank shall have the sole right to assess the amount of the deficit in the capital.

Article 59*:

Without prejudice to the provisions of the Law of Commerce and the Law of Commercial Companies, wherever they are not in conflict with the provisions of this Law, no banking institution is allowed to start operation until it has been registered in the Register of Banks at the Central Bank.

No institutions other than those registered in the Register of Banks are allowed to practice banking or use in their business addresses, publications or advertisements the terms: "bank, banker, bank owner" or any other wording the usage of which may mislead the public as to the nature of the institution.

No institutions other than those registered in the Central Bank Register of Banks or Register of Investment Companies are allowed to receive money for investment from third parties.

The Central Bank may - where necessary - ascertain by all means it deems fit that no particular entity or individual firm violates the provisions of the preceding two paragraphs.

Without prejudice to any more severe penalty under any other law, anyone who violates the provisions of the first, second and third paragraphs of this Article shall be liable to imprisonment for a term not exceeding two years and the payment of a fine not exceeding a hundred thousand Dinars, or to either of these two penalties.

The licensing body shall, at the Central Bank request, revoke the operating license of the entity which exercised the contravening activity, and undertake all necessary arrangements to prevent its repeated exercise.

* Text of Article (59) was amended by virtue of the Decree Law No. (130) of 1977. Text of this Article was further amended by virtue of the Law No. (28) of 2004.

Article 60:

Registration or refusal of registration of banks shall be effected by a decision of the Minister of Finance on the recommendation of the Board of Directors of the Central Bank.

The Minister of Finance shall, on the recommendation of the Board of Directors of the Central Bank, issue regulations for the registration of banks, including the rules, procedures and dates for registration, amendments and publication of this registration.

Article 61*:

1. Registered banks shall notify the Central Bank of any amendments they intend to make to their Memorandums of Agreement or Articles of Association. If such amendments are approved in principle by the Central Bank, the formalities necessary for processing them may then be accomplished in accordance with the provisions of the Law of Commercial Companies. Such amendments shall not be effective until they have been entered in the Register of Banks.
2. Amendment of entries related to other data which are subject to registration in the Register but not involving amendment of the Articles of Association or Memorandums of Agreement may be effected upon approval thereof by the Governor of the Central Bank.

* Text of Article (61) was amended by virtue of the Decree Law No. (130) of 1977.

* Title of Section 3 was amended by virtue of the Decree Law No. (130) of 1977. Title thereof before amendment was "Deletion of Banks".

Article 62*:

Without prejudice to the provisions of the Law of Commercial Companies, no bank may cease its operations or merge with any other bank unless it is given advance permission by the Minister of Finance on the recommendation of the Board of Directors of the Central Bank.

The Board of Directors of the Central Bank shall, in such a case, ascertain that the bank has discharged all its obligations towards its customers and creditors in accordance with the general provisions laid down in this respect.

* Text of Article (62) was amended by virtue of the Decree Law No. (130) of 1977.

Article 63:

1. A bank may be deleted from the Register of Banks:
   1. at its own request;
   2. if it does not start business within one year from the date it is notified of the decision regarding its registration in the Register of Banks;
   3. if it is declared bankrupt;
   4. if it merges with another bank;
   5. if it ceases its operations or if its liquidity or solvency are endangered;
   6. if it commits any act in violation of the provisions of this Law.
2. The deletion of any bank under (e) and (f) above shall not be proposed until the bank concerned has been notified of the proposal and given an opportunity to express its views.
3. The Minister of Finance shall, on the proposal of the Board of Directors of the Central Bank, issue a decision regarding the deletion. The decision shall be effective from the date of its publication in the Official Gazette.
   

Article 64*:

Before proposing the deletion from the register of any bank the liquidity or solvency of which is endangered, the Board of Directors of the Central Bank may take any or all of the following measures:

1. Forbid the bank from undertaking certain operations, or set limits on the business of the bank;
2. Appoint a temporary controller to supervise the progress of the bank's activity;
3. Assign the Central Bank to manage the bank for a certain period of time, and thereafter decide whether the bank can carry on by itself or should be deleted from the Register and liquidated. Expenses incurred for management purposes shall be borne by the bank involved.

In all cases, the Central Bank may - if it deems it in the interest of depositors - ask the concerned court to issue a decision prohibiting measures against the bank involved and staying all lawsuits filed against. Such a decision shall be valid for one year.

* Text of Article (64) has been added by virtue of the Decree Law No. (130) of 1977.

Article 65*:

Every bank against which a decision for deletion from the Register of Banks is issued, shall be liquidated. The Board of Directors of the Central Bank shall specify the rules for liquidating the transactions outstanding at the time the decision is issued.

* Text of Article (65) was amended by virtue of the Decree Law No. (130) of 1977.

Article 66:

Banks are prohibited from:

1. engaging in trade or industry, or owning any goods unless such goods have been acquired in settlement of debts due to them. Such goods shall be sold by the bank within one year from the date of acquisition;
2. purchasing any real estate other than the required for conducting their business or accommodating their staff, unless such property has been acquired in settlement of debts due to them. In the latter case, the bank shall sell the real estate within a period not exceeding three years. The said period, however, may be extended by a decision of the Board of Directors of the Central Bank;
3. owning or dealing in their own shares unless acquired in settlement of debts due to them, and provided that such shares are sold within two years from the date of acquisition.
   

Article 67:

Banks may:

1. purchase, for their own account, shares of other commercial companies within a limit of 50% of the bank's own funds. This limit may not be exceeded without prior approval by the Central Bank.
2. own shares or other assets held with them in settlement of debts due to them. In such cases, the bank shall dispose of these assets within two years from the date of acquisition.
   

Article 68*:

To be a member of a Bank's Board of Directors, or a Chief of the Executive Staff of a Bank, or his/her Deputy or Assistant thereof, or to continue occupying any of these posts, requires the fulfillment of the following conditions:

1. not to have been adjudged guilty in an offense involving dishonesty, or breach of trust; 
2. not to have been declared bankrupt;
3. not to have abstained from payment, even once;
4. to be of good reputation;
5. to have adequate experience in banking, financial or economic affairs in compliance with the Rules and Regulations laid down under a resolution of the Board of Directors of the Central Bank of Kuwait;
6. not to be a member of a Board of Directors or staff in any of the other banks operating in the State of Kuwait.

Chairmen of banks' Boards of Directors shall notify the Central Bank of Kuwait of nominees to the membership of that Board, at least thirty days prior to the date fixed for the meeting of the General Assembly expected to be held to elect the members of the Board of Directors. Moreover, the Central Bank of Kuwait shall be notified of the names of the candidates standing for holding the positions referred to in the preceding paragraph.

The Board of Directors of the Central Bank of Kuwait shall have the right within twenty-one days from the date of its notification to object to the appointment of any such nominees under a resolution showing the relevant reason for failure to fulfill the required conditions.

Such objection shall result in the exclusion of the nominee in question from candidacy for the Board of Directors or from occupying any such positions, as the case may be. Nominees not notified to the Central Bank or candidates objected to according to the provisions of this Article shall not be brought before the General Assembly of the concerned Bank.

The Board of Directors of the Central Bank may request from the Board of Directors of the concerned bank the removal of any of those mentioned in the first paragraph, if those occupying these posts lose –during the time of their service - any of the conditions mentioned in this article, or if the Board of Directors of the Central Bank sees in that measure the safeguard of the depositors funds or shareholders interests or the bank’s general interest. If the removal does not take place, the Board of Directors of the Central Bank shall have the right to issue a resolution showing the relevant reason for the removal of any of the above mentioned from their posts, and make a relevant entry in the Register of Banks.

* Text of Article (68) was amended by virtue of the Decree Law No. (36) of 1992, issued on 08 June 1992 and published in the Official Gazette “Al-Kuwait Al-Youm”, Edition No. 56 dated 21 June 1992, and further amended by virtue of the Law No. (28) of 2004.

Article 69*:

Banks must not, in any form, extend loans or advances through current account or issue guarantees in favor of the members of their Boards of Directors without prior permission from the General Assembly.

Such loans, advances and guarantees shall be subject to the conditions and rules applied by the bank to other customers.

This prohibition shall not include the opening of documentary credits.

* Text of Article (69) was amended by virtue of the Decree Law No. (130) of 1977

Article 70:

No bank may issue "Travelers' Cheques" without prior permission from the Central Bank.

Article 71*:

The Central Bank may issue to the banks such instructions as it deems necessary to realize its credit or monetary policy or to ensure the sound progress of banking.

* Text of Article (71) was amended by virtue of the Decree Law No. (130) of 1977.

Article (71 bis)*:

The ratio of the national labor force in the bank to the bank’s total labor force shall not be lower than fifty percent or the ratio defined by the Council of Ministers in pursuance of Article (9) of Law No. 19 of 2000, whichever is higher. This provision applies to the units subject to the supervision of the Central Bank.

Branches of foreign banks are bound to comply with that ratio within three years from the date of their licensing to operate in the State of Kuwait.

The Kuwaiti banks, branches of foreign banks, and units mentioned in the first paragraph, operating at the time of application of this law shall carry out the necessary adjustments in compliance with the provisions of this Article within three years from the date of its application.

* Text of Article (71 bis) has been added by virtue of the Law No. (28) of 2004. Text of the first paragraph of this Article was amended by virtue of the Law No. (64) of 2007 issued on 25 December 2007 and published in the Official Gazette “Al-Kuwait Al- Youm”, Edition No. 852 dated 06 January 2008.

Article 72:

The Board of Directors of the Central Bank may - whenever necessary - draw up rules and regulations to which all banks shall adhere in order to ensure their liquidity and solvency, particularly with regard to the ratios which must be maintained between the following items:

1. the bank's own funds on the one hand and the amount of its liabilities on the other;
2. the bank's liquid funds on the one hand and the aggregate of its on-call and term liabilities on the other;
3. the bank's own funds on the one hand and its liabilities in the form of acceptances and guarantees on the other.

In the instructions issued and notified by the Central Bank to the banks, the Central Bank shall define the meaning of the terms: "bank's own funds", "liquid funds", "liabilities" and other such items.

Article 73:

The Board of Directors of the Central Bank may, upon approval of the Minister of Finance:

1. Fix for banks the maximum amount of discount operations, or loans or other banking operations, which they may carry out with effect from a certain date.
2. Fix for banks:
   1. the minimum amount which customers must pay in cash to cover the opening of documentary credits;
   2. the maximum amount which may be lent to any single person - whether natural or juristic - in proportion to the bank's own funds;
   3. the portion of the bank's funds to be deposited in cash with the Central Bank;
   4. the portion of the bank's funds to be invested in the local market;
   5. the rate of interest which banks shall pay on deposits, and the maximum rates of interest and commission which they may charge their customers.
   
   

Article 74:

Decisions issued by the Central Bank in application of the provisions of the preceding two Articles shall have no retroactive effect and shall not hinder the execution of agreements concluded between banks and their customers prior to the issue of such decisions.

Article 75*:

In the event exceptional circumstances arise and threaten banking operations, the Governor of the Central Bank may - upon approval of the Minister of Finance - order banks to close temporarily and to stop all their operations. The banks shall, then, resume their operations by a decision to be issued by the Governor of the Central Bank and approved by the Minister of Finance.

* The provisions of Article (75) have been added by virtue of the Decree Law No. (130) of 1977.

* The provisions of Section (6) have been added by virtue of the Decree Law No. (130) of 1977.

Article 76:

Specialized banks refer to banks whose main function of which is to finance certain economic sectors, such as the real estate, industrial or agricultural sectors, and which do not accept demand deposits as part of their basic activities.

Article 77:

Specialized banks shall be subject to the provisions concerning to the organization of banking, wherever such provisions are not in conflict with the nature of the activities of these banks.

The Board of Directors of the Central Bank may lay down special rules for the supervision of each type of the specialized banks. Such rules shall, in particular, cover the following:

1. Conditions for accepting deposits.
2. The maximum limit for the value of bonds specialized banks may issue, as well as the conditions for such issue.
3. The Conditions relating to loans and other credit facilities extended by specialized banks.
4. The rules relating to participation in establishing other companies, or the purchase of their shares.
   

* The provisions of Section (7) have been added by virtue of the Decree Law No. (130) of 1977.

Article 78*:

1. The Central Bank may, at any time, inspect banks and financial companies and institutions subject to the Central Bank supervision under the provisions of this Law, in addition to branches, companies and banks that operate abroad and are subsidiaries of Kuwaiti banks. Co-ordination shall be carried out in this regard with the central banks or banking supervision authorities in the concerned countries.
    The banking supervision authorities in the other countries shall carry out the inspection of branches of their banks operating in the State of Kuwait. In this regard, co-ordination with the Central Bank of Kuwait shall precede inspection. 
2. Central Bank staff authorized to conduct inspection shall have the right to see the accounts, books, records, instruments and all documents they deem necessary for inspection. They may ask any member of the board of directors, or any official of the bank or institution to submit and present such data and information they deem necessary for the purposes of inspection. Review of books, records and instruments shall be carried out within the premises of the bank or institution inspected. 
3. The Central Bank shall make a comprehensive report on the findings of inspection made in any bank or institution. The report shall incorporate recommendations on the measures the Central Bank deems useful for rectifying any unsound position discovered through inspection. The Governor of the Central Bank shall send a copy of the report to the Chairman of the Board of Directors or to the Manager of the bank or institution inspected. The Governor of the Central Bank may fix a period of grace for the bank or institution to eliminate violations or correct unsound positions discovered through inspection. Periodic dates and rules relating to inspection shall be set by the Board of Directors of the Central Bank.

* Text of Article (78) was further amended by virtue of the Law No. (28) of 2004.

Article 79:

Without prejudice to any more severe penalty under any other law, every member of the board of directors, manager, or official of the bank or institution inspected who refuses to submit information and data or to present books, records, and instruments required by the inspector for inspection purposes, or who gives information or data while knowing that it is untrue, shall be liable to imprisonment for a term not exceeding three months and to the payment of a fine not less than one hundred but not exceeding two hundred twenty-five Dinars, or to either of these two penalties.

Article 80:

Central Bank officials authorized to conduct inspection shall - during the term of their service and after quitting their jobs - maintain the secrecy of accounts, books and instruments they review by virtue of their duty. They shall not disclose any information relating to the affairs of banks or institutions inspected, or to the affairs of their customers, except in such cases where it is permissible to do so by law.

Without prejudice to any more severe penalty under any other law, every person who violates the prohibition provided for in the preceding paragraph shall be liable to imprisonment for a period not exceeding three months and to the payment of a fine not exceeding two hundred twenty-five Dinars, or to either of these two punishments, plus discharge from service.

Article 81*:

Banks shall observe the following:

1. End their financial year on the thirty-first of December every year;
2. Submit to the Central Bank, within three months from the end of their financial year, their Balance Sheet and Profit and Loss Account.

Foreign bank branches permitted to be opened under the provisions of Article (56) of this Law shall maintain independent accounts for all their operations in Kuwait, including balance-sheets and profit and loss accounts.

* Text of Article (81) was amended by virtue of the Decree Law No. (130) of 1977.

Article 82*:

1. The Central Bank may ask the banks to submit such statements, information and statistical data as the Bank considers necessary to carry out its functions. The Central Bank may also establish a system for the collection of statistics on banking credit on periodical basis. 
2. The nature of such data and information, as well as the periods during which they should be submitted, shall be specified by the Board of Directors of the Central Bank.
3. Banks must submit to the Central Bank all data, information and statistics it requests, in accordance with the system the Central Bank lays down for this purpose. All these information shall remain confidential, except statistical data in an aggregate form, data and information exchanged between the Central Bank of Kuwait and other central banks and other banking supervision authorities, in fulfillment of the objectives of aggregate supervision on banks, branches and companies that are subsidiaries of these banks. Exchange of these data and information shall be in accordance with the arrangements agreed on between the Central Bank of Kuwait and the concerned central banks or banking supervision authorities.

* Text of Article (82) was amended by virtue of the Law No. (28) of 2004.

Article 83*:

The Central Bank may establish a Centralized Risks System for the purpose of assisting banks to evaluate the financial positions of persons applying to them for credit, and to enable the Central Bank to be constantly aware of the trends of banking credit and to assist in the application of the system of discount and rediscount of commercial papers at the Central Bank.

The Board of Directors of the Central Bank shall lay down the rules and procedures for the System, specify the data concerning its application.

Data and information acquired through the Centralized Risks System shall only be disclosed to persons who should be advised thereof under the rules laid down for the implementation of the System.

Without prejudice to any more severe penalty under any other law, anyone who violates this prohibition shall be liable to imprisonment for a term not exceeding three months and to the payment of a fine not exceeding two hundred twenty-five Dinars, or to either one of these two penalties, plus discharge from service in all cases.

* Text of Article (83) has been added by virtue of the Decree Law No. (130) of 1977.

Article 84*:

1. The auditor shall indicate in his/her annual report the rules and means relied upon in verifying the existence of assets, the methods applied in their evaluation thereof, and the process of assessing outstanding liabilities.
   The auditor’s annual report shall include the auditor’s opinion on the adequacy of internal control systems applied in the bank, and the sufficiency of provisions against any decline in assets value and against the bank's liabilities, along with determining the shortage in these provisions if applicable.
2. The auditor shall clarify in his/her report whether the operations audited were contrary to any rules or provisions of the Law concerning the Central Bank and the Regulation of Banking, or to the regulations and decisions issued in pursuance of the said Law. A copy of the report shall be forwarded to the Governor of the Central Bank.
3. The auditor shall - on the Central Bank request– check and audit any transactions carried out by the bank whose accounts are audited by him and present a report accordingly to the Central Bank. Furthermore, the auditor shall sign any statements or accounting data forwarded by the bank to the Central Bank. Such signature shall testify to the correctness of these statements and data. 
4. The auditor may not receive any loans - whether with or without collateral - or guarantees from the bank the accounts of which he/she audits.

* Text of Article (84) has been added by virtue of the Decree Law No. (130) of 1977, and further amended by virtue of the Law No. (28) of 2004.

Article 85*:

1. If a bank violates the provisions of this Law or the decisions and instructions issued in pursuance thereof, or the provisions of its Articles of Association, or fails to submit the documents, statements or information which it is required to submit to the Central Bank, or submits statements discrepant with facts, the following penalties may be imposed:
   1. Warning.
   2. Imposing financial penalties that are commensurate with the graveness of the violation, and do not exceed fifty thousand Dinars.
   3. Temporarily suspending some or all operations usually carried out by the Central Bank with banks.
   4. Prohibiting the bank from carrying out certain operations, or imposing any other limitations on its business.
   5. Requesting the removal or replacement of the employee responsible for the violation, if that employee is among those in charge of the main sectors of the bank’s activity.
   6. Considering the member of the bank’s Board of Directors, who is responsible for the violation, unfit for the Board membership.
   7. Appointing a temporary controller to supervise the progress of work at the bank. The powers and competences of that controller shall be determined by the Board of Directors of the Central Bank.
   8. Dissolving the bank’s Board of Directors and appoint a commissioner to manage the bank until the election of a new Board.
   9. Deleting from the Register of Banks.
2. The penalties provided for in paragraphs (a) and (c) shall be imposed by a decision of the Governor. The penalties provided for in paragraphs (b), (d), (e), (f), (g) and (h) shall be imposed by a decision of the Board of Directors of the Central Bank. The penalty provided for in paragraph (i) shall be imposed by a decision of the Minister of Finance, after the approval of the Board of Directors of the Central Bank, and all the after perusal of the concerned bank’s explanation in this regard.
   Unless involving a third party’s rights, any money achieved by the violating bank as a result of the committed violations, shall become the property of the Public Treasury. Furthermore, all financial gains achieved by a member of the bank’s Board of Directors, or the bank’s employee, as a result of committed violations shall become the property of the Public Treasury. The Board of Directors of the Central Bank of Kuwait lays down the rules and principles to be applied in determining the amounts that shall become the property of Public Treasury.
3. Members of Board of Directors, the officer in charge of the Executive Staff, General Managers, Deputies or Assistants thereof, Sector Managers, and Branch Managers of the violating bank shall –all within their respective competences- be responsible for deliberately committing any act that resulted in the bank’s violation of this Law and the decisions and instructions issued in pursuance thereof or the provisions of the bank’s Articles of Association, or for failing to submit the documents, statements or information required to submit to the Central Bank, or for submitting statements discrepant with facts.
   The person responsible for the violation shall bear all ensuing damages to the bank, its shareholders or third parties, as a result of the violation.

* Text of Article (85) was further amended by virtue of the Law No. (28) of 2004.

Article (85 bis)*:

Except for cases allowed by the law, any member of the bank’s Board of Directors, or bank manager or employee or worker, shall not disclose any information –during the period of his/her employment or after leaving work at the bank- regarding the affairs of the bank or its customers, or other banks’ affairs, which he/she may have become aware of due to the activities inherent in his/her position.

Without prejudice to any more severe penalty under any other law, anyone who violates the prohibition mentioned in the previous paragraph shall be liable to imprisonment for a term not exceeding three months and the payment of a fine not exceeding two hundred and twenty five Dinars, or to either of these punishments, plus dismissal from the service.

* Text of Article (85 bis) has been added by virtue of the Law No. (28) of 2004.

* This Section has been added by virtue of the Law No. (30) of 2003 issued on 25 May 2003 and published in the Official Gazette “Al-Kuwait Al-Youm”, Edition No. 618 dated 01 June 2003.

Article 86:

Islamic Banks exercise the activities pertaining to banking, and any activities considered by the Law of Commerce or by customary practice as banking activities, in compliance with the Islamic Shari'ah principles. Islamic banks ordinarily accept all types of deposits, in the form of current, savings, or investment accounts, whether for fixed terms and purposes or otherwise. These banks carry out financing operations for all terms, using Shari'ah Contracts, such as: Murabaha, Musharakah and Mudarabah. Furthermore, these banks provide various types of banking and financial services to their customers and to the public. They conduct financial and direct investment operations, whether on their own account or on the account of other parties, or in partnership with others, including establishment of companies, or holding equity stakes in existing companies or companies under establishment, which undertake various economic activities, in accordance with both Islamic Shari'ah principles and controls laid down by the Board of Directors of the Central Bank, and in compliance with the provisions of this Law.

The Central Bank shall lay down the rules and controls that regulate the activities of branches of foreign Islamic banks authorized to operate in the State of Kuwait. Insofar as the provisions of this Law are concerned, the branches of any foreign Islamic bank operating in the State of Kuwait shall be considered as one bank.

Article 87:

Article 88:

Before starting the formalities of incorporation, applications for establishing Islamic banks shall be presented to the Central Bank, together with the following documents:

1. a statement citing the founders' names, nationalities, addresses, and shares in the bank's capital;
2. a draft of the Memorandum of Agreement and Articles of Association;
3. the feasibility study for establishing the bank; and
4. any other documents that the Central Bank may require.

Application forms for establishing branches of foreign Islamic banks shall be presented to the Central Bank, together with the following documents:

1. the Memorandum of Agreement and Articles of Association of the applicant bank;
2. the feasibility study for establishing the branch;
3. evidence that the headquarters of the foreign Islamic bank is subject to the parent country's supervisory authority, together with the relevant approval thereof to establish the branch applied for, and
4. any other documents that the Central Bank may require.

Applications to establish Islamic banks or a branch of foreign Islamic bank shall be submitted to the Board of Directors of the Central Bank for its approval in principle or refusal thereof.

The license given to establish a branch of a foreign Islamic bank shall not be transferable to any other party.

Article 89:

Islamic banks shall be registered in a special register for Islamic Banks at the Central Bank, pursuant to an application presented to the Central Bank on relevant forms. Registration therein shall be effected by a decision of the Minister of Finance on recommendation of the Board of Directors of the Central Bank. 

Islamic Banks shall not start operation until they have been registered in that Register. 

Islamic banks shall not establish branches inside or outside Kuwait without prior permission from the Central Bank, and before having these branches registered in the Islamic Bank Register. 

The Minister of Finance shall, on the recommendation of the Board of Directors of the Central Bank, issue an Islamic Bank Register Bylaw that shall include rules, procedures and dates of registering, amending and declaring Register entries.

Article 90:

In keeping with the provisions of the Law of Commercial Companies, and without prejudice to the provisions of this Law, registration of Islamic banks in the Register shall require the following:

1. The bank takes the form of a joint-stock company that places its shares for public subscription. Branches of foreign Islamic banks, once permitted in the State of Kuwait, may be excluded from this provision by a decision of the Council of Ministers, upon the proposal of the Board of Directors of the Central Bank and the approval of the Minister of Finance.
2. The Central Bank approves the bank's Memorandum of Agreement and Articles of Association.
   
   

Article 91:

Registration of branches of foreign Islamic banks in the Register, shall require provision of the following documents to the Central Bank:

1. an affidavit by the headquarters of the foreign bank declaring its commitment to any rights of depositors and creditors as well as all liabilities that may accrue on the branch;
2. evidence of the transfer of the minimum amount of funds allocated for the branch operations in the State of Kuwait, as stipulated in this Law; and
3. any other commitment, document or instrument that the Central Bank may require.
   
   

Article 92:

Without prejudice to the provisions of Article 87 and the provisions of enforced laws, the paid-up capital of any Islamic bank shall not be less than seventy-five million Kuwaiti Dinars. The founders' share in the bank capital shall not recede below 10% nor exceed 20%.

With regard to the branches of foreign Islamic banks the amount of funds allocated for a branch in the State of Kuwait shall not be less than fifteen million Kuwaiti Dinars. The founders' share in the amount of funds allocated for a branch in Kuwait may be amended and so the amount of funds allocated for the branch increased by a decision of the Board of Directors of the Central Bank, when necessary. 

If the capital of a bank or the amount of funds allocated for a branch of a foreign Islamic bank falls below the required minimum limit as a result of operational losses or other reasons, the bank shall cover the difference within such a period as may be specified by the Central Bank.

Article 93*:

Each Islamic bank shall have an independent Shari’ah Supervisory Board, comprised of no fewer than three members appointed by the bank’s General Assembly. The Memorandum and Articles of Association of the bank shall provide for the establishment of the Board as well as its formation, powers and methods of carrying out its business. 

A committee shall be formed in the Central Bank under the title “The Higher Committee of Shari’ah Supervision”. The Board of Directors of the Central Bank of Kuwait shall lay down the rules that govern the composition of the committee, the method of appointment, organization of its business, terms of reference and members’ remuneration. The said committee shall express its opinion on Shari’ah related matters referred to it by the courts or arbitration centers with respect to the issues of Islamic finance and banking. 

Should a difference of opinion arises among the members of the Shari’ah Supervisory Board in an Islamic bank concerning a Shari’ah ruling, the board of directors of the bank may refer the matter to the Higher Committee of Shari’ah Supervision in the Central Bank of Kuwait that shall serve as the final authority of the matter.

The Shari’ah Supervisory Board shall annually submit to the bank’s General Assembly a report of its opinion on the bank’s operations in terms of compliance with Islamic Shari’ah principles and any comments it may have in this respect. This report shall be included in the bank’s Annual Report.

* The second and third paragraphs were added to Article (93) by virtue of the Law No. (3) of 2020 issued on 10 March 2020 and published in the Official Gazette “Al-Kuwait Al-Youm”, Edition No. 1488 dated 29 March 2020.

Article 94:

The Central Bank may:

1. open accounts denominated in Kuwaiti Dinar or foreign currencies with Islamic banks;
2. open accounts denominated in Kuwaiti Dinar or foreign currency for Islamic banks;
3. authorize Islamic banks to participate in the Clearing Chamber.

Such actions shall be performed in accordance with the terms and conditions that are not in contradiction with the Islamic Shari'ah principles and are as decided by the Central Bank.

Article 95:

The Central Bank may carry out the following operations:

1. provide emergency finance to Islamic banks for a period not exceeding six months using instruments and methods that conform with the Islamic Shari'ah principles, and in accordance with the terms and conditions set by the Board of Directors of the Central Bank.
   The term of such finance may be extended for a period not exceeding further six months.
2. sell to and purchase from Islamic banks securities and other instruments that comply with the Islamic Shari'ah principles.
3. issue instruments that comply with the Islamic Shari'ah principles, in accordance with the limits and conditions set by the Board of Directors of the Central Bank.
   
   

Dealing in these instruments, by sale and purchase, may be carried out with both Islamic banks and other institutions subject to the supervision of the Central Bank.

Article 96:

Islamic banks shall be under the obligation to fully repay sight deposits to their depositors upon request, while such deposits shall not incur any losses. 

Owners of investment deposits shall participate in the profits and losses from the bank's business in proportion to the amounts of their participation in the investment, pursuant to the contracts concluded with them in this regard, and in accordance with the provisions of this Law.

Article 97:

The The Board of Directors of the Central Bank shall set the rules and regulations for the supervision of Islamic banks with respect to liquidity, solvency, and business organization, including in particular:

1. a system for liquidity and elements thereof;
2. capital adequacy standards through specifying the ratio of capital to asset elements;
3. rules for calculation of the required provisions for asset risks.
   
   

Article 98:

The Board of Directors of the Central Bank may specify for Islamic Banks all or some of the following:

1. the maximum value of operations pertaining to a specific activity;
2. the maximum limit of a bank's equity holdings in companies that it incorporates, participates in establishment, or owns shares therein; and the rules and regulations thereof, in addition to the maximum limit of a bank's participation in any single project;
3. the maximum limit of a single customer's liability to the bank while granting a relative advantage to subsidiaries of the bank according to the conditions laid down by the Central Bank;
4. the amount of funds that must be invested in the local market;
5. the portion of deposits with the bank that must be deposited in cash with the Central Bank;
6. the rules and regulations that must be observed in a bank's relationship with its customers, and between its customers and shareholders.
   
   

Article 99:

Without prejudice to the provisions of Articles 97 & 98 of this Law, Islamic banks shall not own or deal in private residential buildings and plots in the State of Kuwait with the exception of those:

1. acquired or dealt in for the purposes of executing finance operations that have been agreed to or are being concluded with customers in accordance with the methods and forms of funding that are in compliance with the Islamic Shari'ah principles;
2. required for the conduct of their business or for the accommodation or recreation of their staff;
3. acquired by reversion of title in settlement of others' unfulfilled obligations towards them, provided that these are sold off within a period not exceeding three years from the date of reversion. The said period, however, may be extended for one year subject to approval of the Central Bank, when necessary.
   
   

Article 100:

Unless otherwise stipulated in this section, Islamic banks shall be subject to the provisions of this Law without prejudice to the Islamic Shari'ah principles.