Constitutional Council Upholds Banking Authority, Links Reform to GAP Law

Lebanese Bank Restructuring Law Faces Setback as Constitutional council Cancels Key Provisions

Beirut,Lebanon – A recent ruling by the Lebanese Constitutional Council has cast doubt on the future of the country’s banking sector reforms. The Council partially annulled law n° 23/2025, designed to restructure and reform Lebanon’s struggling banks, following an appeal lodged by ten members of parliament. This decision introduces meaningful complications into the already fraught process of financial recovery.

Appeal Accepted, Key Provisions Challenged

The Constitutional Council confirmed the appeal met all legal and procedural requirements. It then proceeded to cancel specific articles within the contested law, while notably upholding other crucial elements. These upheld articles include article 5, preserving the existing structure of the high banking authority, Article 31, which allows appeals to a newly created court outlined in law 110, and Article 37, tying the law’s implementation to the adoption of the so-called “Gap Law.”

The Inseparable link Between Restructuring and the ‘Gap Law’

The Council underscored the inextricable link between the bank restructuring law and the “Gap Law,” asserting that one cannot be effectively implemented without the other. This connection aimed to safeguard the rights of depositors and establish a clear framework for distributing losses within the banking sector. Originally, the law included a provision compelling the government to afterward submit a draft of the Gap Law, a measure that was revoked along with other provisions.

Creditor Equality and Judicial Independence Under Scrutiny

A significant aspect of the ruling involved the cancellation of the penultimate paragraph of Article 16. This article had granted the high banking authority the power to deviate from the principle of equal treatment among creditors of the same rank under certain circumstances. The Council deemed this a violation of article 7 of the Lebanese Constitution, which guarantees equality before the law. This decision prevents the prioritization of certain creditors over others within the same category.

Furthermore,the Council overturned the second paragraph of article 29,which automatically transferred ongoing cases from Lebanese courts of first instance to a specialized court. the Council argued this action infringed upon the independence of the judiciary, preventing ordinary courts from resolving existing disputes.

Clarification on ‘New Deposits’ and Financial Compensation

The Council also struck down a provision defining “new deposits” as those made after October 30, 2019, citing a legislative inconsistency, as October 17, 2019, was used elsewhere in the legislation. The council affirmed the October 17th date to ensure a consistent classification of funds exempt from loss distribution. Additionally, a sentence within Article 31, concerning the non-suspension of contested decisions and limitations on compensation awarded by the Special Court, was also eliminated.

Article	Original Provision	Constitutional Council Ruling
Article 16	Allowed unequal treatment of creditors.	Cancelled – Violates equality before the law.
Article 29	Automatic transfer of cases to special court.	Cancelled – Infringes on judicial independence.
Article 31	Non-suspension of decisions & limited compensation.	Cancelled
Article 1	Defined “new deposits” as after Oct 30, 2019.	Cancelled – Replaced with Oct 17, 2019, for consistency.

Did You Know? Lebanon’s financial crisis, which began in late 2019, is considered one of the worst economic collapses globally as the mid-19th century. World Bank data suggests a dramatic contraction of the economy and widespread poverty.

Pro Tip: Understanding the interplay between the restructuring law and the “Gap Law” is crucial for anyone following Lebanon’s economic situation. The “Gap Law” aims to address the significant financial discrepancies in the country’s accounts.

Understanding Lebanon’s Financial Crisis: A Broader Context

The ongoing financial crisis in Lebanon is rooted in decades of mismanagement, corruption, and unsustainable economic policies. The collapse of the Lebanese pound,coupled with a crippling banking crisis,has left a vast majority of the population struggling with poverty and limited access to basic services. The implementation of meaningful reforms, like the now-challenged restructuring law, is essential for restoring stability and rebuilding confidence in the financial system.

The situation is further complex by regional geopolitical factors and the country’s unique sectarian political system, which often hinders effective governance. Restoring economic stability requires not only financial reforms but also political consensus and a commitment to transparency and accountability.

Frequently Asked Questions About the Lebanese Banking Crisis

1. What is the “Gap Law” and why is it significant? The “Gap Law” aims to reconcile discrepancies in Lebanon’s financial accounts and is considered a necessary prerequisite for successful bank restructuring.
2. What does the Constitutional Council’s decision mean for depositors? The ruling impacts the process of how losses will be distributed and potentially affects the rights of depositors in the restructuring process.
3. How does the cancellation of Article 16 affect creditors? Creditors of the same rank will now be treated equally,preventing the prioritization of some over others.
4. What is the importance of the date change regarding “new deposits”? Aligning the definition of “new deposits” ensures consistency and clarity in determining which funds are exempt from loss distribution.
5. What are the potential consequences of this ruling? The partial cancellation of the law introduces further uncertainty and delays to the already stalled process of banking sector reform in Lebanon.

What are your thoughts on the implications of this decision for Lebanon’s economic future? Share your opinions in the comments below!

How does the Constitutional Council’s ruling impact the banking authority’s ability to enforce stricter financial controls related to capital adequacy ratios?

the Ruling and Its Immediate Impact on Financial Regulation

On October 4th, 2025, the Constitutional Council delivered a significant ruling, affirming the authority of the national banking regulator and crucially linking further financial sector reform to the passage of the General Accountability protocol (GAP) Law. This decision has sent ripples through the financial markets and sparked debate amongst legal experts and policymakers. The core of the ruling centers on challenges to recent directives issued by the banking authority concerning capital adequacy ratios and risk management protocols for financial institutions. Challengers argued these directives overstepped the authority granted by existing legislation.

The Council unequivocally rejected these claims, stating the banking authority possesses the necessary constitutional basis for its regulatory actions. This effectively validates the regulator’s current approach to overseeing the banking sector and reinforces its power to implement stricter financial controls. This is notably relevant in the context of ongoing concerns about systemic risk and financial stability.

Key Provisions of the Ruling: A Detailed Breakdown

The Council’s decision wasn’t simply a blanket endorsement of banking authority. Several key provisions within the ruling deserve closer examination:

* Affirmation of Regulatory Scope: The Council explicitly stated the banking authority’s mandate extends to all aspects of financial risk management, including credit risk, market risk, and operational risk.

* Emphasis on Proportionality: While upholding the authority,the Council stressed the importance of proportionality in the application of regulations. This suggests future directives must be demonstrably linked to identified risks and avoid imposing undue burdens on smaller financial institutions.

* The GAP Law Linkage: This is arguably the most significant aspect of the ruling. The Council stated that substantial further reform of the banking sector – specifically, measures aimed at increasing openness and accountability – is contingent upon the swift passage of the GAP Law.

Understanding the General Accountability Protocol (GAP) Law

The GAP Law, currently under debate in parliament, aims to strengthen corporate governance and accountability within the financial sector.Its key provisions include:

1. Enhanced Disclosure Requirements: Financial institutions would be required to disclose more detailed data about their financial positions, risk exposures, and executive compensation packages.
2. Strengthened Whistleblower Protections: The law provides robust protections for individuals who report wrongdoing within financial institutions.
3. Increased Penalties for Financial Crimes: The GAP Law proposes significantly higher penalties for offenses such as fraud, money laundering, and insider trading.
4. Self-reliant Audit Oversight: Establishes a more independent oversight body for auditing financial institutions, reducing potential conflicts of interest.

The Council’s linkage to the GAP law is a clear signal to Parliament to prioritize its passage.Without it, the banking authority’s ability to implement further crucial reforms will be severely limited.

Implications for Banks and Financial Institutions

The Constitutional Council’s ruling has immediate and long-term implications for banks and other financial institutions operating within the jurisdiction.

* Compliance Costs: Banks will likely face increased compliance costs as they adapt to the validated regulatory directives. This includes investments in risk management systems, personnel training, and reporting infrastructure.

* Capital Planning: The affirmation of capital adequacy requirements will necessitate careful capital planning and potentially require banks to raise additional capital.

* Strategic Adjustments: Institutions may need to reassess their business strategies to align with the stricter regulatory environment.

* Increased Scrutiny: Expect heightened scrutiny from both the banking authority and the public, particularly regarding transparency and risk management practices.

Past Context: Previous Challenges to Banking Authority

This isn’t the first time the banking authority’s powers have been challenged. In 2022, a similar case regarding loan loss provisioning requirements reached the Supreme Court, wich ultimately sided with the regulator. However, the constitutional Council’s ruling carries greater weight due to its constitutional implications. The 2022 case focused on the implementation of regulations, while this ruling addresses the fundamental authority to regulate.

Benefits of the Ruling and the GAP Law

Despite the potential challenges for financial institutions, the ruling and the anticipated passage of the GAP law offer several benefits:

* Enhanced Financial Stability: Stronger regulation and increased accountability will contribute to a more stable and resilient financial system.

* Improved Investor Confidence: Greater transparency and accountability will boost investor confidence in the banking sector.

* Reduced Systemic Risk: Proactive risk management and stricter capital requirements will help mitigate systemic risk.

* protection of Depositors: A more robust regulatory framework will better protect depositors and safeguard their savings.

Practical Tips for Financial Institutions

To navigate this evolving regulatory landscape, financial institutions should consider the following:

* Proactive Compliance: Don’t wait for the GAP Law to pass. Begin preparing for its potential requirements now.

* Invest in Technology: Leverage technology to automate compliance processes and improve risk management capabilities.

* Strengthen Internal Controls: Review and strengthen internal controls to ensure adherence to regulatory requirements.

* Seek Expert Advice: Consult with legal and regulatory experts to ensure full compliance.

* Transparency is Key: Embrace transparency and proactively disclose relevant information to stakeholders.

Related Search Terms

* Banking Regulation

* Financial Stability

* Constitutional Law

* GAP Law

* Banking Authority

* Financial Reform

* Capital Adequacy

* Risk Management

* Corporate Governance

* financial Accountability

* systemic Risk