20 June 2018

Kenya: Rotich Beats Retreat in Bid to Launch New Banking Watchdog

The Treasury Tuesday stepped back from forming an independent authority to regulate the conduct of financial institutions after the Central Bank of Kenya (CBK) warned that the planned watchdog will weaken it.

Treasury secretary Henry Rotich said the mandate of the proposed Financial Markets Conduct Authority (FMCA) would be limited to consumer protection in areas not covered by existing regulators including the Central Bank.

The Financial Markets Conduct Bill the Finance ministry published last month proposes to create a regulator in addition to the Central Bank to deal with the conduct of lenders.

The CBK warned the authority would make it a lame regulator and leave bank customers at the mercy of lenders by curbing its ability to regulate fees and charges.

It also takes away the Central Bank's ability to deal with "reckless lending", limits its power to issue prudential guidelines and place banks under receivership, CBK governor Patrick Njoroge warned.

Not be worried

On Tuesday, Mr Rotich said the Central Bank should not be worried because it will not encroach on the current responsibilities of the banking regulator.

"We have no intention whatsoever, of encroaching on the areas already covered by the regulators like the Central Bank of Kenya and Competition Authority," he said.

"The proposed agency will be more of as an ombudsman, acting on complaints raised by consumers about service providers. It is still in draft form and we are currently receiving views from all stakeholders including the CBK."

The ministry says the Bill aims to protect consumers from lenders who charge high rates for services provided over mobile phones.

The Treasury touched off a storm when it published the Bill that also seeks to set lending rates -- a role the Central Bank currently handles through the Monetary Policy Committee.

Dr Njoroge said he had been warned there were some unnamed parties that were keen on creating mischief and frustrating the Central Bank's fight to keep its independence.

Shylocks and mobile cash

Apart from commercial banks, the Bill also brings shylocks and mobile cash service within the ambit of regulation.

And while Mr Rotich said the FMCA would act as an ombudsman, the draft Financial Markets Conduct Bill 2018 proposes a separate agency called the Financial Sector Ombudsman to undertake that role.

The Bill, which will be presented to the Parliament next month, is open for review and comments by the public and industry.

Critics say a proliferation of lenders using mobile phone financial technology to extend credit to people even if they do not have bank accounts is saddling borrowers with high-interest rates, leaving regulators scrambling to keep up.


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