What remains unclear is why the draft laws are changing shape with the passage of time.
A couple of weeks ago, I nitpicked here about the suspicious timing of the release of the draft Financial Markets Conduct (FMC) Bill 2018 a few weeks before the Finance Bill was read by the Treasury secretary.
The Finance Bill proposes the removal of the interest rates capping, which “odious” law will be buffeted by the Financial Markets Conduct Authority (FMCA) whose permission will be required before setting of any interest rates by an entity providing financial services to retail customers.
What is of greater note is that the journey to govern financial conduct of the Kenyan retail market did not begin upon the release of the draft FMC Bill and its purported skating onto the thin ice of the Central Bank of Kenya’s (CBK) supervisory territory.
This journey actually began a few years ago with the release of the broader scoped draft Financial Services Authority (FSA) Bill of 2016. The latter Bill proposed to roll up the regulatory roles of the Capital Markets Authority, the Insurance Regulatory Authority, the Retirement Benefits Authority and the Sacco Societies Regulatory Authority into one entity that would have both prudential and conduct authority over the regulated entities.
The FSA Bill began the process of documenting what financial conduct would look like in the market and, unlike its 2018 step-brother, did not limit itself to financial conduct over retail service provision.
The Bill gingerly and deliberately steered clear of treading on the toes of the CBK by specifically providing in Section 13 that the Financial Services Authority that was to be created would co-operate and collaborate with the CBK to coordinate actions around licensing, inspection and investigation, actions to enforce laws and information sharing.
Section 33 also clearly stated that prudential rules made under the act would not include any provisions that impose requirements on a CBK supervised entity without the latter’s concurrence, nor would a prudential rule or conduct rule be allowed to include a provision aimed at promoting financial sector stability without CBK’s consultation. Because nothing gets through the tiniest sliver of a socio-political sieve without the ubiquitous consultation to the extent that the drafters of the law felt it fit to legislate it.
Interestingly, Section 35 (4) did not require either a CBK entity or an issuer of securities to hold a financial conduct licence.
One could presume that it was felt by the drafters at the time that CBK was supremely capable of overseeing the financial conduct of its licensees. Anyway, the Bill seems to have skedaddled off the cliff and into the abyss of legislative ignominy.
Nonetheless, the newer FMC Bill requires any entity that is providing financial services to obtain a financial conduct licence and gives a 24 month temporary exemption from obtaining the licence to current holders of banking licences in its own Section 35 (2). However, the regulations may specify any other period for the temporary exemption.
This would appear to borrow from our commonwealth legislative mentors. In the United Kingdom, the Prudential Regulatory Authority (PRA), which sits within the realm of the Bank of England, is charged with prudential oversight of 1,500 banks and insurance companies.
The Governor of the Bank of England is the chair of the PRA while the chief executive officer is the Bank of England’s Deputy Governor for prudential regulation.
Included in the PRA board of governors is the Bank of England’s Deputy Governor for financial stability as well as the chief executive of England’s own Financial Conduct Authority (FCA).
So the PRA provides oversight over the safety and soundness of banks and insurance companies while their FCA keeps a hawk eye over the protection of consumers, promotion of competition and — in what is a smorgasbord of regulatory activity — also provides prudential oversight on the 18,000 or so financial services providers that the PRA does not regulate.
A reading of the FCA’s website illuminates the purpose of regulating financial conduct. “If UK markets work well, competitively and fairly they benefit customers, staff and shareholders and maintain confidence in the UK as a major global financial hub. Our role is to help ensure this happens.”
Well we know that at some point our very own government did — and likely still does — harbour aspirations of making Nairobi a regional financial centre and the regulation of financial conduct will be a key cog for success. What remains unclear though, is why the draft laws are morphing and changing shape with the passage of time. Perhaps only that time will tell.
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