Central Bank sets specific fines for breach of banking rules


Central Bank of Kenya (CBK) Governor Kamau Thugge. FILE PHOTO | DENNIS ONSONGO | NMG

The Central Bank of Kenya (CBK) has set specific fines for lenders and officials breaching rules, a shift from blanket fines for all violations.

The published Draft Banking (Penalties) Regulations 2024 published by the CBK stipulate a maximum fine of Sh20 million for institutions violating rules on minimum capital levels and adequacy ratios, making adequate provisions for loans and write-offs, and corporate governance regulations.

The lenders will also be slapped with a fine of up to Sh20 million for failing to keep proper books or records and failure to comply with CBK requests during an audit inspection.

Other violations carry proposed penalties of between Sh2 million and Sh10 million for institutions. The regulations were last updated in 2017 and impose a flat maximum fine of Sh20 million regardless of the violation. The fines for individuals who flouted the Banking Act remain unchanged at a maximum of Sh1 million.

Violations that will attract a fine of up to Sh10 million include those of institutional shareholders who fail to reduce their holding to below five percent of a bank after being deemed by the CBK as not fulfilling the proper criteria for significant shareholders.

Shareholders who fail to stop exercising their voting rights after being deemed to have failed the test will also be fined up to Sh10 million. The draft rules further state that shareholders who transfer more than five percent holding in a bank without the approval of the CBK will be levied a maximum of Sh8 million, as will those who breach the cap of 25 percent on holding beneficial interest in a bank.

The regulator meanwhile stipulates fines of up to Sh5 million for offences such as appointing directors and senior officers without the requisite CBK approval, failing to properly exhibit audited financial results in branches and changing auditors without the approval of the CBK.

In the year ending June 2023, CBK collected Sh66 million in fines and penalties from banks and forex bureaus.

The CBK has over the years enhanced surveillance and financial penalties on offending banks and their employees, looking to enhance the stability of the sector in the wake of the collapse of three small-tier lenders in 2016 and 2016.

The rules have also been enhanced to prevent cases of money laundering and financing of terrorism.

The increase in the volume of fines, in the absence of a revision in the gazetted penalties, indicated either more stringent oversight by the regulator, or a spike in offences.

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