Editorials

Tie up the loose ends in battle against bank fraud

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Treasury cabinet secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • The revelation by the Treasury Cabinet Secretary, Ukur Yatani, that the government battled major bank scandals behind the scenes last year, staving off a new wave of collapses, is good news.
  • Though this is encouraging, it shows that we are not out of the woods yet in terms of sound corporate governance in the financial sector.
  • A lot more needs to be done to safeguard customer deposits and investor wealth from abuse by a few crooks who are always on the lookout for loopholes to plunder.

The revelation by the Treasury Cabinet Secretary, Ukur Yatani, that the government battled major bank scandals behind the scenes last year, staving off a new wave of collapses, is good news.

He says surveillance teams comprising officers from the Central Bank of Kenya (CBK), the Financial Reporting Centre (FRC) and other State agencies successfully intercepted shady financial transactions that would have sunk several institutions, dealt a blow to investor confidence and hurt depositors.

Though this is encouraging, it shows that we are not out of the woods yet in terms of sound corporate governance in the financial sector.

A lot more needs to be done to safeguard customer deposits and investor wealth from abuse by a few crooks who are always on the lookout for loopholes to plunder.

Focus should be on instilling high integrity in the governance of financial institutions to stump out the culture of pilferage. The country has witnessed the collapse of more than a dozen banks since 1993 due to cases of corporate misconduct such as irregular lending.

We have also seen others like Dubai Bank and Chase Bank go under due to fraud and insider dealings.

The insurance sector has also been riddled with mismanagement, causing Blue Shield Insurance, Standard Assurance, Kenya National Assurance, Lakestar Insurance, Stallion Insurance and United Insurance to go under.

The government must step up reforms in the financial sector and tie up all the loose ends.

Though surveillance helps to curb fraud, it has its limitations which would best be bridged through transparency in the day-to-day management of financial institutions.

Firms should be required to increase the level of disclosure through more regular and qualitative reporting both to regulators and investors.

This is already happening in markets such as the US where firms are required to present key information such as off-balance sheet transactions and any existing obligations that may present material effect on their financial state.

All firms must stay transparent in their dealings and officials made to account for every coin of investor and depositor funds.