Dr Njoroge described the move as an affront on the CBK, saying that creating a parallel agency would weaken and deprive the regulator.
The Bill also proposes the creation of the office of a Financial Sector Ombudsman to deal with complaints from retail financial customers.
Dr Njoroge said that under the proposed law, the Banking Act would end up subordinate to the authority.
Central Bank of Kenya (CBK) Governor Patrick Njoroge has come out to strongly oppose the planned super agency to police the financial services sector, setting the stage for a policy duel with Treasury secretary Henry Rotich.
Dr Njoroge described the move as an affront on the CBK, saying that creating a parallel agency would weaken and deprive the regulator of powers to execute its core mandate.
“This is not time for hubris. This is time for action. Make no mistake, the CBK is under attack. This is a summons to act and courage to defend and strengthen it, reviving our hope in a common vision of a modern central bank at the heart of a vibrant financial system,” the governor said at a media briefing yesterday.
The Draft Financial Markets Conduct Bill 2018 published last week seeks to establish a Financial Markets Conduct Authority (FMCA) to, among other things, set the maximum rate of interest a lender can charge.
Members of the agency’s board include the Treasury Cabinet Secretary and the governor of the Central Bank of Kenya.
“I have been warned variously about certain parties that lie in wait poised for mischief and that our actions have consequences. We are ready for that. That menace shall find us at our post and unafraid,” he added.
Financial Ombudsman
The Bill also proposes the creation of the office of a Financial Sector Ombudsman to deal with “complaints from retail financial customers, financial product and service providers in relation to the provision of financial products and financial services to the retail financial customers”.
Kenyan banks have been under constant pressure over what is seen as exploitative practices that help them make outsize profits at the expense of consumers, including the loading of excessive interest and charges on loans.
Dr Njoroge, however, maintained that the Bill does not deal with the fundamental issues (of access to affordable credit) that led to the passing of a law capping interest rates.
“In our view, it actually takes a step in the wrong direction,” said Dr Njoroge. “The Bill emasculates the central bank... and strips the central bank of powers to enforce the caps and indeed other things as well.”
Under the Central Bank Act, the CBK is charged with the conduct of monetary policy to ensure the supply of money in the economy is consistent with growth and price objectives set by the government.
The regulator is also charged with the supervision of banks, financial markets, and national payment systems to promote financial stability through “maintenance of a well-functioning banking system.”
Subordinate
Dr Njoroge said that under the proposed law, the Banking Act would end up subordinate to the authority.
“This is something that we have a lot of trouble with,” he said, adding that the proposed law repeals the CBK’s mandate under the Banking Act, including for approval of fees, charges and other items.
“This leaves bank customers at the whims of banks in respect of fees and charges. Thirdly it repeals provisions in the Banking Act for the CBK to deal with reckless lending. So here you are, a regulator, and you cannot control reckless lending by banks, then the question that arises is why are you in power or working as a regulator?”
Dr Njoroge also said the proposal has the potential to limit the power of the CBK to issue prudential guidelines to banks.
“It also limits the power of the central bank to place banks under receivership. Obviously the CBK is concerned at the proposals to limit its mandate and independence and we will obviously be providing details to the Treasury on this,” he said.
“Our concern has always been proposing something that will sustainably address the concerns that led to the enactment of the interest rate caps.”
The Bill, said Dr Njoroge, is also not consistent with the envisaged regulatory framework of the East Africa Community.
