Dr Mbui Wagacha, an economist who has previously served as Central Bank of Kenya (CBK) chairman, termed the proposed law as irrelevant and unlikely to pass through Parliament as its enactment would undermine the CBK’s mandate.
Dr Wagacha said there has been no prior consultation ahead of the Bill’s formulation and publication on the Treasury’s website, leaving to question the real forces behind it.
His position is in line with that of CBK governor Patrick Njoroge, who said early this week that creating a new agency would weaken the CBK’s mandate.
President Uhuru Kenyatta’s senior economic adviser has declined to endorse the proposed creation of a Financial Markets Conduct Authority (FMCA) to police banks.
Dr Mbui Wagacha, an economist who has previously served as Central Bank of Kenya (CBK) chairman, termed the proposed law as irrelevant and unlikely to pass through Parliament as its enactment would undermine the CBK’s mandate.
Dr Wagacha said there has been no prior consultation ahead of the Bill’s formulation and publication on the Treasury’s website, leaving to question the real forces behind it. His position is in line with that of CBK governor Patrick Njoroge, who said early this week that creating a new agency would weaken the CBK’s mandate.
“The law is unlikely to pass or work because it wants to take away roles currently played by the central bank. It is completely irrelevant and I don’t see it going anywhere. There was no consultation before it was published,” said Dr Wagacha.
The economist instead advised the CBK to propose some changes to the Central Bank of Kenya Act to include the Financial Conduct Authority (FCA) complete with a board and skilled staff – as an organ of the monetary authority (the CBK).
It would have the same independent operational mandate as that enjoyed by, for example, the Monetary Policy Committee.
The FCA would handle consumer issues, including ensuring that customers are not charged excessive interest rates, fees and other charges without proper disclosure at the outset.
Financial market players would be expected to deal with customers in a manner specified in law and any breach would be expeditiously dealt with.
To entrench supervision of commercial banks, Dr Wagacha said the CBK should also create the Prudential Surveillance Board with the role of keeping the institutions liquid and adequately capitalised.
This would be a strengthening of the prudential role currently played by some CBK departments, including that of supervision.
Dr Wagacha said the CBK should also propose the creation of a Financial Stability Committee (FSC) to keep the sector as a whole – including commercial banking, nonbank financial institutions as well as the capital markets – stable and not working at cross purposes.
“For example, one regulator would not approve a bond, only for another one to reject because it has adverse information against the issuer,” he said.
The FSC would be designed to increase harmonious working relationships among the sector players with the intention of preventing possible crisis in one area or subsector from affecting other sectors. It would prevent the type of crisis that found the investment banks, commercial banks, insurance companies, among others, getting all caught up in the global financial crisis in Western countries at the same time.
Dr Wagacha said that a working draft on the FSC had been made some years back when he was chairman and this was to be presented to Parliament in the form of an amendment to the CBK Act. However, he left office before such a presentation could be done.
“We had proposed to have eight directors for the FSC, which would be a body within the central bank. That means that the CBK already has something to work with and it can move quickly to make the changes through Parliament. It should not wait any further,” he said.
Treasury cabinet secretary Henry Rotich had not responded to queries on the opposition to the bill by the time of going to press.
