Banking Regulations Compliance Checklist: A Guide for Kenyan Institutions
The Central Bank of Kenya (CBK) has published draft regulations aimed at promoting compliance and deterring violations of banking laws in the country. The Banking (Penalties) Regulations, 2024, set out a framework for assessing and penalizing institutions or individuals that fail to comply with directions from the CBK.
Key Violations
The regulations list several violations, including:
- Failure to maintain minimum liquid assets
- Incorrect classification of risk weights
- Review loan provisions without proper approval
- Permitting advances and liabilities to exceed prescribed limits
- Failing to obtain prior approval for opening a new business location, transferring share capital, or appointing a director or senior officer without CBK certification
Corporate Governance Violations
The regulations also cover violations related to corporate governance, including:
- Failure to provide information on control systems and risk management frameworks
- Not maintaining books and records
- Not exhibiting audited financial statements
- Failing to comply with inspection directives
Additionally, institutions are prohibited from:
- Purchasing or holding land exceeding the prescribed proportion of core capital
- Engaging in restricted trading and investments without approval
- Changing auditors without prior CBK approval
Financial Penalties
The regulations introduce a range of financial penalties for violations, with the most severe penalty being KES20 million for an institution and KES1 million for an individual. This is significantly higher than the existing maximum penalty of KES1 million for an institution and KES100,000 for an individual.
Evaluation Process
The evaluation process involves issuing written notifications to implicated institutions or individuals, allowing them to respond before a decision is rendered. The regulations also provide for review of CBK decisions and appeal to the High Court, departing from the existing regulations which do not accord such opportunities.
Experts’ Opinion
Experts believe that the new regulations will be more effective in deterring money laundering and financial terrorism, given Kenya’s recent addition to the Financial Action Task Force (FATF) greylist. The regulations are open for public comment until March 18, 2024, before they can come into effect.
Conclusion
The Banking (Penalties) Regulations, 2024, aim to promote compliance and deter violations of banking laws in Kenya. Understanding the key violations, corporate governance requirements, and financial penalties is crucial for Kenyan institutions to comply with the regulations and avoid severe penalties.