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Kenya’s Banking Industry Urged to Adopt Best Practices for Compliance

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In a bid to ensure stability in Kenya’s financial market, experts have called on the banking industry to adopt best practices for compliance with regulatory requirements.

The Current Fragmented Regulatory Structure

The current fragmented regulatory structure has been criticized for causing confusion and uncertainty among new entrants into the financial services market. New players in the sector are forced to navigate multiple statutes, regulations, and circulars to determine their obligations, which can be time-consuming and costly. This fragmentation also creates an environment conducive to regulatory arbitrage and capture by the industry.

The Need for a Unified Model of Financial Regulation

To address these challenges, experts have recommended a unified model of financial regulation that addresses the risks facing the entire sector, including money laundering, fraud, and dishonesty. Such a framework would create secure and sustainable supply chains, increase synergies and stability in the financial sector, and promote information sharing among stakeholders.

The Impact of Inconsistent Regulations

Inconsistent regulations can disrupt the flow of finances within supply chains, increasing costs for financing institutions and making it more expensive for buyers to finance purchases. Market disruptions caused by events such as inflationary pressures, recessions, and cybersecurity threats have become the new normal, driving unprecedented variability in all aspects of the supply chain.

The Need for an Integrated Regulatory Framework

Therefore, an integrated regulatory framework is needed that can efficiently allocate resources, assess and manage financial risks, maintain employment levels close to the economy’s natural rate, and eliminate relative price movements of real or financial assets that affect supply chain activities.

Best Practices from Other Countries

The establishment of a single regulator with broad powers has been cited as a best practice in other countries, such as Australia, where the Australian Securities and Investments Commission (ASIC) has helped suppress dishonourable and improper practices, set guidelines on business conduct, and promote public understanding of the financial sector.

Factors to Consider for Effective Regulation

To develop an effective regulatory framework, policymakers must consider various factors, including:

• Technological developments
• Global trends in regulation
• Prevailing market circumstances
• The needs of the financial system

The regulatory structure should also be periodically reviewed and reformed to anticipate contemporary developments and ensure that it remains relevant and effective.