Treasury cabinet secretary Henry Rotich. FILE PHOTO | NMG
Summary
- 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.
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