By PUBLIC WATCHDOG
Notwithstanding, emerging resistance to proposal toward consolidation and overhaul of Kenya’s financial markets regulatory regime, Public Watchdog’s position is that, the choices are now obvious — it is not whether, but how and how soon.
Why? Finance minister Njeru Githae proposed it in the 2012/2013 Budget. A single financial services regulator has been planned since the late 1990’s, with similar proposals having been outlined in the Budget speeches at least twice as part of wider financial sector broadening and deepening reform measures. However progress was scuttled by vested interests within some regulators and market players.
A Memorandum of Understanding (MoU) enjoining the Central Bank of Kenya (CBK), the Capital Markets Authority (CMA), the Retirements Benefits Authority (RBA) and Insurance Regulatory Authority (IRA) was last year initiated by the Finance minister as part of steps towards a coordinated and collaborative financial system regulatory regime. In this column, we described the MoU as a delusion of grandeur by regulators, but a bold step.
Why and how? There have been many progressive and bold proposals that were singularly frustrated by those who saw their positions as regulators threatened, and market players who stood to benefit from regulatory loopholes in systems arbitrage.
What, then, are the compelling issues? First, Kenyans certainly yearn for bold regulatory reforms in an environment characterised by growing demands for unified dealings and investments in financial products across financial services, whether for banking, insurance, mortgages or retirement benefits and their derivatives.
Emergence of a one -stop investment and financial advisory service that has seen investors’ vulnerability to risks with increased trading arbitrage. Investors appear to be at the mercy of market players some of which are engaged in trading manipulations and/or direct fraud.
Billions of shillings worth of investors’ funds have been lost in the capital markets due failures of several stock brokers and investment banks. The investors are individuals, corporate, insurance companies and retirement benefits managers including the National Social Security Fund.
A recent effort to acquire an electronic surveillance system is encouraging, but more enforcement measures would make a difference.
Secondly, the globalisation of the financial system demands for a more collaborative regulatory regime for the financial system that the fragmented regulatory regime for a small market cannot assure due to waning confidence and structure limitations. As witnessed during last week’s Barclays Bank Plc overcharging of interests rates debacle in the United Kingdom, even a consolidated regime is vulnerable to abuse.
As a matter of fact, not only regulators, but also market operators face increased scrutiny following recent events that saw global jurisdictional risks and consolidation of provisions of financial services and growing contagion effects.
Further, we are increasingly operating in an era of globalisation, boundless investments and competition as well as operating costs of the financial system. It is important to also underscore that a regulator’s responsibility is both facilitative, assurance of fairness in the system and protection of investors’ interest.