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.

The leadership must not be rewards of jobs for the homeboys and girls who do not satisfy the capacity to undertake the critical responsibilities.

Thirdly, an overhaul of our financial services regulatory regime will inevitably create another core centre of regulatory powers parallel to those of the Central Bank of Kenya in terms of profile.

However, of necessity, it will consume present regulators, the CMA, RBA and IRA that shall become divisions within a newly mandated Financial Services Regulatory Authority, or whatever name is assigned to the body vested with such powers.

At least, three Chief Executives, three Chairmen and several members of the Board of the present regulators shall inevitably be in limbo. Further, members of the current three tribunals will be merged leading more casualties in terms of responsibilities.

Even for the staff, it will become essential to rationalise to adapt to the new regime of shared services with respect to human resources, and ICT and accounting services. Cost savings are enormous. It is now obvious why the proposal is generating resistance. CMA, in the late 1990’s, was at the forefront of advocating for a consolidated regulatory regime whose benefit is acknowledged by the Treasury’s mandarins.

It was not enthusiastically embraced by some of the current regulators and market operators and everyone now knows why.
It is, however, crystal clear, that the Treasury is now determine to progress such reforms, notwithstanding, emerging vested resistance.

Finally, in order to accelerate, the process of consolidation including necessary legislative actions, the Finance minister should constitute an independent advisory committee of experts drawn from both Public and Private sector with the Chief Executives of the present regulators sitting as ex-official members so as to achieve a seamless transition.

It is also imperative that those to assume the proposed Financial Services and Regulatory Authority (FSRA) and new positions at the CBK must be competitively recruited and vetted consistent with expectation of the new constitution.

This is to assure integrity in the regulatory system and engender public confidence, this matter being of compelling public interests. 

The writer is an opinion leader who prefers to remain anonymous Comments to: publicwatchdog@standardmedia.co.ke