Equity Bank and regulator dispute goes for arbitration

By Jackson Okoth

The dispute between Equity Bank and Central Depository and Settlement Corporation (CDSC) has now gone for arbitration.

This follows an agreement between CDSC, Capital Markets Authority and Equity Bank, that the issues in contention be resolved within the next week.

At the centre of the tussle are claims by CDSC that Equity has been lending to customers using shares as security but not remitting the lien (charge) to the corporation.

" What we have been offering is unsecured loans to customers, based purely on trust and knowledge about our clients, as per the bank’s business model," Equity CEO James Mwangi told a press conference on Wednesday.

CDSC charges Sh1,000 for shares used as security to borrow from banks, a fee that Equity insists it has not been charging clients. The bank insists that CDSC has no right to instruct how the bank should lend to customers.

The dispute brings to the fore an apparent conflict of interest between Equity as a commercial bank and a central depository agent.

Depository agent

For instance, Equity has been able to leverage on its commercial bank licence to offer overdrafts to central depository account holders, attracting business from other stockbrokers who cannot match similar offers.

CDSC is insisting that as a central depository agent, Equity Bank can only lend to small investors after receiving security and charging lien. "They cannot tell Equity Bank to force small traders to go through the inconvenience of (paying) legal charges or lien on their shares," he said.

Equity holds about 50 percent of all shareholder accounts, or 400,000 accounts.

While speculation has been rife that Equity Bank is looking for a stockbroker licence, the bank has remained non-committal over its plans.