Chief executives of banking institutions and credit reference bureaus (CRBs) face a Sh1 million fine for failing to comply with directions issued by the regulator in proposed Business Laws (Amendment) Bill 2024.
Cabinet Secretary for National Treasury John Mbadi wants stiffer fines for officials and institutions that ignore prudential guidelines and standards set by the Central Bank of Kenya in conducting business.
The proposed changes in the banking laws will also see banks and CRBs penalised Sh3 million for failing to comply with CBK directives.
“The Bill seeks to amend the Banking Act to provide for stiffer penalties against banking institutions and credit reference bureaus that do not comply with prudential guidelines issued by the Central Bank [of Kenya],” Mr Mbadi said in a paid up notice in newspapers Friday, explaining policy measures in proposed changes to business laws to be tabled in National Assembly.
“The Bill proposes to introduce a penalty of three million [shillings] for body corporates and one million [shillings] for natural persons.”
Section 33(4) of Banking Act allows the CBK to give directions to institutions “generally for the better carrying out of its functions”.
These usually relate to the standards that banks and CRBs should follow when operating in Kenya or any other country where they have a presence, as well as guidelines to “maintain a stable and efficient banking and financial system”.
“A person who fails to comply with any direction under this section commits an offence and shall, in addition to the penalty prescribed under section 49 [of Banking Act], be liable to such additional penalty as may be prescribed, for each day or part thereof during which the offence continues,” the Act reads.
This comes after CBK Governor Kamau Thugge blamed soft fines for continued breaches of banking laws and guidelines.
“One of my first observations was that there seems to be a number of them (banks) who have not been complying with some of the provisions because the penalties are so low. I have suggested we strengthen those penalties,” Dr Thugge said in an interview with Business Daily in June.
“The stricter penalties will bring a lot of sanity to the system where banks will think twice before they violate a provision of the central bank.”
The CBK in mid-March had also published Draft Banking (Penalties) Regulations, 2024 with stiffer fines which, upon enforcement, will replace the existing ones implemented in 1999.
The proposed penalties sought to introduce fines of between Sh2 million and Sh20 million for body corporates and Sh1 million for natural persons who fail or refuse to comply with any directions given by the CBK.
If enacted, they will repeal the current penalties which provide for a maximum Sh1 million for an institution, and Sh100,000 for bank officials.
The regulations, which have been criticised for imposing largely handing blanket fines for all violations with little variation, also provide that the finance minister “may prescribe additional penalties not exceeding Sh10,000 in each case for each day or part thereof if such a failure or refusal continues”.
The CBK has stepped up its surveillance and financial penalties on offending banks and their employees in recent years, in a bid to improve the stability of the sector following the collapse of three small-tier lenders in 2015 and 2016. Rules have also been tightened to prevent cases of money laundering and financing of terrorism.
