CBK TO SET HEFTY PENALTIES FOR FINANCIAL INSTITUTIONS DEFYING BANKING LAWS
Review of Kenya’s Draft Banking (Penalties) Regulations,2024
Towards the end February 2024, the Central Bank of Kenya published the Draft Banking (Penalties) Regulations,2024 and invited members of the public to submit their comments on the draft before it is finally approved. The Regulation is aimed at providing a clear framework for assessing and levying monetary penalties to institutions violating the Banking laws and the CBK guidelines and directions so as to make them compliant and enhance integrity in the banking sector.
Whereas members of the public have up to 18th March 2024 to submit their comments the Regulation as drafted provide for the follow violations and penalties:
| No | Violation | Penalty |
| 1. | Failure to maintain and keep minimum liquid asset as CBK may direct as required under section 19 of the Banking Act (“liquid assets” means notes and coins which are legal tender in Kenya, balances held at the Central Bank, balances at other banks in Kenya after deducting there from balances owed to those other banks, Kenya treasury bills and bonds of a maturity not exceeding ninety-one days which are freely marketable and re-discountable at the Central Bank and such other assets as the Central Bank may specify) | A person or an institution that fails to maintain or keep a minimum liquid asset commits a violation and is liable if a person to a penalty not exceeding Kenya shillings 1 million and if an institution a penalty not exceeding 20 million. |
| 2. | Failure to ensure that the provision for loans, advances and other assets made inadequate according to such guidelines as may be prescribed by the CBK under section 20 commits a violation. | Such an institution or person is liable if an institution to a penalty not exceeding 5 million Kenya shilling and if a natural person a penalty not exceeding 1 million. |
| 3. | A mortgage finance company which permits the total value of the advances, credit facilities, financial guarantees or other liabilities into the per centum prescribed by the CBK under section1 10 (1) of the banking Act OR an institution of person who does not review, classify or make appropriate and adequate provisions and write offs for loans and assets as prescribed by the CBK under section 20 of the Banking Act commits a violation. | In case of an institution to a penalty not exceeding 20million Kenya shillings and if a person to a natural penalty not exceeding 1 million shillings |
| 4. | An institution or person who does not obtain prior written approval of the CBK before opening, relocating or closing a place of business commits a violation | In case of an institution to a penalty not exceeding 2 million Kenya shilling and in case of a natural person to penalty not exceeding 1million shillings. |
| 5. | In relation to a representative business which carries out banking business without the approval of CBK or does not comply with direction issued by the CBK commits a violation. | In the case of an institution to a penalty not exceeding 5 million Kenya shillings and in case of natural person a penalty not exceeding 1m shillings. |
| 6. | A significant shareholder who does not comply with the determination of CBK made under section 9A (4) (b) OF THE Banking Act commits a violation. | In the case of an institution a penalty not exceeding 10 million Kenya shillings an in case of a natural person a penalty not exceeding 1 million shillings. |
| 7. | A shareholder who does not obtain the approval of CBK issued under section 13 (1) of the Banking act commits a violation | In the case of an institution a penalty not exceeding 8 million Kenya shillings and incase of a natural person penalty not exceeding 1 million. |
| 8. | An institution or person who appoints or elect a person as a director or senior officer without certification by CBK that the person is fit and proper person to manage or control the institution commits a violation | In the case of an institution to a penalty not exceeding 5 million Kenya Shillings and in the case of a natural person a penalty not exceeding 1 million shilling. |
| 9. | An institution of person who become a significant shareholder of an institution without being certified by the CBK that the institution or person is fit and proper person to manage or control the institution commits a violation | In the case of an institution to a penalty not exceeding 5million Kenya shillings and in the case of a natural person a penalty not exceeding 1 million shillings. |
| 10. | An institution or person who does not terminate the employment of a person who has been disqualified by the CBK from managing or controlling an institution commits a violation. | In the case of an institution a penalty not exceeding 8 million Kenya shillings and in case of a natural person a penalty not exceeding 1 million shillings. |
| 11. | An institution or person who does not provide the CBK with information on implementation of an effective internal control system or the establishment or implementation of a risk management framework as required by the CBK commits a violation | In the case of an institution to a penalty not exceeding 20million Kenya shillings and in case of a natural person a penalty not exceeding 1 million shillings. |
| 12. | An institution or person who does not maintain books, record or information in accordance with the direction issued by CBK or provide such information as CBK may direct commits a violation | In the case of an institution a penalty not exceeding 20 million Kenya shillings and in case of a natural person a penalty not exceeding 1million shillings. |
| 13. | An institution or person who does not exhibit last audited financial statement in a conspicuous place in every office and branch in Kenya as prescribed by the CBK commits a violation | In the case of an institution a penalty not exceeding 5 million Kenya shillings and in the case of a natural person a penalty not exceeding 1 million shillings. |
| 14. | An institution or person who purchases, acquires or hold any land or interest in land in excess of the proportion of an institution’s core capital prescribed by the CBK or engages in the restriction on trading and investments without approval of the CBK commits a violation | In the case of an institution a penalty not exceeding 5 million Kenya shillings and in case of a natural person a penalty not exceeding 1 million shillings. |
In relation to assessment of violation the draft regulation provides that where the CBK suspects that an institution or person has committed a violation, CBK shall issue a written notice specifying the violation and invite the institution or person to show cause why a penalty should not be imposed and produce any evidence in response to the suspected violation.
Upon receipt of the notice, an institution of person, within the period specified in the notice may make a verbal response to the violation or submit a written response to the notice.
The CBK shall then make a determination within 30 days of response.
Where the determination of CBK affirms the violation, CBK shall issue an assessment notice to the institution or person specifying the violation, the amount of penalty, the period the penalty is to be paid, manner in which the penalty should be paid and identity of the institution or person that is to pay the penalty and additional penalty to be paid in case of continued violation.
Any institution or person dissatisfied by the decision of CBK under the regulation may submit a written request within 14 days to CBK for review and the bank shall consider such request within 30 days. If the person or institution is further aggrieved by CBK review decision an appeal shall lie to the High Court.
For more info please contact us on info@aowangaadvocates.com or +254794600191
All rights reserved for A.O.WANGA ADVOCATES
www.aowangaadvocates.com
