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Central Bank of Kenya Introduces Targeted Fines for Banking Violations

In a bid to enhance regulatory precision and accountability within the banking sector, the Central Bank of Kenya (CBK) has introduced specific fines for breaches in banking rules. Departing from previous practices of applying blanket fines, the CBK’s latest move aims to enforce discipline and adherence to regulatory standards.

Under the newly published Draft Banking (Penalties) Regulations 2024, institutions found in violation of key regulations, including those pertaining to minimum capital levels, adequacy ratios, loan provisions, write-offs, and corporate governance, may face fines of up to Sh20 million. Similarly, banks failing to maintain proper books or records and those failing to comply with CBK requests during audit inspections could also incur fines of up to Sh20 million.

The regulations introduce a tiered system of fines, ranging from Sh2 million to Sh10 million, tailored to the severity of the infractions. Individuals found in breach of the Banking Act remain subject to fines of up to Sh1 million.

Specific violations attracting fines of up to Sh10 million include instances where institutional shareholders fail to reduce their holdings below five percent of a bank’s shares after being deemed ineligible by the CBK. Shareholders neglecting to abstain from exercising their voting rights under similar circumstances may also face penalties.

Moreover, the draft rules stipulate fines of up to Sh8 million for shareholders transferring more than five percent of their holdings in a bank without CBK approval, as well as for breaching the cap of 25 percent on beneficial interest in a bank.

The CBK has also outlined fines of up to Sh5 million for offenses such as appointing directors and senior officers without requisite approval, improperly displaying audited financial results, and changing auditors without CBK consent.

In recent years, the CBK has intensified its focus on regulatory oversight, bolstering surveillance and imposing financial penalties on errant banks and their personnel. These efforts aim to fortify the stability of the banking sector, particularly in light of previous instances of bank failures.

Furthermore, the enhanced regulatory measures align with broader efforts to combat financial malpractice, money laundering, and the financing of terrorism, safeguarding the integrity of the financial system.

In the fiscal year ending June 2023, CBK collected a total of Sh66 million in fines and penalties from banks and forex bureaus, reflecting the regulator’s unwavering commitment to enforcement.

The increase in fine volumes underscores the CBK’s resolute stance on maintaining the integrity and stability of Kenya’s banking landscape.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

21st February, 2024

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