The stability of any financial market is dependent on an effective regulatory framework. Effective financial market regulations should foster competition, protect consumers, preserve the stability of financial institutions by cushioning them against systemic risks and promote ethical and responsible business conduct.
The current financial sector regulatory structure in Kenya is characterised by fragmentation and inadequate coordination mechanisms, gaps, overlaps, inconsistency and differences in operational standards.
For instance, new entrants into the financial services market have to scrutinise myriads of different statutes, regulations and circulars to know their obligations.
These include the Banking Act, Digital Credit Providers Regulations, 2022, the Prudential Guidelines for the Institutions Licensed Under the Banking Act, Money Remittance Regulations 2013, the National Payment Systems Act, National Payment Systems Regulations, Cybersecurity laws, Google Play policy changes for financial services, compliance with Data Protection Act of 2019, and Kenya Information Communications Act.
There is a need for a unified model of financial regulation that addresses the risks facing the entire sector including money laundering, fraud and dishonesty, bankruptcy, exchange rate fluctuations, price volatility, low-profit margin and credit risk, and criminal market misconduct such as insider dealing, securing the right degree of protection for consumers.
A unified model of financial regulation shall create secure and sustainable supply chains, increase synergies and stability in the financial sector and increase the efficiency and effectiveness of supervision, therefore promoting information sharing among stakeholders, minimising regulatory arbitrage and regulatory capture by the industry.
Inconsistency of regulations threatens the stable flow of finances within supply chains on a number of interrelated fronts, including increasing costs of capital for financing institutions which are then passed on to supply chains, making it more expensive for buyers to finance purchases.
Market disruptions caused by events such as inflationary pressures and the recessionary environment, climate change weather events, cybersecurity; pandemics; geopolitical conflicts like the Russia-Ukraine war; and the Israel-Hamas war have become the new normal, driving unprecedented variability in all aspects of the supply chain.
There is therefore need for an integrated regulatory framework, capable of efficiently allocating resources, assessing and managing financial risks, maintaining employment levels close to the economy's natural rate, and eliminating relative price movements of real or financial assets that affect supply chain activities.
In Australia, the establishment of The Australian Securities and Investments Commission (ASIC) has help suppress dishonourable and improper practices, and market abuses, set guidelines on the conduct of business, promote public understanding of the financial sector and set up of a recourse mechanism for channeling and investigating public complaints.
The President’s economic advisors and Policymakers must therefore include various factors such as technological developments, current global trends in regulation, prevailing market circumstances, the architecture of the markets, and the needs of the financial system when determining the type of regulatory model, a regime should adopt.
Financial regulatory structure therefore should be periodically and critically appraised and reformed so that it anticipates these contemporary developments.
The writer is a procurement and contract management consultant.
