Legislation and Guidelines
Legislation (or “statutory law”) is law that has been promulgated (or “enacted”) by a legislature or other governing body. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred to as “legislation” while it remains under consideration to distinguish it from other business.
The Central Bank of Kenya is in various ways guided by the following pieces of legislation:
- Constitution of Kenya 2010
- Central Bank of Kenya Act (2015)
- Banking Act (2015)
- Microfinance Act (2006)
- The National Payment System Act (2011)
- Kenya Deposit Insurance Act 2012
Regulations and Guidelines Pursuant to the Banking Act (Cap 488)
Regulations and Guidelines issued by the Central Bank of Kenya subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things.
Given the interconnectedness of the banking industry and the reliance that the national (and global) economy hold on banks, it is important for regulatory agencies to maintain control over the standardised practices of these institutions. The objectives of these regulations are:
- Prudential—to reduce the level of risk to which bank creditors are exposed (i.e. to protect depositors)
- Systemic risk reduction—to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures
- Avoid misuse of banks—to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime
- To protect banking confidentiality Credit allocation—to direct credit to favoured sectors to provide the best customer service in this competitive age.