
In 2024, the Central Bank of Kenya (CBK) fined Kenya Commercial Bank (KCB), Equity Bank, and three other leading financial institutions a total of Sh191 million for breaching lending regulations. These banks were found to have exceeded the single obligor limit, a rule that caps lending to any single borrower at 25% of a bank’s core capital. The fines came amid a period of currency devaluation, which exposed weaknesses in the banks’ foreign currency-denominated loan portfolios.
Similarly, South Africa’s Reserve Bank (SARB) imposed penalties on HSBC and Bidvest Bank for failing to comply with the Financial Intelligence Centre Act (FICA). HSBC was fined R9.5 million (about $500,000 USD), with R4 million conditionally suspended for three years, while Bidvest Bank faced a R5 million fine, half of which was suspended for 12 months. These breaches stemmed from inadequacies in their anti-money laundering (AML) and counter-terrorism financing (CFT) systems.
In Nigeria, the Central Bank of Nigeria (CBN) levied fines totaling N1.35 billion on nine banks, including Fidelity Bank and Zenith Bank, for failing to stock their ATMs adequately during the 2024 festive season. Spot checks revealed widespread non-compliance with cash distribution guidelines, resulting in substantial penalties for the affected institutions.
These incidents shed light on the critical rules that govern banks and protect customers, economies, and the financial system at large. Here are five key banking regulations every bank must follow.
1. Licensing and Supervision
Before a bank can operate, it must secure a license from the relevant regulatory authority. In Kenya, for instance, the Central Bank of Kenya (CBK) ensures that all financial institutions, including commercial banks, mortgage finance companies, and foreign exchange bureaus, meet strict licensing requirements. This oversight doesn’t stop at licensing; regular inspections are conducted to verify compliance with laws designed to foster liquidity, solvency, and the smooth functioning of the financial system.
2. Capital Adequacy Requirements
To promote financial stability, banks must maintain a sufficient capital buffer to absorb potential losses. In Kenya, the CBK mandates that banks and mortgage finance companies have a minimum core capital of 1 billion shillings. Similar regulations exist in other countries to ensure banks can withstand financial shocks, reducing the risk to depositors and maintaining confidence in the financial system.
Read: Why Banks May Be Fined for Failing to Provide Cash via ATMs
3. Adherence to Prudential Guidelines
Prudential guidelines serve as the backbone of responsible banking operations. These rules govern the management of credit, market, operational, and liquidity risks, ensuring that banks operate safely and transparently. For example, banks must keep adequate reserves and manage large cash transactions effectively. Non-compliance with these guidelines often results in significant penalties, as evidenced by the recent fines imposed on Nigerian banks for failing to keep ATMs stocked during the festive season.
4. Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT)
Regulators worldwide are vigilant about preventing banks from being used for illicit activities. Under Kenya’s Proceeds of Crime and Anti-Money Laundering Act, financial institutions must implement robust AML and CFT measures. This includes conducting thorough customer verification through know-your-customer (KYC) protocols and reporting suspicious transactions. The recent penalties against HSBC and Bidvest Bank in South Africa highlight the consequences of failing to adhere to these critical measures.
5. Interest Rate Caps and Consumer Protection
Even as regulatory landscapes evolve, consumer protection remains a cornerstone of banking oversight. In Kenya, while interest rate caps were abolished, banks must still operate under guidelines that regulate charges and fees. Any changes to banking fees require approval from the Cabinet Secretary for Finance, ensuring that customers are shielded from arbitrary or excessive charges.