Jury still out on the proposed financial services authority

The taskforce on parastatal reforms recommended that financial services regulators IRA, CMA, RBA and SASCCO be consolidated into one agency.

Little has been heard of the progress towards making the FSA operational by 1 January 2015, as indicated by the Treasury Cabinet Secretary in this year’s Budget speech.

What is happening and how is this move likely to affect the operations of IRA? 

- Insurance player, Nairobi

Truth be told, there is little happening on this score, as far as I am aware. One thing, however, is certain: the proposed Financial Services Authority (or whatever it will be called) is not going to be in place by 1 January, 2015.

For one, such an agency would have to be set up under a specific legislation providing, among other things, its mode of operations. Then, either the same legislation or more specific laws would have to amend the other enactments under which the existing Authorities have been set up.

As has become the practice in the current democratic dispensation, Bills intended for submission to Parliament are discussed among the stakeholders.

So far, the Ministry of Finance, the supervising authority, has as yet to invite stakeholders to discuss any Bill concerning the intended agency or pertaining to amendments of existing laws.

It is either a case of the Bill still being drafted, or none exists.

This state of impasse is likely, considering that the taskforce that came up with these recommendations reportedly failed to consult even the supervising ministries. If this be the case, the recommendations were merely lofty ideas made without considering their practical aspects. As one Oriental sage once said: “In theory, there is no difference between practice and theory; in practice, there is”.

Perhaps, the ministries concerned are still wrestling with the problem of how to bridge the gap between theory and practice in the real world of parastatal consolidation.

Regarding the intended Financial Services Authority, there is a school of thought that, as the relevant supervisory and regulatory bodies are mainly in the nascent stage of development, being consolidated into one bureaucratic behemoth would adversely affect the progress so far achieved.

Moreover, the benefits for such consolidation cannot be readily perceived.

SERIOUS DISLOCATION

It is pointed out, for example, that the financial services regulators are neither a financial burden to the Treasury nor to the regulated entities.

At our stage of development, such consolidation is premature as each of the regulatory bodies in the sector is still evolving a systems regime in line with its mandates.

A case is cited of the UK, which had one such authority. Lately, there has been a move to break FSA up into its constituent sub-sectors.

Let it be noted that all the financial services regulators, through a memorandum of understanding signed sometime ago, have been collaborating on many common areas.

As convergence of financial services takes root in our society and economy, this initiative has been necessary.

But it is probably not yet time for upgrading this co-operation into an amalgamation of the bodies concerned.

In respect of the Insurance Regulatory Authority, there is already a serious dislocation to the IRA operations.

Without a board since the latter’s term expired sometime in May, the Authority has been rendered almost dysfunctional.

It is anybody’s guess how, for example, licence renewals will be done in the absence of a Board which assumed most of the powers of the Minister under the Insurance Act.

The question still remains: Is the intended agency really necessary, at least, for now? The jury is still out on this one.