The financial services sector in Kenya: a case for institutional reform and partial consolidation of the regulatory framework

Abstract

This study sets out to make a case for institutional reform and partial integration of the financial services sector in Kenya. The sectors identified for reform and integration include banks and insurance companies. The case for reform followed by partial integration is necessitated by several circumstances. First, financial services in Kenya are highly integrated today. Examples of integration include the cross-marketing of insurance products by banks ("bancassurance') thereby posing the challenge of "circumvention of regulation" for the present regulators of the two sectors. Second, the emergence of financial conglomerates in Kenya such as CFC-Stanbic Bank and the establishment of financial services units within certain financial institutions like the Co- operative Bank pose a challenge to regulators and call for a single regulatory authority in the market. Third, the failures of prudential regulation characterized by the collapse of stockbrokers such as Thuo & Partners, Nyaga Stockbrokers and Discount Securities and the collapse of banks such as Charterhouse and Daima Banks are clear examples of serious regulatory failures. Fourth, the requirement of multiple approvals during IPOs may negate investor appetite. The study therefore explores the rationale behind regulation of the financial services sector in Kenya, an overview of the relevant players in the sector and the possibility for partial integration of some aspects of the sector in order to enhance regulatory control of the financial services sector in Kenya