Evolving Banking Regulation: Sub-Saharan Africa
Regulatory Pressure Index
In a world struggling for growth, Africa stands out as the rate of growth is significant in many African countries. The extent of regulatory coverage is also diverse. In an assessment of the regions within the continent that are, or are likely to be the hub of heavy regulatory activity, four regions easily come to mind: West Africa, East Africa, South of Africa (excluding South Africa), and South Africa.
Regulatory changes in West Africa are largely centered on the implementation of Basel 2, financial inclusion, Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), and Foreign Account Tax Compliance Act (FATCA). New capital requirements for Systemically Important Banks (SIBs) have also been introduced while further regulations and guidance on stress tests and resolution planning are expected.
In East Africa, new regulations have been introduced to reduce information asymmetry and ensure that banks fully disclose relevant information on loans to their customers. In addition, a draft amendment to the Act was issued in 2014 by the Central Bank of Kenya. Among other things, the amendment seeks to further enhance retail participation by requiring the Central Bank of Kenya to act as lender of last resort to microfinance banks and create avenue for retail investments in government securities. The Bank of Tanzania has also recently issued a framework for financial inclusion. Meanwhile, there are expectations that regulators within the region will introduce guidelines on Islamic banking.
The South African Reserve Bank effected its Basel 3 rules in January 2013 and has since provided periodic updates on liquidity and leverage requirements. The country has also implemented regulations relating to Over The Counter (OTC) derivatives and market infrastructure. There are however possibilities of further tightening of capital requirements for SIBs and more stringent regulations for the mortgage industry. The impending shift to a twin peaks regulatory regime and the establishment of the Financial Services Conduct Authority “(FSCA)” has brought significant focus to market conduct. Financial crime remains a key area of focus for the regulator.
In March 2014, the National Bank of Angola (or Banco National de Angola) made a public presentation to all banks requiring a shift in financial reporting to the International Financial Reporting Standards (IFRS) standards effective January 2016. In Zimbabwe, the Reserve Bank is finalizing preparations for the complete implementation of Basel 2 standards in 2016.
Overall, the Regulatory Pressure Index (RPI) which measures the level of government or regulator interference stands slightly higher than a year ago. Six and a half years into the financial crisis, the overall regulatory pressure on banks shows little sign of abating. KPMG also noted that in Sub-Saharan Africa, the regulatory pressure is also linked to the country political stability and over-all governance. However, on an overall basis, , the regulatory pressures still remains lower in SubSaharan Africa than in Asia Pacific, the Americas and the EMA regions. In most if not all regions, pressure should radically increase and leap-frog to catch up with the global regulatory landscape around:
- Supervision – the increasingly intensive approach of supervisors across the continent, more so given the different roles of socio-economic growth enabler they play;
- Liquidity – reflecting the relaxation to the Liquidity Coverage Ratio and the balance sheet adjustments made by the banks themselves;
- Capital – the prospect of ‘Basel 4’ emerging through a combination of a higher leverage ratio and a much tougher approach to the weighting of banks’ credit and market risk exposures;
- Remuneration – where earlier dire predictions on banks’ responses to regulatory restrictions have proved largely unfounded;
- Market infrastructure – where adjustment to the requirements on the clearing, trading and reporting of derivatives is under way;
- Systemic risk – reflecting initiatives made on recovery and resolution planning, but only in some countries;
- Governance – the series of central banks and Basel Committee related initiatives on risk governance, and the wide-ranging new requirements on data reporting; and
- Culture and conduct – where banks will face heightened pressure to improve their culture and conduct.
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About David Okwara
Africa, Africa brief, Africa challenges, Africa financial services, Africa opportunities, African countries, banking, Banking and Financial Services Act, banking regulation, East Africa, financial services, Foreign Direct Investment, foreign investment, investment, KPMG Africa, regulation, South Africa, sub-Saharan Africa