Banks face Sh20m fine for loss of customer deposits

Commercial banks will be fined Sh20 million for flouting set regulations if the new Central Bank of Kenya (CBK) law review is adopted.

The submissions made to Attorney General Justin Muturi for approval will see local banks found culpable for the loss of customer deposits hit with a Sh20 million penalty from Sh1 million, currently in place.

The review comes after Senators raised concern that Sh1 million fine is too little, and it has failed to deter banks from following up on loss of funds from customers.

While making submissions to the Senate Finance and Budget Committee, Central Bank of Kenya Governor Kamau Thugge said that the review of the law and increase in the penalties is meant to make commercial banks tighten their anti-fraud systems to cushion their customers from swindlers.

In addition, Thugge told the Mandera Senator Ali Roba-led committee that apart from reviewing the penalties, the regulator plans to set up a real-time system that will also monitor transaction fees and interest rates charged by all the commercial lending institutions. Roba questioned whether the penalty was based on a percentage of the amount in question or a standard figure.

“I felt the penalties are not sufficient to deter banks and for that reason, I have asked my team to review the penalties to 20 million for each violation. Those recommendations are now with the Attorney General to make sure he finalises on those recommendations and will ultimately come to parliament for approval,” he said.

During the grilling, Nandi Senator Samson Cherargei asked CBK to quantify the number of complaints and the estimated of loss of money in the banks.

“What has the regulator done to ensure that banks have systems that can protect the customers from being defrauded? What is the punitive measure that has been put in place? Do you punish the commercial banks because the banks feel obligated to protect my money,” he posed.

Nominated Senator Tabitha Mutinda had sought a statement on the floor of the House for the committee to find out the measures that have been put in place by various banks and the CBK to stem fraudulent withdrawals of funds from accounts belonging to customers in various Kenyan banks.

According to Mutinda, there was a Gikomba trader who lost some Sh800,000 from Equity Bank and the bank refunded the money after two days, a move she says is a lack of security system to protect customer’s deposits.

“There is a lady in Gikomba whose Sh800,000 was withdrawn. Within two days the money was returned. This is just one person I raised her issue. What about other Kenyans whose money has been withdrawn and they are not able to raise the issue? What are the punitive measures which have been put to ensure banks tighten their systems against fraudsters?”

However, Thugge told the committee that the prevalence of frauds in the Kenyan banking sector includes internet, online/mobile banking frauds, forgeries, loan frauds, cheque frauds and identity theft frauds.
“There are spikes in frauds in the banking sector due to increased digitisation. However, there are legal and regulatory frameworks to mitigate fraud risk requiring banks to have robust systems with adequate internal controls to detect, prevent and mitigate risks of fraud,” said the governor.