A few moons ago, the Central Bank of Kenya released its inaugural handbook on emerging jurisprudence touching on its mandate. The digest delves into various cases that have been before our local courts which affect the core of CBK’s being. The ongoing development of court precedent provides a crucial reference point for regulatory consistency and market development as the nation develops as a global financial hub.

Article 231 of the Constitution establishes the Central Bank of Kenya (CBK). Its constitutional duties include creating currency, fostering price stability, and formulating monetary policy. Additional functions and authorities are provided by the Central Bank of Kenya Act, the Banking Act, the National Payments System Act of 2013, and the Kenya Deposit Insurance Act of 2012, which are all mentioned in some of the cases in this Digest. More to this, the Proceeds of Crime and Anti-Money Laundering Act of 2009 and the Prevention of Terrorism Act of 2012 both provide the CBK authority and responsibilities in relation to national security.

The Courts have buttressed this in further holding that CBK’s main goal is to develop and carry out a monetary policy with the intention of establishing and sustaining price stability generally. The formulation of monetary policy, or determination of the Central Bank Rate (CBR), is informed by a wide range of information and is based on a forward-looking monetary policy rule. The development and application of monetary policy are carried out within the framework of a flexible exchange rate regime. In the attainment of the set objectives, the CBK is accountable to Parliament and to the public.

The Digest by the Central Bank of Kenya emphasises and clarifies the Central Bank of Kenya’s mandates as established by various court decisions. The Economic Pillar of Kenya’s Vision 2030 economic development plan, prioritises a stable macroeconomic environment to protect the poor, who suffer the most during times of high inflation. 

The majority of these outcomes in the Court’s decisions have been covered by the CBK’s mandates, including reduced public sector deficits, low-interest rates, and a stable currency rate. Investor and consumer confidence in the market, as well as the current political and regulatory climate, have a significant role in the financial sector’s success. Repeatedly, the Courts have been asked to supervise how these mandates have been achieved or otherwise upheld by the CBK through its actions or inactions.

Through the reading of the various cases, and the outcomes from the court, its apparent that the scope and method of executing powers granted by the Central Bank of Kenya Act, the Banking Act, the Regulations, Circulars, and Prudential Guidelines pertinent to each of these Acts, as well as the Constitution of Kenya of 2010 and other applicable Acts, need to be adhered to by all sector players.

The independence of the central bank is guaranteed under the Constitution. It specifically states that the CBK shall not be subject to the direction or control of any person or authority in exercising its powers or discharging its duties. From a review of the digest, jurisprudence now emerges that, albeit the independence, the National Assembly has a long-hand mandate in exercising its oversight over subsidiary legislation, specifically drafted by the Regulators including the CBK. The High Court pronounced itself by stating that despite the CBK’s independence being granted by Article 231(3) of the Constitution, the National Assembly is still permitted to pass laws pertaining to the duties given to the CBK by Article 231(2) of the Constitution. The role of the Central Bank in relation to different arms of government is one that necessitates cooperation, collaboration, and information sharing.

Notably, the CBK acts as a banker and advisor to, and as fiscal agent of the government. It receives deposits and makes payments on behalf of governmental entities in accordance with established regulations. As an agent of the government, it manages the government’s public debt, including the issue and redemption of Treasury bills and bonds. In fulfilling this, CBK must adhere to the SOPs and ensure accountability and openness in all transactions.

Further, all authorised dealers in the foreign currency market are licensed and regulated by the CBK and it is obligated to designate Kenya Deposit Insurance Corporation as the only and exclusive receiver of any institution it determines. This, therefore, means that in the interest of a bank, its depositors, and creditors to ensure financial stability under section 34 of the Banking Act, the CBK could interfere with the management of a bank. 

The Courts have now held that, before placing a Bank under receivership, CBK and KDIC are obligated to consider any reasonable and viable proposals or recovery plans put forward by applicants toward the revival of the bank’s normal business.

The CBK has the sole right to issue notes and coins in Kenya, and only those notes and coins are legal tender. Additionally, it determines the denominations, inscriptions, shapes, materials, and other characteristics of the notes and coins it issues after consulting with the Minister of Finance. The digest further notes that any bank-issued currency may be withdrawn by the CBK by following the prescribed procedure, for instance, the demonetization of the old 1,000 Kenya Shilling notes in 2019 to address concerns about illegal financial flows and the growth of counterfeits that primarily target this denomination.

The CBK (Amendment) Act, 2021 mandates it to oversee, and issue licences to digital credit providers. Additionally, under the CBK (Digital Credit Providers) Regulations, 2021, unregulated non-deposit-taking microfinance institutions are now regulated and supervised by the CBK. A new national payments plan was launched by CBK in 2022 that was centred on five guiding concepts, including the need for a secure, quick, effective, and cooperative payments system that fosters financial inclusion and innovations that benefit Kenyans.

Conclusion

With regard to enacting laws governing the Central Bank’s duties, independence, and mission, Kenya has achieved significant progress. The digest implores banks and financial institutions to whom the Central Bank has a mandate, to invest in compliance with the various statutory instruments in this field, noting that CBK’s powers have been affirmed yet again by the Courts in more than a single instance.