The National Assembly Finance and National Planning Committee has approved the publication of a Bill that seeks to protect borrowers and loan guarantors by establishing the Ombudsman and the Financial Sector Tribunal to oversee lenders.
The Financial Markets Conduct Bill of 2023 requires lenders to provide full disclosure of information to a potential borrower and guarantor before making a loan.
The Bill requires that a pre-contract statement and quotation be provided with details of the loan advanced such as the dates and number of instalments, the total amount to be repaid including the principal, interest, loan fees and charges.
The legislative proposal prohibits lenders from charging or recovering from borrowers or guarantors interest rates that exceed the maximum rates set by the Financial Markets Conduct Authority.
The Bill establishes the Financial Sector Ombudsman to handle complaints and the Financial Services Tribunal to arbitrate disputes in the financial services sector.
The Bill also states that lenders may not change the interest rates charged during the term of the contract. The lender must determine the likelihood that the borrower and guarantor will be able to meet the financial obligations under the contract without significant hardship, and if the lender declines the loan, they must provide a specific reason.
The Bill also requires retail financial customers to seek compensation from the Conduct Compensation Fund in the event of a financial product/service provider’s loss or damage.
The proposed Bill prohibits lenders from providing credit reports containing information about the customer, as well as recommendations about the customer’s creditworthiness based on prohibited information.
The legislative proposal seeks to promote a fair, non-discriminatory financial market conducive to credit access by establishing uniform practises and standards for providers of financial services, regulating the cost of credit, and establishing the Financial Markets Conduct Authority, whose functions shall be to regulate and supervise the conduct of providers in providing financial products and services to retail financial customers, according to the Bill.
It establishes the Financial Markets Conduct Authority Board of Directors, which will consist of a non-executive chairperson appointed by the President, the National Treasury Cabinet Secretary, the governor of the Central Bank of Kenya, five other people with relevant experience appointed by the Treasury Cabinet Secretary, and the CEO, who will be an ex-officio member with no voting rights.
The Bill also includes provisions for financial conduct licences, which will limit the provision of financial products and services because service providers cannot operate without them.
A person who does not have a financial conduct licence, for example, cannot advertise for the provision of credit services, according to a brief prepared by the House legal team on the Bill.
The [Bill] proposes that if an entity already holds a licence under a sectoral law such as the Capital Markets Act, the Banking Act, or the Microfinance Act that covers the provision of financial products, that entity will be considered to have satisfied the Bill’s requirements. This is subject to a 24-month period of exemption from the date the Bill becomes law. Such entities are exempt from obtaining a licence.
