02 Jul 2021 / Article

The dark cloud of international compliance looming large over African banks

Several of Africa’s senior finance figures came together at an Africa Financial Industry Summit session in March to discuss the impact of the ongoing crisis on the implementation of international standards. Although for the time being flexibility remains the order of the day, Africa will eventually have no choice but to comply. 


Basel, Solvency, KYC, FATCA… applying the numerous regulations hailing from other continents is proving a challenge for the finance industry in Africa. Indeed, more than 40 countries across the continent still do not adhere to the 2010 Basel III regulations. The Covid crisis forced the continent’s banks to prioritise sustaining economic activity, and many regulators have chosen to postpone the strict application of these measures to allow financial institutions to absorb the economic shock.  


“The Covid crisis highlighted the significant regulatory requirements confronting Cameroon,” explains Mareme Mbaye Ndiaye, Managing Director of Société Générale Cameroon. “As a result, the government put measures in place to help ease the situation. These included raising the guarantee ceiling (from 40bn to 200bn CFA francs), setting up lines of credit with banks at subsidised rates, increasing the cap on VAT credit refunds, and the free registration of domestic public debt repurchase agreements by banks.” 


The regional regulator soon followed suit. “To anticipate potential challenges within the CEMAC (Central African Economic and Monetary Community), the BEAC (Bank of Central African States) also introduced several measures. Among these were lowering the key interest rate, increasing the amount of liquidity in the money market, and extending the period for bad debt write-offs on loans affected by the pandemic. The latter initiative has been particularly well received among CEMAC members,” the financier continued.  


In the main, Africa was pragmatic in response to the economic fallout prompted by the health crisis. This was an echo of what was happening the world over, notes Edouard Fernandez-Bollo, Member of the Supervisory Board at the European Central Bank. “While in normal situations we would regularly be asking banks to increase their capital, in such a situation of crisis, operational challenges meant they had to be allowed to reduce their capital.” 


Financial stability the goal for regulators 


Beyond Covid, adapting international standards to fit the African model must be considered. “Resources are the major problem here. A large number of qualified staff must be recruited, in both the private sector and the regulatory authorities, to ensure compliance. The cost of providing this human resource will be much higher than any other investment that may be required,” said Bertrand Casteres, Group CEO of MUA, a Mauritian insurance group active in the Seychelles, Kenya, Uganda, Tanzania and Rwanda.  


“KYC (Know Your Customer) standards are extremely demanding, and are pretty irrelevant for us, given that very few residents have proper identification. And with such a burgeoning informal sector, proof of activity or income is almost impossible,” explains Mareme Mbaye Ndiaye. “The fastidious application of KYC negatively impacts the number of banking customers in our area, a number that is already very low.” 


African regulators have shown some flexibility when it comes to implementing international standards that are not a good fit for the continent’s needs, although they are required to guarantee deposits and investments. “It is important to remember that regulations in Africa have been applied gradually and are intended to complement or replace local standards,” explains Arielle Ines Seri, an insurance partner at EY in Abidjan.  


“Within CEMAC, banks are telling us what it is really like on the ground in terms of regulations,” explains Abbas Mahamat Tolli, Governor of the Bank of Central African States (BEAC). “The majority of our banks today are small and do not have sufficient funds to meet international standards. Having experienced the collapse of the banking system in the 1990s, we are especially wary of the zone’s financial stability, while remaining abreast of regulatory requirements.” 


Strict compliance remains unavoidable 


But, as Bertrand Casteres warns, “It is important to understand that Africa will not be able to avoid the most stringent regulations possible.” Casteres claims that a temporary exemption from the rules is a possibility, but not indefinitely. For the measures to be achieved, ongoing support will be required. Arielle Ines Seri suggests that a possible approach could be “collaborating with regulators as if they were business partners. The aim would be to ensure that regulations favour a balance between compliance and growth, and that they are adapted to Africa’s needs.” Seri also envisions a potential “win-win partnership with international financial institutions, creating a phased framework of support for African banks so that they can improve.” 


Another possible way to tackle these challenges would require somewhat broader horizons. By securing a seat at the table among the international regulatory community, with more African members helping to set the standards, Africa’s voice, and its challenges, would be better heard. 



Read more

09 Jun 2020 / Article

The retail industry gears up for a major reshuffle

07 Jan 2022 / Article

Gender diversity in business requires strong commitment from CEOs

29 Apr 2020 / Article

“Digital shift has become companies’ top priority”