Regulator is to blame for sacco fiasco
The public has every right to expect the highest levels of competence from regulators.
Once again, Kenyans recently woke up to the news of yet another savings and credit co-operative society (sacco) in trouble.
But financial institutions don’t suddenly become illiquid or find themselves reeling under non-performing loans.
Such problems develop over many months and longer. Indeed, reports suggest that the issues at Metropolitan sacco had been going on for some time.
Under the Sacco Societies Act, the Sacco Societies Regulatory Authority (Sasra) is mandated to, among other aspects, regulate and supervise sacco societies.
Part IX of the Act (Financial Performance Reporting) stipulates the detailed financial information that must be provided to Sasra on a monthly, quarterly and annual basis.
Part XI (Regulation and Supervision) authorises Sasra to examine and perform on-site checks of saccos at any time, and to report its findings to that sacco’s board of directors.
Surely, Sasra would have presented its findings and concerns to Metropolitan’s executive management and directors and required concrete and timely remedial action.
So, what was Sasra doing as the problems unfolded and worsened? And how was a licensed and supervised sacco allowed to get to this point?
The same for the sacco’s external auditors. The Act requires saccos to appoint an external auditor, whose name it submits to Sasra.
The auditors should communicate evidence of irregularities to Sasra.
Surely, the external auditors would have raised concerns to the sacco’s executives through a management letter and similarly required concrete and timely action to remedy the concerns.
They would have had recourse to Sasra in the event of non-action or non-resolution of the issues by Metropolitan.
Yes, Metropolitan’s executive management and directors — particularly, the audit committee of the board, a required organ under the Act — should be heavily censured for what happened on their watch.
Furthermore, Part X of the Act (Governance of Sacco Societies) is explicit about the responsibilities of executive management and directors.
But the Sasra team that had supervisory authority for Metropolitan should also be investigated to determine their conduct on duty.
If the team followed the book, then it is time for Sasra to consider an overhaul of its early warning strategies and intervention policies for troubled saccos and to adopt a more proactive risk-based supervision approach.
It should also be determined whether the external auditors raised any concerns to Sasra, and if their financial statements gave to the public a timely indication of impending trouble.
A deposit run is not an appropriate trigger for regulatory intervention at a financial institution.
By then, it is too late, and is usually reflective of deeper underlying issues that should have been remedied earlier.
Strong consideration should be given to tripartite meetings between external auditors, regulators and an institution’s executive management.
These have been found to be highly effective in the discovery and resolution of issues.
The public has every right to expect the highest levels of competence, expertise and fiduciary duty from regulators, executives and external auditors.
After all, it is their hard-earned money that is usually at stake, not the officials’.
Ms Mutungi is a career international corporate banker and financial services advisor. [email protected]