Consumer protection in the Kenyan financial sector: A case for a Twin Peaks model of financial regulation

Abstract

The dynamic character of the financial services industry necessitates frequent appraisal of the regulation of the sector. The main objectives for regulation of the financial sector include financial stability, promotion of competition and protection of the consumers. In ensuring consumer protection, there is need to balance this with all the other objectives to ensure optimal protection in the entire financial sector. This can be difficult as it is mostly dependent on the regulatory framework in the financial sector for the basic reason that most of the failures are associated with regulation. Key to the challenges is that consumer protection is served by measures that ensure proper conduct on the part of the service providers. Interests of the providers of the financial services may thus not be sufficiently aligned with those of the consumers of the products. There are three common models of financial regulation. They are the sectoral model, unified or integrated model and the Twin Peaks model. The financial sector in Kenya follows a sectoral model. It is a hodgepodge of institutional and functional regulation. There are five (5) government agencies that regulate specific segments of the financial sector with each of the regulators being established to operate independently within the permits of an Act of Parliament. This is without mentioning the many other segments that have no specific regulators.