I READ with shock an article in a local weekly saying the Central Bank of Lesotho (CBL) denies any liability towards the monies lost by investors in the MKM disaster.
I find it surprising that the central bank today claims that MKM traded under the Societies Act and as such was outside the CBL’s regulatory space.
This is ridiculous given the fact that the Financial Institutions Act and the Insurance Act clearly state that any entity that is not registered under these Acts but conducts business covered by the two Acts is deemed to be trading under the Acts and hence subjected to similar conditions as if it trades under the said Acts.
This in short means that MKM illegally traded under the two Acts and as such the CBL was required to ensure that the company fully complied with these Acts.
This point is particularly important given that the CBL knew as far back as the 1990s that MKM was conducting banking and insurance business even though it was not registered with the central bank.
In fact, some officials of the central bank invested monies with MKM hence their reluctance to face MKM.
This means that the CBL ought to have begun regulating MKM and ensuring that it complied with the law.
If the CBL had done its job 20 years ago, today Basotho would not be crying over their monies lost in MKM.
The CBL also failed to comply with the law that required it to regulate MKM as if it was registered legally.
The CBL’s mandate covers, among other things, ensuring stability and bringing confidence in the financial sector.
These are important foundations of any country’s financial sector given that this is one sector which drives any country’s entire economic system.
How did the bank fail the nation in this manner by ignoring such a fundamental role and leaving the whole nation in this state?
It must be understood that the whole reason institutions operating in this sector — legally or illegally — must be regulated is exactly to avoid their collapse.
The requirements in the regulatory framework include, among other things, that institutions must deposit a certain amount of money with the central bank so that in the case that an institution runs into problems, the central bank can refund its investors.
In this case, the CBL failed to instruct MKM to deposit the funds with it hence the present dilemma.
Had the central bank done its part in terms of the law, today MKM depositors would have been paid without a problem and the entire saga avoided.
Practice elsewhere in the world supports the case of CBL assuming liability arising out of its failure to do its work properly.
We read on a daily basis of cases that investors in other countries bring against regulators for negligence on their part.
Why should the CBL be immune to such treatment?
Part of the problem with the CBL is that the central bank has diluted its mandate by focusing on non-core issues like sports and recreation, for example.
At the end of it all the CBL has become one big joke.