THE regulation and supervision of Tanzania’s banking and finance sector has profoundly changed over the past three decades of globalization, internationalization and demographic change.
Banking business is more complex and becoming increasingly challenging to analyze. Technological innovations like Vodacom’s M-PESA have undergone explosive growth, unequivocally enabling Tanzanians to move money from bank accounts to mobile money accounts and vice-versa.
As a result, it’s not enough anymore to develop a suite of banking sector regulation and supervision around fairly modest compliance laws, rules and standards.
Contemporary banking regulation and supervision frameworks are implemented in a discretionary or characteristically judgmental way, rather than by mechanically applying rules or treating rules as rigid.
Central banks, therefore, need to understand the risks run by banks, monitor these risks and be prudent to prevent those risks from unfolding greatly.
The legislation under which Tanzania’s central bank, the Bank of Tanzania (BOT), operates must echo this need. It must also give the BOT proper discretion to take supervisory action that the BOT deems crucial to protect depositors, public resources and fiduciary contract integrity.
In fact, the Basel Committee on Banking Supervision (BCBS) issued a document, “Supervisory Guidance on Dealing with Weak Banks,” in which it notes that legislation is mostly rules-based, although it’s also helpful if legislation allows central banks to take discretional action.
This means that the BOT must have the legal authority, practical knowledge and enthusiasm to exercise judgment and make decisions based on a purposeful, reflective and careful analysis of facts that do not normally present really clear answers.
Auspiciously, Tanzania has followed this advice as banking legislation in the country has given the BOT huge discretion to exercise judgment and to make critical decisions based on its analysis of rather open-ended legal notions.
The Banking and Financial Institutions Act, 2006 (the “BFI Act”) contains wide, discretionary terms e.g. “sound financing”, “unsafe or unsound practices”, “unsound manner”, and “adequate and efficient internal control system”, etc.
The BOT interprets and applies these terms in reaching its decisions on banking supervision as, for example, when the BOT places a bank under statutory management, or closes a bank from a strategic investor country like the United Kingdom, India, China, South Africa or Kenya.
Such decisions could have widespread and irreversible impacts on Tanzania’s currency, financial stability, market sentiment and foreign relations.
The BOT, however, enjoys protection as 69 of the BFI Act explicitly provides immunity from liability of “any member of the board of directors of the [BOT] or its employees for or in respect of any act or thing done or omitted to be done in good faith in the exercise or purported exercise of powers as are conferred under the [BFI] Act.”
Most actions of central banks are immensely powerful. Yet, banks in Tanzania have no institutionalized right of appeal against decisions of the BOT regarding, for instance, imposition of administrative sanctions.
The “Right to be Heard” (a principle of natural justice expressed in the Latin maxim audi alteram partem) by a bank or financial institution which may be adversely affected by a decision of the BOT calls for the establishment of a financial services appeals tribunal, where any bank aggrieved by a decision of the BOT would lodge an appeal against that decision; with a further right of appeal lying to the High Court of Tanzania on any substantial question of law.
It’s so true that the field of banking regulation and supervision is very technical and requires the use of specialized knowledge and expertise; and the analysis of data from the legal, economic, financial and accounting fields.
Members of the appeals tribunal would be drawn from these fields and be competent to carry out such analyses and to provide expert conclusions from facts.
Taking note of the wide, discretionary language of Tanzania’s banking legislation; disputes to be filed with the appeals tribunal would most likely concern the BOT’s analysis and interpretation of facts and its conclusion under such legislation.
Hence, annulment powers over supervisory decisions of the BOT would not be vested in the tribunal. Instead, the tribunal would be conferred with the power to affirm, vary, substitute decisions of the BOT, or remit a matter back to the BOT for further consideration.
Countries such as Ireland have benefited from the institutionalization of the right of appeal—as seen in the Irish Financial Services Appeals Tribunal—especially in the spheres of financial system stability, welfare economics and resource allocation.
The improved financial stability would support banks to assume risks and increase access to debt financing for start-up and growth of businesses, unhindered by a takeover looming large on the horizon in the absence of an appeals tribunal.
Reining in on this danger and increasing access to debt financing would, in turn, spur growth in the Tanzanian economy, open up new opportunities, create jobs and increase wealth circulation in the country. This is the substratum of transforming the economy to a middle-income status as envisaged by the Tanzania Development Vision 2025, which must suffuse the decisions of the BOT.
Ultimately, however, a nod from the President of the United Republic of Tanzania, who, by virtue of section 8(1) and (3) and 14(1) of the BOT Act, appoints and determines the salaries and allowances including retirement allowances of the Governor and the Deputy Governors of the BOT, is crucial for the institutionalization of a financial services appeals tribunal for Tanzania.