Scrutiny over financial institutions staff

11 Aug 2019

BY BONNIE MODIAKGOTLA

The financial markets, particularly the banking industry, are premised on a high level of trust for it to function properly. After all, people see banks as safe havens for storing their funds, and any hint of threat to this trust usually results in “bank runs” where depositors quickly pull out their funds on the face of any threat.

Over time, banks together with regulators kept to a dirty secret – sweeping under the carpet issues that might affect this trust. But now the regulators are speaking out of unbecoming behaviour following several incidences that have left people wondering how safe their funds are.

Last year the country was treated to one of the known biggest financial scandals where funds from the National Petroleum Funds were transferred between various bank accounts, leaving many wondering how the financial institutions failed to pick up on some of the suspicious transactions. Besides the scandal, some violations at banks remain well kept secrets. Bank customers have fallen victim to organised fraud that include card skimming and phishing, and even worse from theft emanating from bank employees entrusted to safe guard customer deposits.

In a recent case that has become public knowledge, a banker from one of the commercial banks is under investigations for syphoning over P20 million. Faced with these scandals that are now becoming public spectacle, the Financial Stability Council (FSC) - made up of the ministry of Finance and Economic Development, Non-Bank Financial Institutions Regulatory Authority and Bank of Botswana – say while the risks of loss of funds remain low, financial institutions should enhance their governance and accountability frameworks.

The FSC said regulators must continue to enforce and enhance measures that are aimed at improving professional and ethical conduct by both individuals and firms in the financial services industry. This includes promoting governance frameworks that will guide appropriate behaviour within financial institutions.

While vetting used to be restricted to financial institutions' top management, the FSC now suggests strengthening individual fiduciary responsibility and accountability to include strict application of the ‘fit and proper’ requirements.  The FSC also made a case for “buck stops with you approach” where financial institutions employees could face consequences for dropping the ball while undertaking their duties.

“The is need to address the ‘rolling bad apples’ phenomenon, which relates to individuals accused of financial misconduct in one institution ending up at another financial institution without disclosure of previous misconduct. Therefore, financial institutions are being encouraged to introduce and maintain, for industry reference, a list of staff members terminated or released from duty on the basis of being found to have committed acts of impropriety, dishonesty and other forms of serious misconduct,” the FSC said.

The council has also made calls for regulators to routinely reassess the fitness and propriety of employees in functions deemed capable of causing significant harm to the financial institution or its customers.