NCEffective Insolvency and Creditor Rights Systems
The World Bank and the International Finance Corporation, in assessing Kenya's investment climate, found the insolvency regime to be costly and subject to lengthy delays, and called for the reform and modernization of the existing legislation. According to information cited in this report, Kenya's insolvency regime suffers from infrastructural inadequacies relating to both the legal and institutional frameworks underpinning insolvency practice and property and creditor rights. A "Doing Business 2009" report released annually by the International Bank for Reconstruction and Development and the World Bank disclosed that it takes an average of 4.5 years to complete formal insolvency proceedings, at an average cost of 22% of the estate, and a return to creditors of, on average, thirty-one cents on the dollar.
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IDInternational Financial Reporting Standards
An assessment of the accounting and auditing environment in Kenya was conducted by the World Bank in 2001. The World Bank noted that Kenya had adopted International Accounting Standards (IASs), later renamed International Financial Reporting Standards (IFRSs) in 1998, thereby "closing the gap" between national and international accounting standards. According to the 2005 and 2006 self-assessments prepared by the Institute of Certified Public Accountants of Kenya (ICPAK) for the International Federation of Accountants (IFAC), international standards are adopted as drafted without any modifications, and the text of laws and regulations simply refers to IFRSs. As of 2006, all IFRSs in effect were adopted, states the 2006 ICPAK self-assessment. However, there is insufficient information publicly available regarding the adoption of subsequent amendments to IFRSs. The 2006 United Nations Conference on Trade and Development (UNCTAD) report states that IFRSs are to be applied by all public interest entities and Small and Medium-size Enterprises. Although in practice companies use the standards adopted by the ICPAK, it is not legally authorized to issue accounting and auditing standards. As far as enforcement of legal requirements is concerned, the UNCTAD pointed out that in practice the levels of non-compliance with IFRSs are quite high. In addition, UNCTAD reported that some industry specific regulation in Kenya and IFRS-based requirements are not compatible and thus universal adherence to IFRSs has not been achieved. In response, the ICPAK stated in a 2008 Action Plan prepared for the IFAC that it is in the process of reviewing the financial reporting environment to identify existing and potential hindrances to the adoption and implementation of IFRSs.
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ENPrinciples of Corporate Governance
A 2006 African Peer Review Mechanism report under the New Partnership for Africa's Development (NEPAD) initiative confirmed that Kenya has adopted the Organization for Economic Co-operation and Development's (OECD's) Principles of Corporate Governance. On the company level, the report finds that the majority of the admittedly few listed companies are now adopting and implementing good corporate governance practices. As a result of "concerted efforts by Kenyan institutions, corporate governance environment is improving and awareness of corporate governance values and principles is growing in Kenya. The Capital Market Authority (CMA) released its Guidelines on Corporate Governance Practices by Public Listed Companies in 2002. Based on the "comply or explain" principle, these guidelines were given legal status in the Capital Markets Act 485A. However, the 2006 NEPAD publication reports weak enforcement and inadequate monitoring of corporate compliance with codes and standards in Kenya. The capacity of some regulators and supervisors is constrained, and the court system is slow and inefficient. Further, many business laws, including the 1962 Companies Act, are outdated. Also, minority shareholders rights are lacking in some respects. The NEPAD report recommends enforcing implementation of laws and regulations, enhancing supervisory institutions' capacities, and updating some aspects of the legal and regulatory framework.
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IDInternational Standards on Auditing
According to an assessment of the accounting and auditing environment in Kenya conducted by the World Bank in 2001, the country adopted International Standards on Auditing (ISAs) in 1998, thereby "closing the gap" between national and international auditing standards. In a 2006 self-assessment prepared for the International Federation of Accountants, the ICPAK, which sets auditing standards in Kenya, states that ISAs are adopted in their entirety, and the new or revised ISAs issued by the International Auditing Assurances Board are applicable in Kenya immediately upon their effective date. Despite this statement, there is no indication in the self-assessment that all of the subsequent revisions to ISAs have been incorporated into Kenyan requirements. However, the ICPAK reported in a 2008 Action Plan that the ICPAK technical team would continue to support ongoing adoption of the new standards. As far as the enforcement of the auditing requirements is concerned, the World Bank in its 2001 assessment noted that Kenya was only partially compliant with the international requirements because of weak enforcement mechanisms and inadequate resources. Other weaknesses identified included the absence of guidance on application of ISAs, inadequacies in the legal and institutional framework, and lack of professional training and education. The World Bank recommended amending the main acts governing accounting and auditing practices and simplifying reporting requirements for Small and Medium-size Enterprises (SMEs). In 2006, the United Nations Conference on Trade and Development (UNCTAD) also concluded that in practice the levels of non-compliance with ISAs are quite high in Kenya. The UNCTAD pointed out that in most cases only larger companies are audited, while SMEs audits are usually conducted either for tax purposes or when seeking credit.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
According to the 2009 U.S. Department of State (DoS) report, Kenya does not have an effective anti-money laundering (AML) regime and has not yet criminalized terrorist financing. The 2007 World Bank Annual Report on Kenya notes that the country has taken steps towards implementing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) legislation. Kenya has also been building capacity against money laundering and terrorism financing, notably with the establishment of the National Task Force on Anti-Money Laundering and Combating Financing of Terrorism in 2003. The 2009 U.S. DoS report also refers to the 2006 anti-money laundering proposed legislation titled "Proceeds of Crime and Anti-Money Laundering Bill," which was passed by Parliament on December 16, 2008 but had not been signed into law by the President. Further, the World Bank informs that the Central Bank of Kenya (CBK) has plans to adopt an AML policy to be followed by all financial institutions licensed under the Banking Act. Kenya has also continued to enhance the investigative capacity of the Kenya Anti-Corruption Commission and the Office of the Attorney General. However, the reform process appears to have suffered a setback with a challenge to the CBK's AML related supervisory authority by court rulings and political opposition. The Financial Action Task Force, in its 2007-2008 Annual Report names Kenya as one of the jurisdictions that have undertaken to implement the FATF's 40+9 recommendations.
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IDCore Principles for Systemically Important Payment Systems
In July 2005, Kenya implemented the Kenya Electronic Payments and Settlement System (KEPSS), its first Real Time Gross Settlement system. The system is operated and owned by the Central Bank of Kenya (CBK), and all commercial banks in Kenya participate in the system. In its 2008 Annual Report the CBK notes that the KEPSS, in 2008, continued to be the dominant payment system in the country settling about 93.8 percent of all direct payments. The CBK states in its 2007 Payment Systems Policy Framework Report that, in conducting payment system oversight, it follows the Core Principles for Systemically Important Payment Systems promulgated by the Committee on Payment and Settlement Systems. It will also use standards, principles and recommendations established by the CBK, the East African Monetary Affairs Committee (a committee of the three East Africa Central Bank Governors, namely, Kenya, Tanzania and Uganda), and other international financial organizations. The CBK also states that by the end of 2008, through the National Payment System Project, Kenya shall have put in place a modern payment system that is effective, efficient, secure, compliant with international standards, and compatible with other international payment systems. The 2008 Annual Report by the CBK indicates that a National Payment System Bill was presented to parliament in 2008, which would establish a safe and efficient payment system in Kenya and broaden the CBK's oversight function. However, as of April 2009, there is no update on the passage of the Bill. The CBK also plans to designate and continuously review and evaluate Systemically Important Payment Systems in Kenya to ensure that their design and operation continue to meet, at the very minimum, international best practices, standards and protocols.
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