emergence of institutions too big to fail. and during the 21st century investor and managerial short - termism resulted in these waves reaching tsunami proportions. in 2007, this wave broke with devastating consequences still being felt today. this century - long evolution in banking occurred for understandable reasons ; it was no - one ’ s “ fault ”. but it has also unearthed a governance fault - line. ownership and control rights are exercised by shareholders. but for banks, equity is a vanishingly small fraction of their balance sheet. worse still, equity - holders often have risk - taking incentives out of line with the interests of other bank stakeholders, much less society. this fault - line lies at the heart of the imbalance between privatised returns and socialised risks. only in banking do control rights and incentive wrongs combine so uncomfortably. that calls for fundamental reform. post - crisis that has been recognised, as regulatory reform has come thick and fast. these reforms are unquestionably a step in the right direction. but if they are not to reappear, deep - rooted incentive problems in banking need to be tackled at us treasury ( 2011 ). bis central bankers ’ speeches source. i wish to argue there is unfinished business before these incentives are properly aligned with the public good. limited liability in the first half of the 19th century, the business and governance of banking was relatively simple. by the mid - 19th century, the united kingdom had around 500 banks and 700 building societies. most of the former operated as unlimited liability partnerships, the latter as mutually - owned co - operatives. 2 financial sector assets represented less than 50 % of annual gdp and the largest banks had assets of less than 5 % of gdp. bank balance sheets were heavily cushioned. equity capital often accounted for as much as a half of all liabilities, while cash and liquid securities frequently accounted for as much as 30 % of banks ’ assets. banking was a low - concentration, low - leverage, high - liquidity business. a broadly - similar pattern was evident across banking systems in the united states and in europe. this governance and balance sheet structure was mutually compatible. due to unlimited liability, control rights were exercised by investors whose personal wealth was literally on the line. that generated potent incentives to be prudent with depositors ’ money. nowhere was this better illustrated than in the asset and liability make - up of the balance sheet. the market, amorphously but effectively, exercised discipline. it was given a helping hand

basle committee ’ s guidelines issued the ‘ know your customer ’ directive in december 1998. the directive outlines the basic procedures that bank managements should put in place within their institutions to prevent criminal use of the banking system. it also places limitations on the amounts of foreign exchange that individuals can transact. mr chairman, the banking sector in zambia has also not lagged behind in terms of coming up with an industry response to this scourge. the bankers ’ association of zambia ( baz ) issued the ‘ code of banking practice in zambia ’ in 2002, outlining the association ’ s commitment to fighting money laundering and complying with the letter and spirit of money laundering in all parts of the world. because banks have been identified as the primary focus of money launderers and provide an entry point for laundered money into the financial system, most efforts to combat this scourge are targeted towards banks. under the money - laundering act, banks have certain obligations, which are placed upon them by the law. these include : • to keep identification record of its customers for a period of ten years. this is aimed at safeguarding the documentary evidence to prove that the financial institution has sufficient knowledge of its clients. • to report to the money laundering investigations unit whenever there are reasonable grounds to believe that a money laundering offence has been or is about to be committed. • to comply with any directives issued by the bank of zambia. • to designate an officer in each branch or office as the money laundering officer. • to provide training to staff on anti - money laundering techniques. in conclusion, mr chairman, i would like to state that the effects of money laundering are incomputable and unknown to many of us. the prohibition and prevention of money laundering bill has laid a foundation and will serve to deter the use of the zambian financial system as a site to launder dirty money. it has given each one of us a challenge. for the banking sector, the challenge is to ensure that their corporate governance structures and risk management systems are redesigned to take care of this growing threat. as for the bank of zambia, our challenge is to recognise that technology and globalisation has given money launderers an opportunity to explore new techniques to commit and cover their crimes. this therefore, requires us to be more vigilant, dynamic and resourceful to thwart and overcome the scourge. in addition, full co - operation and coordination within the banking industry in implementing the bank of zambia guidelines