( control ) act no. 4 of 1994. to date a draft proceeds of crime and money laundering ( prevention ) bill, 2007 is now being debated by parliament. the proposed legislation will be the focal point of kenya ’ s aml regulatory regime. the legislation will, amongst others, require financial institutions to : • establish appropriate know your customer ( kyc ) requirements ; • maintain records ; • establish suspicious transaction reporting mechanisms ; and • provide training to staff on anti - money laundering techniques. the central bank expects financial institutions to be committed to ensure that the integrity of the kenyan financial system is not in any way compromised by these criminal activities. in this connection, i would like to urge the respective institutes of bankers to develop and implement relevant course materials to support institutions in their efforts to train staff on anti - money laundering techniques. ladies and gentlemen, on the topic of risk management framework within banks, i am pleased to report that over the last two years, the central bank has been involved in initiatives aimed at transforming the approach used for conducting its core mandate of supervision and regulation of banks to make it more risk - focused. during the year, significant steps were made towards implementation of risk based supervision. inspection procedures and report formats were modified, and the central bank received risk management programs ( rmps ) from all institutions as required of them. the exercise has substantially raised the level of awareness among banks on the importance of strong risk management systems. most banks have now hired risk management personnel and introduced procedures for reporting and reviewing the critical risks facing their operations. this process will continue to improve bank operations and contribute to the soundness of kenya ’ s banking system. in addition to this, risk management and strategic management are both aimed at enhancing corporate governance in the banking sector. the central bank has continued to lay emphasis on corporate governance in the banking sector as one of the key tenets of its legal and regulatory framework. in this regard, the central bank has revised provisions in the prudential guidelines to require institutions to separate ownership from management, restrict ownership of shares to reduce shareholder dominance, introduce board independence and periodic disclosure of financial statements. during our deliberation under the auspices of the monetary affairs committee of the east african community last may, we were pleased to learn that majority of our partners have equally made notable progress in these areas. i am therefore pleased that this workshop will cover these topics adequately. however, we expect that having followed keenly the developments in the banking sector, our respective institutes of bankers will

from the economic cycle ; in other words, make each bank, individually, more resilient. • second, protect the cycle from the banks ; that is, make the system as a whole more resilient. both are necessary. protecting the banks from the cycle in effect, the objective of the first approach is to create more resilient institutions. this will require more capital, higher liquidity, and better risk management. in early september, my colleagues and i on the oversight body of the basel committee on banking supervision ( bcbs ) met to review a comprehensive set of measures to strengthen the regulation, supervision, and risk management of the banking sector. we agreed on new standards for banking regulation and supervision, which should help reduce the probability and severity of economic and financial stress. these standards were endorsed by g - 20 leaders in pittsburgh. specifically, to protect banks from the cycle, we agreed to : i. raise the quality, consistency, and transparency of the tier 1 capital base. going forward, the predominant form of tier 1 capital must consist of common shares and retained earnings. moreover, deductions and prudential filters ( such as goodwill and other intangibles, investments in own shares, deferred tax assets, etc. ) will be harmonized internationally and generally applied at the level of common equity. finally, all components of the capital base will be fully disclosed. ii. introduce a leverage ratio as a supplementary measure of capital adequacy to the basel ii risk - based framework. to ensure comparability, the details of the leverage ratio will be harmonised internationally, fully adjusting for differences in accounting ( such as netting ). these two measures will make international bank capital regulation look more like the existing capital regulations overseen by canada ’ s office of the superintendent of financial institutions ( osfi ). other initiatives will be new, even to canada : 1 iii. introduce a framework for countercyclical capital buffers above the minimum requirement. the bank of canada is working closely with osfi and our international counterparts on proposed elements of this framework. iv. create a minimum global standard for funding liquidity that includes requirement for a stressed liquidity - coverage ratio, underpinned by a longer - term structuralliquidity a system - wide, or macroprudential, approach is the shared responsibility of the department of finance and all of the federal financial regulatory authorities, including, of course, the bank of canada, the office of the superintendent