The Central Bank of Kenya (Mortgage Refinance Companies) Regulations, 2019

Section 1. Citation Section These Regulations may be cited as the Central Bank of Kenya (Mortgage Refinance Companies) Regulations.

Section 2. Interpretation Section its holding company or its subsidiary;

Section 3. Authorized activities Section 3(1)(a) refinancing or purchasing of eligible mortgage loans; Section 3(1)(b) investment in debt securities issued by the Government of Kenya or any guaranteed debt; Section 3(1)(c) providing fully secured long term financing to primary mortgage lenders for financing of eligible mortgages; Section 3(1)(d) issuing bonds, notes and other financial instruments for purposes of meeting its objectives; and Section 3(1)(e) other activities as may be determined by the Bank from time to time. Section 3(2) Any person who contravenes the provisions of this regulation commits an offence and is liable, on conviction to a fine not exceeding five hundred thousand shillings, or to imprisonment for a term not exceeding three years, or to both.

Section 4. Application for a licence Section 4(1)(a) is a company incorporated under the Companies Act (Cap. 486); Section 4(1)(b) meets the capital adequacy requirements set out in the First Schedule; and Section 4(1)(c) ensure that its significant shareholders, directors and senior officers meet the fit and proper criteria set out in the Second Schedule. Section 4(2)(a) a duly completed "fit and proper" form for proposed significant shareholders, directors, chief executive officer and other senior officers in form CBK MRC 1-2 set out in the Third Schedule; Section 4(2)(b) names and addresses of the shareholders of the company in form CBK MRC 1-3 set out in the Third Schedule; Section 4(2)(c) proof of payment of the application fee set out in the Fourth Schedule; Section 4(2)(d) a certified copy of the certificate of incorporation of the mortgage refinance company from the Registrar of Companies; and Section 4(2)(e) a certified copy of the Memorandum and Articles of Association of the mortgage refinance company. Section 4(3)(a) a certified copy of the Memorandum and Articles of Association of any corporate body that proposes to have a significant shareholding in the mortgage refin...

Section 5. Issuance of a licence Section 5(1) The Bank may, if satisfied that the applicant meets the requirements under these Regulations, grant a licence to the applicant, within ninety days of the application. Section 5(2)(a) the financial condition and history of the applicant; Section 5(2)(b) adequacy of the business strategy of the applicant; Section 5(2)(c) the professional and moral suitability of the persons proposed to manage or control the proposed mortgage refinance company; Section 5(2)(d) the adequacy of its capital structure and earning prospects; and Section 5(2)(e) the public interest which shall be served by the granting of the licence. Section 5(3) The Bank may endorse on a licence granted under sub regulation (1), such conditions as it considers necessary and may, from time to time, vary or substitute such conditions. Section 5(4) A person granted a licence shall pay an annual fee to the Bank as set out in the Fourth Schedule at such time as the Bank may determine. Section 5(5) A licence shall remain valid unless suspended or revoked by the Bank in accordance with these Regulations. Section 5(6) The Bank shall cause the name of a mortgage refinance company to be...

Section 6. Licence not transferable Section A licence granted under these Regulations shall not be transferred, assigned or encumbered in any way.

Section 7. Suspension or revocation of licence Section 7(1)(a) ceases to carry on mortgage refinance business; Section 7(1)(b) goes into liquidation or an order is issued for winding up; Section 7(1)(c) contravenes any of the conditions in the licence; Section 7(1)(d) has contravened any of the provisions of the Act or any other relevant written law; or Section 7(1)(e) conducts its business in a manner detrimental to its customers, creditors or members of the public. Section 7(2) A suspension of a licence under this regulation shall not exceed a period of three months: Provided that the Bank may, if it considers necessary extend the suspension for a period not exceeding three months. Section 7(3) The Bank shall at the expiry of the suspension period specified under sub-regulation (2) either lift the suspension or revoke the licence as the Bank considers appropriate. Section 7(4) The Bank shall cause the names of mortgage refinance companies whose licences have been revoked to be published in the Gazette within seven days of the revocation. Section 7(5)(a) require the licensee to transfer to its customer, records relating to customer property or the affairs of the customer held at a...

Section 8. Amalgamations and transfer of assets and liabilities Section A mortgage refinance company shall not enter into an amalgamation or an arrangement to transfer all or any part of its assets and liabilities to another entity except with the prior written approval of the Bank.

Section 9. Corporate governance Section A licensee shall comply with the corporate governance requirements issued by the Bank: Provided that where the licensee issues securities to the public, the applicable corporate governance requirements for issuers of securities to the public shall also apply.

Section 10. Board and committees Section 10(1) Every mortgage refinance company shall be managed by a board which shall have at least two thirds of its members being non-executive members. Section 10(2) Every board shall constitute at least an audit committee, a credit committee, an assets and liabilities committee and such other committees as shall be necessary for the proper performance of its business.

Section 11. Membership of committees Section 11(1) Every committee of the board shall consist of at least three members, two of whom shall be non-executive directors of the mortgage refinance company and who are qualified in finance, audit, information technology, banking, economics or law. Section 11(2) The chief executive officer of a mortgage refinance company shall not be a member of the audit committee, while the chairperson of the board shall not be a member of the credit and audit committees, but may attend by invitation for consultation only. Section 11(3) No person shall hold the position of a director in more than one mortgage refinance company, unless the mortgage refinance company are subsidiaries or holding companies of the mortgage refinance company.

Section 12. Responsibilities of the board Section 12(1) A board shall have the overall responsibility of the mortgage refinance company, including approving and overseeing the implementation of the mortgage refinance company's strategic objectives, risk strategy, corporate governance and corporate values. Section 12(2)(a) providing oversight of senior management; Section 12(2)(b) the demarcation of the functions, responsibilities and powers of the board, various board committees and matters reserved for final decision-making or pre-approval by the board; Section 12(2)(b)(i) the demarcation of the functions, responsibilities and powers of the board, various board committees and matters reserved for final decision-making or pre-approval by the board; Section 12(2)(b)(ii) the policies and practices of the board in respect of conflicts of interest and convening of board meetings; Section 12(2)(b)(iii) declaration of interests that may give rise to a potential or perceived conflict or interfere with exercise of objective judgment; Section 12(2)(b)(iv) the policy on directorships in other entities by board members; Section 12(2)(c) constitute an organizational structure that facilitates...

Section 13. Audit committee Section 13(1)(a) ensuring that financial and operational information is prepared in a timely and accurate manner; Section 13(1)(b) improving the quality of financial record keeping and reporting; Section 13(1)(c) strengthening the effectiveness of internal and external audit functions; Section 13(1)(d) strengthening the internal control environment and risk management; Section 13(1)(e) enhancing public confidence in the credibility and stability of the mortgage refinance company; Section 13(1)(f) monitoring incidences of non-compliance with the Act or any other relevant legislations and advising the board on the best solutions; and Section 13(1)(g) monitoring the ethical conduct of the mortgage refinance company and developing the code of conduct and ethical standards and requirements, including effectiveness of procedures for handling and reporting complaints. Section 13(2) The external and internal auditors of a mortgage refinance company shall have free access to the audit committee. Section 13(3) The external auditor may, upon request, attend and be heard at any meeting of the audit committee. Section 13(4) Upon the request of the external auditors,...

Section 14. Credit committee Section review and oversee the overall lending policy, including monitoring and risk management tools;

Section 15. Assets committee Section 15(1) Every mortgage refinance company shall establish a management committee to be known as the assets committee. Section 15(2) The assets and liabilities committee shall drive the strategy for the mortgage refinance company regarding the mix of assets and liabilities and its expectations of the future and the potential consequences of interest rate movements, liquidity constraints, and capital adequacy. Section 15(3)(a) reviewing and assessing the integrity of the internal and risk control systems; Section 15(3)(b) ensuring that the risk policies and strategies are effectively managed; Section 15(3)(c) setting out the nature, role, responsibility and authority of the risk management function of the mortgage refinance company; Section 15(3)(d) providing an independent and objective oversight and review of the information raised by management at different levels; Section 15(3)(e) monitoring the limits on loans to capital ratios; Section 15(3)(f) monitoring the limits on maximum and minimum maturities for all categories of assets and liabilities as set by the board; Section 15(3)(g) monitoring limits on the sensitivity of the net interest margin...

Section 16. Conduct of business Section The conduct of the business and affairs of a board shall be as set out in the Fifth Schedule.

Section 17. Monitoring and evaluation Section 17(1)(a) a self-assessment questionnaire in the manner as may be prescribed; and Section 17(1)(b) an annual self-assessment evaluation, not later than three months after the end of each financial year. Section 17(2) A mortgage refinance company that contravenes sub-regulation (1) shall be liable to any of the sanctions provided for under in regulation 57.

Section 18. Fit and proper obligations Section 18(1) A person shall not be a director, a senior officer or a significant shareholder of a mortgage refinance company unless the Bank has certified the person as fit and proper in accordance with the criteria set out in the Second Schedule. Section 18(2) The Bank may, where it deems it necessary, carry out an assessment of the professional and moral suitability of the persons managing or controlling a mortgage refinance company. Section 18(3)(a) cease to exercise all voting rights immediately upon the mortgage refinance company being notified by the Bank in writing that the shareholder does not fulfil the fit and proper criteria; and Section 18(3)(b) reduce the holding of shares to below ten per centum of the share capital in the mortgage refinance company within twelve months, or such other period as the Bank may determine. Section 18(4) The Bank may direct a significant shareholder who has been found not to be fulfilling the fit and proper criteria to dispose of all of his shares in a mortgage refinance company within such period as the Bank may direct. Section 18(5) The Bank may disqualify any director or senior officer from holding...

Section 19. Chief executive officer Section 19(1) Every mortgage refinance company shall have a chief executive officer who shall be appointed by the board, with the approval of the Bank, on such terms and conditions of service as shall be provided in the instrument of appointment. Section 19(2) A chief executive officer shall be a member of the board. Section 19(3) A person shall not be appointed as a chief executive officer of a mortgage refinance company unless that person has at least five years' experience in banking business, economics, law or finance at senior management level with experience in microfinance practices or such other conditions as may be determined by the board. Section 19(4) Where the chief executive officer resigns or is removed from office, the Board shall report to the Bank within seven days of such resignation or removal.

Section 20. Responsibilities of the chief executive officer Section implement the policies developed by the board;

Section 21. Shareholding limit Section 21(1) A shareholder of a mortgage refinance company shall not, whether directly or indirectly, hold more than twenty-five per centum of the shares of the mortgage refinance company unless it is a public entity or a multilateral development bank. Section 21(2) The Bank may exempt any other person from the provisions of this regulation on such condition and requirements as may be specified by the Bank.

Section 22. Shareholder rules Section 22(1)(a) terms and conditions under which eligible mortgages may be refinanced; Section 22(1)(b) eligibility of mortgages for refinancing; Section 22(1)(c) fair and equitable access by all shareholders to services of a mortgage refinance company; and Section 22(1)(d) the exceptional circumstances under which a certain category of primary mortgage lenders may access fully secured long term financing from a mortgage refinance company. Section 22(2) In financing or refinancing a mortgage, a mortgage refinance company shall act equitably, fairly and consider the interests of all its shareholders.

Section 23. Records Section 23(1) A mortgage refinance company shall maintain accurate and complete accounting records and reports. Section 23(2) The records and reports of a mortgage refinance company shall be retained for a period of seven years. Section 23(3) An officer, employee or agent of a mortgage refinance company shall not make entries, or allow entries to be made, on any account, record or document of the mortgage refinance company that are false or mislead the true authorization limits or approval authority of such transactions. Section 23(4) All records and computer files or programmes of the mortgage refinance company, including personnel files, financial statements and customer information shall be accessed and used only for the purposes for which they were originally intended.

Section 24. Confidentiality Section protect the confidentiality of customer information and transactions;

Section 25. Reckless and fraudulent activities Section 25(1)(a) allow a credit facility or guarantee to be outstanding; Section 25(1)(b) incur any liability; Section 25(1)(c) enter into any contract or transaction; or Section 25(1)(d) conduct its business or part thereof, Section 25(2)(a) transacting the business beyond the limits set under the Act; Section 25(2)(b) offering facilities contrary to any guidelines or regulations issued by the Central Bank; Section 25(2)(c) failing to observe the mortgage refinance company's policies as approved by the board of directors; or Section 25(2)(d) misuse of position or facilities of the mortgage refinance company for personal gain;

Section 26. Places of business Section 26(1) No branch of a mortgage refinance company shall be opened, relocated or closed without the prior written approval of the Bank. Section 26(2) Revoked by[LN 81 of 2020, r. 2.] Section 26(3) The guidelines shall provide a framework for notification to the Bank of places of business whose opening, relocation or closure does not require the approval of the Bank. [ LN 30 of 2020 , r. 2.]

Section 27. Use of agents Section 27(1) The Bank may provide a framework for the appointment and operation of agents by mortgage refinance companies. Section 27(2) A mortgage refinance company shall be liable for the acts or omissions of its agents if the acts or omissions relate to the agency business.

Section 44. Internal controls Section 44(1) Every mortgage refinance company shall implement an effective internal control system that is consistent with the nature, complexity and risk inherent in their on- and off-balance sheet activities and that is designed to respond to changes in the company's environment and circumstances. Section 44(2)(a) a comprehensive financial, operational and compliance data and information, as well as external market information about the mortgage refinance company's operations and activities, events and market conditions that are relevant for decision making and the information shall be accurate, reliable, timely, and accessible and maintained in a consistent format; Section 44(2)(b) reliable information systems to cover all significant activities and operations of the mortgage refinance company including the use of data in an electronic form; and Section 44(2)(c) effective channels of communication to ensure that staff fully understand and adhere to policies and procedures affecting their duties and responsibilities and that other relevant information is communicated to the appropriate personnel. Section 44(3) Every mortgage refinance company shall...

Section 45. Internal audit Section 45(1)(a) appoint an internal auditor; and Section 45(1)(b) develop a written internal audit charter that specifies and enhances the standing of the internal audit purpose, authority and responsibility within the mortgage refinance company. Section 45(2)(a) the objectives and scope of the internal audit function; Section 45(2)(b) internal audit's role and responsibility for governance, risk management, consulting services, and fraud investigations, among others; and Section 45(2)(c) internal auditor's position within the mortgage refinance company, its powers, responsibilities and relations with other control functions. Section 45(3) Every mortgage refinance company shall review its audit charter at least once every year. Section 45(4) The audit charter shall be approved by the audit committee and subsequently ratified by the board as part of their supervisory role before the start of each financial year. Section 45(5) A mortgage refinance company that contravenes this regulation commits is liable to any of the sanctions provided for under regulation 57.

Section 46. Audit plan Section 46(1) Every internal auditor shall prepare an annual audit work plan for the assignments to be performed during the next financial year and present it to the audit committee for review. Section 46(2)(a) the scope; Section 46(2)(b) objective; Section 46(2)(c) timing; Section 46(2)(d) frequency; and Section 46(2)(e) resources of the planned internal audit work. Section 46(3) The report of the internal auditor shall contain the findings and recommendations as well as the responses of the officers. Section 46(4) The reports and working papers of the internal auditors shall be kept for at least five years. Section 46(5) The audit committee shall follow up its recommendations to verify whether the recommendations provided are implemented and the status of the recommendations shall be communicated to the audit committee at least on a quarterly basis and permanent coordination shall be maintained with all functional officers.

Section 28. Credit extensions Section 28(1) A mortgage refinance company may extend loans to primary mortgage lenders who are in good standing. Section 28(2)(a) meets its payment obligations; Section 28(2)(b) has not received a qualified opinion on its most recent audited financial statements; Section 28(2)(c) meets the capital adequacy requirements; Section 28(2)(d) complies with regulatory requirements; and Section 28(2)(e) meets any other conditions set by the Bank and a mortgage refinance company. Section 28(3) A mortgage refinance company shall set single borrower limits in its credit policy and the limits shall comply with any requirement provided for by the Bank. Section 28(4)(a) charges and fees, if any; Section 28(4)(b) interest rate to be charged and whether on a reducing balance or not; and Section 28(4)(c) total cost of credit which shall include the principal amount, interest, fees and charges. Section 28(5) The Bank shall approve the criteria for mortgages eligible for refinancing under these Regulations. Section 28(6) A refinanced mortgage to a director, chief executive officer or senior officer of a primary mortgage lender shall be on terms similar to those offered...

Section 29. Qualified collateral Section 29(1) A mortgage refinance company loan shall be fully secured by qualified collateral. Section 29(2)(a) in the case of eligible mortgage, the qualified collateral covers at least one hundred and twenty per centum of that loan amount; Section 29(2)(b) it is secured by cash or government securities of equal amount; and Section 29(2)(c) any other qualified collateral as may be approved by the Bank. Section 29(3)(a) assignment of receivables; Section 29(3)(b) lien or assignment of a portfolio of first ranking charges or mortgages over owner-occupied properties which are fully insured and not in arrears; Section 29(3)(c) securities issued, insured or guaranteed by the Government of Kenya; Section 29(3)(d) cash deposits; or Section 29(3)(e) any other qualified collateral as may be determined by the Bank from time to time. Section 29(4)(a) assess the book value of the qualified collateral securing the outstanding loans at least every six months; Section 29(4)(b) require primary mortgage lenders to provide additional qualified collateral to compensate for any diminution in the market value or book value of the pledged collateral securing their outs...

Section 30. Loan review function of a mortgage refinance company Section 30(1)(a) the loan portfolio and lending function conforms to a sound written lending policy, which has been approved and adopted by the board; Section 30(1)(b) management and the board are adequately informed regarding credit risk, among other risks and risk management control effectiveness; Section 30(1)(c) problem accounts are identified properly and on a timely basis and internally classified in accordance with the classification criteria in these Regulations; and Section 30(1)(d) appropriate and adequate level of provisions for potential loss are made and maintained at all times. Section 30(2) A mortgage refinance company that contravenes sub-regulation (1) shall be liable to any of the sanctions provided for under in regulation 57.

Section 31. Review of assets and reporting Section 31(1) Every mortgage refinance company shall, at least once every year, review its assets and make necessary provisions as the need arises, if an actual loss of an asset occurs or when the recoverable amount of the asset is less than its carrying value. Section 31(2) Every mortgage refinance company shall submit a copy of the review report to the Bank within fifteen days from the date of the review. Section 31(3) Every mortgage refinance company shall submit returns in such manner as may be provided by the Bank. Section 31(4) A mortgage refinance company that fails to submit accurate information to the Bank on a timely basis is liable to such administrative sanction as may be provided by the Bank. Section 31(5) A mortgage refinance company that contravenes this regulation is liable to any of the sanctions provided for under in regulation 57.

Section 32. Review and classification of loans Section 32(1) Every mortgage refinance company shall review, classify and appropriately make provisions for its loan portfolio at least once every three months. Section 32(2) Every mortgage refinance company shall classify loans and advances in the manner provided for by guidelines issued by the Bank. Section 32(3) Where a mortgage refinance company has granted multiple loans to a single borrower, and any one of such loans is non-performing, the mortgage refinance company shall evaluate every other loan to that borrower and place such loans on non-performing status accordingly. Section 32(4) Every mortgage refinance company shall classify a group loan as past due in its entirety, when any of the members of the group defaults and the amount due is not covered by the members of the group: Provided that if the amount due is guaranteed by the members of the group, only the portion in arrears shall be accounted for as past due and the group members shall pay up for the guarantee. Section 32(5) A mortgage refinance company that contravenes this regulation is liable to any of the sanctions provided under regulation 57.

Section 33. Loan provisioning Section 33(1)(a) for loans classified "Normal", one per centum; Section 33(1)(b) for loans classified "Watch", five per centum; Section 33(1)(c) for loans classified -Substandard", twenty five per centum; Section 33(1)(d) for loans classified "Doubtful", seventy five per centum; and Section 33(1)(e) for loans classified "Loss", one hundred per centum. Section 33(2) Where the impairment charges computed under International Financial Reporting Standards are lower than provisions required under these Regulations, the excess provisions shall be treated as an appropriation of retained earnings. Section 33(3) Where the impairment charges computed under International Financial Reporting Standards are higher than provisions required under these Regulations, the International Financial Reporting Standards impairment charges shall be considered adequate for the purposes of these Regulations. Section 33(4) A mortgage refinance company that contravenes this regulation is liable to any of the sanctions provided for under in regulation 57.

Section 34. Classification of renegotiated or restructured loans Section 34(1)(a) all past due principal and interest is repaid in full at the time of renegotiation, in which case it may revert to 'Normal' classification; Section 34(1)(b) all past due interest is repaid in full at the time of renegotiation in which case it may revert to 'Watch' classification. Section 34(2)(a) all past due principal and interest is repaid in full at the time of renegotiation, in which case it may revert to 'Watch' classification or; Section 34(2)(b) all past due interest is repaid in full at the time of renegotiation in which case it may revert to 'substandard' classification; and Section 34(2)(c) all past due principal and interest is repaid in full at the time of renegotiation and there has been consistent repayment of three instalments in which case it may revert to 'Normal' classification. Section 34(3) A mortgage refinance company shall not restructure or renegotiate any loan or credit facility more than twice over the life of the original loan or credit facility. Section 34(4) Any loan or credit facility restructured for the second time shall be classified as "substandard" if all past due pri...

Section 35. Limit on interest recoverable from non-performing loans Section 35(1) A mortgage refinance company shall be limited in what it may recover from a debtor with respect to a non-performing loan to the maximum amount under sub-regulation (2). Section 35(2)(a) the principal owing when the loan becomes non-performing; Section 35(2)(b) interest, in accordance with the contract between the debtor and the mortgage refinance company, not exceeding the principal owing when the loan becomes non-performing; and Section 35(2)(c) expenses incurred in the recovery of any amounts owed by the debtor. Section 35(3) If a debtor resumes payments on a non-performing loan and then the loan becomes non-performing again, the limitation under sub-regulation (2) (a) and (b) shall be determined with respect to the time the loan last became non-performing. Section 35(4) This regulation shall not apply to limit any interest under a court order accruing after the order is made. Section 35(5) A mortgage refinance company shall not recover through a court of law any interest which is affected by the requirements of this regulation. Section 35(6) A loan becomes non-performing when principal or interest...

Section 36. Write-off of loans Section 36(1)(a) the mortgage refinance company loses control of the contractual rights over the loan; Section 36(1)(b) all or part of a loan is deemed uncollectible or there is no realistic prospect of recovery; Section 36(1)(c) the borrower becomes insolvent; or Section 36(1)(d) efforts to collect debt are abandoned for any other reason. Section 36(2) Every mortgage refinance company shall write off a loan or a portion of a loan classified as loss, within one hundred and eighty days of their being classified as loss, if there are no recoveries within that period. Section 36(3) A mortgage refinance company that contravenes this regulation is liable to such administrative sanction as may be prescribed by the Central Bank.

Section 37. Capital adequacy Section 37(1) A mortgage refinance company shall at all times maintain capital requirements set out in the First Schedule. Section 37(2) A mortgage refinance company shall maintain such leverage ratio as may be specified by the Bank by notice in the Gazette . Section 37(3) No mortgage refinance company shall treat any subordinated debt as supplementary capital except with the prior written approval of the Bank. Section 37(4) No mortgage refinance company shall raise any capital from the capital markets without the prior written approval of the Bank.

Section 38. Liquidity management Section 38(1)(a) adopt sound and prudent liquidity management and funding policies; and Section 38(1)(b) maintain sufficient liquid assets for meeting its maturing obligations and liabilities. Section 38(2)(a) notes and coins which are legal tender in Kenya; Section 38(2)(b) balances held at the Bank; Section 38(2)(c) balances at other banks in Kenya after deducting therefrom balances owed to those other banks; Section 38(2)(d) balances at banks abroad withdrawable on demand or short notice and money at call abroad after deducting therefrom balances owed to banks abroad where the balances and money at call and short notice are denominated in convertible currencies; Provided that for the purposes of this paragraph "bank abroad" means a bank outside Kenya or an office of any bank outside Kenya; Section 38(2)(e) Kenya treasury bills and bonds of a maturity not exceeding ninety-one days which are freely marketable and re-discountable at the Bank; and Section 38(2)(f) such other assets as the Bank may specify.

Section 39. Liquidity risk management plan Section 39(1) Every mortgage refinance company shall plan and fund its liquidity requirements over specific time periods as set by the mortgage refinance company. Section 39(2)(a) management structures and information systems; Section 39(2)(b) measuring and monitoring net funding requirements; Section 39(2)(c) contingency planning schemes; and Section 39(2)(d) internal controls for liquidity management. Section 39(3) A mortgage refinance company that fails to comply with this Regulation shall be liable to any of the sanctions provided for under regulation 57.

Section 40. Risk Management Section 40(1)(a) strategic risk; Section 40(1)(b) credit risk; Section 40(1)(c) liquidity risk; Section 40(1)(d) market risk Section 40(1)(e) operational risk; Section 40(1)(f) information and communication technology risk; Section 40(1)(g) reputational risk; and Section 40(1)(h) compliance risk. Section 40(2) A mortgage refinance company shall identify, assess, manage, control and mitigate risks. Section 40(3) A mortgage refinance company shall comply with any risk management guidelines issued by the Bank.

Section 41. Market risk Section A mortgage refinance company shall not engage in activities that may lead it to incur foreign exchange, commodity or equity risks, or use financial derivatives except as hedging instruments.

Section 42.[Revoked byLN 30 of 2020, r.3]

Section 43. Prohibited activities Section engage, alone or with others, in wholesale or retail trade, including the import or export trade, except in the course of the satisfaction of debts due to it;

Section 47. Examinations Section A mortgage refinance company shall make its books and records readily available for inspection and other supervisory purposes within a reasonable period upon request by the Bank.

Section 48. Reporting requirements, on-site and off-site monitoring Section 48(1)(a) quarterly financial statements; Section 48(1)(b) semi-annual financial statements; Section 48(1)(c) annual audited financial statements; and Section 48(1)(d) any other information which, in the opinion of the Bank, is relevant to the discharge of its supervisory role under this regulation. Section 48(2) The reports under sub-regulation (1) shall be submitted no later than thirty days after the end of each reporting period in the case of paragraph (a) and (b) and three months in the case of paragraph (c). Section 48(3) The financial statements shall be prepared in accordance with international financial reporting standards and such accepted Kenyan reporting standards as may be prescribed. Section 48(4) Any person who contravenes the provisions of this regulation commits an offence and is liable, on conviction, to a fine not exceeding five hundred thousand shillings, or to imprisonment for a term not exceeding three years, or to both.

Section 49. Financial year Section The financial year of a mortgage refinance company shall be the period of twelve months ending on the 31st day of December in each year.

Section 50. Appointment of external auditor Section 50(1) A mortgage refinance company shall, in each year, appoint an external auditor who shall be a member of the Institute of Certified Public Accountants of Kenya in good standing and approved by the Bank. Section 50(2) A mortgage refinance company shall not remove or change its external auditor except with the prior approval of the Bank. Section 50(3) An external auditor shall make a report to the Board of Directors identifying key concerns with respect to the financial condition of the business. Section 50(4) An external auditor shall, within three months after the end of each financial year, submit an audit report to the Bank, on the financial condition of the business. Section 50(5)(a) solvency of the business; Section 50(5)(b) any violation of a condition imposed on the licence; and Section 50(5)(c) any other contravention of the Act or these Regulations. Section 50(6) The Bank may require an external auditor to undertake such additional duties as may be determined from time to time. Section 50(7)(a) there has been a serious breach of or non-compliance with the provisions of the Act, or the regulations, guidelines or other m...