WEDNESDAY: 1 September 2021.  Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question.


1.          In relation to money laundering:

Distinguish between “anti-money laundering” and “know your customer” terms. (4 marks)

Discuss the three components of know your customer (KYC) principle.  (6 marks)

2.         With reference to regulation in the banking sector and the Deposit Insurance Fund:

State two reasons why the Kenya Deposit Insurance Corporation was formed (4 marks)

3.         Analyse six circumstances under which an institution shall automatically cease being a member of the fund.  (6 marks)

(Total: 20 marks)



1.           With reference to banks supervision:

Enumerate four responsibilities of a banks supervision committee.                                                                                     (8 marks)

2.          There has been a significant process of regulatory reform in the financial systems of most countries. This process involves a shift towards more market-oriented forms of regulation and liberalisation of the banking sector. Jane Mumo, a newly employed banker who is unaware of this global trend has approached you for advice.


Advise Jane Mumo on four forms of regulatory controls in the banking sector.   (4 marks)

Explain to Jane Mumo four benefits derived from regulation of banks.  (4 marks)

3.         In the context of banking law and practice, explain the following terms:

Amalgamation.          (2 marks)

Transfer of assets and liabilities.      (2 marks)

(Total: 20 marks)



1.          Examine the functions of the Central Bank under the following headings:

The custodian of cash reserves.       (3 marks)

The controller of credit.    (3 marks)

The bank of issue.  (3 marks)

2.          Explain the term “banking business”.       (3 marks)

Analyse eight reasons that might lead to the failure of banks.     (8 marks)

(Total: 20 marks)


1.           In the context of external audit of a bank:

Discuss four matters which external auditors might be required to report to the Central Bank in the course of discharging their duties.     (4 marks)

Highlight four provisions governing the removal or change of external auditors.    (4 marks)

2.          Boresha Bank Limited is seeking to voluntarily wind up its operations. The directors of the bank do not understand the specifics of voluntary liquidation of a financial institution and they have approached you for legal advice.


Explain to the directors the procedure involved in voluntary liquidation of banks.    (7 marks)

Advise the directors on five documents to be provided by Boresha Bank Limited to the Central Bank when applying for voluntary liquidation.      (5 marks)

(Total: 20 marks)



1.           Morgan Bank Limited is a banking institution incorporated outside Kenya and wishes to apply to the Central Bank of Kenya for a licence to conduct banking business in Kenya. The directors of the bank have approached you for advice on the procedure to be followed.


Outline seven documents required to accompany Morgan Bank Limited’s application for the licence.     (7 marks)

2.          With reference to consumer protection, enumerate seven consumer rights.    (7 marks)

3.           Analyse three circumstances under which a Chief Executive Officer of a banking institution might be disqualified from holding office.        (6 marks)

(Total: 20 marks)

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