Chapter five: Corporate governance The Financial Institutions (Lending Limits) Regulations of 1999 were intended to prevent financial institutions from having unduly large exposure to single borrowers or groups of connected borrowers, or to any of its directors or officers, or to any other related persons under section 25 of the FIA of 1999 and to ensure that all insider loans and advances made by financial institutions are on terms not more favourable than those afforded to other borrowers. The Financial Institutions (Internal Control Systems) Regulations of 2000 were intended to require financial institutions to establish and maintain systems of strong internal controls which will serve as foundations for their safe and sound operations, and to provide a useful framework for evaluating the internal control systems of financial institutions. The Financial Institutions (Anti-Money Laundering Guidelines) Regulations of 2000 were made in terms of section 71 of the FIA. These regulations are meant to require financial institutions to establish and maintain specific policies and procedures to guard against using the financial system for money laundering; to enable financial institutions to recognise suspicious transactions; to provide an audit trail of transactions with customers who come under investigation; and to require financial institutions to submit reports and to disclose information on large cash transactions and suspicious transactions. The Financial Institutions (Liquidity Requirements) Regulations of 2000 were intended to ensure that banks maintain adequate liquidity and require frequent reporting and monitoring of liquidity positions for prudential reasons and to implement macroeconomic policies. The Financial Institutions (Ancillary Financial Service Providers) (Licensing Requirements) Regulations of 2003 were intended to establish clear and objective criteria for regulating and supervising persons or institutions licensed to provide ancillary financial services. Source: CBL. 513. Lesotho nevertheless has a history of financial sector instability, shown by the collapse of a number of domestic banks and savings institutions. Most of these failed because of poor lending practices. The CBL however believes that this is a problem of the past. The Banking Act of 1973 did not give the CBL enough powers to protect depositors. However, the FIA (1999) gives the CBL operational independence to respond quickly and decisively to financial sector stability issues. The CRM also queried the recent proliferation of ponzi and pyramid schemes in Lesotho and the effect they could have on confidence and stability in the sector. The CBL noted that it has responded resolutely to all cases that have come to its attention (like those of MKM and Millennium Gold) by closing them and protecting innocent citizens. It must, however, be remembered that these schemes operate outside the legal domain and many cases come to the attention of the authorities too late. However, vigilance is being improved in this regard. The FIA is being reviewed to empower the CBL to respond better to these issues. 514. There is no official decision to move to Basel II, although a committee, comprising representatives from the CBL, auditing firms and banks, has been set up to advise on the matter. 141