n Malawi Law Journal - The concept of 'conducting business in an unsound manner' under Malawi's Banking Act 1989

Volume 2, Issue 2
  • ISSN : 1996-7675



Section 31 of the Banking Act 1989 of Malawi deals with situations where a bank or financial institution conducts business in an unlawful or unsound manner. In jurisdictions such as the United States of America, the judiciary has often deferred to the expertise of bank regulatory agencies when defining what constitutes an 'unsafe and unsound practice,' by limiting its powers of review to a determination of whether the regulatory agency's action was arbitrary, capricious or otherwise unsupported by substantial evidence on the record. This experience, according to the author, is missing in Malawi. This article posits that, while it is not the primary responsibility of the judiciary or the Reserve Bank of Malawi to legislate a definition of 'conducting business in an unsound manner,' the Reserve Bank of Malawi is not prohibited by any law from providing policy guidelines on the meaning of this concept. The uncertainty that comes with the absence of a statutory definition, a regulatory norm, or some policy guidelines interpreting 'conducting business in an unsound manner' presents two unpalatable choices. The first is that the Reserve Bank of Malawi may exercise discretionary powers, relying on the doctrine of 'constructive ambiguity' inherent in section 31 of Malawi's Banking Act 1989, to capture incidents that were not contemplated by the legislative draftsman or the bank regulator. The second is that some banks, financial institutions and investors may become risk-averse and avoid pursuing product innovation in the banking sector, fearing that if they did so they might be caught by section 31 of the Banking Act 1989.

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