By Staff Reporter
The Supreme Court of Appeal has ruled that the Reserve Bank of Malawi (RBM) acted unlawfully when it closed Finance Bank of Malawi in 2005 and has ordered the central bank to compensate the institution for profits lost as a result of the closure.
In a judgment delivered on 3 February 2026, the court found that although RBM had regulatory concerns about Finance Bank’s operations at the time, shutting down the bank entirely was a disproportionate response. The judges held that the central bank should have considered less drastic regulatory measures before resorting to closure.
Finance Bank was closed in 2005 during the tenure of then RBM Governor Victor Mbewe. The decision followed allegations of irregular foreign exchange transactions and claims that some accounts did not comply with “Know Your Customer” (KYC) requirements.
However, the Supreme Court noted that while financial regulators have broad powers to discipline and control banks, those powers must be exercised reasonably and proportionately. The court stated that alternative remedies—such as fines, corrective directives, increased supervision, or targeted sanctions—were available to RBM and should have been considered instead of an outright shutdown.
“The authority to regulate does not equate to the authority to destroy,” the court observed, emphasizing that regulatory action must balance enforcement with fairness and economic stability.
The dispute has been before the courts since 2006, making it one of the longest-running banking and financial regulation cases in Malawi’s history.
As a consequence of the ruling, RBM has been ordered to pay Finance Bank compensation amounting to billions of kwacha, representing profits the bank would have earned had it continued operating.
The judgment is expected to have far-reaching implications for Malawi’s financial sector, particularly in how regulatory powers are exercised. It may also place significant pressure on public finances, given the scale of compensation involved, and is likely to influence future regulatory decision-making by financial authorities.
Legal analysts say the ruling sets an important precedent, reinforcing the principle that regulators must act within the bounds of proportionality and due process when intervening in the operations of financial institutions.
