Financial Crime World

CBK Proposes Tougher Penalties for Financial Crimes in New Draft Regulations

The Central Bank of Kenya (CBK) has proposed new draft regulations aiming to revamp the existing banking penalties framework and promote compliance with the Banking Act and Prudential Guidelines. The public comment period for these regulations extends until March 18, 2024.

Authorization for Penalties

Under the Banking Act (Chapter 488 of the Laws of Kenya), Section 55(2), the CBK is granted the power to impose penalties on institutions, credit reference bureaus, or any other person that fails to comply with the CBK’s directions under the Act or Prudential Guidelines.

Expanded Violations

The proposed regulations expand the scope of regulations to address various issues, such as:

  1. Non-compliance with Statutory Minimum Liquid Assets Requirements
  2. Incorrect Evaluation of Capital Adequacy Measurements
  3. Exceeding Prescribed Liability Limits for Mortgage Finance Companies
  4. Insufficient Provisions for Loans and Assets
  5. Failure to Obtain Prior Approval for Business Changes
  6. Ineligible Shareholders Failing to Divest Shares
  7. Transferring a Significant Percentage of Share Capital
  8. Shareholders and Individuals Holding Disproportionate Share Capital
  9. Failure to Appoint Fit and Proper Individuals
  10. Unapproved Shareholding in Another Institution
  11. Termination of Employment of Disqualified Personnel
  12. Failure to Provide Effective Control Systems or Risk Management Framework Information
  13. Inadequate Recordkeeping and Reporting
  14. Failure to Display Last Audited Financial Statements
  15. Purchasing Land and Interests in Excess of Prescribed Limits
  16. Unauthorized Trading and Investments
  17. Disregard of CBK Directives during Inspections
  18. Changing Auditors without Prior Approval

Increased Penalties

The penalties for these offenses are significantly higher compared to the existing regulations:

  • Up to KES20,000,000 for institutions
  • Up to KES1,000,000 for individuals

Evaluation Process

The evaluation process for a violation involves:

  1. Issuing a written notification
  2. Allowing the implicated party to respond
  3. Evaluating their responses
  4. Rendering a decision

The draft regulations also provide the opportunity for the review of CBK decisions or an appeal to the High Court, offering more oversight and accountability.

Enhancing Compliance with FATF

These harsher penalties and expanded coverage of violations are expected to enhance Kenya’s efforts to combat money laundering and financial terrorism as the nation faces monitoring by the Financial Action Task Force (FATF).