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High-Value Accounts: New Regulations Bring Changes to Reporting Requirements

Introduction

The introduction of new regulations has brought significant changes to the way financial institutions handle high-value accounts. As of 2022, reporting financial institutions (RFIs) are required to review electronically searchable data to determine if an account is reportable or not.

Reviewing Electronic Data

For high-value accounts, RFIs must review electronic data to identify whether the account holder is a resident in a Reportable Jurisdiction or has a tax residence outside of Kenya. If the electronic database does not capture all the information, RFIs are required to review the current customer master file and documents as described in the regulations.

Exemptions from Reporting Requirements

The new regulations also exempt certain accounts from reporting requirements. These include:

• Pre-existing individual accounts that are cash value insurance contracts or annuity contracts
• New individual accounts where the account holder has self-certified their tax residence

For new entity accounts, RFIs must obtain a self-certification to determine the tax residence of the entity. If the entity does not have a tax residence, the RFI may use the address of the entity to determine its residence.

Treatment of Reportable Accounts

Accounts belonging to entities in Reportable Jurisdictions will be treated as reportable accounts. Pre-existing entity accounts that had an aggregate account balance or value of more than US$250,000 as at December 31, 2022, must also be reviewed and identified as reportable accounts if held by one or more entities that are reportable persons or passive non-financial entities with controlling persons who are reportable persons.

Alternative Procedures for Financial Accounts

The regulations provide for alternative procedures for financial accounts held by individual beneficiaries. For example:

• An individual beneficiary of a cash value insurance contract or annuity contract receiving a death benefit is not considered a reportable person unless the RFI has actual knowledge or reason to know that the beneficiary is a reportable person guided by the indicators stipulated in the regulations.

Residency Rules

The rules on residency of financial institutions for reporting and due diligence purposes also apply. A financial institution is considered resident in a participating jurisdiction if it can be enforced, subject to financial supervision, incorporated under the laws of the jurisdiction, or has its place of management in the jurisdiction.

Impact on Financial Sectors

Experts believe that the new regulations will have a significant impact on the banking, custodial, depository, and insurance sectors. Kenya joins over 30 other jurisdictions worldwide that have committed to having CRS documentation reports for both individuals and entities.

Conclusion

For more information on this topic, please contact Ernst & Young (Kenya), Nairobi at [insert contact details].