Financial Crime World

Uganda’s Banks Tackle Know Your Customer (KYC) Requirements Amidst Growing Concerns Over Money Laundering and Terrorism Financing

In a bid to combat money laundering and terrorism financing, Uganda’s financial institutions have been implementing measures to comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. A critical component of this effort is the Know Your Customer (KYC) process, which requires banks and supervised financial institutions (SFI’s) to identify and verify the identity of their clients.

Under Uganda’s legal framework, several laws and regulations govern KYC requirements for opening and operating a bank account. These include:

  • The Financial Institutions Act, 2004
  • The Financial Institutions (Anti-Money laundering) Regulations, 2010
  • The Anti-Money Laundering Act, 2013

Inconsistencies in KYC Requirements

While there is some consistency in the obligations introduced by these regulations, there are also areas of divergence. For instance:

  • The FI (AML) Regulations, 2010 allow banks to accept any form of identification for purposes of opening bank accounts.
  • The Anti-Money Laundering Regulations, 2015 require only a National Identity Card.

Addressing Inconsistencies

To address these inconsistencies and make the KYC process more seamless, the National Identification Regulatory Authority (NIRA) is developing a real-time verification interface that will use National ID data as its single source of base information. This development has the potential to reduce the burden on banks to manually verify customer information.

Court Decisions

The courts in Uganda have also played a significant role in shaping KYC requirements. For example:

  • A recent decision by the commercial court held that banks are not entitled to rely on previously submitted information when dealing with an existing client who seeks to open another account.
  • This requires banks to seek fresh information from existing clients as long as they seek to open another account.

Global Developments

The global landscape is also evolving, with countries such as the United States and Europe implementing new requirements for verifying the identity of natural persons who own or control legal entities.

Best Practices for KYC Compliance

To ensure full compliance with KYC requirements, financial institutions in Uganda are advised to:

  • Incorporate mandatory KYC into their automated customer acquisition and maintenance processes.
  • Repeat the entire KYC process when customers seek to open multiple accounts with the same bank.
  • Observe the most stringent KYC requirements where parallel regulations create conflicting requirements.

Conclusion

In conclusion, banks and regulated financial institutions in Uganda are required to align their KYC policies with all relevant regulatory requirements. While this may appear burdensome and could potentially delay some bank operations, it has the benefit of protecting the integrity of the financial sector and protecting financial institutions from growing financial crime.