Anyone who gets into the payments (fintech) industry has big ambitions that might involve growing into the next or bigger Paypal or Mpesa. Now imagine that this dream becomes a reality. You now process thousands of transactions per minute and handle millions of customers from different parts of the world who trust you with their money and settle all their payments through your platform.
Now imagine that just when your brand becomes a common household name, you see your company in the news, the Central Bank of Kenya (CBK) has shut you down on claims that you are a conduit for money laundering. A nightmare, right?
You do not need to imagine anymore because this is exactly what happened to Flutterwave. A Nigerian startup that had scaled the heights of the payments business powering millions of dollars of transactions across the continent received the worst possible news from the CBK. “You are banned from operating in Kenya!”
Why did this happen? Well, there are several reasons behind this but the two key ones were that it was suspected to be a conduit for money laundering and it was also not properly licensed by the Central Bank of Kenya.
Flutterwave has won some parts of the ‘war’ with the Central Bank of Kenya and in the past week has had 3 million US dollars which had been frozen while in Kenyan bank accounts unfrozen. However, what their experience shows is that it’s crucial to pay attention to money laundering as well as control of the financing of terrorism standards.
According to the Central Bank of Kenya Directory of authorized PSPs, there are only 35 authorized PSPs in the country at present and based on engaging with the Bank thousands of active applications are being reviewed. Before any company is issued with the license they are usually required to demonstrate that they have anti-money laundering (AML) and control of financing of terrorism (CFT) procedures and protocols. This includes proper KYC (Know your Customer) procedures as well as risk assessment processes.
Money laundering is provided for under the Proceeds of Crime and Anti-Money Laundering Act, 2009 but Kenya recently enacted a new anti-money laundering and combating of terrorism financing (Amendment) Act, effective 15 September 2023, which has introduced new and expansive obligations to authorized PSPs operating within Kenya, filling in the gaps that existed in the previous 2009 Act.
What does this mean for PSPs?
PSPs were previously required to report any suspicious transactions within 7 days to the Financial Reporting Centre (FRC) but are now required to report any suspicious transactions within just 2 days. PSPs will therefore need to implement robust technological systems or monitoring mechanisms to help detect these suspicious activities or transactions as well as train their staff to increase their capacity and know how when it comes to reporting suspicious transactions.
The Amendment has also increased the reporting threshold from 10,000 USD to 15,000 USD. This will mean that PSPs need to do additional due diligence for transfers beyond the new sum as well as report it to the FRC. In the case of such a large value transfer, the PSP will be required to take all possible measures to ascertain the identity of the person carrying out the transaction.
Lastly, the amendment has extended the powers of the CBK to conduct inspections, to compel the production of information or documentation and to impose fines for non-compliance with AML/CFT standards. This means PSPs should be ready to work in tandem with the CBK and other regulatory bodies to meet the National and International standards on money transfer. One way to do this is by ensuring consistent and prompt submission of monthly reports.
PSPs will also be obligated to establish stringent measures to combat terrorism financing within their spaces and to develop the relevant procedures and protocols to meet their obligations under the new laws.
Payment Service Providers need to evolve and adapt to the new laws. The protocols and procedures they develop are not just boxes to tick to get a license but have to become part of the culture of the organization. PSPs that are still on the cue to get their license or those contemplating getting their license also need to make sure that their AML/CFT procedures and protocols are properly prepared and documented so that they move from the 1,000+ active applications to become the next licensed Payment Service Provider in Kenya.
The writer is a lawyer who specializes in offering legal services to people in technology, you can reach him through info@masibolaw.co.ke
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