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A guide to Kenya’s Fintech Regulatory Framework.

Financial technology, or Fintech, has emerged as a rapidly growing industry in Sub-saharan Africa, driven by a unique combination of mobile adoption, technological innovations, and investor interests. Kenya, in particular, has witnessed significant Fintech activities, including mobile payments, digital lending, asset and wealth management, insurance, Green energy, and money remittance operations. However, with the dynamic nature of the Fintech industry and its overlap across different sectors, the regulatory framework becomes complex and multi-faceted.

The Central Bank of Kenya (CBK) is the primary regulator, ensuring that all financial institutions adhere to the set standards. Nevertheless, sector-specific regulations also come into play to govern specific Fintech and Banking activities. Let’s delve into some of these key sectors’ respective regulatory frameworks.

Mobile Payments
Mobile money, a prevalent form of financial service in Kenya, is regulated under the Kenya Information and Communications Act (KICA) of 1998, responsible for overseeing mobile network operators. The National Payment System Act 2011 and the National Payment system regulation 2014 outline the criteria and prerequisites for registration as a Payment system provider in Kenya. A Mobile Payment Service Provider refers to a telecommunications service provider licensed under KICA and authorized by the Central Bank of Kenya to offer payment services. The scope of payment services includes sending, receiving, storing, or processing payments through an electronic system, ownership or operation of a public switched network for payment services, and processing and storing data on behalf of payment service providers or users.

Digital Lending – CBK
The Central Bank, on 18 March 2022, operationalized the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022, according to the Central Bank, the mandate to regulate Digital Credit Providers in Kenya. The regulations apply to entities wishing to carry out credit facilities or loan services through a digital channel in Kenya, including the regulation of the previously unregulated Non-Deposit Taking Credit Microfinance Institutions. The digital channels mentioned include mobile phones, internet computers, and apps.

Money Remittance Operations
The money remittance business, which involves transmitting money or monetary value without creating payment accounts, is regulated under the Money Remittance Regulations 2013. For a person to provide money remittance services, they must be incorporated as a limited liability company under the Companies Act, obtain approval from the Bank for the proposed business name, and be licensed to provide money remittance services.

Asset and Wealth Management – CMA
The Capital Markets Authority (CMA) is responsible for developing a framework that facilitates using electronic commerce to develop capital markets in Kenya. The Capital Markets Act defines electronic commerce to include the offer, distribution, or delivery of securities or services ordinarily provided by licensed persons in electronic form. To encourage innovation, the CMA established Kenya’s Regulatory Sandbox framework in 2019, allowing firms to test new products, solutions, or services within a controlled environment for up to twelve months. The CMA may authorize applicants to operate under existing regulations, develop new regulations based on test observations, or deny firms the right to operate.

Insurance – IRA
In the field of insurance, technology plays a significant role in enhancing efficiency. While there are no specific regulations for Insurtech services in Kenya, the Insurance Regulatory Authority is a government agency mandated by the Insurance Act (Amendment) 2006, CAP 487 of the Laws of Kenya. Its primary role is to regulate, supervise, and foster the development of the insurance industry in Kenya..

Energy and Petroleum Regulatory Authority – EPRA
Renewable energy is one of the critical energy sub-sectors that significantly contribute to the overall energy mix in Kenya. In Africa, Kenya leads in exploiting renewable energy sources to provide the energy required to complement the realization of Vision 2030, “accelerating transformation of our country into a rapidly industrializing middle-income nation by the year 2030”.

The Renewable Energy department (EPRA) is responsible for leading the planning, development, implementation, promotion, and execution of structures for developing and regulating renewable energy and energy efficiency through research and planning, development of standards and regulations, compliance, and enforcement.

Regulations Spanning Multiple Sectors
In addition to sector-specific regulations, Fintech firms must also comply with laws of general application. Two critical areas include data protection, privacy, and consumer protection. The Data Protection Act (DPA) of 2019 regulates the processing of personal data and outlines the rights and obligations of data controllers and processors. Fintech firms, which handle customer KYC information and transactional data, must adhere to lawful collection and processing of personal data.

Consumer protection is addressed under the Consumer Protection Act of 2012. Many sector-specific regulations incorporate consumer protection provisions, which include issuing transaction receipts, establishing customer redress mechanisms, ensuring business continuity, and maintaining limitations on access and collection of customer information.
Fintech firms are also subject to anti-money laundering compliance. The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) of 2009 designates financial institutions as reporting institutions and imposes obligations such as monitoring and reporting to the Financial Reporting Centre (FRC), verifying customer identity, and maintaining customer records.

Kenya’s Fintech regulatory framework aims to balance innovation and consumer protection. In some instances, therefore, Fintech firms may be required to obtain multiple licenses with respect to the different products offered. For a mobile money product, for example, a firm would require authorization from the Central Bank of Kenya and the Communications Authority of Kenya to further ensure compliance with data protection, consumer protection, and anti-money laundering laws.

The Central Bank of Kenya and sector-specific regulators like the Capital Markets Authority and Insurance Regulatory Authority play a crucial role in overseeing different aspects of the Fintech industry. By ensuring compliance with sector-specific regulations and other laws of general application, Kenya aims to foster a vibrant and secure Fintech ecosystem that benefits both businesses and consumers.

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