Regulatory Alerts2023-10-18 | 1366238125Central Bank of Kenya Circular No. 11 of 2023 - Dissemination of ML-TF-PF Sectoral Risk Assessment Report
The Central Bank of Kenya has conducted a sectoral risk assessment of financial sectors under its supervision, including commercial banks, microfinance banks, money remittance providers, foreign exchange bureaus, digital credit providers, and payment service providers. The assessment rates each sector's vulnerability to money laundering, terrorist financing, and proliferation financing risks, with the banking sector identified as the most vulnerable due to its size and significance in the Kenyan economy. The report advises financial institutions to consider these findings when conducting their own risk assessments and applying a risk-based approach to mitigate these risks.
BANKI KUU YA KENYA October 17, 2023 Haile Selassie Avenue P.O. Box 60000 - 00200 Nairobi, Kenya Telephone: 2860000, Fax: 3340192 CENTRAL BANK OF KENYA CIRCULAR NO. 11 OF 2023 TO ALL CHIEF EXECUTIVE OFFICERS OR PRINCIPAL OFFICERS OF FOREIGN EXCHANGE BUREAUS, MONEY REMITTANCE PROVIDERS AND DIGITAL CREDIT PROVIDERS DISSEMINATION OF MONEY LAUNDERING, TERRORISM FINANCING AND PROLIFERATION FINANCING SECTORAL RISK ASSESSMENT REPORT
1.0 Background
Recommendation 1 of the Financial Action Task Force (FATF) Standards on combating money laundering, the financing of terrorism and proliferation requires countries to identify, assess, and understand the money laundering, terrorist financing proliferation financing (ML/TF/PF) risks for the country. Based on that assessment, countries are required to apply a risk-based approach (RBA) to ensure that measures to prevent or mitigate money laundering, terrorist financing and proliferation financing are commensurate with the risks identified. This should inform efficient allocation of resources based on ML/TF/PF risks as understood by the relevant institution.
FATF standards envisage different types of risk assessments including institutional risk assessments, sectoral risk assessments and national risk assessments. It is against this backdrop that the Central Bank of Kenya (CBK) has conducted a sectoral risk assessment of the sectors falling under its supervisory purview. The sectors have been classified based on the type of financial institutions licensed by the CBK. These are commercial banks, microfinance banks, money remittance providers (MRPs), foreign exchange (forex) bureaus, digital credit providers and payment service providers. For purposes of the sectoral risk assessment, these institutions constitute six sectors. In conducting the sectoral risk assessment, the CBK has used information and data obtained from financial institutions, the Financial Reporting Centre (FRC), law enforcement agencies, the Mutual Evaluation of Kenya Report, the National Risk Assessment (NRA) reports and open sources of information. Each of the six sectors has been rated using a five-risk rating of Low, Medium Low, Medium, Medium High and High. Below is a snapshot of the ML/TF/PF risks.
2.0 Key Findings Of The Sectoral Risk Assessment
The banking sector has the highest ML/TF/PF vulnerability. This is attributed to its size, variety of products and services, diverse customer base and its high level of materiality and importance in the Kenyan economy. Digital credit providers pose the least ML/TF/PF risks to the financial sector.
| PF risk | |||
|---|---|---|---|
| ML Risk | TF Risk | ||
| Medium High | Medium High | ingh | |
| Bank | Medium | Medium | Medium |
| Microfinance bank | |||
| Foreign Exchange bureau | Medium High | Medium Low | Low |
| Money remittance providers | Medium | Medium High | High |
| Low | |||
| Payments service provider | Medium Low | Medium High | |
| Low | li Diss | ||
| Digital credit providers | Medium Low |
The table below summarizes the ML/TF/PF risks of the various sectors.
These are useful findings that financial institutions should take into account when undertaking their own institutional risk assessments.
The sectoral risk assessment report is forwarded herewith for financial institutions' reference and action.
3.0 Purpose Of The Circular
The purpose of this Circular is to: 1.
Apprise financial institutions on the outcomes of the sectoral risk assessment which has been conducted by the CBK.
Disseminate the sectoral risk assessment report to financial institutions for their reference and action.
Advise financial institutions to take into account the findings of the sectoral risk assessment when they are conducting their own institutional risk assessments and when applying AML/CFT/CPF risk-based approach.
Yours faithfully,
GERALD A. NYAOMA DIRECTOR, BANK SUPERVISION Cc: Mr. Mohamed Nur Ali Chief Executive Officer Kenya Forex and Remittance Association Pioneer Building Kimathi Street, 7th Floor, Room 3 P.O Box 106217-00101 NAIROBI Mr. Saitoti Maika Director General Financial Reporting Centre UAP-Old Mutual Towers NAIROBI