Regulatory Alerts2023-10-05
Payments Circular No. 9 of 2023 Guidance Beneficial Ownership
The Central Bank of Kenya (CBK) has issued a comprehensive circular outlining its expectations on how banks and other financial institutions in Kenya should identify, verify, monitor and report beneficial ownership (BO) information. The CBK also introduced new rules requiring banks to disclose the real owners of companies that open bank accounts, as part of a global crackdown on money laundering, tax evasion, and financing of terrorism. According to the circular, banks are expected to identify and verify the ultimate beneficial owner(s) (UBO) for both individual and corporate customers. This includes not only natural persons who directly or indirectly own more than twenty-five percent (25%) shares or rights to exercise significant influence but also the natural person(s) on whose behalf a transaction is conducted, regardless of the percentage ownership held. The circular mandates banks to establish mechanisms for independent verification of the identity and BO details using information or data from reliable sources such as Business Registration Services (BRS), Kenya Revenue Authority (KRA), Land Registries, public records, financial audit reports, and other credible sources known or considered by a reporting institution. Banks are also required to update their Know-Your-Customer (KYC) policies and procedures to incorporate the new BO requirements and submit them for review and approval by CBK by December 31st. They must also report annually on their UBOs, including changes in beneficial ownership information within thirty days of any such change. In addition, the circular sets out specific guidelines for institutions that have legal arrangements such as trusts and partnerships, requiring them to identify independent directors and substantive directors where nominee directorships exist. Both the nominee director and the substantive director will be vetted by CBK prior to appointment. The CBK has also extended its vetting process to cover individuals who hold significant shareholdings in reporting institutions, while requiring banks to conduct ongoing due diligence on their customers' BO information. This includes checking whether previously unverified beneficial owners have been correctly identified and verifying the accuracy of existing records. Training programs for bank staff must now include comprehensive coverage of UBO identification and verification procedures. Banks are also required to incorporate this into their internal audit functions, ensuring compliance with all aspects of the new rules. Lastly, banks must retain BO information for as long as prescribed by law.