Regulatory Alerts2023-10-05
Central Bank of Kenya Circular No. 10 of 2023- Guidance n Beneficial Ownership
The Central Bank of Kenya (CBK) has issued a new directive on beneficial ownership which came into effect in October 2023. The directive requires financial institutions to identify and verify the natural person who ultimately owns or controls their legal entity clients. This requirement is part of the government's effort to improve transparency and combat money laundering and terrorism financing. Under the new regulation, financial institutions such as banks, microfinance institutions, mobile money service providers, and insurers must establish a robust framework for identifying and verifying the beneficial owner(s) of their clients who are legal persons or legal arrangements. They must also submit an annual report to the CBK on their beneficial ownership information. The regulation defines a Beneficial Owner (BO) as: 1. The natural person who ultimately owns a legal person or arrangement directly or indirectly, through any structure or formation; and 2. The natural person who ultimately controls a legal person or arrangement. Financial institutions are required to identify the natural person(s) on whose behalf a transaction is conducted as part of beneficial ownership. In cases where the client is a nominee director, the substantive director shall be considered the beneficial owner as he/she is the natural person ultimately controlling the legal entity. The new regulation also mandates that financial institutions establish mechanisms to identify independent and reliable sources of information for verifying the identity of beneficial owners. Some of these sources include the Business Registration Services (BRS), Kenya Revenue Authority, Land Registries, other public sources/records, and financial audit reports. Financial institutions must also submit their updated list of shareholders along with their respective shareholdings to the CBK annually and update this information within thirty days when there is a change in beneficial ownership information. The directive from the Central Bank of Kenya (CBK) has put significant focus on transparency, particularly for financial service providers (FSPs), who are now required by law to conduct due diligence, KYC and KYB checks on their clients' Beneficial Ownership Information. The new regulation is also expected to enhance the overall Anti-Money Laundering / Counter-Terrorism Financing (AML/CTF) regime in the country by ensuring that all financial service providers adhere strictly to the prescribed guidelines and best practices related to beneficial ownership verification processes.