Small businesses in Kenya face fines of Sh500,000 plus daily penalties of Sh50,000 and potential loss of banking services if they fail to comply with new anti-money laundering rules effective since November 2024.
Banks are requiring MSMEs to disclose beneficial owners' details and financial accounts as part of enhanced customer due diligence measures.
The regulations, affecting nearly 7.4 million MSMEs, require businesses to provide personal information including names, addresses, PINs, and proof of residence, though firms with annual sales below Sh50 million are exempt from providing audited accounts.
The measures follow Kenya's placement on the FATF's grey list and aim to prevent money laundering schemes like the 2015 NYS scandal, where banks were fined Sh800 million for failing to report suspicious transactions.
While the Kenya Bankers Association notes requirements apply only to registered businesses, the rules have raised concerns about tax implications and government access to financial information.
Although the compliance burden on MSMEs is undeniable, it is critical to view these regulations in the larger context of protecting the integrity of our financial system and cultivating a more transparent and accountable business environment.
It is important that we work together to ensure that MSMEs have the necessary resources, support, and guidance to effectively navigate these new requirements, while minimizing the impact on their operations.
This includes simplifying compliance procedures, leveraging technology to accelerate due diligence processes, and promoting financial literacy among entrepreneurs. In response to this regulatory shift, the fintech industry can demonstrate its technological capabilities by developing user-friendly but sophisticated compliance solutions.