Understanding Kenya's Grey Listing by FATF: A Call for Strengthening KYC Procedures

Last week, the Financial Action Task Force (FATF) added Kenya to its Grey List. This designation signifies that Kenya has been identified as having strategic deficiencies in its anti-money laundering (AML) and counter-terrorism financing (CTF) regimes that they must fix within an agreed timeframe. 

When greylisted, businesses and consumers in the country can be subjected to additional compliance requirements and international trade restrictions. The implications of this greylisting are far-reaching, affecting businesses, investor confidence, and regulatory oversight in Kenya.

Understanding the Grey List

The FATF, an intergovernmental organization, evaluates member nations' compliance with its AML/CTF recommendations through a two-tiered system: the "blacklist" and the "grey list." Countries on the blacklist are deemed high-risk jurisdictions with severe deficiencies in their AML/CTF frameworks. Grey-listed countries, on the other hand, have committed to addressing identified deficiencies within a specified timeframe.

While Kenya has committed to addressing the identified strategic gaps, tangible reforms will be needed over the next year through continued collaboration with FATF and the regional anti-money laundering group ESAAMLG.

Kenya's greylisting has several negative consequences:

• Reputational Damage: The grey listing tarnishes Kenya's image as a financial hub, potentially discouraging foreign investment and hindering economic growth.

• Increased Scrutiny: Kenyan financial institutions will face stricter due diligence from international counterparts, leading to delays and higher costs in conducting business.

• Difficulties in Securing Funding: The grey listing could make it harder for Kenyan businesses and the government to access international financing.

The Step Forward: How can businesses prepare for the coming changes 

To prepare for the changes resulting from Kenya's greylisting, businesses must ensure that their compliance policies and procedures are up-to-date and aligned with international standards. Important practical steps would include:

Practical Steps for Enhancement:

• Update KYC policies: Businesses must review and update their KYC policies to align with international standards and regulatory requirements. This includes verifying customer identities, maintaining accurate customer information, and conducting ongoing due diligence.

• Enhanced Due Diligence: Implement robust due diligence processes to thoroughly vet customers, particularly those in high-risk sectors or with complex ownership structures. This may involve screening customers against sanctions lists, politically exposed persons (PEPs), and adverse media.

• KYB Compliance: Similar to KYC for individuals, Know Your Business (KYB) procedures are essential for organizations dealing with corporate clients. Ensure thorough verification of beneficial ownership, senior management, and business activities.

• AML/CFT Measures: Businesses should conduct risk-based assessments to identify and mitigate money laundering and terrorism financing risks. This includes implementing transaction monitoring systems and reporting suspicious activities to regulatory authorities.

Stay on the right side of compliance with Smile ID.

Kenya’s current AML/CFT landscape will change significantly in the coming months if businesses and the government are committed to following International AML/CFT standards. As such, every business must stay on top of new compliance requirements.

Smile ID offers the best-in-market solution for businesses looking to onboard users, verify identity, and perform KYC, KYB, and AML checks in Kenya.

• Direct Access to Government Databases: We can verify a user's identity using the ID number on their National ID, Passport, Alien Card, etc., and a liveness photo check.

• AML Checks: We run AML checks to screen users against 1100 global and African sanctions, PEP, and adverse media watchlists.

• Local Compliance Team: Our dedicated compliance team in Kenya stays on top of regulatory changes to ensure our partners remain compliant.

Conclusion

Kenya's greylisting is a wake-up call for businesses and the government to strengthen their AML/CTF frameworks. By embracing international compliance standards and partnering with trusted providers like Smile ID, businesses can mitigate the risks associated with the greylisting and maintain their reputation and financial stability.

As Kenya works towards addressing the identified deficiencies and exiting the grey list, all stakeholders must collaborate and prioritise the fight against money laundering and terrorism financing. By adhering to international standards and implementing robust compliance measures, Kenya can regain its status as a trusted financial hub and foster economic growth.

Contact Smile ID today to stay ahead of the curve!