The Central Bank of Kenya (CBK) is poised to revolutionize the payment market by issuing payment licenses to financial technology innovators in the near future. This significant shift from previous regulations is anticipated to broaden the scope of the payment industry within the nation.
Fintech Innovators Eye Licenses
Among the contenders for these licenses are two fintech entities with Nigerian roots, Flutterwave and Chipper Cash, along with various other applicants. The CBK’s governor, Kamau Thugge, has conveyed the bank’s diligent efforts to revise the National Payment Systems Act, established in 2011, aiming to create a contemporary legal structure that accommodates the operational needs of fintech organizations.
Updating the Payments Act
Thugge has clarified the bank’s intentions, stating, “We are in the process of updating and amending the Payments Act, basically coming up with a new act.” This legislative update is expected to positively impact businesses that offer remittance and payment services, which have previously faced scrutiny and enforcement actions by Kenyan authorities over concerns regarding money laundering activities.
Creating a Conducive Environment
The proposed regulatory changes are expected to create a more conducive environment for fintech companies to operate legally and securely. This could potentially lead to a more vibrant and competitive payment services landscape in Kenya.
Addressing Legal Obstacles
The CBK has put forward proposed amendments to the National Payment Systems Act with the objective of enabling fintech startups in Kenya to register and obtain the necessary licenses to operate. This legislative revision is intended to dismantle a significant legal obstacle that has previously restricted the expansion of fintech companies within the nation, a landscape predominantly controlled by commercial banks and telecommunications companies.
Fostering Innovation and Competition
By revising the Act, the CBK seeks to level the playing field and foster a more inclusive financial ecosystem where fintech startups can compete effectively. This move is poised to stimulate innovation and growth in the Kenyan fintech sector, potentially leading to greater diversity in financial services and increased access to digital payment solutions for consumers and businesses alike.
Swift Amendment Process
During a post-monetary policy committee (MPC) press briefing, a media outlet raised a question regarding the registration status of Flutterwave and Chipper Cash in Kenya. In response, the CBK expressed its intention to expedite the amendment process of the National Payment Systems Act. The bank aims to swiftly finalize these changes to establish a clear regulatory framework that will govern the operations of payment service providers in the country.
Clarifying Fintech Regulations
Kenya’s financial sector is currently regulated under several key pieces of legislation, including the Central Bank of Kenya Act, the National Payment Systems Act along with the National Payment Systems Regulations of 2014, and the e-money Regulations of 2013. However, the existing regulations have been criticized for their lack of clarity regarding fintech operations, remittances, and payment startups. This ambiguity has led to conflicts between these service providers and Kenyan authorities, resulting in enforcement actions by agencies such as the Financial Reporting Center (FRC) and the Asset Recovery Authority (ARA), which have frozen accounts and seized assets on allegations of money laundering.
Resolving Regulatory Challenges
In 2022, the financial regulator took a stringent stance by instructing financial institutions in the country, including banks and mobile money service providers, to cease all dealings with fintech companies. The CBK justified this directive by alleging that the fintechs were functioning without proper authorization and posed unsubstantiated risks to the stability of Kenya’s financial systems.
The proposed amendments to the National Payment Systems Act are thus seen as a crucial step towards resolving these regulatory challenges. By clarifying the legal position of fintechs and establishing a formal licensing process, the CBK aims to create a more secure and stable environment for fintech innovation and operation, which could ultimately contribute to the growth and development of Kenya’s financial sector.