Banks rush to comply with CBK rule on spying customer deals

Central Bank of Kenya Governor Dr Kamau Thugge. [File, Standard]

Commercial and microfinance banks across the country are racing to comply with new Central Bank of Kenya (CBK) regulations requiring enhanced monitoring of customer transactions with just seven days to go before the official deadline. 

This is part of the migration to the globally sanctioned ISO 20022 standards.

These are new international standards for sending enhanced financial data for customer transactions and are intended to create a single common language for most payments globally.

Yesterday, however, experts cautioned a rushed implementation could disrupt the financial system and called for an orderly transition.

“When a standard such as the ISO 20022 raises the potential for payments and bank statements to fail, it is vital that this change receives the necessary focus as early as possible,” said Shen Lee Director, of Corporate Treasury Services KPMG in the UK.

“The new standard will require significant planning, system configuration and testing to avoid the risk of payment or statement integration failure.”

But in a circular issued to all chief executives of commercial and microfinance banks seen by The Standard, the CBK urged chief executives of banks to comply without fail with the transition of the Kenya Electronic Payment and Settlement System (KEPSS) to the internationally recognised ISO 20022 standards. 

This migration aims to modernise Kenya’s National Payments System (NPS) and improve the efficiency of high-value, time-sensitive domestic payments, said CBK. The proposed go-live date for the new system is September 30.

The CBK emphasized the importance of this migration for improving security and transparency within the banking sector. 

It says the new system will lead to enhanced monitoring of transactions and is expected to aid in the detection of fraudulent activities, thereby increasing consumer confidence in the financial system.

While the CBK is doubling down on the modernisation effort, concerns by bank insiders about the operational challenges and additional costs associated with the swift implementation were raised yesterday. 

As part of the new deal, commercial banks will begin closely monitoring customer transactions as directed by the banking regulator to combat financial crimes.

Several large lenders have confirmed they are consequently preparing to implement new payment processing requirements mandated by the central bank, including the introduction of “Purpose of Payment” (PoP) codes for Real Time Gross Settlement (RTGS) transactions.

In a message to customers, tier one lender NCBA stated that the changes are part of Kenya’s adoption of the ISO 20022 international financial messaging standard, which allows for more detailed data exchange in payments.

“As part of the adoption of ISO 20022 messaging standards, the Central Bank of Kenya has mandated banks to adopt the use of Purpose of Payment codes,” the message by NCBA to customers said. “This change affects RTGS payments.”

The PoP codes are intended to provide more transparency and efficiency by giving additional information about the reason for each payment, the bank explained. To accommodate the new requirements, banks said they will be adding an extra field on their Internet banking platforms to capture the PoP codes.

“We will make the necessary process and changes well in advance as well as provide detailed guidelines and support to help you transition seamlessly to the new payments’ standards,” the message assured customers.

Last year, the CBK penalised several lenders for compliance breaches related to money laundering controls. An earlier bid by the government to amend the Data Protection Act to allow the Kenya Revenue Authority (KRA) to identify potential tax discrepancies by analysing bank and mobile money transactions fell through.

The plan which was part of President William Ruto’s new grand plan to broaden the country’s tax base by catching tax evaders and raising revenue at a time when the taxman has been missing its revenue targets came a cropper after it was rejected by legislators.

CBK guidelines mandate that banks use advanced data analytics and transaction monitoring systems to detect unusual patterns or irregularities that could signal money laundering, terrorism financing or other illicit flows.

Banks must also enhance their know-your-customer procedures and promptly report any suspicious activity to the Financial Reporting Centre, Kenya’s financial intelligence unit.

Industry executives said tighter transaction monitoring could temporarily disrupt some legitimate customer transactions but is necessary to strengthen Kenya’s defences against financial crimes. “It’s a delicate balance, but the priority now is to ensure the stability and transparency of the banking sector,” said a compliance officer at one of Kenya’s banks.