Banks to start spying on customer transactions after CBK directive

 

Customers wait to be served at the Consolidated Bank banking hall on August 25, 2015. [File, Standard]

Commercial banks have begun closely monitoring customer transactions as directed by the banking regulator to combat financial crimes, banks revealed yesterday.

This is after the Central Bank of Kenya (CBK) issued new guidelines requiring banks to strengthen their transaction monitoring and reporting processes to identify and report any suspicious activity.

Several large lenders said they are consequently preparing to implement new payment processing requirements mandated by the country’s 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 (CBK) has mandated banks to adopt the use of Purpose of Payment (PoP) 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.

For customers using application programming interfaces (APIs) or host-to-host integration, the banks promised to engage with them in advance to ensure system compatibility.

“We will make the necessary process 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.

The banks noted that the official go-live date for the PoP code implementation is yet to be communicated by the CBK, but they are preparing for the change.

Analysts say the new requirements are part of the central bank’s efforts to enhance transparency and combat financial crimes in Kenya’s banking sector. 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 Members of Parliament.

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 (KYC) procedures and promptly report any suspicious activity to the Financial Reporting Center, Kenya’s financial intelligence unit.

Industry executives said the 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.