Kenya's money remittance market has experienced significant growth in recent years, driven by increased migration, labour mobility, remittance corridor developments, increasing adoption of mobile money and technological advancements.
In this article, we consider the legal framework for addressing operations of money remittance companies, the scope of authority of the Central Bank of Kenya (CBK) as the primary regulatory body overseeing money remittance providers and requirements before licensing.
Like other businesses, the money remittance business has requirements touching on governance structures (the leadership system that guides decision making, accountability and oversight), financial security, management information systems and infrastructure and operational manuals (accounting procedures, management information system, internal audit and controls, Know Your Customer (KYC), operations and assets manuals and risk management policies). This article explores these requirements.
What is money remittance?
Money remittance business is the transmission of money or any representation of money value without any payment accounts being created and it involves inbound and outbound international money transfers.
The money remittance operator acts as an intermediary to enable individuals and businesses transfer funds.
What are the regulating authorities and legislations?
The CBK plays a crucial role in regulating this market, ensuring consumer protection, financial stability and transparency.
Alongside CBK, the market is governed through legislations such as the Central Bank of Kenya Act Cap 491, the Proceeds of Crime and Anti-Money Laundering Act No. 9 of 2009, the Consumer Protection Act, 2012 and the Money Remittance Regulations 2013.
Together, the legislations provide for the process of obtaining a license, the operational, financial and governance requirements and due diligence procedures. Additionally, they safeguard against irregularities in funds or disguising the origin of illicitly obtained funds.
The Consumer Protection Act, 2012 protects consumers and the CBK Act emphasizes on this protection by requiring disclosure of fees, charges, exchange rates and provision of accurate receipts and transaction records.
The highlighted framework is not exhaustive and they operate in unison with other legislations to cover various other aspects of Money Remittance Operations, for example, the Companies Act 2015 would guide incorporation of an entity that seeks to become a Money Remittance Operator.
What are the licensing requirements and process?
Broadly, the process of application for a money remittance license falls into four categories:
- Name reservation and approval; applicants must reserve three business names with the Registrar of Companies that include the words “money remittance” or “money transfer.” The proposed names are submitted to CBK for approval.
- Application for license; after name approval, an application form is filled. This application form is accompanied by documents evidencing compliance with operational, financial and governance requirements. The Certificate of Incorporation, PIN Certificate, Memorandum and Articles of Association and notification of registered place of business are all submitted. An application fee of Kshs. 20,000 is payable.
- Letter of intent; upon assessment and fulfilment of the above requirements, CBK will issue a letter of intent which in principle is an approval. It advises the applicant on the next steps and requirements to be met before issuance of a license and approval to commence operations. The requirements include payment of a license fee, obtaining of security equal to 1% of the projected volume of business for the first year of business, preparation of premises and completing fit and proper forms for senior key officials. It also includes putting in place management information systems and other institutional structures. A license fee of Kshs. 100,000 is payable.
- Issuance of license;the CBK may, if satisfied that the applicant has met all requirements, issue a license to commence money remittance business.
Applicants must demonstrate capital financial soundness. To operate as a Money Remittance Operator, an applicant must provide evidence of a minimum core capital of Kshs. 20 Million. This is followed by a comprehensive feasibility study and business plan.
Further, the applicants should have a sound governance structure within the proposed company including selecting appropriate shareholders and directors. A fit and proper form is submitted for all significant shareholders together with supporting documentation.
Conclusion
In every stage, the CBK vets the application and accompanying documents to ensure fitness of the applicant and its key officials. The process follows stringent regulatory requirements and prioritizes compliance.
As the industry continues to grow, it is important to stay abreast of regulatory developments and practices.
By adhering to these regulations and requirements, Money Remittance Operators ensure:
- Integrity of the financial system.
- Mitigation of risk.
- Maintenance of consumer trust.