Grace Ashiru
Kenyan commercial banks are set to begin monitoring substantial cash deposits and transfers, particularly those exceeding KES 1 million, in response to an October 2023 directive from the central bank aimed at combating money laundering and terrorism financing. This directive mandates the use of “purpose of payment” (PoP) transaction codes, a move that could accelerate local adoption of ISO 20022 standards, which require transparent processing of financial transactions.
Although the Central Bank of Kenya (CBK) has not specified a compliance deadline, the global timeline for implementation is the end of 2025.
On Wednesday, NCBA, Kenya’s fourth-largest commercial bank, notified its customers of these new requirements. It is anticipated that other banks will soon follow suit by introducing PoP codes for Real-Time Gross Settlement (RTGS) transactions, enabling customers to transfer large sums of money between banks instantly.
In line with the adoption of ISO 20022 messaging standards, the Central Bank of Kenya has mandated the use of Proof of Payment (PoP) codes for all RTGS payments, according to a statement from NCBA to its customers. The bank assured that it will offer the necessary support to ensure a smooth transition to these new payment standards.
In the first quarter of 2024, the Kenya Electronic Payments and Settlement System (KEPSS) processed 1.98 million RTGS transactions, totaling KES 10.7 trillion ($82.3 billion). This reflects a 1.69% decrease in transaction volume but a 6% increase in value compared to the previous quarter, which recorded 2.01 million transactions worth KES 10.1 trillion ($77.7 billion).
PoP codes are implemented to categorize transactions, enhancing transparency and ensuring regulatory compliance in accordance with the requirements of the Central Bank of Kenya (CBK) and ISO 20022 standards.
Banks will soon have the ability to track and report the specifics of transactions more efficiently through the inclusion of additional fields designated for PoP code recording. PoP works in tandem with ISO 20022 by standardizing data formats on a global scale, ensuring uniformity in transaction communication and the processing of financial data. A banking executive, in a conversation with Techcabal, highlighted that this initiative will enhance the efficiency of cross-border payments.
In the past, an attempt to provide tax authorities with access to bank and mobile money transactions through a Data Protection amendment in the now-retracted Finance Bill 2024 was not successful.
Kenyan commercial banks face a hefty penalty of $155,000 (KES 20 million) for failing to comply with anti-money laundering regulations
