CBK warns public on illegal money transfer operations

Central Bank of Kenya (CBK) has sounded the alarm over the rising number of entities and persons providing money transfer services without the requisite license or authorisation. The banking sector regulator asked Kenyans to observe precautionary verification measures before procuring the services.

“It has come to the attention of the Central Bank of Kenya that there are entities and persons providing money or value transfer services without the requisite license or authorisation from the Central Bank of Kenya,” the regulator said in a statement yesterday.

“This is to caution and/or warn members of the public against seeking money or value transfer services such “hawala” from unlicensed service providers,” the CBK statement added, while requesting the public to act as the regulator’s whistle blowers to weed out the illegal money or value services providers from Kenya’s financial system.

Criminal offence

Unregulated money transfer services have been linked to various issues, including money laundering, fraud and financial instability, activities that can harm the country’s economy, reputation and financial stability.

According to the regulator, it is a criminal offence to provide money or value transfer services without a license or authorisation from the CBK, as such services do not enjoy the protection of the law and consumers stand to lose in case of any default by the providers of these services.

CBK has outlawed money remittance businesses that operate without a license including “Hawala”, a method of transferring money without any actual movement.

It’s popular in the Middle East and parts of Asia and has been gaining popularity in Kenya, particularly as a money remittance system for residents of Nairobi’s Eastleigh Estate. Its informal nature has raised concerns that it could be used for money laundering and financing of terrorism. Money or value transfer services include payment services regulated under the National Payment System Act, 2011 and money remittance services regulated under Money Remittance Regulations, 2013.

CBK said the licensed entities operate as payment service providers or money remittance providers and conspicuously display the CBK license or authorisation in their business premises for ease of public reference, adding that the list of licensed money remittance providers and payment service providers can be accessed on the CBK website.

In 2021, the regulator sponsored the Central Bank of Kenya (Amendment) Bill 2021 imposing new restrictions on the sale of US dollars to individuals through money transfer companies.

Under the guidelines, money remittance firms are no longer permitted to sell more than $100,000 (Sh 15.1 million) per day to any individual. This move was in response to concerns that these firms have been engaging in wholesale forex exchange activities without adhering to the established guidelines, standards, and codes that govern the sector.

Lending practices

In an effort to regulate the financial sector and protect consumers from predatory lending practices, the CBK Amendment Act, 2021, which became effective on December 23, 2021 imposed tough rules for illegal digital money lenders attracting imprisonment for a term not exceeding three years or to a fine not exceeding Sh5 million or both.