Banks to start monitoring customer transactions following central bank directive

Commercial banks have begun closely monitoring customer transactions in accordance with the CBRC’s instructions to combat financial crime, banks revealed yesterday.

This is the Central Bank of Kenya (CBK) New guidelines have been issued requiring Banks should strengthen transaction monitoring and reporting processes to identify and report any suspicious activities.

Several large lenders said they are preparing to implement new payment processing requirements set by the country’s central bank, including the introduction of “purpose of payment” (PoP) codes for real-time gross settlement (RTGS) transactions.

Tier 1 lender NCBA said in a message to clients that the changes were 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 the ISO 20022 messaging standard, the Central Bank of Kenya (CBK) has required banks to adopt Purpose of Payment (PoP) codes,” said a message from NCBA to clients. “This change affects RTGS payments.”

PoP codes are designed to provide more Transparency and efficiency The bank explained that this is done by providing additional information on the reason for each payment.

To meet the new requirements, banks said they will add an additional field on their online banking platforms to obtain the PoP code.

For customers using application programming interfaces (APIs) or host-to-host integration, the bank promises to contact them in advance to ensure system compatibility.

The message assured customers: “We will make the necessary process changes in advance and provide detailed guidance and support to help you transition to the new payment standard seamlessly.”

The bank noted that the central bank has not yet announced an official go-live date for the PoP code implementation, but they are preparing for the change.

Analysts said the new rules were part of an effort by Kenya’s central bank to increase transparency in the banking sector and combat financial crime. Last year, the central bank fined several banks for violating compliance rules on money laundering controls.

The move follows a failed attempt by the Kenyan government to amend data protection laws to allow the Kenya Revenue Authority (KRA) to identify potential tax discrepancies by analysing bank and mobile money transactions.

The plan, part of President William Ruto’s new grand plan to expand the country’s tax base by catching tax evaders and raising revenue at a time when the tax authority has been failing to meet tax collection targets, failed after being rejected by members of parliament.

CBK Guidelines Authorization Banks use advanced data analytics and transaction monitoring systems to detect unusual patterns or irregularities that could indicate money laundering, terrorist financing or other illicit financial flows.

Banks must also strengthen know-your-customer (KYC) procedures and promptly report any suspicious activities to Kenya’s financial intelligence unit, the Financial Reporting Centre.

Industry executives say the increased transaction monitoring may temporarily disrupt transactions for some legitimate customers but is necessary to strengthen Kenya’s defenses against financial crime.

“It’s a delicate balance, but the priority now is to ensure stability and transparency in the banking sector,” said a compliance officer at a Kenyan bank.