The rules come at a time when remittances by Kenyans living have risen to an all-time high this year. Remittances from Kenyans abroad increased 36 per cent in the nine months ended September 2012 compared to a similar period last year.
The inflows rose from Sh54.7 billion ($643,772m) to Sh74.4 billion ($876,306m) on what the Central Bank of Kenya (CBK) attributed to reduced remittance costs and better data collection methods.
The Central Bank is targeting small money transfer business operators with new regulations that will give the watchdog powers to vet employees and access transaction records in the fight against money laundering and financing of terrorism.
Money transfer operators will be required to have minimum capital of Sh20 million, and raise a security bond of 10 per cent of the annual turnover, whose minimum is set at Sh10 million.
It also proposes an annual licence fee of Sh100,000 and demands that the licensed directors of the business be full-time employees of the business, who will be subjected to vetting.
“The purpose of the regulations is to increase use of formal funds transfer and require money remittance providers to observe anti-money laundering and combating of the financing of terrorism measures,” said the Central Bank in the Money Remittance Regulations released on Friday.
The banking sector regulator does not currently require licence fees or security bonds for money transfer providers.
The market is largely unregulated, with numerous small players most of which are unlicensed.
These small players, most of whom operate online, are normally located in the key sources of remittances like the US and UK with offices in Nairobi and other cities to which they send recipients to collect money.
Some of these remittance providers include Mukuru, which is based in UK and sends money from the UK to Kenya, Zimbabwe, and Tanzania.
Industry players however say CBK must be careful not to introduce extra costs in a sector that is already paying too much to other regulators.
“We are already paying Sh100,000 to Communications Commission of Kenya (CCK), Sh7,000 to City Council, Safaricom and CBK,” said Oscar Ikinu the chief executive of Tangaza, an online money transfer platform.
Others are the US-based Safarinet which uses Mpesa agents to pay its local customers,Shade.co.ke, Babawatoto.com among others.
Central Bank said there has been an upsurge in the number of applications for remittance business licences.
The regulator will use the rules to subject directors, chief executive officers and other senior officers of money remittance providers to vetting based on academic background, financial and criminal records before assuming officers.
The regulator also wants all the inflows of foreign exchange into the country to be received through commercial banks.
“All foreign exchange inflows and outflows of money remittance providers shall be received through commercial banks, documented and advised to the Bank in the prescribed format,” said the Central Bank.
This will help eliminate unlicensed operators who are prone to being used as conduits by money launderers.
“The rules will help to weed out informal remittances business that have largely been responsible for an unexplained foreign exchange inflows,” said Sam Angwenyi, the chairman of the Forex Bureau Association of Kenya.
They will also help CBK to capture all remittances inflows to better shape economic policy.
“It is an easy business to run and therefore opens a loophole for money laundering, “said the chief executive of an online payment platform, Mamamikes.
CBK also wants to have free, full, unfettered and timely access to the internal systems, documents, reports, records, staff and premises of the agents in so far as money remittance business is concerned and shall exercise such powers as it may deem necessary.
Players in the foreign exchange business such as forex bureaus blame the informal money transfers business for money laundering.
The rules come at a time when remittances by Kenyans living have risen to an all-time high this year.
Remittances from Kenyans abroad increased 36 per cent in the nine months ended September 2012 compared to a similar period last year.
The inflows rose from Sh54.7 billion ($643,772m) to Sh74.4 billion ($876,306m) on what the Central Bank of Kenya (CBK) attributed to reduced remittance costs and better data collection methods.
