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Banks want court to declare next of kin requirement illegal

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Kenya Bankers Association director of Centre for Research on Financial Markets and Policy Jared Osoro (left) and CEO Habil Olaka. FILE PHOTO | NMG

Summary

  • KBA claims that the clause in the Finance Act 2018 which changed the Banking Act to introduce a requirement that the lenders keep updated information of account holders’ next of kin details was not subjected to public participation.
  • The KBA further argues that the law compelling banks to keep such information violates article 31 (C) of the Constitution that protects individuals from being compelled to reveal private information.

Banks now want the High Court to declare unconstitutional the section of the law that requires them to keep updated next of kin registers of their customers.

The Kenya Bankers Association (KBA) claims that the clause in the Finance Act 2018 which changed the Banking Act to introduce a requirement that the lenders keep updated information of account holders’ next of kin details was not subjected to public participation.

The KBA further argues that the law compelling banks to keep such information violates article 31 (C) of the Constitution that protects individuals from being compelled to reveal private information.

“This honourable court be pleased to issue a conservatory order staying and/or suspending the implementation of section 63 of the Finance Act, 2018 and consequently Section 33A of the Banking Act pending the hearing inter parties and determination of the petition,” reads one of the orders the KBA seeks in court.

The association is apprehensive that its members are at the risk of being slapped with heavy fines since the section came into operation on October 1.

The section imposes a fine of up to Sh1 million for each account the bank fails to keep updated next of kin details.

The KBA argues that the section is vague because it does not define who is next of kin and if minors can be listed as next of kin and the particulars to be maintained.

The banks claim that the amendment was introduced at the third reading and no public participation was conducted.

Further, the bankers claim that microfinance institutions, cooperatives and saccos have not been asked to maintain such information, arguing that it is discriminatory.

The KBA is further aggrieved that no distinction between a legal person and natural person had been provided.

At the time of the amendment, Kiambu MP Jude Njomo, the architect of the interest rate capping law, said maintaining such data would ensure easy access to cash upon the death of an account holder and conclusion of administration and succession processes in court.

About Sh5.7 billion had by June last year been transferred from bank accounts to the Unclaimed Financial Assets Authority (Ufaa) because their owners could not be traced.

Unclaimed assets from bank accounts accounted for 67 per cent of the Sh8.5 billion held by the Ufaa from items such as pension, sacco savings and insurance policies.

Mr Njomo sponsored amendments to the Finance Bill, 2018 seeking to change Banking Act to introduce a requirement that banks keep updated information on next of kin of account holders.

But the bank wants the section declared unconstitutional for lack of public participation and to be pronounced invalid for being vague and ambiguous.