By John Syekei,Dominic Indokhomi,Ariana Issaias Friday, July 24, 2020

The Central Bank of Kenya (Amendment) Bill, 2020 (the Bill) was recently published and is expected to be presented for discussion by Parliament. Although the Bill is the latest attempt to introduce direct regulation of the digital financial sector in Kenya, if enacted, it would also expand the Central Bank of Kenya’s (the CBK) regulatory jurisdiction over non-digital financial products and services.

The Bill gives the CBK the power to regulate and supervise the conduct of providers of digital financial products and services; digital credit service providers; providers of financial products and the conduct of financial services.

In addition to expanding the CBK’s regulatory jurisdiction, the Bill defines the following key terms; “digital financial product”, digital financial service”, “financial product” and “financial service”. These definitions are broadly defined and when read in the context of the CBK’s enhanced jurisdiction, result in the expansion of the CBK’s supervisory jurisdiction to arguably any financial service and any financial product.

If enacted, the Bill would allow the CBK to supervise the conduct of players in the financial sector who are currently regulated under existing frameworks such as the Capital Markets Act, chapter 485A of the laws of Kenya and the Insurance Act, chapter 487 of the laws of Kenya.  The approach proposed by the Bill constructively makes the CBK a “super-regulator” in the financial sector. This mirrors the approach adopted under the Financial Market Conduct Bill, 2018, which proposed the introduction of a new industry-wide prudential regulator, the Financial Markets Conduct Authority. The overarching jurisdiction of the proposed Financial Markets Conduct Authority was one of the contentious points in the Financial Market Conduct Bill, 2018 and attracted criticism from different industry players. The Bill is likely to trigger the same criticisms.

The growth of innovation in the financial sector (and in particular the increase of new fintech products and services being offered in the market) has raised valid regulatory concerns. It is important that current regulation evolve to meet changing consumer protection and public interest concerns, whilst maintaining an environment conducive to innovation. Measured, clear and targeted regulatory provisions would achieve this result and would better suit the needs of the industry. Unfortunately the Bill is reminiscent of broadly drafted sweeping powers which, if not judiciously exercised, could stifle innovation or result in a clash between different regulators in the finanial space.

The Bill is expected to be tabled before Parliament for a first reading in the coming weeks and thereafter the public will be invited to submit comments on the Bill. In response to comments from the public, the Bill may undergo amendments before it is presented to Parliament for further consideration.