Capped Bank Withdrawals in Kenya: What It Means for You and the Fight Against Money Laundering

Recent changes by the Kenya Bankers Association (KBA) to cap cash withdrawals have sparked widespread debate and curiosity among Kenyans. This move, in compliance with the Anti-Money Laundering Act, aims to tighten regulations around large cash transactions, limit financial crime, and enhance transparency in the banking system.

While some see this as a necessary step to curb illegal activities, others worry about the convenience and implications for legitimate business transactions.

This article dives into the Anti-Money Laundering Act, its impact on banks and depositors, and what you need to know moving forward.

Now before we discuss the Anti-Money Laundering Act most of you may be asking – who is The Kenya Bankers Association? Are they regulators? And why would they be involved in this capping of withdrawals conversation?

The Kenya Bankers Association

The Kenya Bankers Association is not a regulator – it is the umbrella body for all commercial banks in Kenya, established in 1962. It is a membership-based industry association, not a government regulatory authority. The primary role of KBA is to:

1. Represent Banks’ Interests

• Advocate for policies that support a strong and stable banking sector.
• Engage with regulators (like the Central Bank of Kenya) and other stakeholders on behalf of member banks.

2. Coordinate Self-Regulation

• While KBA doesn’t regulate the sector, it helps guide industry practices and promote responsible banking.
• It develops industry standards, including codes of conduct, risk management guidelines, and consumer protection principles.

3. Promote Innovation

• KBA supports the development of shared platforms such as:
  • PesaLink – a real-time interbank money transfer system.
  • KBA’s Innovation Hub – a platform for fintech collaboration.

4. Provide Research & Thought Leadership

• KBA regularly publishes reports, including the State of the Banking Industry (SBI) Report.
• It conducts industry research on financial inclusion, digital transformation, sustainability, and economic outlooks.

5. Support Financial Literacy

• KBA runs the “Yetu” initiative, which promotes financial literacy and public awareness about banking services.

  

So – KBA is not a regulator – that role belongs to the Central Bank of Kenya (CBK). Therefore, it cannot enforce the law – it can only issue guidelines or frameworks that member banks voluntarily agree to implement.

If KBA is not a regulator – who regulates banks in Kenya then?

1. Central Bank of Kenya (CBK) – Primary Regulator
   • Issues banking licenses
   • Supervises and regulates banks
   • Enforces compliance with the Banking Act and prudential guidelines
2. Financial Reporting Centre (FRC) – AML Regulator
   • Oversees implementation of anti-money laundering laws
   • Receives reports of suspicious transactions from banks
3. Capital Markets Authority (CMA) – For investment arms of banks
4. Insurance Regulatory Authority (IRA) – For banks offering bancassurance

Later in this article I will answer the question – what authority does KBA have to cap withdrawals? First let’s discuss more in the Anti-Money Laundering Act.

What Is the Anti-Money Laundering Act?

The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) was enacted in 2009 to address financial crimes such as:

• Money laundering: The process of disguising illegally obtained funds as legitimate.
• Terrorism financing: Providing financial support to terrorist activities.
• Tax evasion: Hiding income or assets to avoid paying taxes.

Also Read: Kenyan Banks Set New Maximum Withdrawal Limit

The law empowers regulators, particularly the Financial Reporting Centre (FRC), to monitor suspicious transactions and investigate financial misconduct. It also obligates banks and financial institutions to:

1. Know Your Customer (KYC): Verify the identity of clients.
2. Monitor Transactions: Flag and report unusual activities to the FRC.
3. Cap High-Risk Transactions: Limit cash withdrawals or deposits that exceed certain thresholds without documented proof of legitimacy.

Why the Withdrawal Caps?

Increased regulatory focus on compliance with global standards, such as the recommendations by the Financial Action Task Force (FATF), has pushed Kenya to tighten controls on cash movements. The rationale behind capping withdrawals includes:

1. Fighting Money Laundering

Large, unexplained cash withdrawals are often used to fund illicit activities or hide the origins of criminal proceeds. By capping withdrawals, banks can deter such behavior and flag suspicious transactions.

2. Enhancing Financial Transparency

Requiring explanations and documentation for large withdrawals ensures accountability, making it harder for individuals or businesses to avoid scrutiny.

3. Aligning with Global Standards

As Kenya seeks to attract international investment, aligning with FATF standards enhances the country’s financial reputation.

What Are the New Rules?

While exact withdrawal limits may vary slightly among banks, the general guidelines issued include:

1. Daily Limits on Cash Withdrawals:
   • Withdrawals exceeding KES 1 million now require prior notice to the bank, along with an explanation for the funds.
   • For amounts above KES 5 million, further scrutiny and documentation are required.
2. Mandatory Documentation:
   • Source of funds: Proof of income or business activity.
   • Purpose of funds: A clear explanation of how the withdrawn money will be used.
   • Recipient details: If applicable, proof of whom the money is intended for.
3. Increased Reporting Obligations for Banks:
   • Banks must report transactions exceeding a set threshold to the FRC.
   • Enhanced monitoring for individuals or entities with prior suspicious activity.

Also Read: Why Bank CEOs Deserve the Millions They Earn as Monthly Salary

Back to KBA- what authority does the Kenya Bankers Association (KBA) have to cap withdrawals? Short answer: KBA has no legal authority to impose binding regulations like withdrawal caps. Only a regulator—such as the Central Bank of Kenya (CBK)—has that kind of power.

Ok – so then why is KBA involved in capping withdrawals?

KBA, as the industry body representing commercial banks, often plays a coordinating and advisory role in:

• Promoting self-regulation within the industry
• Supporting compliance with laws like the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA)
• Aligning best practices across its member banks

Then – what likely happened with the “withdrawal cap” decision:

1. FRC and CBK issued AML compliance directives:
   • These regulators are responsible for enforcing anti-money laundering laws.
   • They likely issued guidelines requiring stricter documentation for large cash transactions.
2. KBA facilitated coordination among banks:
   • KBA stepped in to help banks interpret and apply the regulations consistently.
   • It likely proposed standard thresholds (like the KES 1M+ notification rule) as a voluntary industry-wide framework.
3. Member banks adopted the standards:
   • Since all licensed banks are KBA members, they often align with its position for consistency.
   • But banks still retain discretion—each bank can set its own limits and documentation requirements based on internal policies and CBK rules.

So – just for clarity – If there is an actual cap on withdrawals, that power would only stem from:

• A directive from CBK, or
• An internal risk policy by the bank itself (in line with AML regulations), not from KBA.

KBA can guide, unify, and recommend—but it cannot legally enforce.

Impact on Kenyans

The withdrawal caps have far-reaching implications, both positive and challenging, for individuals, businesses, and financial institutions.

For Individuals

• Inconvenience: Customers must now plan withdrawals in advance and provide documentation for large transactions, which can be cumbersome.
• Reduced Flexibility: The inability to access large sums of cash on short notice can disrupt personal plans.
• Encouraged Digital Transactions: The caps indirectly encourage greater use of mobile money and digital banking for large transactions.

For Businesses

• Additional Burden: Businesses relying on cash transactions face increased paperwork and potential delays in accessing working capital.
• Shift to Non-Cash Methods: There’s a growing push for businesses to embrace electronic funds transfer systems like RTGS or mobile payment platforms.

For Banks

• Increased Compliance Costs: Banks must invest more in monitoring systems, staff training, and reporting mechanisms to meet compliance requirements.
• Risk of Alienating Clients: Customers frustrated by the restrictions may seek alternatives like SACCOs or microfinance institutions.

What Is Expected from Banks?

Banks are now required to play a proactive role in combating financial crime. Their responsibilities include:

1. Enhanced Customer Verification:
   • Collect and verify updated KYC details.
   • Implement biometric or advanced digital identification methods.
2. Transaction Monitoring:
   • Flag suspicious activities such as frequent high-value cash deposits or withdrawals.
   • Report these activities to the FRC within the stipulated timelines.
3. Customer Education:
   • Inform clients about the new rules and guide them on acceptable documentation.
   • Promote the adoption of alternative payment methods.

What Is Expected from Depositors?

As a bank customer, you also bear some responsibility under the new framework:

1. Plan Ahead:
   • Notify your bank in advance of large withdrawals.
   • Gather all necessary documents, such as invoices or business contracts, to justify the transaction.
2. Adopt Digital Banking:
   • Explore online transfers, RTGS, or mobile money to reduce reliance on cash.
   • Use bank cheques for large payments instead of withdrawing cash.
3. Embrace Financial Transparency:
   • Be truthful and forthcoming about your source of funds and intended use.
   • Regularly update your KYC details with your bank.

Provoking Thought: Is This a Double-Edged Sword?

While the anti-money laundering measures are commendable for fostering financial accountability, there’s a risk of penalizing law-abiding citizens for the sins of a few. Legitimate businesses, particularly in Kenya’s informal economy, often rely on cash transactions. Striking the right balance between compliance and convenience remains a critical challenge.

Questions Worth Asking:

1. Will these rules disproportionately impact small businesses and rural communities with limited access to digital banking?
2. Are banks prepared to handle the operational demands of these new regulations?
3. Could this drive unbanked populations further into informal financial systems, undermining financial inclusion?

Conclusion

The withdrawal caps imposed by the Kenya Bankers Association are a double-edged sword, designed to safeguard the financial system while posing challenges to individuals and businesses. While these measures are a necessary step toward combating financial crime, their success depends on collaborative implementation, public education, and a strong emphasis on balancing security with accessibility.

For the average Kenyan, adapting to these changes means embracing transparency, adopting digital tools, and staying informed about your rights and obligations.

As Kenya tightens its grip on money laundering, the question remains: Can we achieve security without sacrificing convenience?

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