Regulators warn over financial sector’s dependence on limited tech providers
Regulators warned that a failure of a single provider could disrupt multiple institutions at once, affecting their ability to deliver essential services.
Kenya’s financial sector is under scrutiny as regulators highlight the risks of heavy dependence on a few technology providers.
Institutions across banking, insurance, pensions, cooperatives, and capital markets are increasingly outsourcing key operations such as mobile platforms, artificial intelligence systems, and fraud prevention tools.
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The Joint Financial Sector Regulators Forum has raised concerns that this concentration could compromise operational stability and weaken safeguards for customers.
“The Forum identified reliance on third-party technology service providers as a major source of risk, especially if a single service provider serves many institutions,” the regulators said in a joint statement after their recent meeting.
The forum unites the Central Bank of Kenya (CBK), Capital Markets Authority, Insurance Regulatory Authority, Retirement Benefits Authority, Sacco Societies Regulatory Authority, Policyholders Compensation Fund, and Kenya Deposit Insurance Corporation.
Regulators warned that a failure of a single provider could disrupt multiple institutions at once, affecting their ability to deliver essential services.
To address this, they are focusing on mapping out concentration risks in the sector to prevent systemic problems.
The concerns come as financial institutions adopt modern technologies to improve customer service and protect against threats like cyberattacks and fraud.
Many firms lack the capacity to develop these systems internally and therefore rely heavily on external providers.
A recent CBK survey found that all commercial and microfinance banks in the country engage third-party technology services.
Among these, 42 per cent work with at least ten providers at the same time, indicating strong reliance on outsourced solutions.
The survey also revealed that 26 per cent of banks have more than half of their operations handled by external providers, while another 26 per cent rely on them for 21 to 50 per cent of services.
The regulators’ alert serves as a reminder for financial institutions to diversify their technology partners and strengthen resilience, ensuring that failures by a single provider do not ripple through the entire sector.
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