CBK: Gaps in digital lending sector fuel risk of money laundering, terror financing

While 71 per cent of digital lenders screen their customers against global sanctions lists and 62.7 per cent offer some form of staff training, only 47.5 per cent regularly update the sanctions lists.
A new survey by the Central Bank of Kenya (CBK) has found that digital lenders are the most vulnerable to exploitation by criminal networks, largely due to poor compliance systems and weak enforcement of financial sanctions.
The Preventive Measures Survey shows that Digital Credit Providers (DCPs) lag behind other financial institutions in meeting key anti-money laundering and counter-terrorism financing obligations, creating loopholes that criminals can take advantage of.
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“DCPs display mixed results. Around 78 per cent of staff are at least somewhat familiar with TFS regulations, yet 22 per cent have no familiarity at all, underscoring a pressing need for improved training and awareness,” the CBK said in the report.
While 71 per cent of DCPs screen their customers against global sanctions lists and 62.7 per cent offer some form of staff training, only 47.5 per cent regularly update the sanctions lists.
Further, the report notes that enhanced due diligence (EDD), which is crucial for dealing with high-risk clients, is only conducted by 35 per cent of DCPs. Alarmingly, 8.5 per cent of digital lenders have no sanctions compliance measures at all.
The CBK noted that screening practices remain irregular, with 55.9 per cent of DCPs conducting screenings only “as needed.” Just 23.8 per cent carry out such checks daily or weekly—raising serious concerns about their ability to mitigate financial crime risks in a timely and consistent manner.
“Screening is often irregular, with over half doing so only ‘as needed’. Technology use is uneven, and 48 per cent did not recommend any tools, suggesting limited exposure,” reads the report.
Compliance challenges
According to the findings, 57.6 per cent of DCPs have procedures for reporting violations.
However, key compliance challenges persist, including outdated sanctions lists (54 per cent), limited resources, and insufficient training.
Respondents suggested that improvements should prioritise raising awareness (62 per cent), adopting automation tools (29 per cent), and enhancing regulatory guidance.
Despite these shortcomings, 88 per cent of DCPs expressed satisfaction with their current compliance frameworks, a result the CBK described as “encouraging but not conclusive,” given the critical gaps highlighted in the same report.
In contrast, commercial banks demonstrated stronger enforcement of Targeted Financial Sanctions (TFS), with most institutions using automated screening tools and regularly updating sanctions lists.
Microfinance Banks (MFBs) also performed well; all surveyed MFBs conduct sanctions screenings, and three-quarters use automated tools to support compliance.
The survey, covering the year ending 31 December 2024, collected responses from 38 commercial banks, one mortgage finance institution, 14 MFBs, 84 foreign exchange bureaus, 27 money remittance providers (MRPs), 42 payment service providers (PSPs), and 85 DCPs.
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- Business
- Headlines
- Central Bank of Kenya
- CBK
- money laundering
- digital lenders
- Digital Credit Provider
- terror financing
- Counter-Proliferation Financing
- Counter Financing of Terrorism
- ack and suggestions
- and overall satisfaction with current measures. It also included assessments of participants’ understanding of
- CBK: Gaps in digital lending sector fuel risk of money laundering
- terror financing
CBK structured the survey around six key themes: employee awareness and training, TFS screening and compliance, current practices, implementation challenges, feedback and suggestions, and overall satisfaction with existing measures. It also assessed participants’ understanding of Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and Counter-Proliferation Financing (CPF).
The CBK said the survey aimed to gauge institutions’ compliance with TFS obligations, highlight strengths and weaknesses, and identify capacity gaps that hinder the effective implementation of sanctions screening, monitoring, and reporting systems.
Responses were primarily provided by Money Laundering Reporting Officers and Senior Compliance Officers responsible for overseeing preventive measures within their institutions.
The regulator noted that the report is part of its increased oversight efforts following Kenya’s grey-listing by the Financial Action Task Force (FATF) in February 2024, a move that prompted the CBK to tighten scrutiny of financial institutions and boost awareness of global financial crime prevention standards.
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