On 15 August the Cabinet Secretary for the National Treasury issued a Legal Notice officially giving life to the National Payment Systems Regulations, 2014. Publication of the Legal Notice crowned the long wait for a formal legal framework for mobile money in a country where there are over 26.2 million registered mobile money accounts and 59% of the adult population actively use mobile money. Prior to this, the prudential and market conduct requirements and monitoring obligations for mobile money providers were articulated in the letters of no-objection granted by the Central Bank of Kenya (CBK). For operators, the NPS Regulations provide much needed certainty in the market and direction for investors seeking to enter the market. But customers are the ultimate winners here, with well thought through mechanisms for consumer redress, disclosure of terms of service, maintenance of privacy and confidentiality of customer data.
The NPS Regulations have codified in to law the regulatory practices that have evolved since the introduction of mobile money in 2007 and given further legitimacy to the existing business models. The CBK has adopted a functional (rather than an institutional) approach to regulation where banks and non-banks – including Mobile Network Operators – are permitted to provide mobile money services. Customer funds must be held in trust with a strong-rated prudentially regulated bank and no lending or investment of such funds is permitted. The funds are isolated from the service provider’s own funds and safe from claims of its creditors. Service providers can appoint agents and are responsible for the actions of agents. CBK’s oversight, inspection and enforcement duties are formally recognised.
The NPS Regulations have also addressed additional critical points, with a view to driving increased competition and collaboration within the payments market in Kenya. Also, a heightened compliance and risk mitigation regime is expected to ensue from the new regulatory framework. Notable features of the new regulatory framework are:
- Ring-fencing and safeguarding of funds: in order to allocate risk and minimise the concentration of trust funds balances in one institution, the NPS Regulations require that the funds be diversified across strong-rated institutions. Where the trust funds balances are in excess of KES 100 million (US$ 1.14 million) the funds will have to be placed in at least two strong-rated institutions with a maximum of 25% of the total trust fund balance held in each institution. These measures are consistent with the GSMA position on ring-fencing and safeguarding of customer funds.
- Risk management: in order to maintain good risk management practices, the NPS regulations have made provision for the application of international standards such as the BIS Committee on Payments and Settlement Systems (CPSS) core principles and the Financial Action Task Force (FATF) recommendations. Operators are required to comply with such international standards in addition to any other technical standards that the CBK may prescribe.
- Non-exclusive dealings with agents: the NPS Regulations prohibit exclusive dealings with agents thus empowering agents to seek contracts with multiple service providers. The agent shall enter into separate contracts with each institution.
- Interoperability: in order to encourage market-led interoperability, the regulatory framework has provided for the recognition by the CBK of a Payment Service Provider Management Body (PSPM). The PSPMB would essentially be a clearing and settlement house for mobile money transactions established and operated by payment service providers, including e-money issuers. It is also intended to act as a channel for communication by its members with the CBK and as a forum through which matters of mutual interest can be addressed.
In September the GSMA will publish a new case study on the Kenyan policy journey to digital financial inclusion, with a more detailed analysis of the new NPS Regulations and its implications for the development of the market.
Meanwhile, the new regulatory framework shows promise for increased collaboration amongst providers, (e.g. in shared distribution infrastructure and interoperability) as well as fostering greater competition and innovation. In the fullness of time, the net effect of the NPS Regulations on increasing financial inclusion and expanding the digital ecosystem in Kenya will be known.
 Legal Notice No. 109 of 2014.
 See Kenya Infographic (TBC)
 Rule 25 (4)
 Rule 24 (b)
 Rules 15 (1) and 15 (3).
 Rule 22.