KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Valere Nyaboke, Cliffe Dekker Hofmeyr
• grant a licence or approval to operate under exist - ing regulations; • authorise operation under specific conditions, where full licensing is not yet appropriate; • develop new regulations, guidelines or notices informed by insights obtained during sandbox test - ing, particularly where regulatory gaps are identi - fied; and • deny permission to operate if the innovation does not satisfy current legal and regulatory require - ments. 2.6 Jurisdiction of Regulators It is common for more than one regulator to have juris - diction over a fintech operating in Kenya. The scope of each regulator’s authority is determined by the relevant enabling legislation. For example, a mobile network provider would be regulated by: • the Communications Authority of Kenya (CA), which oversees the provider’s core telecommuni - cations services; • the Central Bank of Kenya (CBK), which supervises the provider’s mobile payment services, money remittance activities, and/or digital credit services; • the Competition Authority of Kenya, which reviews mergers and acquisitions and monitors potential abuses of market dominance to ensure fair compe - tition; and • the Kenya Revenue Authority, which manages the tax obligations arising from the provider’s business activities. Typically, regulators with overlapping mandates enter into memoranda of understanding to co-ordinate their respective roles or consult one another before taking regulatory action. 2.7 No-Action Letters Regulators in Kenya have historically issued “letters of no objection”, which formally state that an organisa - tion’s proposed activities do not violate existing laws or regulatory frameworks. A well‑known example is the Central Bank of Kenya’s (CBK) issuance of such a letter in February 2007, which enabled the launch and operation of M‑PESA – Kenya’s pioneering mobile money transfer platform – at a time when the sector lacked clear regulation.
This practice also extends to the regulation of virtual assets. The Virtual Asset Service Providers Act intro - duces specific circumstances in which letters of no objection are required. Under this law, such letters are necessary in the following situations. Initial Virtual Asset Offerings When an entity intends to issue or promote an initial virtual asset offering within or originating from Kenya, it must apply for a license from either the CBK or the Capital Markets Authority (CMA). The relevant author - ity would then issue a letter of no objection indicating that it does not oppose the proposed issuance. Licensing of Virtual Asset Service Providers in Other Regulated Sectors When the CBK or CMA considers granting a virtual asset service provider licence to an applicant already operating within another regulated sector, a letter of no objection from the respective regulator overseeing that sector is required as a prerequisite. 2.8 Outsourcing of Regulated Functions Digital Banking Under the Central Bank Prudential Guideline on Outsourcing (CBK/PG/16), any person undertaking “banking business” is: • prohibited from outsourcing certain core manage - ment functions, including corporate planning, organisation, management and control, and all decision‑making functions; • permitted to outsource certain “material activities”, but only with prior approval from the CBK – these activities include information system management and maintenance, application processing (eg, loan origination), claims administration, cash movement, and internal audit; and • permitted to outsource specific activities that only require notifying the CBK rather than obtaining advance approval – these activities include: (a) courier services; (b) credit background checks; (c) background investigations; and (d) employment of contract or temporary staff. All permitted outsourcing arrangements must be governed by a clearly written contract. The contract
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