Question One
Introduction
The purpose of this paper is to give an outline of the role and responsibilities of the compliance function inside a controlled firm in Kenya’s banking industry. It will also investigate the roles of various stakeholders in ensuring compliance, make sense of how the activities of the compliance function can help the firm generally speaking, and describe the extra activities that increased staffing can permit the compliance function to embrace and their positive effect during the time of development.
Role of the Compliance Function
The compliance function ensures that a firm complies with regulatory requirements and internal policies and procedures. In the banking industry in Kenya, the compliance function is essential as it helps banks to oversee and alleviate regulatory risks. Some of the responsibilities of the compliance function incorporate distinguishing and assessing risks, creating policies and procedures to deal with them, and observing the company’s activities to ensure they follow them.[1]
The compliance function also helps build customer trust by giving an internal framework that supports moral leadership and responsible business practices. A strong compliance group can assist with diminishing reputation risk and ensure the firm meets its legitimate and ethical standards. A well-functioning compliance function can also help increase customer satisfaction by offering more transparency about the company’s activities.
The compliance function is primary for any banking institution in Kenya. It helps to recognize and relieve risks and ensures that the firm complies with all regulations and internal policies and procedures.[2] By making an internal framework that supports responsible business practices, the compliance function helps to build trust with customers, reduce reputation risk, and increase customer satisfaction.
Roles of Different Stakeholders in Ensuring Compliance
Various stakeholders have specific roles to play in ensuring compliance within a regulated firm. Directors are responsible for setting the tone from the top and ensuring that the association’s way of life supports compliance. Senior management is responsible for executing policies and procedures that follow regulatory requirements. Business units must ensure that their activities conform to internal policies, procedures, and regulatory requirements.[3] General employees must also conform to policies and procedures and report any concerns they have about compliance. An internal review must lead average reviews of the compliance system to ensure it functions appropriately and meets regulatory requirements. At long last, all stakeholders should get standard preparation on necessary compliance regulations.
Benefits of Compliance Function to the Firm
The compliance function commonly includes many activities, such as establishing compliance policies and procedures, monitoring and reviewing staff compliance, conducting intermittent reviews and audits, giving compliance preparation and training, creating codes of conduct, and directing investigations into potential violations.
By establishing and maintaining compliance policies and procedures, the firm can ensure that the organization complies with appropriate rules and regulations. This can assist with diminishing the risk of penalties and reputational harm that can arise from resistance. It can also help ensure that the firm is working morally and responsibly, which can assist with improving the company’s reputation.
By observing and checking staff compliance, the firm can ensure that its employees stick to the compliance policies and procedures set up. This can assist with distinguishing any potential compliance issues early and addressing them before they become more significant. It can also serve as an obstacle to any expected lousy behaviour.[4]
Occasional reviews and audits can assist with ensuring that the firm is constantly in compliance with relevant rules and regulations. This can assist with recognizing and addressing any compliance-related issues that might have slipped by everyone’s notice previously. Moreover, it can help demonstrate to regulatory bodies and stakeholders that the association focuses on responsible administration.
Providing compliance preparation and training can ensure that staff know about their obligations under pertinent rules and regulations and are educated on the most proficient method to do their duties appropriately. It can also assist with inciting a culture of compliance within the association.
Additional Activities of Compliance Function
Increased staffing in the compliance function can permit the process to attempt extra activities. For instance, it can increase the limit of the part to do more inside and out risk assessments and checking. This can assist with recognizing potential compliance issues before they arise and alleviate the associated risks. Increased staffing can also permit the compliance function to thoughtfully prepare and teach staff about compliance requirements. This can assist with creating a culture of compliance within the firm, lessening the risk of rebelliousness.[5] At last, increased staffing can permit the compliance function to stay up to date with changes in regulatory requirements and adjust policies and procedures in like manner.
Conclusion
In conclusion, compliance is essential in ensuring that a directed firm in Kenya’s banking industry complies with regulatory requirements and internal policies and procedures. Compliance is the responsibility of all stakeholders within the firm, from directors to general employees. The compliance function can help the firm in multiple ways, including avoiding regulatory penalties, forestalling monetary losses, upgrading reputation, and working on public administration. Increased staffing can permit the compliance function to embrace extra activities, such as top-to-bottom risk assessments and observing, preparing and instruction, and staying up to date with regulatory changes. These activities will decidedly affect the firm during this time of development.
Question Two
As a junior member of staff working within the consistency capability of a firm controlled in Kenya’s banking industry, it is essential to understand the money laundering risks looked at by the firm and how such risks can be checked and relieved. Money laundering is a serious crime in Kenya and is punishable by imprisonment and heavy fines. The country’s Anti-Money Laundering Act of 2017 provides a comprehensive outline of precluded money laundering activities and outlines the action taken against those seen as blameworthy.[6] The Act defines various money laundering offences, such as terror financing, tax evasion, bribery and economic sabotage.
Extra measures can be utilised in a request to screen money laundering risks. For instance, the firm can attempt routine audits to ensure that all internal processes align with current regulations. Likewise, the firm should audit how customer information is handled and secured, and ensure that appropriate screening measures are set up while accepting remittances or customer deposits. It is also vital to set up suspension, monitoring and reporting procedures for transactions that could involve money laundering. The firm can distinguish possible risks through such systems and do whatever it takes to keep them from materializing.
The money laundering risks looked at by banks in Kenya are mainly linked to their business, which involves handling enormous volumes of cash and offering many financial services. Banks in Kenya are in danger of being utilized as a guide for the returns of wrongdoing, particularly those connected to sedate dealing, blasphemy, and extortion. In addition, the haziness given by a few financial items and administrations, for example, mysterious records and wire moves, can likewise be exploited by tax criminals to cover the beginning of their assets.
Monitoring and Mitigating Risk
To screen and moderate these dangers, Kenya’s banks must legally implement strict anti-money laundering (AML) measures. These measures incorporate:
Customer Due Diligence (CDD) – Banks are expected to recognize and confirm the character of their customers’ character and understand the nature and purpose of their business relationship with the bank. Enhanced Due Diligence (EDD) is expected for high-risk customers, such as politically exposed persons (PEPs) and customers from high-risk jurisdictions.
Transaction Monitoring – Banks are expected to screen their customers’ transactions for unusual or suspicious activity, such as substantial cash deposits, high-esteem wire transfers, and continuous transactions inconsistent with the customer’s known business or financial profile.
Reporting – Banks are expected to report suspicious transactions to the Financial Reporting Community (FRC), Kenya’s financial intelligence unit responsible for gathering, dissecting, and disseminating financial intelligence connected with illegal tax avoidance and terrorism support.
All staff inside the firm must understand the risks and the significance of AML measures. Tax evasion is a serious wrongdoing, and the inability to consent to AML regulations can prompt severe consequences for the firm, including administrative fines, reputational harm, and loss of business. All staff should know about the job they play in distinguishing and reporting suspicious movement, as well as the consequences of neglecting to do as such.[7]
To ensure understanding of this subject, key points that should be emphasized include:
The idea of the association’s business and the tax evasion risks associated with it: all staff must understand the company’s business and its specific risks. For instance, assuming the firm deals with many cash transactions, staff should understand the increased risk of tax evasion that comes with taking care of cash. Similarly, considering the firm deals with clients from high-risk jurisdictions or industries, staff should understand the increased risk of tax evasion that comes with those clients. By understanding the risks associated with the company’s business, the team can be better prepared to recognize and report suspicious movements.
The significance of customer due diligence, transaction monitoring, and reporting suspicious activity to the FRC: Customer due diligence (CDD), transaction monitoring, and noting suspicious action are key AML measures legally necessary for Kenya. CDD involves recognizing and checking customers’ personalities and understanding the nature and purpose of their business relationship with the bank. Transaction monitoring consists in monitoring customers’ transactions for unusual or suspicious actions. Reporting suspicious activity to the FRC is legally necessary for Kenya and involves writing any movement that is accepted to be connected with tax evasion or terrorism support. Staff should understand the significance of these measures and their job in carrying out them.[8]
The consequences of resistance to AML regulations, including administrative fines, reputational harm, and loss of business: Rebelliousness with AML regulations can have severe implications for the firm, including administrative penalties, reputational damage, and loss of business. Staff should understand the possible consequences of rebelliousness and the significance of following AML regulations to safeguard the company’s standing and financial stability.
The job that all staff play in recognizing and reporting suspicious action: All staff play a part in distinguishing and reporting suspicious movement. This includes bleeding edge staff who interface straightforwardly with customers and the administrative centre staff who screen transactions and keep up with customer records. Staff should understand the significance of their part in recognizing and reporting suspicious movements, as well as the consequences of neglecting to do as such. By emphasizing the job that all staff play in AML consistency, staff can feel enabled to play an active position in forestalling tax evasion inside the firm.
Examples
A customer who habitually deposits a lot of cash, which is different from their known business or financial profile. If a customer habitually deposits a lot of money inconsistent with their general business or financial profile, it could demonstrate that the customer is participating in a suspicious movement, such as tax evasion. Staff members should be prepared to perceive such warnings and report them to the appropriate office for additional investigation.
A wire transfer to a high-risk jurisdiction, where the recipient is a shell organization with no known business action. This model emphasizes the requirement for banks to screen wire transfers, especially those to high-risk jurisdictions, and to direct enhanced due diligence on high-risk customers. If a wire transfer is made to a high-risk jurisdiction, and the recipient is a shell organization with no known business action, it very well may be a mark of tax evasion. Staff members should be prepared to perceive such warnings and report them to the appropriate office for additional investigation.[9]
A politically exposed person who opens a record is not subject to enhanced due diligence measures. PEPs are individuals who serve in conspicuous high offices or have close ties to such individuals, and they are at a higher risk of being implied in debasement or other financial crimes. Staff members should be prepared to perceive PEPs and direct enhanced due diligence on them to alleviate the dangers of illegal tax avoidance.
A staff part which fails to report suspicious action and the consequences of such disappointment. If a staff part fails to report suspicious activity, it could prompt administrative fines, reputational harm, and loss of business for the firm. Staff members should be prepared to perceive suspicious movement and report it to the fitting division as legally necessary. The consequences of resistance should also be imparted to all staff to ensure that they understand the significance of their job in forestalling tax evasion.
Conclusion
Money laundering prevention is a crucial aspect of the compliance function in the banking industry in Kenya. All staff within the firm must understand the risks associated with the firm’s business and the measures in place to mitigate those risks. The guidance should emphasize the key points and provide appropriate examples to ensure understanding of this subject.
Bibliography
Ahmed, Salma Omar, and Peter Ng’anga. “Internal control practices and financial performance of county governments in the coastal region of Kenya.” International Journal of Current Aspects 3 (2019): 28-41.
Atellu, Antony Rahim, Peter Muriu, and Odhiambo Sule. “Do bank regulations matter for financial stability? Evidence from a developing economy.” Journal of Financial Regulation and Compliance 29, no. 5 (2021): 514-532.
Gikonyo, Constance. “Banks in Kenya and anti-money laundering obligations: the conflicts of interests arising.” Journal of Money Laundering Control 24, no. 2 (2021): 427-439.
Mathuva, David, Samuel Kiragu, and Dulacha Barako. “The determinants of corporate disclosures of anti-money laundering initiatives by Kenyan commercial banks.” Journal of Money Laundering Control 23, no. 3 (2020): 609-635.
Michele, Shalline Nyaboke. “Money laundering in the banking sector: a critical analysis of the enforcement procedures in Kenya.” PhD diss., Strathmore University, 2020.
Ngwu, Franklin N., Chris Ogbechie, and Kalu Ojah. “Growing cross-border banking in Sub-Saharan Africa and the need for a regional centralized regulatory authority.” Journal of Banking Regulation 20 (2019): 274-285.
Omondi, J. A., and J. M. Theuri. “Effect of taxpayer awareness and compliance costs on tax compliance among small scale traders in Nakuru town, Kenya’.” International Academic Journal of Economics and Finance 3, no. 3 (2019): 279-295.
Oudat, Mohammad Salem, and Basel JA Ali. “The Underlying Effect of Risk Management On Banks’ Financial Performance: An Analytical Study On Commercial and Investment Banking in Bahrain.” Ilkogretim Online 20, no. 5 (2021).
Ssekubwa, Rogers Githinji. “Money laundering and real estate sector in Kenya: towards robust regulation.” PhD diss., Strathmore University, 2022.
[1] Ngwu, Franklin N., Chris Ogbechie, and Kalu Ojah. “Growing cross-border banking in Sub-Saharan Africa and the need for a regional centralized regulatory authority.” Journal of Banking Regulation 20 (2019): 274-285.
[2] Atellu, Antony Rahim, Peter Muriu, and Odhiambo Sule. “Do bank regulations matter for financial stability? Evidence from a developing economy.” Journal of Financial Regulation and Compliance 29, no. 5 (2021): 514-532.
[3] Omondi, J. A., and J. M. Theuri. “Effect of taxpayer awareness and compliance costs on tax compliance among small scale traders in Nakuru town, Kenya’.” International Academic Journal of Economics and Finance 3, no. 3 (2019): 279-295.
[4] Oudat, Mohammad Salem, and Basel JA Ali. “The Underlying Effect of Risk Management On Banks’ Financial Performance: An Analytical Study On Commercial and Investment Banking in Bahrain.” Ilkogretim Online 20, no. 5 (2021).
[5] Ahmed, Salma Omar, and Peter Ng’anga. “Internal control practices and financial performance of county governments in the coastal region of Kenya.” International Journal of Current Aspects 3 (2019): 28-41.
[6] Michele, Shalline Nyaboke. “Money laundering in the banking sector: a critical analysis of the enforcement procedures in Kenya.” PhD diss., Strathmore University, 2020.
[7] Ssekubwa, Rogers Githinji. “Money laundering and real estate sector in Kenya: towards robust regulation.” PhD diss., Strathmore University, 2022.
[8] Gikonyo, Constance. “Banks in Kenya and anti-money laundering obligations: the conflicts of interests arising.” Journal of Money Laundering Control 24, no. 2 (2021): 427-439.
[9] Mathuva, David, Samuel Kiragu, and Dulacha Barako. “The determinants of corporate disclosures of anti-money laundering initiatives by Kenyan commercial banks.” Journal of Money Laundering Control 23, no. 3 (2020): 609-635.
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