Financial Regulators Caution on Technology Risks as Sector Embraces Innovation

Kenya’s financial sector regulators have commended the rapid adoption of technology-driven innovations transforming the financial ecosystem, while urging greater vigilance in managing emerging risks that accompany digital transformation.

This came during the 16th Annual Board Retreat of the Joint Financial Sector Regulators Forum, held in Naivasha, Nakuru County, under the theme “Fostering Financial Stability and Resilience Amid Emerging Risks and Regulatory Reforms.”

Participants noted that financial innovations such as virtual assets and bundled financial products have improved access, efficiency, and customer experience. However, they also warned that the same technologies are introducing new regulatory, financial stability, and consumer protection risks that require proactive monitoring and mitigation.

The Forum emphasized the need for targeted research and impact assessments to strengthen the ability of regulators to identify and mitigate emerging risks, while maintaining support for innovation and financial inclusion. It further identified heavy reliance on third-party technology service providers as a key vulnerability, warning that failure by a major provider could disrupt multiple institutions. Mapping such concentration risks was therefore prioritized.

Delegates also discussed the growing use of Artificial Intelligence (AI) and Machine Learning (ML), which has improved service delivery speed and efficiency. However, they noted that slower adaptation by some market players risks undermining service quality and customer fairness. As a result, the Forum resolved that a comprehensive strategy be developed to guide the adoption of emerging technologies within the financial sector.

In addition, regulators agreed to strengthen supervisory capacity in areas of Anti-Money Laundering, Countering the Financing of Terrorism, and Counter-Proliferation Financing (AML/CFT/CPF), positioning Kenya as a secure destination for business and investment.

The Forum also underscored the importance of aligning Kenya’s Crisis Management and Resolution Frameworks with international standards, including the establishment of Emergency Liquidity Assistance and resolution funds to protect consumers and build sector confidence.

During the retreat, the FinAccess Sectoral Reports—covering surveys from 2006 to 2024—were launched and made available to the public.

The Joint Financial Sector Regulators Forum, established in 2009, brings together the Central Bank of Kenya (CBK), Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA), Sacco Societies Regulatory Authority (SASRA), Kenya Deposit Insurance Corporation (KDIC) and the Policyholders Compensation Fund (PCF) to enhance coordination, information sharing, and financial stability across the sector.