Kenya, UK Treasury Launch Risk-Based Supervision to Exit FATF Grey List

The Central Bank of Kenya (CBK) has partnered with the United Kingdom’s His Majesty’s Treasury to establish and operationalize a risk-based supervision framework for non-bank financial institutions, in a move aimed at addressing concerns raised by the Financial Action Task Force (FATF) and supporting Kenya’s exit from the grey list.

According to CBK, the framework is now fully functional and directly targets one of the key action points required for Kenya’s removal from the FATF list of jurisdictions under increased monitoring. Kenya was placed on the grey list in February 2024 due to inadequate anti-money laundering and counter-financing of terrorism (AML/CFT) safeguards. Key gaps identified included the absence of a robust oversight regime for deposit-taking microfinance institutions, forex bureaus, and money remittance providers.

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The new framework incorporates AML, CFT, and counter-proliferation financing (CPF) risk assessment measures as well as supervisory practices developed with both virtual and in-person technical assistance from the UK Treasury. By strengthening oversight of non-bank financial institutions, the initiative is expected to reduce risks linked to illicit financial flows, enhance compliance, and support broader financial sector stability.

In addition, stronger regulatory systems are anticipated to ease correspondent-banking frictions that have in the past complicated Kenya’s access to global financial services. The framework is also seen as a way to reduce compliance costs, which often burden financial players, while improving investor confidence in Kenya’s financial markets.

Kenya’s grey listing has been a challenge to its long-term ambition of positioning Nairobi as a leading regional financial hub. The FATF designation raised concerns among international partners and investors, exposing the financial system to heightened scrutiny. Addressing the identified weaknesses through a structured risk-based approach is therefore regarded as a crucial step toward restoring confidence in Kenya’s financial oversight.

The CBK has emphasised that the outcomes of the new framework will depend on effective enforcement, active industry adoption, and close coordination across agencies. Strengthened supervision of the non-bank sector is expected to play a central role in ensuring that Kenya not only meets FATF standards but also builds a resilient and competitive financial system in line with its national development goals.