Commercial banks and financial institutions risk a Sh1 million fine for every account not updated with next of kin status every year.
The recently enacted Finance Act 2018 compels banks and financial institutions to update the register containing details of next of kin of all customers every year, failing which the bank will be fined Sh1 million for every account they fail to update.
“A bank or financial institution licensed under this Act shall, in respect to all accounts operated at the institution, maintain a register containing particulars of the next kin of all customers operating such accounts and shall update this register on an annual basis,” reads Section 31 of the Banking Act.
This means that banks will have to develop a framework that will see their respective customers provide updated details of their heirs every year.
The 2017 Global Findex Report by World Bank showed the proportion of adults holding financial accounts in Kenya hit 82 per cent, the highest in Sub-Saharan Africa.
According to latest Banking Supervision Report by CBK, the aggregate balance sheet for banks reached Sh4.08 trillion in March 2018.
Experts have however questioned intent of this law, faulting its effectiveness.
Kenya Bankers Association communications director Nuru Mugambi thinks the law would have been better if the legislators had consulted industry players before drafting it. “We recognise and appreciate the intent of the section; however, through consultation with the industry, the legislators would have introduced a more effective policy,” Nuru said.
Lawyer Carol Musyoka wondered what mischief parliamentarians were trying to cure when they had that clause inserted into the Act.
In an opinion piece published in a local daily, Musyoka argued that the law contradicts Section 31 ( 2 ) of Banking Act which requires financial institutions to keep customers’ account information confidential.
Although some information can be given to tax, investigation and credit reference agencies, the law does not permit disclosure of next of kin details.
“Both common law principles requires banks to maintain confidentiality of their client which requirement is presumed, by common law, to extend beyond the death of the client and is therefore not extinguished by their untimely demise,” Musyoka said.