Determinants of Know Your Customer (KYC) Compliance Among Commercial Banks In Kenya

Abstract

Studies conducted have focused on analyzing the effectiveness of Know Your Customer (KYC) programs in combating money laundering and other fraud related risks in financial transactions involving customers. The studies showed that if KYC programs were implemented effectively, the risks associated with money laundering and fraud could be significantly mitigated. In Kenya, implementation of KYC requirements became a statutory requirement for financial institutions after the Proceeds of Crime and Anti-money Laundering Act was passed in 2009. Little has been done to assess what factors determine compliance with the KYC requirements stipulated in the regulation. The main focus of this study was to fill this gap by examining the factors that determine KYC compliance by commercial banks in Kenya. The study carried out a survey of commercial banks in Kenya with regards to KYC compliance. The commercial banks and a mortgage finance company totaling 44 formed the sample of the study with the top and middle supervisors responsible for implementing KYC forming the target respondents. Comparative analyses based on the data collected from 30 commercial banks which responded as well as interviews with practitioners were analyzed using regression analysis to determine the relationship between KYC compliance and the identified variables. The study's findings reveal that staff competency and bank Size are the key determinants of KYC compliance. Customer verification procedures and Information Communication Technology infrastructure was found to have a minimal effect on compliance. Further research is recommended to be carried out to establish how the use of ICT can assist in complying with the KYC requirements.