Determining the factors impacting the cost of compliance with Know Your Customer requirements in commercial banks
Dzanga, Caroline Kavumbi
MetadataShow full item record
KYC compliance is no longer a suggestion for best practice but has instead become mandatory with regards to compliance for commercial banks in Kenya under POCAMLA 2009. Having an effective KYC requirement is a challenge to many commercial banks as the KYC guideline issued by the CBK appeared to be applied inconsistently depending on factors specific to the various commercial banks. In this regard, it has been noticed that commercial banks give an atmosphere desirable to the flow of that cash. This has turned the financial system into the key area in which illegal money is first introduced within the financial system for the anti-money laundering initiative. The overall aim of this study was to assess the impact on commercial banks ' compliance costs of knowing your client's requirements. This study was based on the basic theories of deterrence theory and cost of service theory. The study will employ descriptive research design. Both secondary and primary data were used in the analysis. The study targeted all the 43 commercial banks in Kenya. The study period was 2011 to 2017. The sample size was 80 respondents who were selected using simple random sampling. The study found that KYC requirements have a positive and significant influence on cost of compliance in the Kenyan commercial banks. The implication of the results is that effort by the banks to comply with the KYC policy is likely to be accompanied with increased cost of compliance. These costs could be attributed to number of awareness campaigns that banks organize, number of staff trainings held annually, number of staff in charge of IT systems, number of monitoring staff and number of fines and penalties accrued to the banks. Further, the study established that size of the banks measured in terms of total assets does not moderate the relationship between KYC and cost of compliance. All the control variables except profitability were found to have a positive (asset quality and ownership) and negative (bank age) significant influence on cots of compliance. Based on the findings, the study recommended that banks should come up with cost effective customer awareness strategies to ensure that they cut down on costs, should develop effective training programs, which will lead to cost reduction, should be able to source for highly competent IT experts to be in charge of the systems and should find ways of reducing the number of monitoring staff as a way of cutting cost.