FinTech in Kenya: Towards an enhanced policy and regulatory framework

Watch the recording from the UK-Kenya FinTech Forum below:

This report, delivered in association with PwC, summarises the challenges within the existing regulatory and policy landscape for Kenyan FinTechs, alongside a set of recommendations aimed at contributing to the development of a framework that will build on Kenya’s existing framework while further enhancing the operating environment for FinTech firms in the country.

The study consisted of a desk-based review of various literature, including legislation and policies supporting the FinTech sector in Kenya, previous reports prepared on FinTech policy and regulation, and information relating to FinTech regulatory frameworks of other market jurisdictions. Consultative engagements were also conducted with key industry stakeholders with a view to getting varied perspectives on the current state of the FinTech policy environment in Kenya and possible improvements that could be made to establish a more inclusive and robust policy and regulatory framework.

During the study, stakeholders expressed confidence in the role Kenyan regulators play in the financial services sector and acknowledged the value of the test-and-learn approach in adopting innovation. However, the FinTech stakeholders provided suggested recommendations that would help pivot the current regulatory regime to the realities of a rapid growth industry and emergence of new FinTech providers and new technologies.

Recommendations from stakeholders

Short-term recommendations

These are recommendations we believe can be implemented within the next two years.

• Establish a dedicated FinTech office one-stop shop
  A dedicated FinTech office similar to the Singapore or Ghana FinTech Office, would be useful as a central point of contact for FinTech information.
• Create a consolidated single FinTech sandbox
  A single sandbox environment, similar to the UK Financial Conduct Authority (FCA) Regulatory Sandbox, could be set up so as to identify any regulator overlaps during the testing stage and collaboratively address them jointly as regulators.
• Strengthen collaborations
  Continue to strengthen collaboration in FinTech within the Financial Sector Regulators Forum (FSRF) through regular regulator-based engagements that focus on encouraging FinTech growth and innovation.
• Capacity building within regulatory agencies
  There should be a framework to continuously identify and prioritise FinTech regulation training needs and a mechanism to facilitate training and development courses that enable regulators to better understand and regulate new and complex innovations in financial technology.

Medium-term recommendations

These are recommendations we believe can be implemented within the next two to four years.

• Develop a dedicated FinTech policy
  To augment the broader Digital Economy Blueprint, ICT Policy and proposed digital finance policy, policymakers should prioritise the development of a dedicated FinTech policy aimed at diversifying the economy and by extension, growing FinTech, as demonstrated in the UAE.
• Lobby for regulatory amendments and supervisory technology
  Regulations should be based on underlying pillars of adequacy, certainty, simplicity, and timeliness. Regulators can also embrace supervisory technology (SupTech) as part of service delivery enhancement.
• Balancing consumer protection and innovation
  Regulators should strike a balance between financial stability and promoting innovation.
• Tax incentives
  FinTech players thrive in tax systems where there is certainty, ease of compliance, and therefore ease of doing business.
• Cross-border collaboration
  Collaborative efforts between regulatory agencies in Kenya and peer regulators in other jurisdictions should continue to be promoted and actioned.

Long-term recommendations

The recommendations we believe should be aspired to and implemented gradually over a longer period of time.

• Well-coordinated regulatory framework
  A well-coordinated regulatory framework, that creates certainty, avoids duplication of regulations and maintains the balance between innovation and risk to the public, is the gold standard in the regulation and supervision of FinTech entities.
• Capital policy interventions
  Capital is a critical part of innovation growth. Therefore, the government should develop bold policy interventions to incentivise venture capital investment and unlock much-needed capital to sustain the budding FinTech sector.
• Mutual recognition and passporting
  Kenya and its regulatory agencies could consider entering into agreements with other countries, and their regulatory agencies, to facilitate FinTech development across borders and prevent regulatory duplicity in different jurisdictions.

Click the 'Download report' button to read the full report.