Regulatory Reforms Under the Business Laws (Amendment) Act, 2024: What Businesses Need to Know

On 11th December 2024, the President signed the Business Laws (Amendment) Bill, 2024 thereby enacting it into law as the Business Laws (Amendment) Act, 2024 (the “Act”). Consequently, the Act became effective on 27th December 2024 amending several statutes which include the Microfinance Act, the Central Bank of Kenya Act, the Banking Act, the Special…

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On 11th December 2024, the President signed the Business Laws (Amendment) Bill, 2024 thereby enacting it into law as the Business Laws (Amendment) Act, 2024 (the “Act”). Consequently, the Act became effective on 27th December 2024 amending several statutes which include the Microfinance Act, the Central Bank of Kenya Act, the Banking Act, the Special Economic Zones Act, the Kenya Accreditation Service Act, and the Standards Act.

Admittedly, the Act effectively introduces changes that we believe will reshape trade and investments in the country especially in the banking, financial services and manufacturing sectors. This article purposes to discuss some of the key changes introduced by the Act and how they will affect businesses in Kenya, as well as investors.

The Central Bank of Kenya Act

The Act amends the Central Bank of Kenya Act by broadening the scope of businesses and institutions regulated by the CBK. In particular, the Act provides for the regulation of entities undertaking non-deposit-taking credit provision, extending beyond those offering digital credit. This means that services such as buy-now-pay-later, asset financing, and peer-to-peer lending will now be regulated by the CBK.

Further, non-deposit-taking credit providers will now be required to obtain a license from the Central Bank of Kenya and ensure that all aspects of their business operations comply with CBK regulations.

The Act also expands the scope of the CBK, allowing it to regulate credit guarantee businesses. Credit guarantee businesses which intend to set up have to be registered with the CBK and adhere to the guidelines issued by the Central Bank of Kenya. On the other hand, existing credit guarantee businesses must apply for registration and a license within five years after the commencement Act.

The Banking Act

The Act introduces significant amendments to the Banking Act, particularly concerning penalties for non-compliance and capital requirements for financial institutions.

  • Increased Penalties for Non-Compliance: The Act raises the maximum penalty for financial institutions and credit reference bureaus that fail to comply with the Banking Act, Prudential Guidelines, or CBK directives from KES 5 million to KES 20 million, or three times the monetary gain made or loss avoided by the failure or refusal to comply, whichever is higher. Furthermore, individual non-compliance attracts increased fines, with penalties rising from KES 200,000 to KES 1 million.
  • Daily Penalty for Continued Non-Compliance: The Act introduces a daily penalty of up to KES 100,000 for continued non-compliance. This is an increase from the previous penalty of KES 20,000.
  • Increase in Core Capital Requirements: The Act mandates a gradual increase in the minimum core capital requirement for banks and mortgage finance companies from KES 250 million to KES 10 billion over a six-year period, with full compliance expected by 31st December 2029. We expect that this requirement will drive consolidation in the banking sector, leading to mergers and acquisitions among smaller banks.

The Microfinance Act

The Act makes significant changes to the regulation of non-deposit-taking microfinance businesses. Notable amendments include:

  • Definition of Non-Deposit-Taking Microfinance Business: The Act clarifies that non-deposit-taking microfinance businesses involve the provision of credit secured by physical collateral (movable or immovable), as opposed to cash-based collateral.
  • Licensing Requirements: All existing non-deposit-taking microfinance businesses must obtain a license from the Central Bank of Kenya within six months of the Act’s commencement. Failure to comply will result in penalties, including fines of up to KES 100,000 or imprisonment for up to three years.
  • Consumer Protection Measures: The Act imposes new obligations on non-deposit-taking microfinance businesses to prevent unfair debt collection practices. Specifically, they are prohibited from harassing, abusing, or oppressing borrowers and guarantors during debt recovery efforts.

The Special Economic Zones Act

The Act introduces amendments aimed at enhancing the regulation of Special Economic Zones (SEZs), including:

  • Minimum Investment Thresholds: The Cabinet Secretary is now empowered to prescribe minimum investment amounts required for entities operating within SEZs.
  • Time-Limited Incentives: Tax and investment incentives granted to SEZ developers, operators, and enterprises will now be capped at a maximum duration of ten years.
  • Special Economic Zones Business Service Permit: The Act introduces a new category of permits for service providers operating within SEZs who do not qualify for SEZ incentives.

The Standards Act

The Act enhances regulatory oversight on manufacturers by requiring them to:

  • Conduct sample testing of products before release to the market.
  • Comply with labeling requirements prescribed under the Standards Act.
  • Implement procedures to ensure full product traceability from production to consumer.

Additionally, the Kenya Bureau of Standards (KEBS) is now authorized to establish accredited laboratories to conduct product testing and offer calibration services.

The Kenya Accreditation Service Act

The Act introduces new accreditation requirements for foreign conformity assessment bodies operating in Kenya. Any foreign entity conducting conformity assessments must obtain accreditation from the Kenya Accreditation Service or seek an exemption within three months of the Act’s commencement.

Conclusion

The Business Laws (Amendment) Act, 2024 introduces far-reaching regulatory changes that will significantly impact various sectors, particularly banking, credit provision, microfinance, and manufacturing. Businesses affected by these changes should assess their compliance obligations and take the necessary steps to ensure that they align with the new regulatory framework within the prescribed transition periods.

We anticipate that the Central Bank of Kenya and other regulatory authorities that are affected by these changes will issue subsidiary regulations to operationalize the Act. In the interim, businesses should seek legal and regulatory advice to ensure full compliance and mitigate potential risks arising from non-compliance.

For further guidance on how the amendments impact your business, please do not hesitate to contact Ivia Kitonga

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