Banks and other financial institutions face higher fines of up to Sh20 million for breaches of new terror-financing rules as Kenya races to curb suspicious financial flows.
New regulations by the Ministry of Interior and National Administration raise the maximum penalty for financial institutions more than sixfold from Sh3 million and the jail term for offending officials to 10 years from seven years previously.
The regulations, gazetted on September 7, 2026, replace those in use since 2023 and impose more detailed obligations on institutions handling accounts and assets linked to people or entities subject to terrorist sanctions.
The rules, however, cut the fines for individuals to a maximum of Sh1 million from Sh3 million—a compromise offset by the longer 10-year jail term.
“A person who contravenes the provisions of these regulations, where a specific penalty is not provided for, shall be liable— on conviction, to imprisonment for a term not exceeding 10 years, in the case of a natural person,” state the revised regulations.
“In the case of a legal person, to a fine not exceeding Sh20 million…or in the case of a natural person, to a fine not exceeding Sh1 million.”
The changes come as Kenya seeks to address weaknesses identified by the global financial watchdog, the Financial Action Task Force (FATF), which placed the country under increased monitoring, commonly known as the grey list, in February 2024.
The watchdog asked Kenya to improve its risk-based supervision of financial institutions and designated non-financial businesses and strengthen preventive measures and suspicious transaction reporting.
Under the new anti-terrorism rules, banks will have to report action taken against sanctioned accounts to the Counter Financing of Terrorism Inter-Ministerial Committee within 24 hours.
The rules state that the report must disclose the account number, account holder, exact time of freezing, balance at the time of freezing and details of related accounts, including the reason those accounts were identified as related.
Institutions must also now report attempted transactions after an asset freeze, including the account involved, time of the attempted transaction, account balance and details of the person attempting the transaction.
The rules further require reporting institutions to regularly review the domestic and United Nations sanctions lists and continuously monitor transactions involving listed people or entities.
The requirement to freeze terrorist-linked funds without prior notice has been retained, but the timelines tightened. The 2026 rules require holders of targeted funds to freeze assets owned or controlled directly or indirectly by a person on the sanctions list.
For banks, this means sanctions screening will need to move beyond the main account holder to connected accounts and attempted dealings, increasing the importance of real-time screening.
The regulations require banks to freeze the assets without delay once an individual or company has been put on the United Nations Security Council (UNSC) or domestic committee sanctions list.
While the 2023 regulations defined “without delay” as action taken within 24 hours of a person or entity being put on the sanctions list, the 2026 rules require action “within a matter of hours” of the designation while retaining the 24-hour deadline.
The Financial Reporting Centre (FRC) told the Business Daily the new definition of “without delay” has tightened the timeline for implementing terrorist sanctions, requiring authorities and reporting institutions to act within hours rather than waiting for the end of the 24-hour window.
“This now requires immediacy of implementation to ensure that the freezing takes place almost immediately (within a matter of hours),” said the FRC.
“Authorities and reporting institutions must now take action immediately upon publication of the designation by the UNSC. Ultimately, the regulations clarify that the 24-hour countdown begins when the UNSC lists.”
The regulations further broaden the compliance net by defining a reporting institution to include financial institutions, designated non-financial businesses and professions, and virtual asset service providers.
Another key change is the formal treatment of people who may be unfairly caught by sanctions. The 2026 regulations introduce provisions on false positives, providing safeguards for people whose assets are wrongly frozen.
People who feel they have been unfairly included in a terrorism-linked list will now apply to the committee for a repeal.
The committee is required to determine such applications and communicate the decision to holders of the frozen assets.
The tougher rules signal Kenya’s push to close gaps in its anti-money laundering and counter-terrorist financing regime as the country pushes to exit the grey list.
Kenya was added to the FATF grey list in February 2024 and remained under increased monitoring in the watchdog’s June 2026 review. FATF describes the grey list as covering jurisdictions working to address “strategic deficiencies” within agreed timeframes.
FATF said in a June assessment that Kenya has taken steps towards improving its Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime, including by increasing financial institutions’ and designated non-financial businesses and professions’ understanding of targeted financial sanctions.
The watchdog added that Kenya needs to continue implementing its FATF action plan to address its “strategic deficiencies” through measures such as improving risk-based supervision and use of financial intelligence.
FATF also asked Kenya to strengthen investigations and prosecutions and address gaps in the regulation of trusts and beneficial ownership information. Kenya has since implemented a new law that compels trusts to disclose beneficial owners.
