In a judgment delivered on 30 September 2022 in Kenya Commerce Exchange Service Bureau Limited (KENEX) v Central Bank of Kenya, Petition No. E 181 of 2021, the High Court clarified on who a Payment Service Provider (PSP) is, within the meaning of the National Payment Systems Act 2011 and the National Payment System Regulations 2014. This finding is important as it determines who will be under the regulatory ambit of the Central Bank of Kenya, and serves to ensure that any risks within the national payment system are mitigated. A further consequence of the judgment was that financial institutions may now be able to connect directly onto SWIFT without relying on a third party that offers a platform such as KENEX.
In this particular case, the Court stated that the petitioner, Kenya Commerce Exchange Service Bureau Limited (KENEX), which provides a platform that enables financial institutions (banks) to connect to SWIFT which enables banks to communicate with each other in international financial transactions, is a payment service provider and thus would be regulated by the Central Bank. The court began by assessing the definition of a Payment Service Provider under section of the NPS Act. It concluded that “…the wording of Section 2 of the Act on who qualifies as a payment service provider does not strictly refer to one who sends or receives messages or processes payments or other messages on behalf of the banks as argued by the petitioner (KENEX)… Though the petitioner does not make the payments or send the messages, it cannot dissociate itself from the process since it is its platform through SWIFT that is used by the banks to send and store these messages or make payments…” (see para 59). The court further reasoned (at paragraph 60) that the intention of Parliament in enacting the National Payment Systems Act was to incorporate systems of the whole process involving the payment system as apparent from Section 2 of the Act which defines a payment system as ‘a system or arrangement that enables payments to be effected between a payer and a beneficiary or facilitate the circulation of money and include any instruments and procedures that relate to the system.’
The implication of this judgment is that a narrow view of what a payment service provider is no longer tenable in law. Any player who is directly or indirectly involved in the payment arrangements is likely to be considered as a payment service provider and thus required to take out a licence, and to be regulated by the CBK.
Post Script (P.S.):
KENEX is an authorized service bureau for SWIFT that has been in operation in Kenya since 2002. It offers a gateway to the SWIFT network and services through its infrastructure and the proprietary SWIFT alliance access/Gateway software. Put differently, KENEX provides connectivity to financial institutions (banks) to enable banks send messages without connecting to SWIFT directly.
On the other hand, SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. This service enables banks to communicate financial information with other banks and financial business entities around the world thus facilitating transfer of funds from one bank to another.
In case of any clarification or assistance with applying for a PSP licence, or any advice on payment systems, do not hesitate to contact Muriuki Muriungi (This email address is being protected from spambots. You need JavaScript enabled to view it.)
