Kenya’s Push to Exit the FATF Grey List Is Colliding With Funding Cuts

Foreign payment checks facing Kenyan firms are becoming harder to ignore.

Banks handling international settlements have tightened internal reviews on transfers linked to Kenya since the country entered the Financial Action Task Force grey list last year, adding fresh urgency to efforts by regulators to strengthen financial surveillance systems before the next review cycle.

That pressure is now feeding directly into budget negotiations in Parliament.

A National Assembly committee has proposed an additional Sh388.16 million for the Financial Reporting Centre (FRC), the state agency responsible for receiving and analysing suspicious financial transaction data. The recommendation forms part of the 2026/27 budget process now before lawmakers.

Kenya was added to the FATF monitoring list in February 2024 after the global watchdog cited weaknesses in enforcement tied to money laundering, terrorism financing oversight and transparency around ownership structures.

The listing did not trigger sanctions. It changed transaction behaviour instead.

Financial institutions operating across borders typically respond to FATF monitoring by expanding due diligence procedures, reviewing source-of-funds documentation more aggressively and applying additional scrutiny to higher-risk transfers. Compliance departments become more cautious. Processing timelines stretch.

The effects tend to spread unevenly through the economy.

Import-dependent businesses, international charities, fintech operators and firms relying on correspondent banking relationships often feel the strain first. Banks also face higher internal compliance costs as monitoring obligations grow.

Inside government, the immediate concern has become operational capacity.

The FRC told MPs earlier this month that its approved budget leaves little room for investigative work after mandatory expenses are covered. Personnel costs alone account for Sh479.3 million. Rent, insurance, utilities and medical cover consume another Sh286.2 million.

The agency had requested Sh2.49 billion for the next financial year but received a ceiling of Sh765.5 million during the budgeting process. Officials later revised the minimum workable figure downward to Sh1.33 billion.

Even with Parliament’s proposed addition, the allocation would remain below that level.

“Our operational funds remaining stand at zero,” FRC Director-General Naphtaly Rono told legislators during committee hearings.

The agency says it now handles more than 10,000 Suspicious Transaction Reports and Suspicious Activity Reports annually. When the centre began operations in 2012, the number stood at 34.

Part of that growth tracks the expansion of Kenya’s digital finance infrastructure over the last decade. Mobile money transactions have deepened. Cross-border digital payments have become more common. Regulators are also dealing with growing exposure to cryptocurrency-linked activity and informal transfer channels.

Under Kenyan law, banks and other reporting entities must disclose transactions considered suspicious regardless of value. Cash movements above $15,000 and international transfers exceeding $10,000 also fall under mandatory reporting thresholds.

The compliance net extends beyond banks. Real estate agencies, betting firms, law offices, casinos and non-governmental organisations are among sectors monitored under anti-money laundering rules.

Treasury Principal Secretary Chris Kiptoo said earlier this year that Kenya was working under limited timelines to complete reforms expected by FATF assessors.

Government agencies involved in the process now include the Directorate of Criminal Investigations, the Attorney-General’s office, the Asset Recovery Agency and the Business Registration Service.

The financial intelligence system itself has been moving in the opposite direction financially. Treasury allocations to the FRC have fallen over recent years, dropping from Sh1.70 billion in the 2022/23 financial year to Sh570 million in the current cycle.

That contraction has affected inspections and delayed some registration processes involving reporting entities, according to disclosures made before Parliament.

The budget proposal now heads into the next phase of debate as lawmakers weigh spending priorities across ministries and agencies before the July fiscal transition.

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