Stiffer Penalties on the Horizon

NAIROBI, KENYA – The Central Bank of Kenya (CBK) is poised to receive enhanced regulatory powers to penalise financial institutions for legal and ethical breaches, under new rules currently before the National Assembly. On Thursday, November 13, 2025, National Treasury Cabinet Secretary John Mbadi presented the Banking (Penalties) Regulations, 2025, to Parliament, a move intended to fortify the CBK's oversight capacity and deter non-compliance in the country's multi-trillion shilling banking sector.

The proposed regulations, which are now under review by the Parliamentary Committee on Delegated Legislation, introduce a raft of significant changes to the current punitive framework, which dates back to 1999. The most notable change is a substantial increase in the maximum fines the CBK can impose. Financial institutions found in violation of the Banking Act could face penalties of up to KSh 20 million, a significant jump from previous limits. Individual officers and directors could also be held personally liable with fines reaching up to KSh 1 million.

Furthermore, the regulations will introduce higher daily penalties for institutions that delay the payment of fines, a measure designed to ensure swift accountability. In a statement released via social media on Thursday, the National Treasury confirmed the regulations are designed to make penalties “effective, proportionate, and dissuasive,” ensuring that non-compliance becomes a costly affair for violators.

Aligning with Global Standards

The push for stricter penalties is part of a broader strategy to align Kenya's financial regulatory environment with international best practices, particularly the Basel Core Principles for Effective Banking Supervision. These principles are globally recognised standards for the prudential regulation and supervision of banks. By adopting a more stringent penalty regime, Kenya aims to enhance the stability of its financial system, protect depositors' funds, and boost investor confidence.

The regulations also provide for a more structured and transparent enforcement process. A key component of the new framework is the establishment of a formal appellate process, allowing penalised institutions and individuals a clear mechanism to challenge the CBK's decisions, ensuring fairness while maintaining regulatory authority.

A Response to Sector Lapses

The tabling of these regulations follows several high-profile instances of non-compliance that have highlighted weaknesses in the existing penalty system. In 2024, the CBK took action against 11 commercial banks, fining them over KSh 5 million each for breaching insider lending rules. These violations involved extending excessive credit to directors and staff, which exposed customer deposits to significant risk and pointed to serious governance gaps.

According to CBK data, penalties paid by commercial banks and foreign exchange bureaus for various breaches reached a record KSh 191 million in the fiscal year that ended in June 2024. Violations included exceeding the single borrower limit—which caps lending to one person or entity at 25% of a bank's core capital—as well as liquidity shortfalls and breaches of ownership caps. CBK Governor Dr. Kamau Thugge has previously stated that the low penalties under the old regime were not a sufficient deterrent, with some banks potentially viewing them as a mere cost of doing business. The proposed regulations are a direct response to this challenge, seeking to make the financial cost of non-compliance prohibitively high.

Implications for Kenya's Financial Sector

The proposed changes are expected to have a significant impact on the operational and governance standards of Kenyan banks. Financial analysts suggest that the increased risk of substantial fines will compel boards and senior management to invest more heavily in compliance, risk management, and internal audit functions. This could lead to a more resilient and transparent banking sector, ultimately benefiting consumers and the broader economy.

The regulations have undergone a public participation phase in compliance with the Statutory Instruments Act, 2013, and will now be deliberated upon by lawmakers. If adopted, the Banking (Penalties) Regulations, 2025, will repeal the 1999 regulations and mark a pivotal moment in Kenya's financial governance, empowering the CBK to enforce discipline more effectively and safeguard the integrity of the nation's financial system. Alongside these banking regulations, CS Mbadi also presented amendments concerning the Sports, Arts and Social Development Fund and the Government Press Fund for parliamentary review.