Analysis of the Business Laws – Amendment Bill

On 1st November 2024, the National Assembly published the Business Laws (Amendment) Bill, 2024 (“the Bill”) that seeks to amend several laws to enhance consumer protection, boost trade and manufacturing and harmonise our legal framework in the banking sector. We shall highlight and analyse the proposed amendments below and explore the positive and negative impact these changes may have on trade, businesses, manufacturers, financial institutions and potential local and international investors.

The Banking Act, Cap 488

The Bill proposes an amendment to Section 55 of the Banking Act by providing that the Central Bank of Kenya (CBK) can prescribe penalties on financial institutions, credit reference bureaus or any person that fails to comply with the provisions of the Banking Act, Prudential Guidelines or directions issued by the CBK. The CBK can impose penalties of up to Kshs. 20 million for institutions or credit reference bureaus, or an amount that is three times higher than the amount gained or loss avoided by failing to comply. This provision imposes stricter penalties that are aimed at enhancing overall compliance with the laws, rules and regulations that govern the operation of our banking sector.

The Second Schedule of the Banking Act may also be amended to increase the minimum core capital required to operate as a bank or mortgage finance company gradually from Kshs. 1 billion in 2024 to Kshs. 10 billion in 2027. Our current framework is out-of-date as it only sets out the core capital requirements until 31st December 2005. Therefore, this is a welcome amendment that promotes a stable market which aligns with the current growth of our financial industry and available banking products.

The Central Bank of Kenya Act, Cap 491

The proposed amendments to this Act largely broaden the definition of digital credit and digital credit providers by replacing it with non-deposit taking credit providers. The objective of this proposal is to cover all non-deposit taking credit providers, which includes digital lenders and peer-to-peer lenders. The CBK will also have the power to register, license and regulate non-deposit taking credit providers, including determining pricing parameters and prescribing a Code of Conduct that such entities must adhere to.

The Bill further increases the scope of the CBK’s regulatory powers by ensuring that the CBK licenses and monitors the operations of credit guarantee companies that are not currently regulated under any other written law. Credit guarantee companies typically act as guarantors to financiers by absorbing all or a part of the financier’s risk on a credit facility made to a Borrower in the event that the Borrower defaults on repayments.

Under the proposed law, the CBK will have the power to determine the capital adequacy standards, minimum liquidity requirements, anti-money laundering procedures, permissible and prohibited activities and corporate governance of the entity, including certifying whether a significant shareholder is a fit and proper person. Should this amendment pass, it’s crucial for the CBK to draft further regulations and directions on the requirements on the operations of credit guarantee companies. This ensures that there is further oversight and supervision over institutions operating in the financing sector to ensure standard levels of market conduct, transparency in credit dealing, integrity of our financial systems, and the prevention of predatory lending practices that protect borrowers.
Microfinance Act, Cap 493C.

The Bill proposes an amendment to Section 4A of the Act by including that a person cannot carry out any non-deposit taking microfinance business without being properly registered under the Companies Act and licensed under the Microfinance Act.

Additionally, non-deposit taking microfinance businesses would be obligated to furnish borrowers with accurate information on the procedure and conditions of loans, the cost implications and their rights and duties. They cannot collect additional fees, penalties or charges unless this is allowed under the agreement they have with borrowers.

The proposal also increases the duties these institutions owe to Borrowers because they cannot harass, oppress or threaten borrowers, loan guarantors or any person when collecting or recovering debts. It is evident that these new provisions are aimed at ensuring consumers are protected and abuse is prevented, particularly for digital lenders who would now fall under this purview. The amendments to the Act create a structured framework for their operations, fostering accountability and a more regulated environment.

The Standards Act, Cap 496

The Bill proposes the addition of several provisions for the registration of manufacturers and quality testing of products. It seeks to ensure that any person that wishes to manufacture goods and products must be registered by the Kenya Bureau of Standards (“KEBS”). This brings every manufacturer within the scope and regulatory compliance framework of KEBS, ensuring they meet minimum quality standards throughout the production process before products are available for consumers.

This is further evident in the proposed inclusion of Section 10D which details the duties of manufacturers to ensure every product is designed and manufactured in accordance with the relevant standards, conduct sample testing is before product releases, establish procedures for tracing products from the factory to end-consumers, ensure appropriate labelling, and investigate and keep records of all complaints.

The Bill further proposes the inclusion of Section 12A and 12B into the Standards Act which would allow KEBS to establish or designate competent labs to offer testing services, issue test certificates and develop national measurement standards. Section 14D enables KEBS to appoint an inspection body for goods in the country of origin to verify that the goods conform to Kenya’s standards. Such bodies are liable to pay taxes in Kenya. These three proposals create efficiency in the testing and examination of products, which will enhance our quality standards and ability to enforce product quality specifications. However, if Kenya doesn’t have a double taxation agreement with the country in which they appoint an inspection body, such bodies may be subject to double taxation.

These amendments may lead to the improved quality of products manufactured and increased accountability for manufacturers enhancing consumer safety. The Bill further provides a stronger regulatory framework that may counter the prevalence of substandard goods entering the Kenyan market. However, these provisions may impose additional costs on manufacturers including registration fees, and compliance costs which may disadvantage the small-scale manufacturers.

Special Economic Zones Act, Cap 517A

The Bill empowers the Cabinet Secretary for Investments, Trade and Industry to set the minimum requirements for acreage of land and thresholds for investments for land that may be considered for declaration as a special economic zone. The Bill also clarifies that goods that remain within a customs-controlled and special economic zone are entitled to the tax benefits conferred under the Act. Tax benefits and incentives that are granted to enterprises and developers in these zones last for 10 years from the date of issuance of a license.

The proposed amendment to Section 11 of the Act seeks to streamline the administrative process of creating and managing special economic zones by establishing a one-stop shop for all enterprises to channel their applications for permits, approvals and licenses and ensuring compliance with the law. These amendments encourage large-scale investments and emphasise the role that special economic zones play in the development of trade, manufacturing, industry growth and ultimately, our economy.

The Kenya Accreditation Service Act, Cap 496A

The proposed Bill aims to modify the Act by adding new sections that outline the accreditation process for foreign Conformity Assessment Bodies functioning in Kenya and to set up an Accreditation levy at a rate of 3% on the value of any accredited service delivered to a third party by an accredited conformity assessment body.

This may lead to various advantages, including a more competitive market with the entry of more international players, the introduction of a new revenue stream allowing for better funding of regulatory activities and enhancement of services provided to certified bodies and the improvement of Kenya’s trade relationships by ensuring that foreign goods and services meet specific quality and safety standards. It has, however, several disadvantages which include increased stringent and time-consuming accreditation procedures and increased prices for services which may be passed down to the consumers.

The Scrap Metal Act, Cap 503

The Bill proposes to amend the Act by making changes to the composition of the Scrap Metal Council. The chairperson will now be appointed by the President, with additional representation for collectors, agents, smelters, and millers, ensuring inclusivity and balanced decision-making. This aims to enhance inclusivity and representation which provides a more diverse range of perspectives in decision-making through increased oversight and stakeholder engagement.

Conclusion

The Bill has been submitted for public participation before it is put before the National Assembly for consideration. Our team is closely monitoring the developments and will continue to provide updates and advice as the process evolves.

 

A polite note: The Business Laws (Amendment) Bill, 2024 has now been assented into Law.

For further assistance or information, please contact Benson Ngugi, Kabu Karanja or Jessica Obimbo.

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LEGAL ALERT: Compliance with Beneficial Ownership Information Requirements

On 17 October 2024, the Registrar of Companies issued a public notice mandating that all companies and Limited Liability Partnerships (LLPs) comply with the beneficial ownership disclosure requirements under the Companies Act (Cap. 486) and the Limited Liability Partnership Act (Cap. 30). Non-compliance will result in removal from the Register of Companies. Private limited companies must meet the requirements by 30 November 2024. As of October 2024, 399,595 of Kenya’s 794,741 registered companies (representing 50.28%) have not disclosed their beneficial ownership information as required by law, thus risking delisting.

Beneficial Owners and Beneficial Ownership Information

A beneficial owner is a natural person who, either individually or jointly, directly or indirectly, holds at least 10% of a company’s shares, exercises 10% or more of its voting rights, can appoint or remove a majority of its board of directors, or has significant influence or control over the company (usually financial).

The legal framework for beneficial ownership information disclosure in Kenya includes the Companies Act, the Companies (Beneficial Ownership Information) Regulations, 2020, the Limited the Liability Partnerships Act, and the Business Registration Service Guide on Disclosure of Beneficial Ownership Information. These regulations are part of Kenya’s response to the Financial Action Task Force’s (FATF) recommendations to combat money laundering, terrorism, corruption, and organized crimes.

Companies are required to identify and verify their beneficial owners and record specific information about them including their full name, national identity card or passport number, KRA PIN, nationality, addresses, occupation, nature of ownership or control, and the date on which any person became a beneficial owner of the company. Companies must maintain this information in a register and submit a copy to the Registrar.

Companies must also document if they are aware of a beneficial owner whose details are incomplete, if a warning was issued and ignored, if a restriction notice was given, or if there are ongoing court proceedings concerning beneficial ownership.

Penalties for non-compliance

Failure to keep and file a register of beneficial ownership information with the Registrar of Companies is an offence punishable by a KES. 500,000. Continuing non-compliance incurs a further fine of up to KES. 50,000. Additionally, failure to file amendments to the beneficial ownership register within 14 days of a change attracts an administrative fine of KES. 2,000 for the company and each defaulting officer, with an additional penalty of Ksh. 100 for each day the default continues.

Companies have recourse under the regulations to issue warning notices and restrictions to beneficial owners who fail to provide the required information.

Conclusion

With the compliance deadline fast approaching, companies must act to comply with the disclosure requirements or risk removal from the register. This enforcement underscores Kenya’s commitments to global standards to combat money laundering, terrorism, corruption, and organised crime.

Should you require assistance to comply with the Registrar’s directive, please get in touch with Benson Ngugi, Kabu Karanja, or Jessica Obimbo.

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A REVIEW OF THE COMPETITION (AMENDMENT) BILL 2024 (the Bill)

Introduction

The Competition Authority of Kenya (CAK) has proposed a series of changes to the Competition Act Cap. 504 Laws of Kenya (the Act) in response to emerging regulatory issues, such as those presented by digital marketplaces. CAK also aims to incorporate lessons learned from its enforcement experience and international best practices.

Some of the areas that the Bill seeks to amend include abuse of buyer power, mergers, criteria for determining dominant position, and financial penalties.

We will provide an overview of some of the key provisions of the Bill below.

Key Provisions

New Definitions

The Bill introduces some new definitions to the Act. The terms “business consumer”, “digital activities”, “product information standards”, “strategic market position” and “superior bargaining position” have all been introduced to the Act.

Superior Bargaining Position

The proposed Bill aims to replace the term “abuse of buyer power” with “superior bargaining position.” According to the Bill, a superior bargaining position refers to the ability of an enterprise to control, direct, define, or determine business operation conditions with counterparties, in a manner that benefits the enterprise, regardless of its dominant market position or power. The Bill prohibits any conduct that amounts to abuse of superior bargaining position in the Kenyan market or a substantial part of it. The Bill also grants the CAK the power to monitor the activities of any sector or enterprise that it believes is experiencing or likely to experience abuse of superior bargaining position. CAK is authorized to impose reporting and prudential requirements to ensure compliance and establish a code of conduct for such sectors.

Some behaviours that constitute abuse of a superior bargaining position include delays in payment without justifiable reasons, unilateral termination or threats of termination of a commercial contract without adequate notice, unilateral variation of contractual terms, transferring costs to the counterparty, and imposing unfair commercial risks meant to be borne by the other party.

Additionally, demanding preferential terms unfavourable to the other party, setting purchase or service prices below competitive levels, unreasonably collecting and/or processing personal data of the counterparty, imposing unduly difficult conditions for the termination of services, and obstructing business activities or interfering in the counterparty’s management of its business also amount to abusing a superior bargaining position.

Those found guilty of abusing their superior bargaining position can face imprisonment for up to five years, a fine not exceeding KES. 10 million, or both.

Mergers

The Bill proposes adding mergers of institutions that have been privatized to section 41 of the Act, which defines a merger. CAK may also request public input on a proposed merger within 14 days of receiving notification of the proposed merger.

Financial Penalty

The Bill introduces a financial penalty of up to 10% of the immediately preceding year’s gross annual turnover in Kenya for an undertaking that contravenes any lawful order given by CAK under the Act.

Consumer Protection

The Bill proposes to strengthen consumer protection measures, including mandatory disclosure of product information and prohibition of withholding material information about product quality and use.

Conclusion

The Competition Authority of Kenya (CAK) states that the proposed amendments are intended to enhance its ability to carry out its mandate and ensure efficient operation of the Kenyan market.

CAK has invited the public to provide comments on the Bill. Feedback can be submitted through the Bill and Stakeholder Feedback Tool, which is accessible at: Stakeholder Views Collection Matrix.xlsx (live.com).

For More Information Please Contact

kabu.karanja@attorneysafrica.com

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COMPETITION AUTHORITY OF KENYA CRACKING DOWN ON HIDDEN FEES

The Competition Authority of Kenya (CAK) is cracking down on banks that impose charges on customers, charges that had not been previously disclosed to the customer. This is in line with the authority’s prerogative under Section 56(3) of the Competition Act, which states as follows: –

A person shall not, in the provision of banking, micro-finance, insurance and other services, impose unilateral charges and fees, by whatever name called or described, if the charges and the fees in question had not been brought to the attention of the consumer prior to their imposition or prior to the provision of the service.

CAK has accused some tier-one banks of providing misleading information to customers or failing to disclose additional charges to customers during lending, violating agreements with customers, and imposing unfair charges on customers. These practices have led to financial hardships, defaults in loan repayment, and damaged credit scores.

The move by CAK has come amid growing concerns by members of the public of additional and hidden charges imposed by lenders in the conduct of their business.

Previously, the banks handled complaints of this nature, often leading to dead ends. Now, with increased consumer education initiatives, borrowers are more aware of their rights and can escalate issues to the CAK for investigation.

The CAK investigates most of these cases; however, some are forwarded to the Central Bank of Kenya and the Insurance Regulatory Authority for further action.

This move by the CAK, aimed at improving information symmetry between banks and their customers, is a step towards fostering customer trust in banks and ensuring fairness in the banking sector.

For more information please contact

info@attorneysafrica.com

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LEGAL ALERT ON THE DRAFT ENERGY (ELECTRICITY MARKET,BULK SUPPLY, AND OPEN ACCESS) REGULATIONS, 2024

      Introduction:

      On 21 February 2024, the Energy and Petroleum Regulatory Authority (EPRA) released the Draft Energy (Electricity Market, Bulk Supply, and Open Access) Regulations, 2024 (the Proposed Regulations). The Proposed Regulations are aimed at governing the electric power, coal, renewable energy, and petroleum subsectors. They apply to the generation, importation, exportation, transmission, distribution, and retail supply of electrical energy in Kenya.

      Key Objectives:

      The objectives of the Proposed Regulations are as follows:

      • providing guidance on reviewing the electricity market;
      • governing operations and management of the electricity market, open access, and bulk supply;
      • promoting competition, efficiency, reliability, and service quality;
      • ensuring non-discriminatory open access to enhance competition;
      • attracting investment in energy infrastructure; and
      • enhancing accountability, transparency, and efficiency in the electricity market.

      Key Provisions:

      We set out below some of the key provisions in the Proposed Regulations:

      • The Electricity Market Structure: The Proposed Regulations provide for the conduct of a market review to be conducted by EPRA in consultation with the Cabinet Secretary responsible for energy (the Cabinet Secretary). EPRA is also required to involve stakeholders in the energy sector while undertaking the market reviews and subsequent guidelines. This review should be done within 3 years. Subsequent reviews should be undertaken at least once every five (5) years. Upon conclusion of the market reviews, EPRA is required to publish a report in the Kenya Gazette within 30 days of concluding the review. The first market review will be essential in informing Kenya’s electricity market structure and design.Once the first report is gazetted, EPRA in consultation with the Cabinet Secretary to issue and gazette guidelines on the structure of the electricity market within 6 months after gazettement of the market report.
      • Open access: transmission and distribution licensees will be required to provide ‘non-discriminatory open access” to their transmission or distribution system. This will enable any other licensees or eligible consumers to use the systems, upon payment of wheeling or use of system charges and other prescribe fees. Consumers will also have the liberty of selecting their preferred retail suppliers provided that the consumer has not entered into two supply contracts for the same premises.
      • Minimum roles: The Proposed Regulations outline the minimum roles of a generation licensee, transmission licensee, distribution licensee, retail supply licensee, eligible consumers and system operators all in an effort to promote equity and fairness in Kenya’s electricity market.
      • Tariffs: The Proposed Regulations require EPRA to prescribe generation and retail tariffs and charges for network service, wheeling, use of system and ancillary services. Licensees will be required to apply to EPRA for approval for approval of tariffs which will take effect on the commercial operation date under the respective commercial agreement. Licensees will be able to recover capital costs, O&M costs, depreciation, return on equity, other finance costs and taxes from the tariffs.
      • Bulk Supply: The Proposed Regulations set out a framework for bulk supply. Under the Proposed Regulations bulk supply shall be the supply of electrical energy by a licensee to another licensee and not to a consumer. The format of the bulk supply application and agreement are prescribed by the Regulations.
      • Non-compliance sanctions: Offences and penalties under the Proposed Regulations include giving false and misleading information at application stage and failure to comply with the regulations, orders or prohibitions of the Authority. The proposed sanctions where one is found liable are both custodial and non-custodial.
      • Dispute resolution: The Proposed Regulations require that where there are disputes and/or complaints that the internal mechanisms provided under the complaints and dispute resolution regulations. Additionally, a person aggrieved or dissatisfied with the decision of the Authority may appeal the same at the tribunal and then the High Court within 30 days of the Tribunal’s decision.

      Stakeholder Engagement Workshop:

      EPRA has scheduled a stakeholder engagement workshop on 4March, 2024, at the Sarova Stanley Hotel in Nairobi, running from 8:00 a.m. to 3:00 p.m. The workshop aims to provide a platform for stakeholders to gain insights into the Proposed Regulations and to express their views. The proceedings will be accessible remotely through Zoom, YouTube, and Facebook.

      Public Participation:

      Stakeholders and members of the public are encouraged to actively participate in the regulatory process. The Proposed Regulations can be accessed here. Comments can be submitted through email at info@epra.go.ke or physically delivered to EPRA’s regional and headquarter offices.

      Conclusion

      The Proposed Regulations signify a significant step towards enhancing the regulatory framework in the energy sector, promoting transparency, competition, and efficiency. Stakeholder input is crucial in shaping the final regulations, and interested parties are encouraged to participate actively in the upcoming workshop and submit their comments for consideration.

      Note: This legal alert provides a general overview and is not a substitute for legal advice. Stakeholders are advised to review the full text of the Proposed Regulations for comprehensive understanding and seek professional advice as needed.

      For More Information Please Feel Free to Contact Us