Insurance Sector Anti-Money Laundering Regulatory

Executive Summary

The Insurance Regulatory Authority (IRA) has rolled out comprehensive new regulations to close loopholes that allowed the exploitation of life and investment-linked insurance products for money laundering (ML) and terrorism financing (TF). These reforms strengthen board-level accountability, introduce mandatory independent reviews, and align Kenya’s insurance sector with global AML/CFT (Anti-Money Laundering/Counter-Terrorist Financing) standards. The measures form part of Kenya’s broader strategy to exit the FATF grey list and restore international financial confidence.

Background and Context

Kenya was placed on the FATF grey list in February 2024 due to weaknesses in combating illicit finance.

Criminal networks have increasingly exploited insurance products, especially life and investment-linked policies, because of their long-term structure, premium payment flexibility, and weak oversight.

These reforms follow heightened scrutiny across all financial sectors, with CBK and other regulators tightening AML/CFT frameworks.

Key Regulatory Changes

1. Mandatory Independent Reviews

• Annual independent audits of insurers’ AML/CFT programmes are now required.
• Reports must be submitted to IRA with board commentary by 31st January each year.
• Boards of directors are directly accountable for reviewing reports, approving remedial plans, and ensuring fixes are implemented.

2. Enhanced Risk-Based Approach

• Focus on high-risk areas:
  • Politically exposed persons (PEPs)
  • Cross-border transactions
  • Complex investment-linked products
  • High-risk geographical locations and distribution channels
• High-risk areas must be audited annually; lower-risk areas may be rotated.

3. Graduated Compliance Framework

• Insurers will be rated as compliant, largely compliant, partially compliant, or non-compliant.
• This allows proportionate regulatory action, including sanctions on persistent flouters.

4. Scope of Reviews

Independent reviews must cover:

• Customer due diligence (CDD) & identification programmes
• Record-keeping practices
• Staff training & awareness
• Suspicious transaction reporting mechanisms
• Oversight of outsourced compliance functions
• Counter-Terrorist Financing (CTF) and Countering Proliferation Financing (CPF) processes

5. Internal vs External Audits

Reviews can be outsourced or conducted internally, but:

• Internal staff must be independent of day-to-day AML/CTF operations.
• AML/CTF/CPF audit responsibilities must be formally included in job descriptions.

Vulnerabilities in Insurance Products

Product Design Exploitation 

Life insurance products present several features that criminals have exploited for money laundering purposes. The 14-day window between application, payment, and policy acceptance enables introduction of illicit funds, later withdrawn through cancellation.

Long-term Policy Manipulation

The extended nature of life insurance contracts enables sophisticated laundering schemes. Small initial payments followed by multiple top-ups allow criminals to spread deposits below reporting thresholds.

Policies can later be surrendered, presenting illicit funds as legitimate payouts.

Premium Payment Structures

Regular installments facilitate gradual laundering of proceeds without triggering alerts.

Compliance Requirements Comprehensive Review Scope

The mandatory reviews encompass all critical aspects of AML/CFT compliance including customer due diligence procedures, record-keeping practices, staff training programs, suspicious transaction reporting mechanisms, and oversight of outsourced compliance functions. This holistic approach ensures that potential weaknesses across the entire compliance ecosystem are identified and addressed.

Institutional Accountability

By requiring board-level review and approval of compliance reports and remedial actions, the regulations establish clear chains of responsibility within insurance organizations. This

governance requirement ensures that compliance issues receive appropriate senior management attention and resources.

International Context

• Grey-listing Impact: FATF grey-listing has intensified reform urgency; Kenya’s economy faces reputational and transactional risks until compliance improves.
• Global Standards Alignment: The new framework reflects FATF recommendations, ensuring a risk-based, proportionate, and preventive approach in line with international best practices.

Implementation Challenges

1. Industry Adaptation
   • Insurers must rapidly scale compliance capacity, upgrade monitoring systems, and train staff.
2. Resource Burden
   • Smaller insurers may face financial and technical strain meeting annual review obligations.
3. Consistency in Application
   • Ensuring audits go beyond a “box-ticking exercise” to genuinely detect risks will require strong IRA enforcement.

Implications for Criminal Networks

• Reduced Exploitation Opportunities: Strengthened oversight and board-level accountability close key insurance loopholes.
• Increased Detection Risk: Enhanced CDD, monitoring of PEPs and cross-border transactions, and mandatory suspicious transaction reporting make concealment harder.
• Shift to Other Sectors: Criminals may redirect illicit finance flows to less regulated channels, requiring a whole-of-financial-sector approach.

Insurance Professionals Act: Protecting livelihoods and powering growth 

This legislation is a landmark law in Kenya aimed at professionalizing the insurance industry to restore public trust and drive economic growth. According to statements from various leaders, including Francis Kuria Kimani (Chair of the National Assembly's Finance and Planning Committee), Godfrey Kiptum (Commissioner of Insurance), and Alice M. Njoroge (Director of the Insurance Institute of Kenya), the Act is designed to:

• Establish a strong regulatory framework to ensure accountability and independence.
• Standardize qualifications and enforce ethical conduct for insurance professionals.
• Enhance public confidence in the sector by ensuring high standards of practice and service delivery.
• Promote financial inclusion and long-term sustainability by leveraging technology and protecting policyholders.

The Act is seen as a crucial step in cementing the role of the Insurance Institute of Kenya (IIK) as the lead professional body, working to make the insurance industry more resilient and trustworthy.

Conclusion

Kenya’s insurance sector is undergoing a transformative shift. The IRA’s new AML/CFT regulations strengthen governance and close loopholes exploited for money laundering, while the Insurance Professionals Act raises ethical and professional standards. Together, they enhance public trust, align with global best practices, and position the industry for growth. If consistently enforced, these reforms will help Kenya exit the FATF grey list and build a stronger, more resilient insurance sector.