Legal Alert – The Business Laws (Amendment) Bill, 2024
On 1st November 2024, Cabinet Secretary for the Ministry of Investments Trade and Industry announced that the draft Business Laws (Amendment) Bill, 2024 (the Bill) has been submitted to the National Assembly for consideration. The Bill aims to, among other things, incentivise and de-risk private investments, enhance consumer protection and fair trade, improve performance of the export sector and provide mechanisms for quality assurance of manufactured products. In this update, we summarise three salient provisions in the Bill and their implications on the foreign investments, finance and employment sectors.
Increased Regulatory Oversight on Foreign Direct Investment
A. Accreditation of Foreign Investment Facilitators
The Bill proposes revisions to the Investment Promotion Act to require any person seeking to engage in the business of facilitating foreign direct investors to obtain accreditation by the Kenya Investment Authority.
Whereas the ‘business of facilitating’ is undefined, it suggests a professional and regulated role that can be formalised through proper accreditation, as is proposed in the Bill. However, in practice, if the business of facilitating is not clearly defined or regulated, there could be risks of unethical practices, which is likely why the amendment emphasises accreditation of facilitators for foreign investors. This step serves to legitimise and formalise the facilitation process under the Investment Promotion Act, helping to prevent misuse or potential impropriety that may be associated with or emanate from such intermediary roles.
Given that corporate lawyers, auditors, accountants, private equity and venture capital professionals, investment bankers and other transaction advisors act for investors and advise on investments in Kenya, it is uncertain whether such professionals will require accreditation from the Kenya Investment Authority, and if so, this may create an overlap in their regulatory oversight with their respective professional regulatory bodies. We expect the Cabinet Secretary to clarify this aspect by prescribing the requirements and procedures for accreditation of facilitators for foreign investors in the ensuing subsidiary legislation.
B. Mandatory Registration of Foreign Direct Investments
The Bill also replaces the option that investors had to apply for an investment certificate (if they so wished) with a mandatory requirement for every foreign direct investment to be registered with the Kenya Investment Authority. The Kenya Investment Authority Board will have the power to determine (through Gazette notices) the sector and industry threshold amount to be met by all foreign investors seeking an investment certificate.
Strengthening Banking and Credit Regulation
A. Core Capital Compliance and Progressive Capital Requirements
The Bill proposes to amend the Banking Act by increasing the minimum core capital requirement for banks and mortgage finance companies from KES 250 million to KES 10 billion through a phased compliance timeline as follows:
- KES 1 billion by 31 December 2024;
- KES 3 billion by 31 December 2025;
- KES 6 billion by 31 December 2026; and
- KES 10 billion by 31 December 2027.
We see this as an effort to strengthen the banking sector, attract international financial players and enhance the stability of Kenya’s financial sector. Higher capital buffers will mitigate risks, making Kenyan banks more resilient and aligned with international banking standards. Smaller market players will have to seek additional capital and may have to consider mergers with same-level institutions or acquisitions by bigger market players in order to maintain their compliance.
B. Regulation of Non-Deposit-Taking Credit Providers
If the Bill becomes law, the Central Bank of Kenya will have the authority to license and supervise non-deposit-taking credit providers that are currently not regulated under any written law. The proposed amendments in the Bill also emphasise and clarify CBK’s regulatory oversight in relation to a wide scope of ‘non-deposit taking credit business’, which includes:
- granting loans and credit facilities to the public, with or without interest and either secured or unsecured on goods or assets purchased;
- buy now pay later arrangements but not including hire purchase agreements;
- peer-to-peer lending and asset financing;
- credit guarantees; and
- any other activity that the CBK may determine to be non-deposit taking credit business.
The amendment accordingly empowers CBK to:
- register, license and regulate all non-deposit taking credit providers;
- approve channels through which non-deposit taking credit business is conducted;
- determine parameters for pricing of credit; and
- prescribe an enforceable code of conduct binding all non-deposit taking credit providers in their conduct of business.
These amendments may have been informed by the High Court’s judgement in Association of Micro Finance Institution Kenya (AMFIK) vs CBK and 3 others, 2022 where the court dismissed the petitioner’s prayer to exempt non-deposit taking microfinance institutions from digital credit provider regulations. AMFIK’s main argument was that their members offer credit services through non-digital channels or non-digitised means. However, the court was of the view that the digital credit providers regulations applied to all unregulated digital credit providers including non-deposit taking microfinance institutions.
The proposed amendments will place the entire non-deposit taking credit industry under CBK’s regulatory purview, bringing about additional licensing and compliance requirements for previously unregulated entities in the sector. The amendments also enhance consumer protection as CBK will now have power to revoke or suspend the licence of an entity where a customer’s complaint is not conclusively addressed within the time and manner prescribed by CBK or in instances where an entity imposes unreasonable or unjustifiable charges on a loan.
Modernising Employment and Remote Work Policies
In response to shifts in work dynamics, the Employment Act has been amended to reflect modern work arrangements, particularly for remote work and business process outsourcing (BPO):
A. Updated Definitions of Employment and Workplace
The Bill expands the definition of employee under the Employment Act and the Occupational Safety and Health Act to include persons who work remotely or on site through a business process outsourcing agreement or through an IT-enabled service, and formally recognizes remote locations as workplaces.
Furthermore, the definition of an employer has been expanded to include persons who have entered into a contract of service to employ any individual whether remotely or on site. Employers who operate Business Process Outsourcing companies or who provide IT-enabled services will be required to:
- ensure that employees working remotely or on the employer’s site are provided with the necessary resources to perform their duties; and
- be responsible for any claim raised by an employee regarding their employment and would not rely on the defence that the employer was not a beneficiary of the employee’s services.
B. Extended Liability and Accountability for Management Personnel
The definition of employer has been amended to a person who has entered into a contract of service to employ any individual, whether remotely or on site, and includes an agent, foreman or manager of that person. This means that managers and such representatives could become personally liable for their organization’s contravention of employment laws.
This creates a risk of the organization and its representatives (agents, foremen, and managers) facing dual liability, where both the company and the individuals in supervisory roles might be sued in a claim filed by an employee against an employer.
The broadened definition of an employer could foreseeably affect employment practices, as managers may seek additional legal support and protection through various forms such as contractual indemnities from the institutional employer, professional indemnity covers or directors and officers liability insurance.
