Introduction
On 14th October, 2024, the Central Bank of Kenya (the CBK) issued a press release confirming that in accordance with section 43 of the Banking Act (Cap 488, Laws of Kenya), it was granting authority to JPMorgan Chase Bank N.A., a financial conglomerate domiciled in the USA, to establish a Representative Office in Kenya.
According to CBK’s website, there are currently over 9 foreign banks with representative offices in Kenya. There was a brief moratorium on registration of these representative offices in 2015 which was lifted in 2017.
A representative office generally means a banking unit which doesn’t run banking business, is domiciled in a different place than the bank headquarters and which aims to represent the bank legally at matters such as protecting and fostering any legitimate interest of the foreign bank and making agreements on behalf of the foreign bank. Representative Offices are established by foreign banks who wish to have a presence in a country without having to launch fully fledged banking operations. They are authorized and overseen by CBK under the Banking Act and only permitted to:
• represent the foreign bank in marketing and liaison activities in Kenya.
• provide their Head Offices with information regarding the economic developments in the country and region.
• providing their customers with information regarding the local market as well as banking, financial and other relevant advice.
• Providing their customers with support to facilitate transactions including document authentication and validation services.
Representative offices cannot accept deposits, open accounts for their clients, extend loans or advances to customers, deal in foreign currencies of securities or participate in normal banking operations.
To set up a representative office in Kenya a foreign bank needs approval from CBK and to establish a legal entity in Kenya either by registering a limited liability company or registering a branch of the bank.
Approval from CBK
The setting up of a representative office in Kenya is primarily governed by the Banking Act, and the Central Bank of Kenya Prudential Guidelines issued in January 2013.
Section 43 (1) of the Banking Act provides that “The Central Bank may, in writing and subject to such conditions as the Central Bank may consider necessary, authorize a bank or a financial institution incorporated outside Kenya which does not propose to transact banking or financial business in Kenya but which proposes and applies in writing to the Central Bank to establish a representative office in Kenya, to open an office in a place in Kenya approved by the Central Bank.”
The term “Foreign bank or foreign financial institution” is defined in the Guideline on Authorization of Representative Offices to mean “the foreign bank or the foreign financial institution applying to, or authorized to open a Representative Office in Kenya”
The Guideline provides that to set up and operate a representative office in Kenya, a foreign bank must, amongst other requirements:
(a) be an institution incorporated outside Kenya;
(b) be authorized by the Head Office to conduct the business of an institution;
(c) have a valid license in its country of incorporation as at the time of application;
(d) have completed five (5) years of conducting banking business at the head office;
(e) undertake to fully comply with the laws, regulations, and guidelines applicable in Kenya and any directions or instructions issued by CBK;
(f) undertake to share with CBK (for examination) all relevant information relating to the proposed representative office as CBK may require; and
(g) designate a chief representative officer (CRO) to manage the proposed representative office liaise with CBK on the bank’s matters. Prior to commencing duties, the CRO must be vetted by CBK.
1.2 Application procedure
A foreign bank must submit of a formal letter to the CBK expressing intention to seek authority to open and operate a representative office. This is submitted together with supporting documents such as notarised constitutional documents, details of the corporate structure, management structure, licences from the bank’s mother country, financial statements and such other documents as the CBK may require.
Upon meeting all of the CBK requirements, CBK will grant a letter of intent conveying approval-in-principle to open a representative office. With the approval-in-principle, a foreign bank may proceed to obtain premises, recruit staff and other facilities necessary for operation of the representative office. Annual authority fee and prescribed license fee are payable.
If a foreign bank that has been granted an authority fails to commence operations within one (1) year of receiving the Authority then the Authority shall be considered as having lapsed.
Establishment of a Legal Entity
Once the Authority is granted, a foreign bank can either set up a branch or a subsidiary. Many considerations come into play in this decision including tax considerations and name preservation.
If you are seeking information on setting up a representative office in Kenya, please reach out to Divinah Ongaki (dso@smc-legal.com.com ) or (info@smc-legal.com ).
ANNEXURE 3
Information to be provided to KRA for registration is as follows:
1 Letter of Introduction of the Directors and the Company by an Advocate.
2 Letter of recommendation from KenInvest addressed to KRA.
3 Certified copies of the Passports of the Directors to be registered.
4 For trading companies, a copy of the latest tax returns.
5 Acknowledgement receipts generated from i-Tax for each of the Directors.
6 Original and copies of the Certificate of Incorporation together with the Certificate(s) of Change of name, if any.
7 Original stamped counterpart of the Memorandum and Articles of Association of the Company together with the incorporation filing receipt.
For any clarification required on the contents of this article, contact Divinah Sarange Ongaki (dso@smc-legal.com or info@smc-legal.com)