The designation triggers enhanced due diligence by EU institutions and private sector actors, especially banks and financial service providers, when dealing with these jurisdictions.

According to the European Commission, the move closely follows assessments from the Financial Action Task Force (FATF), the global standard-setter for AML/CFT regulations. Countries identified by FATF or assessed independently by the EU are evaluated using a four-step methodology: pre-assessment, assessment, listing, and follow-up monitoring. Inclusion on the EU watchlist highlights Kenya’s challenges.

Kenya’s inclusion reflects gaps in its regulatory systems and supervisory enforcement related to financial crime. While the EU has not publicly outlined Kenya’s specific deficiencies, it aligns with a broader concern over the vulnerability of Kenya’s financial system to money laundering, informal banking, and cross-border transactions with limited oversight.

Being listed as a high-risk third country under Directive (EU) 2018/843, also known as the Fifth Anti-Money Laundering Directive, subjects Kenya to increased scrutiny from EU-based financial entities. Banks and businesses must now apply “enhanced customer due diligence” under Article 18a of the Directive.

This could raise transaction costs, slow cross-border investments, and affect Kenya’s growing fintech and digital finance ecosystems, particularly startups that rely on foreign capital and European partnerships. It may also influence correspondent banking relationships and bilateral trade financing with European firms, especially with Kenya being on the EU watchlist.

The Central Bank of Kenya (CBK) and the Financial Reporting Centre (FRC) are likely to come under pressure to strengthen supervision, close compliance gaps, and enforce AML/CFT controls more aggressively. Previous attempts to pass stricter anti-money laundering legislation have been met with resistance from parts of the political and business community concerned about overregulation.

Nonetheless, Kenya’s ongoing ambition to position Nairobi as a regional financial hub could push the government to align more closely with EU and FATF standards in order to restore investor confidence, even amidst Kenya being added to the watchlist.

The European Commission stressed that its approach is preventative and not punitive. “The EU remains committed to provide technical assistance to support the efforts of the authorities if deemed useful,” said a spokesperson. The listing is intended to protect the integrity of the EU financial system, reducing internal security threats and promoting sustainable global financial governance.

The Commission’s latest listing touches upon Delegated Regulation (EU) 2024/163 and forms part of the long-term review of 132 jurisdictions identified as prioritized under financial relevance, regulatory risks, and geopolitical impact.

As Kenya navigates heightened scrutiny under the EU watchlist, attention now shifts to how regulators respond. Will the Central Bank of Kenya introduce new compliance frameworks? Will fintech and crypto platforms face tighter onboarding and transaction checks? And how will this listing influence investor confidence across East Africa?

The coming months will reveal whether Kenya on EU watchlist becomes a short-term flag or a long-term shift in global risk perception — and whether Nairobi can turn compliance challenges into a case study in reform.

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