M-Pesa fraud battle draws in CBK

Birth of a new legal challenge over mobile money fraud has kept the Central Bank of Kenya (CBK) firmly in the spotlight after the regulator failed to convince the High Court that it should be removed from a case involving Safaricom and an M-Pesa customer.

The court ruled that CBK’s regulatory responsibilities make its presence necessary in the dispute, even though the petitioner, Paula Rogo, is not seeking a direct monetary decree against the regulator.

Ms Rogo sued Safaricom and M-Pesa Holding Company over an alleged loss of Sh125,658, claiming she was tricked by a fraudster who posed as a Safaricom employee and used information about her account to convince her that he was genuine.

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The court found that some of the orders being sought by Ms Rogo could require CBK to use its supervisory powers over mobile money operators if the petition succeeds.

“These reliefs fall squarely within the CBK’s supervisory mandate,” the judge said.

Why CBK Must Remain in the Case

Ms Rogo wants the court to compel Safaricom and M-Pesa Holding Company to introduce stronger measures aimed at preventing mobile money fraud and protecting customers who fall victim to such schemes.

Among the measures she is seeking are dedicated fraud-reporting channels and specialised teams to deal with complaints. She also wants the companies to establish transparent and timely compensation mechanisms for customers who lose money through fraud.

The petitioner further wants victims to be kept informed about investigations, including the progress of their complaints, expected timelines and possible outcomes.

CBK had asked the court to strike it out of the proceedings, arguing that it was not a proper party to the dispute. Ms Rogo opposed the application, maintaining that the regulator had a direct role because of its mandate over payment service providers.

The court agreed with the petitioner’s position, finding that CBK’s involvement could become important if orders are eventually issued against the mobile money operators.

“CBK is not a party against whom a decree is sought, but its presence enables the court to completely and effectively adjudicate the dispute. I therefore find that CBK has not made out a case to be struck out from these proceedings.”

The judge also noted that CBK had not demonstrated that remaining in the case would cause it prejudice.

“If judgment is entered in the plaintiff’s favour, the CBK would be required to exercise its supervisory powers to ensure the defendants comply with the court’s orders,” the judge said.

“Without the CBK, enforcement may be difficult.”

The decision places the regulator at the centre of a wider debate over the responsibility of financial and telecommunications institutions to protect mobile money users from increasingly sophisticated fraud.

Ms Rogo’s case stems from an incident in which she received a call from an unfamiliar number. The caller allegedly introduced himself as a Safaricom employee and claimed that he was trying to secure her M-Pesa account.

According to her petition, the caller appeared convincing because he sent messages that seemed to have originated from Safaricom’s official SMS system. He also allegedly referred to her M-Pesa balance, recent transactions and frequent contacts.

Believing that she was dealing with a genuine Safaricom employee, Ms Rogo followed the instructions she was given. She later discovered that she had lost Sh125,658.

Safaricom Challenges Route Taken by Customer

Ms Rogo has asked the High Court to declare that Safaricom and M-Pesa Holding Company violated her constitutional rights to information, consumer protection and fair administrative action.

She wants the companies to establish the requested fraud-prevention and reporting systems within 180 days if the court grants her petition.

She is also seeking Sh125,658, together with general and punitive damages and interest.

Safaricom and M-Pesa Holding Company, however, separately challenged the petition on procedural grounds. They argued that Ms Rogo should first have taken her complaint through the dispute resolution mechanism provided under the Communications Authority of Kenya (CA).

The companies argued that the dispute fell within the Kenya Information and Communications Act and accompanying regulations, which give the communications regulator powers to resolve certain disputes involving telecommunications service providers.

The court rejected that argument, finding that the relevant regulation does not make referral to the CA mandatory.

“Regulation 4(1) uses “may” for the initiation of the dispute process, which makes this process optional,” the court said.

The judge consequently held that the High Court retained jurisdiction to hear the matter, despite the argument that Ms Rogo should have exhausted the alternative dispute resolution mechanism.

The court also rejected the characterisation of the case as an ordinary customer complaint, noting that the petition raises broader constitutional and regulatory questions.

The ruling could have implications beyond the dispute involving Ms Rogo, particularly as mobile money fraud continues to present challenges for users, service providers and regulators.

At the heart of the case is the question of how far mobile money operators should go in preventing fraud and what responsibilities regulators should assume when customers allege that existing safeguards have failed.

Ms Rogo is effectively asking the court to move beyond compensation for her individual loss and require changes that could affect how fraud complaints are handled across mobile money services.

The case is scheduled for mention on September 17, when the parties are expected to return to court as the legal battle over the alleged fraud and the responsibilities of the service providers continues.