Starting in January... 'Cash' will no longer remain outside banks
Local banks are preparing for a new phase in their handling of temporary cash surpluses. By the end of this year and the beginning of next January, these funds will no longer be permitted to remain outside bank vaults, marking the end of the practice of storing bank funds with third parties, such as cash-in-transit companies, as currently practiced.
The targeted daily liquidity surpluses are divided into two categories: “outflow,” which relates to daily cash surpluses typically absorbed to refill automated teller machines (ATMs) distributed across various areas of Kuwait, amounting to KD 4.9423 billion from the start of this year until the end of last July; and “inflow,” which includes funds received from bank branches, primarily deposit liquidity.
In this regard, local banks have submitted their plans to the Central Bank of Kuwait to complete the regulatory, operational, and supervisory requirements related to cash management operations. The majority have demonstrated their readiness to align their operations and fulfill all specified requirements to change the mechanism for holding and storing cash outside their headquarters within the final deadline at the end of this year. This will enable banks to begin 2027 capable of storing their available cash in dedicated vaults at their headquarters.
1. Cash must be stored and kept exclusively at the bank’s headquarters, under its full and direct responsibility and supervision, subject to approved protection, supervision, and security procedures. No cash amounts may be stored or kept with any other party.
2. Banks must, no later than December 31 next year, complete their alignment and fulfill all regulatory, operational, and supervisory requirements related to cash management operations, within an integrated central framework and in accordance with best practices. This aims to ensure efficient cash flow management, enhance the effectiveness of internal control systems and risk management, provide and qualify specialized human resources, and organize necessary training programs to improve their competence.
3. Policies and work procedures governing cash management operations must be adopted to ensure uniform application across all bank branches. A centralized database for cash flow must be established to guarantee the availability of necessary information and data for follow-up and monitoring, and to enable tracking of cash movements at all stages.
Among the proposed banking scenarios for storing and keeping unutilized daily liquidity is the establishment of a subsidiary owned by the bank and licensed by relevant authorities. If this is realized, the entity’s objectives must be restricted to the scope defined in its memorandum of association and articles of association, limited solely to the transfer of the bank’s funds. The company must not engage in any other activities or utilize any third parties in executing its operations, and it must remain under the bank’s full and direct supervision.
Once banks fulfill the requirements for storing daily liquidity surpluses at their headquarters, the storage and keeping of any cash amounts belonging to local banks with third parties will be prohibited. Consequently, there will be no need to contract with cash storage and transit companies for arrangements that allow banks to leave unutilized cash in the custody of specialized firms for 24 hours. This arrangement will be replaced by a new operational mechanism for bank cash surpluses, ensuring that cash does not remain outside the bank’s vault boundaries, whether during receipt or delivery.
From a banking perspective, restricting cash storage to bank-managed and supervised headquarters and sites will entail banks assuming full responsibility for cash assets, ensuring the safety of funds, and implementing storage, custody, and insurance procedures.
In practice, this requires the implementation of high-level standards and controls at banks’ headquarters and cash storage and holding facilities, including, at a minimum, providing an integrated system that ensures round-the-clock security monitoring of cash movements, along with operational policies and documentation of the cash cycle from receipt to delivery, approved by senior management.
The list of regulatory requirements for banks to begin storing cash at their headquarters also includes ensuring uninterrupted banking operations by designating alternative sites, and establishing a department to handle natural disasters, technical failures, and security incidents, in line with best regulatory practices and international standards for cash and liquidity management.
From a regulatory perspective, the Central Bank’s aim in changing banks’ behavior regarding how they hold their daily cash surpluses is to ensure that highly liquid cash is kept at secure headquarters, thereby helping to avoid operational, security, and legal risks associated with storing cash with third parties, which often involve overlapping responsibilities. This is particularly relevant given that, in the past, quantities of “cash” belonging to cash-in-transit companies were discovered stored in unlicensed facilities for liquidity holding, some of which did not even hold a license to conduct such activities.
