workers. there appears, for the present at least, to be an acceptance that pre - crisis pay levels are no longer achievable. real wages have proved to be remarkably flexible and, as a consequence, unemployment has been able to drop quickly without inflationary pressure on pay emerging. to complete the picture, the fall in unemployment has included a high number of long - term unemployed, who probably drag less on pay. taken together with workers ’ apparent willingness to accept lower real pay levels, the non inflationary rate of unemployment, or nairu, looks to be at a lower level than we might have expected. the mpc already built into its august forecasts the possibility of some positive labour supply shock. it took the judgement then that, contrary to previous assumptions and the experience of previous recessions, the labour participation rate would be less affected by an ageing population. and, having seen little evidence of pay pressure, it took the view that the nairu had fallen to 5. 5 % – not far off the 5 % rate that prevailed in the uk before the crisis. but even relative to last august ’ s judgement on labour supply, pay growth still looks weak relative to models calibrated on the pre - crisis period. at the same time, unemployment is still falling more rapidly than expected. bis central bankers ’ speeches the mpc is left with a judgement whether those falls in unemployment presage an imminent sharp pick up in pay growth. or whether the continued weakness in labour costs means we can afford to let falls in unemployment continue to run for some time yet. as always with economics, it is possible to make a good case on either side. we will know more when we see the extent of pay pressures in the big annual settlement rounds in the first quarter of next year. but there are grounds to continue to suspect that labour supply may be behaving differently to the past, to be cautious about moving to tighten monetary policy on the basis of falling unemployment alone and to wait for clearer signs of strength in pay growth. even after adjusting for one off effects, pay growth is currently still some 2 percentage points below the pace consistent with achieving the inflation target in the medium term. that weakness in pay might go some way in explaining why inflation has been undershooting the mpc ’ s predictions of late. the instinct to be cautious about tightening monetary policy too early is further reinforced by the constraints that come with bank rate remaining close to its effective lower bound. we ’ ve

##igence requirements have been difficult to implement particularly in rural and even peri - urban areas. for instance, the requirement to verify the physical address of a customer has been a challenge in some instances. as you will appreciate, documents such as utility bills required to prove physical address are nonexistent in areas where electricity, telephone, water and other services are yet to be installed. we might call it an urban bias in physical address. this is further complicated in some of our nomadic communities whose physical address is determined by availability of pasture and water. given our experience, we would greatly welcome an opportunity for this group to engage in a discussion of these peculiar challenges. in particular, it would benefit our financial institutions dealing with less sophisticated customers to apply simplified customer due diligence that takes into account the existing circumstances without necessarily compromising the “ know your customer ” obligations as required under the financial action task force ( fatf ) recommendations. i would therefore urge this group to look at how a risk based approach reflecting the circumstances in this region can be rolled out. this would benefit financial reach in the country. the cost of staff training for financial institutions and putting in place the requisite systems for transaction monitoring is also enormous. i am, however, pleased to note that the kenyan banking sector has embraced the necessary policies and procedures to deter and detect money laundering. we are jointly addressing the challenges i have alluded to with the banks, as we seek customised solutions that will not dilute the overarching imperative that banks “ know their customers ”. we also hope that lessons from ongoing esaamlg research studies on trends and typologies of money laundering in the region will serve as useful inputs in addressing some of these challenges. from a regional perspective, as central banks, we continue to engage and share experiences on how we can strengthen our regulatory mechanisms on anti - money laundering and combating the financing of terrorism. beyond esaamlg, this agenda is discussed at regional economic forums that our countries are members of, including the east african community ( eac ), the common market for eastern and southern africa ( comesa ) and the southern africa development and co - ordination committee ( sadc ). we would also, in this regard, welcome assistance to central banks as well as other regulatory bodies to enhance their regulatory capacity in anti money laundering and combating the financing of terrorism. it is my hope that esaamlg will expand its co - operation with the regional organizations involved in