Kenya’s financial watchdog, the Capital Markets Authority (CMA), today announced its plan to provide a legal framework for online forex trading by introducing amendments to the Capital Markets Act, as per an official statement.
According to the proposed amendments, any person or entity shall not carry on business as an online forex broker unless it has obtained an online forex broker’s license granted by the Authority.
Until passing this legislation, the only entities permitted to engage in foreign currency dealing in Kenya are the authorized dealers licensed under the Banking Act and Central Bank of Kenya Act.
Furthermore, applicants seeking a forex license shall be a company limited by shares, have a minimum capital of Sh50 million ($500,000), make an undertaking to maintain the minimum capital at all times plus 5 per cent of liabilities owed to forex customers in excess of Sh50 million. In addition, it has to ensure that Sh40 million or 80 per cent of its capital, whichever is higher, is in form of cash and cash equivalents in financial instruments at all times.
The new licensing requirements were published under the draft Capital Markets (Licensing Requirements for Online Forex Brokers and Conduct of Online Forex Business) Regulations 2016, in a bid to facilitate the emergence of an effective and secure online forex trading environment for Kenyans.
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There is currently no regulatory framework governing online forex trading in Kenya, however it is estimated that over 50,000 local investors are participating through foreign registered brokers, according to Standard Investment Bank Research.
“Providing a legal framework for the online trading of foreign currency will aid in ensuring potential traders have a safer trading environment, facilitate diversification of financial activities and will serve to strengthen Nairobi’s position as a financial hub,” the CMA indicated.
The licensees will also be required to hire a chief executive who is a fit and proper person in addition to having an experience of not less than 5 years in the business of buying, selling or dealing in forex, forex futures or futures contracts.
Concerning the applicants that operate as a subsidiary or a branch of a regulated foreign forex firm, they are required to provide a proof to confirm the existence of such relationship. As for a forex firm regulated in another jurisdiction, it must provide a letter from that regulator confirming that it is not only licensed, but also in good standing and that there is no objection to operate in Kenya.
To further reduce the risk factor in the business, the Kenyan regulator also touched upon the leverage that an online forex broker may offer to its client. CMA said the offered leverage shouldn’t exceed 10 times the client’s deposit for trading in a currency pair between the Kenya shilling and any hard currency or any other East African Community currency. And in the case of trading currency pairs between any two hard currencies, it should be capped at 20 times of his deposit amount.
The Capital Markets Authority (CMA) has urged stakeholders and the public to provide their feedback and comments on the draft regulations. Deadline for submission of comments on the new regulations is August 17, 2016.