EAC in crack­down on il­le­gal forex trad­ing

Cen­tral banks and cap­i­tal mar­kets reg­u­la­tors have tight­ened rules to keep out un­scrupu­lous deal­ers

The East African - - MARKETS - By JAMES ANYANWA

East African gov­ern­ments have stepped up the war against and spec­u­la­tive for­eign cur­rency trad­ing.

The lat­est ef­fort has seen the re­gion’s cen­tral banks and cap­i­tal mar­kets reg­u­la­tors tighten forex trad­ing reg­u­la­tions to weed out fraud­sters from the lu­cra­tive busi­ness.

It is ar­gued that il­le­gal forex trad­ing stands to trig­ger in­fla­tion in the re­gion and weaken lo­cal cur­ren­cies, which would make im­ports ex­pen­sive and fur­ther worsen bud­get deficits for re­gional economies.

For in­stance, in Tan­za­nia, the lo­cal cur­rency de­pre­ci­ated by 0.3 per cent be­tween Septem­ber and Oc­to­ber this year and 2.2 per cent on av­er­age in the past 10 months, ac­cord­ing to data com­piled by global ad­vi­sory firm Stratlink.

The Tan­za­nian shilling closed the month of Novem­ber at 2,291.7 units against the US dol­lar, down from 2,281.5 units against the green­back at the be­gin­ning of the same month.

Bank of Tan­za­nia car­ried out a six-month in­ves­ti­ga­tion into the il­le­gal busi­ness, which re­vealed ram­pant fraud the forex mar­ket busi­ness, with sev­eral traders in­volved in money laun­der­ing. As a re­sult, the bank­ing reg­u­la­tor launched a crack­down on this il­le­gal busi­ness by sus­pend­ing the li­cens­ing of new forex bu­reaus, ar­rest­ing some key sus­pects and bar­ring sus­pect com­mer­cial banks from the in­ter­bank forex mar­kets.

“All ap­pli­ca­tions have been sus­pended and new ap­pli­ca­tions won’t be ac­cepted pend­ing the in­tro­duc­tion of new rules and reg­u­la­tions,” said BOT Gov­er­nor Florens Luoga.

Tan­za­nia used the mil­i­tary to seal off sus­pi­cious forex bu­reaus as cen­tral bank of­fi­cials raided the out­lets.

In Rwanda, three pub­lic agen­cies have joined hands to com­bat the grow­ing black mar­ket forex op­er­a­tions in Kigali. The team com­prises the Na­tional Bank of Rwanda, the po­lice and the Lo­cal Gov­ern­ment Min­istry.

In Novem­ber, Rwan­dan se­cu­rity of­fi­cers ar­rested five un­li­censed forex traders.

The Rwanda Na­tional Po­lice has in­ten­si­fied op­er­a­tions against il­le­gal for­eign ex­change deal­ers in­clud­ing non-li­censed forex bu­reaus.

In Rwanda, the law pro­vides that any per­son who sells or ex­changes the na­tional or for­eign cur­rency il­le­gally shall be li­able to a term of im­pris­on­ment of six months to two years and a fine rom Rwf200,000 ($224) to Rwf3 mil­lion ($3,358).

In Uganda, the po­lice have been hunt­ing down il­le­gal forex deal­ers since 2015, and sev­eral sus­pects have been ar­rested and de­tained, ac­cord­ing to the Bank of Uganda.

Kenya has cau­tioned in­vestors to be alert of the il­le­gal forex busi­ness af­ter the Cap­i­tal Mar­kets Au­thor­ity dis­cov­ered that sev­eral deal­ers were op­er­at­ing with­out li­cences.

“The Au­thor­ity will take ap­pro­pri­ate en­force­ment ac­tion against any per­sons or en­ti­ties il­le­gally con­duct­ing on­line for­eign ex­change trade or col­lect­ing client funds in con­tra­ven­tion of these reg­u­la­tory pro­vi­sions,” said CMA chief ex­ec­u­tive Paul Muthaura.

Kenya has set a fine of up to Ksh5 mil­lion ($50,000) fi­nan­cial and or im­pris­on­ment for a pe­riod not ex­ceed­ing two years for in­di­vid­u­als mas­querad­ing as on­line forex bro­kers, ac­cord­ing to Cap­i­tal Mar­kets (On­line For­eign Ex­change Trad­ing) Reg­u­la­tions, 2017 which came

Pic­ture: File

Cen­tral banks in the re­gion have raised con­cerns over il­le­gal forex trad­ing.

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