Investors dabbling in online foreign exchange trading through unlicensed entities risk losing their investments, the Capital Markets Authority has warned.
CMA chief executive Paul Muthaura said the market regulator had observed a number of individuals and entities purporting to carry on the business of an online foreign exchange broker or a money manager without relevant licenses.
Online foreign exchange trading is where individuals speculate on the exchange rate of different currencies where profits are gained by correctly forecasting future values of the currencies.
This means if an investor thinks the value of the dollar is going to increase against the shilling, they can buy that specific currency pairing. If the right value of the dollar increases, the investor can sell the pair at a higher price.
Through the internet, investors are now able to access the global currency market and trading is made easier as there is no central location or formal exchanges where transactions can take place.
According to the Capital Markets Act, section 23 ( 1 ), ‘’No person shall carry on business as online forex broker or hold himself out as carrying on such a business unless he holds a valid license issued under this Act or under the authority of this Act.’’
So far, there is only one licensed non-dealing online foreign exchange broker, EGM Securities Limited which offers up to 61 currency pairs. The online currency trading platform does not however offer the dollar-shilling currency pair as regulations do not allow it.
“The CBK has indicated that including the Kenya shilling currency pair may introduce volatility and may lead to instability of the Kenya shilling. The consideration for this will be reviewed in future as the local financial market develops,” Muthaura said.
According to CMA, there are currently no licensed money managers in the market.
In 2017, CBK stated that an estimated 80,000 Kenyans wire money through bank transfer for purposes of foreign exchange trading with offshore brokers.
According to CMA, this does not include individuals who do not use bank wire and therefore the number could substantially be higher.
The market regulator said most investors trading with EGM Securities, are spread from East Africa, Nigeria, and Dubai.
According to EGM Securities Limited, 60 per cent of online currency trade deals are carried out by individuals aged between 25-35 years.