The Central Bank has tightened its monitoring of foreign currency inflows by introducing new rules to ensure transparency and weed out rogue operators. Photo/LIZ MUTHONI
The banking sector regulator has moved to streamline its monitoring of foreign currency inflows by introducing new regulations to increase transparency and weed out rogue operators from the sector.
Owners of foreign exchange bureaus will be required to double their core capital to Sh5.1 million from Sh2.5 million ($60,000 from $30,000) in new regulatory guidelines effective next month.
The Central Bank of Kenya has also revised upwards the minimum balance that forex bureaus must maintain to $4000 from $2000 (Sh340,000 from Sh170,000) and raised the non-refundable application fee to Sh20,000 from Sh10,000.
CBK governor Njuguna Ndung’u said the new guidelines are aligned to the provisions of the existing laws like the Proceeds of Crime and Anti-Money Laundering Act 2009, which came into operation on June 28, 2010.
Analysts have recently called for close scrutiny of forex bureaus, which are seen as possible money laundering points.
A tight grip on their operations enables the banking sector regulator to control money in circulation in the economy, easing implementation of monetary policy.
“I think CBK feels that we are playing a bigger role in the money laundering problem and is seeking to have a better understanding of our operations,” said a bureau manager who requested anonymity due to the sensitivity of the matter.
CBK said the higher capital requirements, which come into effect on April 1, will ensure that only the people qualified to run such business are allowed entry in to the market.
The regulator said the new guidelines will enhance competition and vibrancy and more importantly re-define the basic tenets of the forex bureau sub-sector.
The Kenya Forex Bureau Association (KFBA) officials said increment of core capital of their businesses will improve their financial strength and weed out unstable operators.
Samuel Angwenyi, director of the association, said that bureaus will also be required to register the changes with the registrar of companies.
But some bureau owners complained that even though the rules are meant to grow the sector, the high minimum balance will only increase their volume of idle capital.
“Most of our money that would have been beneficial elsewhere will now earn us nothing,” said Abdi Mohammed, the manager at Amal Express Forex Bureau.
Bureau managers said the increment was on the higher side.
“We are now required to top up the remaining capital which is double our current figure, this is high,” said Irene Ndungu, manager of Taipan Forex Bureau at Village Market.
Ms Ndungu said they are also required to pay an extra $20,000 (Sh1.7 million) as the market regulator has raised the non interest earning deposit from $10,000 to $30,000.
Industry players said in areas that are not busy enough to make use of the new core capital the money will remain as idol capital.
Ms Ndungu said most bureaus are planning to merge to raise this capital.
“Smaller bureaus that do not have partners to merge with might end up closing shop, she said.
The 2011 guidelines also allow bureaus to run, at most, two foreign currency accounts with two different banks as opposed to only one account as stipulated in the 2006 guidelines.
Bureaus will not be allowed to buy more that $1000 in foreign exchange from their customers as compared to a limit of $10,000 in the current guidelines.
The new rules allow bureau owners to be agents of money transfer companies including telcom firms and international money transfer companies such as Money Gram and Western Union.
This will help them provide complementary services and increase their revenues, unlike the 2006 provision that does not allow any other operations.
The bank has also introduced stringent anti-money laundering rules in which forex bureaus will be required to capture various details of their clients to keep track of them.
Mr Mohammed said it was difficult to keep asking identity cards from customers, adding they might end up losing clients to banks as they do not ask them for any identification documents.
