One of the key considerations for Kenya in its positioning as a global financial services and investment hub is its strategies in combating money laundering and financing of terrorism risks.
This has become a key concern, especially with the growing adoption of technology in the financial services sector and increased online transactions.
Kenya has been proactive in this area as a member of the Eastern and Southern Africa Anti-Money Laundering Group and an affiliate member of the Financial Action Task Force (FATF), the global standard setter on anti-money laundering (AML), and countering the financing of terrorism (CFT).
Kenya has already ratified the Proceeds of Crime and Anti Money Laundering Act, 2009 (POCAMLA). The Financial Reporting Centre (FRC) takes a leadership role in its implementation.
As part of ensuring nations are well placed to tackle AML/CFT, FATF requires countries to identify and understand the ML/TF risks they face to enable them apply a risk-based approach (RBA) in mitigating them.
Kenya conducted a National Risk Assessment (NRA) in 2020-2021 to identify gaps in Kenya’s Anti-Money Laundering /Combating the Financing of Terrorism and Combating Proliferation Financing (AML/CFT/CPF) legal, regulatory and institutional framework. The report was issued recently by the FRC.
In the NRA, the ML threat for Kenya was assessed as medium with a potential for increase in the future. On the other hand, the national money laundering vulnerability was assessed as Medium High. The banking industry was assessed as the sector with the highest impact on the national ML vulnerability, largely due to the important role played by banks in the economy.
Banks account for relatively higher share of financial sector activities but have elaborate and effective AML/CFT regulatory frameworks under the oversight of the Central Bank of Kenya.
Real estate, money remittance providers, money network operators (MNOs), Saccos, legal profession and motor vehicle dealers’ sectors were assessed as posing significant impact to the country’s national AML/CFT vulnerability.
One of the areas observed in the report is the securities sector regulated by the Capital Markets Authority (CMA). According to the NRA, FRC through POCAMLA has delegated authority and mandate to conduct AML supervision to the CMA, which uses a risk-based supervision model.
In 2015, CMA developed robust AML Guidelines (Capital Markets AML Guidelines), aligned to the national AML laws and the FATF recommendations.
Based on the forgoing, the variable was assessed as Very High. The FRC through POCAMLA has delegated its authority and mandate to conduct AML supervision to the CMA, which uses a risk-based supervision model
According to the NRA report, CMA has developed an AML programme consisting of policies, procedures, and risk-based tools to guide market participants. The Capital Markets Act provides for administrative sanctions for breaches such as insider trading, market manipulation, front running and securities fraud.
One of the subsectors in the securities sector highlighted in the report is the online foreign exchange trading regulated by the Capital Markets Authority (CMA). Licences to online trading brokers are issued pursuant to the Capital Markets Act, Cap 485A and the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017.
Transactions are done through internet-based trading of foreign exchange (currencies) and include trading in contracts for difference based on a foreign underlying asset.
The products are relatively complex as they are available in the form of contracts-for-difference and offered in a fast-moving market where price movements happen within very short timelines.
There are also no specific AML controls designed for the online forex trading sector but the licensed firms have internal controls measures designed at the institutional level to mitigate the risks of money laundering and financing of terrorism.
CMA takes action against unlicensed entities operating in Kenya to create a conducive environment to support the growth of the licensed companies including Scope Markets.
It is estimated that up to 400,000 Kenyans are actively involved in forex trading with only around 25 percent trading through the licensed non-dealing foreign exchange brokers.
With the shift of financial transactions to the online space, increased online transactions have been witnessed. This has created a fertile ground for online fraud as scammers also seek to take advantage of the increase in online activities as many people globally are undertaking contactless financial and business transactions.
The renewed focus on the Proceeds of Crime and Anti Money Laundering Act, and the strengthening of the Financial Reporting Centre (FRC) is a big boon to streamlining the online forex trading sector in Kenya, and minimizing money laundering in the country.
The writer is the CEO, Scopes Markets Kenya, licensed as a non-dealing online foreign exchange broker by the Capital Markets Authority
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