Let industry players have a say on CBK forex codeFriday March 24 2023
The Central Bank of Kenya (CBK) has moved to tighten loopholes that were being exploited by commercial banks to make unethical profits from the currency crisis after it released a new code on forex trade.
The foreign exchange code, which became effective on Thusday, comes with threats of punitive fines and licence suspension for offenders and is seen as a new tool to support a government-wide effort to push traders hoarding dollars to release them into the market.
The foreign exchange code is timely and it will cure many weaknesses in the forex space as it prohibits banks from engaging in trading practices, quoting prices or making transactions with the intention of manipulating price movements or disrupting the functioning of the market.
The banking regulator says the code will ensure the integrity and effective functioning of the forex market in Kenya.
For a start, commercial banks will be required to conduct a self-assessment and submit to the CBK a report on their level of compliance with the new code by April 30.
The action by the regulator is a positive development but it should not be used as a blanket tool to punish lenders doing legitimate business.
It is also worrying that the code was released in a hurry without full consultation with the industry and other stakeholders involved in forex trade.
The CBK has the mandate to regulate commercial banks, and this it must do.
But it does not mean that it goes against the global best practice that requires it to subject any regulations to comprehensive public participation, which must also meet the threshold set out in the Constitution.