One of the key considerations for Kenya in positioning itself as a global center for financial services and investment is its anti-money laundering and anti-terrorism risk financing strategies.
This has become a major concern, especially with the growing adoption of technology in the financial services industry and the increase in 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 standards body in the fight against money laundering (AML) and anti-money laundering. financing of terrorism (CFT).
Kenya has already ratified the Proceeds of Crime and Anti-Money Laundering Act 2009 (POCAMLA). The Financial Reporting Center (FRC) plays a leading role in its implementation.
In order to ensure that nations are well placed to combat AML/CFT, the FATF requires countries to identify and understand the ML/CFT risks they face in order to enable them to apply a risk-based approach. risks (RBA) to mitigate them.
Kenya conducted a National Risk Assessment (NRA) in 2020-2021 to identify gaps in the legal, regulatory and institutional framework for AML/CFT and CTF. proliferation (AML/CFT/CPF). The report was recently released by the FRC.
In the NRA, the ML threat for Kenya has been assessed as medium with potential to increase in the future. On the other hand, the national vulnerability to money laundering was assessed as medium high. The banking sector was assessed as the sector with the greatest impact on national ML vulnerability, largely due to the important role played by banks in the economy.
Banks account for a relatively higher share of financial sector activities, but have elaborate and effective AML/CFT regulatory frameworks under the supervision of the Central Bank of Kenya.
The real estate, remittance providers, money network operators (MNOs), Saccos, legal professions and car dealership sectors were assessed as having a significant impact on the country’s national vulnerability to AML/CFT.
One of the areas observed in the report is the securities industry regulated by the Capital Markets Authority (AMC). According to the NRA, the FRC, through POCAMLA, has delegated the authority and mandate to conduct anti-money laundering oversight to the CMA, which uses a risk-based oversight model. .
In 2015, the CMA developed robust Capital Markets AML Guidelines (AML), aligned with national AML laws and FATF recommendations.
Based on the above, the variable was assessed as very high. The FRC, through the POCAMLA, has delegated its authority and mandate to conduct anti-money laundering oversight to the CMA, which uses a risk-based oversight model.
According to the NRA report, CMA has developed an AML program consisting of risk-based policies, procedures and tools to guide market participants. The Capital Markets Act provides administrative penalties for offenses such as insider trading, market manipulation, front running and securities fraud.
One of the sub-sectors of the securities industry highlighted in the report is online currency trading regulated by the Capital Markets Authority (CMA). Online broker licenses are issued in accordance with the Capital Markets Act, Cap 485A and the Capital Markets (Online Foreign Exchange Trading) Regulations 2017.
Transactions are carried out through internet-based foreign exchange (currency) trading and include the trading of 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 occur within very short time frames.
There are also no specific AML controls designed for the online forex trading industry, but licensed firms have internal controls designed at an institutional level to mitigate money laundering and terrorist financing risks. .
CMA is taking action against unlicensed entities operating in Kenya to create an enabling environment to support the growth of licensed businesses, including Scope Markets.
It is estimated that up to 400,000 Kenyans are actively involved in forex trading, with only around 25% trading through licensed non-dealing forex brokers.
With the shift of financial transactions to the online space, an increase in online transactions has been observed. This has created fertile ground for online fraud as scammers are also looking to take advantage of the increase in online activity as many people around the world undertake 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 Center (FRC) is a boon to streamlining the online forex trading sector in Kenya and minimizing money laundering in the country.
The author is the CEO of Scopes Markets Kenya, licensed as a non-dealing online foreign exchange broker by the Capital Markets Authority.