Central Bank of Kenya Warns Public Against Illegal Forex Trading Schemes

September 1, 2020

Last week, in an unusual move, the Central Bank of Kenya (CBK), the Capital Markets Authority (CMA), the Insurance Regulatory Authority, the Ministry of Agriculture, Livestock, Fisheries And Cooperatives, the Retirement Benefits Authority and the Sacco Societies Regulatory Authority released a joint press release warning the public against a resurgence in fraudulent and unlicensed financial schemes.

The CBK press release warns that against “unregulated entities styling themselves as online foreign exchange (forex) brokers and traders”. Further stating that these fraudulent brokers “seek to exploit Kenyans and pose Money Laundering and Financing of Terrorism risks to the financial sector”

The timing of this press release is especially noteworthy. The Covid-19 pandemic has meant that many Kenyans are looking for alternative ways to supplement their income, which has in turn led to a surge in interest in online Forex trading. While many people believe that Forex trading can quickly lead to large profits, this is not the case. At best, a good Forex trader can expect a small but steady stream of income – with occasional losses. Forex trading requires skill, a strong financial education, discipline, and thorough understanding of the serious risks involved. 

For people that believe they have the necessary skillset for trading, there are several avenues to finding reliable Forex brokers that accept Kenyan clients. And it is important that aspiring traders conduct due diligence on any company or individual that approaches them with an investment idea. Foremost, novice traders must be certain that a Forex broker is regulated by either the CMA or another responsible national authority and will not try to cheat them or engage in other illegal financial activity.

It is also important for potential Forex traders to educate themselves. Not only will this increase the chances of a profitable trading career, it will also prevent fraudulent brokers and other scammers from taking advantage of a lack of knowledge. 

In the same press release the CBK also warns of fraudulent companies that “seek to recruit members of the public to join and make cash deposits purportedly to buy shares in the company”. These companies are otherwise known as a pyramid schemes, and only exist to steal people’s money. Many of these pyramid schemes will use Forex trading as a cover, often utilizing complex financial jargon to confuse their victims. With a solid education in the Forex market, serious traders are much less likely to fall victim to these scams. 

Currently there are only three Forex brokers licenced by the CMA in Kenya, these are EGM Securities (FXPesa), SCFM Limited (Scope Markets) and Pepperstone Market Kenya (the local branch of the large Australian broker Pepperstone). Kenyans can also trade legally with international brokers that are regulated by other national authorities, such as the South African FSCA and the UK’s FCA, but it is illegal for a Forex broker to trade from a Kenyan office without a CMA licence. 

The CBK’s warning comes at a difficult time for Kenya and it would be beneficial to see law enforcement move against these fraudulent companies. Both types of fraudsters prey on the least knowledgeable members of society, and many of them will not have even read the CBK’s warnings. A serious attempt to bring these scammers to heel could prevent many people from making a catastrophic decision.

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