Fast Internet drives boom in illegal private forex trading

• Some dealers have opened personal dealing bureaux where they hire university graduates to oversee the trading
• Also lured by the flourishing business are bank employees not directly attached to Treasury
• Central Bank of Kenya Governor Prof Njuguna Ndung’u terms the private dealing a criminal activity
• Neither the Central Bank nor the Kenya Revenue Authority seem to be aware of the flourishing private forex dealing
• Trading accounts are opened with no minimum balance requirement

Commercial banks in East Africa are losing billions of shillings annually through rogue dealers who are engaging in private foreign currency trading online, taking advantage of improved Internet connections and the 24-hour nature of the business.

The EastAfrican has established that over 80 per cent of forex dealers in the region are taking part in private dealing with leading international dealers, competing directly with their employers. Apparently, the majority of them use their employer’s resources to trade.

So thriving is the business that some dealers have opened personal dealing bureaux where they hire university graduates to oversee the trading.

Every morning, before the official trading time kicks off, the principal dealers will “take positions” that are subject to change when a material event occurs in the market.

In case of any substantial change in the currency market, the hired employees are advised by their “bosses,” normally over the telephone, to review trading positions.

For starters, a trading strategy known as “booking” is employed, whereby currencies are sold and bought automatically when a certain exchange rate is reached.

This trend also explains the high dealer-turnover being witnessed in banks.

“Dealing is very demanding. I normally make an average of Ksh500,000 ($6,670) 0daily for the bank but I am considering quitting to start my own operation, for this is a very lucrative venture free of tax,” a dealer at Co-operative Bank of Kenya said.

Also lured by the flourishing business are bank employees not directly attached to treasury.

This new breed of traders are said to hone their dealing skills through mentorship from their treasury colleagues and private tutorial courses.

Dealers interviewed by this paper confirmed that the forex business is taking East Africa by storm, especially with the coming of faster Internet connections, thanks to the recently launched undersea fibre-optic cable.

Central Bank of Kenya Governor Prof Njuguna Ndung’u terms the private dealing a criminal activity.

“In Kenya, the only entities permitted to engage in foreign currency dealing are the authorised dealers licensed under the Banking Act and Central Bank of Kenya Act. In this regard, any individual or entity engaging in forex dealing who is not a licensed or authorised dealer is committing an offence punishable in law,” Prof Ndung’u said.

Official ignorance

What is baffling, however, is that neither the Central Bank nor the Kenya Revenue Authority seem to be aware of the flourishing private forex dealing despite conspicuous notices and promotions in the Internet and media about the trade.