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Kenyans Should Be Wary of Unlicensed Forex Traders- CBK

CENTRAL BANK, NYS SCANDAL
Central Bank Governor, Patrick Njoroge. / COURTESY

Forex trading is often floated as one of the alternatives to employment for young people. Browsing through many social media pages, you will find hundreds of youth claiming to be making a living from Forex trading, and even more are willing to train others to get started, at a little fee of course. On Facebook, you will find numerous pages dedicated to online forex trading where ‘traders’ converge to engage and interact on the progress of the trade.

There are a couple of legitimate forex trading brokers online and some individuals have actually made it in the business. Once in a while, you will read about individuals like Paul Mugenda who have made it big in the online forex market. Paul left Technical university of Kenya and after hustling for a few years, decided to give forex trading a hand. He lost his first Sh30,000 but did not lose hope. He invested Sh50,000 more after getting lessons from a friend.

“My friend lent me Sh30,000 to start me off, but with no knowledge of the risks involved, I blew it up within days. Devastated, I went back to my friend, who was kind enough to lend me an additional Sh50,000 to restart,” he narrates.

Three years on, Paul owns his own forex trading company, Paris FX with a net value worth millions of shillings.

Read: Absa Bank of Kenya Suspended from Forex Trading by Central Bank for Engaging in Money Laundering

So how exactly does online Forex trading work?

Forex is the act of buying and selling currencies online. Players in this type of trade include financial institutions, corporations, investors and individual traders, who exchange world currencies to balance markets, to facilitate international trade and to make a profit.

“As a trader, you may use Kenyan Shillings to buy US dollars. In such a transaction, the two currencies are called currency pairs. You buy one currency and sell it at a profit depending on the prevailing forex market situation,” Paul says.

To get started in forex, a trader has to deposit a certain amount of money with a certified forex broker, depending on the amount one wants to trade. Some brokers accept as low as Sh1,000. It is then that one is allowed to trade. Libertex, Avatrade and FBS are some of the brokers in Kenya.

On the risks involved in the job, “This trade is delicately dependent on stability in the world. Events and politics in the biggest economies influence how the market operates. Foreign currencies fluctuate in value by the minute,” he explains, and adds, “Forex is currently unregulated in Kenya. As a trader, all you need to do is to understand the trading dynamics and to conduct proper analysis of the market to avoid losses.”

Read: Kenyan Man Makes Away With Sh6 Billion After Swindling Somalia MPs Through Fraudulent Forex Trading Company

Based on Feedback from many Forex traders online, the business seems to attract even more risk than is actually presented. For starters, a lot of people, on hearing of the returns, are willing to part with their money to have someone else trade on their behalf. Like any market, Forex trade is also awash with unscrupulous dealers who promise great returns and deliver misery.

Such is the case of Timothy Mugunde, who found himself in a precarious situation after losing millions of shillings to a broker.

Timothy met Joshua Kiura who claimed to be an online forex exchange broker, through an already existing client. With a promise of 1o percent returns on his savings monthly, Timothy thought this was the best way to invest his hard earned cash. The businessman from Siaya found it more lucrative than treasury bills, which were not fetching as much. He signed a Forex Investment Agreement whereby Mr. Kiura would pay him 10 percent of his investment every month between the 5th and 10th.

Mr Mugunda made an initial investment of Sh100,000, depositing it into Mr Kiura Standard Chartered Account. Thereafter, Mr Kiura made the payments diligently on the 10th of each month. So impressed was Mr Mugunda that he decided to increase his investment. He took Sh 2.2 million from his business and handed it to Mr Kiura hoping to get even better returns.

That was the end of the honeymoon. Mr Kiura made one more deposit of his interests and thereafter, started delaying payments claiming loss of profits due to issues such as Brexit. Eventually, Mr Kiura stopped responding to his texts and picking his calls. He had claimed to be in the US but even his US phone number went unanswered.

“I traveled to Nairobi and went to the DCI offices in Kiambu County and gave them all the relevant documents but they wanted to be bribed, money which I did not have,” said Mr Mugunde.

He also reported the matter to Hardy Police Station OB. No. 17/29/10/2019. Nothing has ever come out of the investigations the police promised.

Read: Forex Scam Victims Protest In Court After Case Delayed

There is also Mr Japheth Kaeke Musyoka, who put in Sh9 million, which he has now lost.

“I had resigned from my job to start a business. I handed to him (Mr Kiura) all my benefits on the promise of good returns,” said Mr Musyoka.

Mr Kiura’s alleged fraud scheme is one of the ways in which many unsuspecting Kenyans are losing money to unscrupulous individuals and firms claiming to be online forex brokers.

One such company is Goldvest Ltd, which has disappeared with more than 30 investors’ money after promising safe and lucrative returns. Goldvest promised between 90 and 270 per cent interest, depending on the duration of one’s investment.

Meanwhile, another businessman Manases Karanja has been charged with the offence of obtaining money by false pretence and running an illegal online forex business through InterWeb Global Fortune Limited, where he is a director.

The Capital Markets Authority (CMA) says it has licensed only three online foreign exchange brokers as provided for in the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017.

These are EGM Securities Limited (Trading as FXPesa), SCFM Limited (trading as Scope Markets), and Pepperstone Markets Kenya Limited.

“The authority also relies on alerts from stakeholders on the existence of unlicensed entities. Investors are invited to confirm the legitimacy of firms offering capital markets services and products through reference to the list of licensed firms on the authority’s website. The authority is also available on social media platforms to respond to any issues,” the CMA said.

Read: Maalin CEO Allegedly Disappears With Sh15 Billion Belonging To Investors, CS On Spot For Aiding His Escape

With just three licensed online foreign exchange brokers, it means many Kenyans who have put their money in the trade are dealing with fraudsters.

“If cases are brought to our attention and we establish there are crimes that may have been committed, we engage the criminal investigation and public prosecution agencies to follow up on such matters,” the authority said.

“Following a market survey, we estimate that over 400,000 Kenyans are investing through unlicensed online foreign exchange brokers outside Kenya. In contrast, the licensed online foreign exchange brokers have around 60,000 clients. This is unfortunate since Kenyans investing through the unlicensed online foreign exchange are exposed to risks as most of the unlicensed entities do not even have a physical presence in Kenya,” said The CEO of Scope Markets Kenya, Mr Kevin Ng’ang’a.

Mr. Ng’ang’a said the presence of unlicensed foreign exchange brokers in the market is a threat to the business of the licensed brokers.

Recently, CBK governor announced that Crown Bureau de Change Kenya Ltd Forex licence had been revoked. He gave no reasons for the cancellation, but in normal circumstances, a bureau can be deregistered if it fails to conduct foreign exchange transaction for six months from the date of issue of the licence, or for breach of service.

“We urge members of the public to confirm the licensing status of forex dealers from CBK website before engaging with the dealers, as they risk being defrauded and losing money,” reads a statement from CBK’s Banking Fraud Investigations Department.

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Written by Vanessa Murrey

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