Njuguna Ndung'u: Review of Forex Bureau guidelines
Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the workshop
on the review of Forex Bureau guidelines, Kenya School of Monetary Studies, Nairobi, 24
February 2011.
* * *
The Directors and Principal Officers of Forex Bureaus;
Distinguished Guests;
Ladies and Gentlemen:
1. It gives me great pleasure to be here today to officially open this consultative
workshop that will comprehensively review the Forex Bureau Guidelines. At the outset, I
would like to take this early opportunity to express my sincere appreciation to all forex
bureaus represented here and to those that took time to study the proposals made and
submitted comments on the guidelines. This has allowed the Central Bank of Kenya team to
revise them considerably.
2. Ladies and Gentlemen, forex bureaus were first licensed in January 1995 to foster
competition in the foreign exchange market and to narrow the exchange rate spread through
this micro-structure of the market. As you are aware, the forex bureau sub sector has
experienced rapid growth since it was first established with the number of operating bureaus
having increased from 48 in 1998 to 126 as at December 2010. This rapid growth has to do
with units in the market and also the volume of their trading. But this has also come with
challenges. While the initial objectives have largely been met, it has become necessary to
take stock of achievements and challenges so far.
3. Ladies and Gentlemen: in the last few years, the Central Bank has carried out
comprehensive on-site and off-site review of the operations of forex bureaus. The review
exercises have revealed major weaknesses in the operations of some of the bureaus that
include;

Engaging in unauthorized business activities;

Non-compliance with the legal and regulatory requirements such as the Central
Bank of Kenya Act and the laws that govern taxation; and

Limited understanding of regulations and weak capacity in management of the
bureaus.
It is in light of this that Central Bank embarked on the process of identifying gaps in the
regulatory framework and reviewing the guidelines in order to streamline the sub-sector,
facilitate growth and ensure that all the players operate in accordance with the law.
4. The revised guidelines also seek to deal with the various challenges; strengthen the
corporate governance structure and financial position of the bureaus; enhance competition in
the foreign exchange market and more importantly re-define the basic tenets of this market.
From the comments and discussions we have held, we know that forex bureaus in line with
the market dynamism, would like to expand their sphere of operations by offering more
services and more products. In this regard and like any other good investment, the desire
calls for enhancement of capital to be employed. In addition, the guidelines must be reviewed
to align them with the provisions of the existing laws, like the Proceeds of Crime and
AntiMoney Laundering Act 2009, which came into operation on June 28, 2010. This law together
with the guidelines define the reporting methods of transactions by institutions.
5. despite the numerous challenges experienced in the forex
Ladies and Gentlemen,
bureau sub-sector in the recent past, the Central Bank recognizes the important role the
sector plays in the economy by offering foreign exchange at competitive rates and providing
employment to many Kenyans. But the market can only expand and thrive if rules and
guidelines are followed. In this case, only those investors who are ready and willing to
conduct their business within the set rules will be allowed to remain in the market. As we
align ourselves with the dynamics of the market, adherence to the rules of the game become
more important and critical for the survival of the market.
6. To enhance market discipline and encourage constructive engagement with the
regulator and so develop the market, I urge the owners of forex bureaus to strengthen the
Kenya Forex Bureaus Association (KFBA). This will entail reviewing the constitution of the
association, putting in place a code of conduct and allocating more resources to the
secretariat. The main objective of the initiative is to develop a vibrant market, to promote and
uphold professionalism, enhance high ethical standards, foster self-regulation and above all
keep the line of engagement with the regulator alive so that market vulnerabilities or any
challenges can be addressed. For these reasons, membership to the KFBA has been made
mandatory and a pre-requisite for license renewal.
7. Ladies and Gentlemen, the workshop has been organized with one major objective
of facilitating a consultative process. I therefore urge you all to actively participate fully and
build consensus on the content of the guidelines before they are finalized. The Central Bank
believes that this approach will foster an inclusive enabling environment for the growth and
development of the forex bureau sub-sector.
8. Finally, let me once again reiterate that the Central Bank of Kenya as a financial
regulator of this market and as an agent of developing this market will continue to pursue
policies and guidelines that create a conducive environment for growth of the financial sector,
encourage provision of financial services to the majority of the population at affordable cost
and enhance the safety and soundness of the financial system.
9. With these few remarks, ladies and gentlemen, it is now my honour and pleasure
to declare this workshop officially open and presuppose a fruitful engagement.
Thank you and God bless you all.