CBK Introduces New FX Code with Threats of Penalties and License Suspension for Banks

The Central Bank of Kenya (CBK) has introduced a new foreign exchange code that has left banks worried.

The code, which comes into effect immediately, prohibits banks from engaging in trading practices, quoting prices or making transactions with the intention of manipulating price movements or disrupting the functioning of the market.

Banks that fail to comply with the code could face monetary penalties and licence suspension. The CBK expects the FX code to be fully implemented, and each bank to be in full compliance by December 31, 2023.

This move comes at a time when the State has been seen to take matters into its own hands, exerting pressure on the market through a mix of unprecedented policies such as importing fuel on credit to force the market to release scarce dollars into the market. For its part, the CBK has been tasked with reviving the interbank forex market, whose collapse was attributed to the depreciation of the shilling which crossed the Sh130 mark this week.

President William Ruto also warned traders hoarding dollars to expect losses in a few weeks. Market insiders told the Business Daily that the interbank market picked up on Monday following talks between lenders and the CBK and trials to jumpstart the trades.

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A spot-check across multiple banks showed banks were selling dollars at between Sh136 and Sh142 on Wednesday, down from a range of Sh140.55 and Sh144.50 a week ago. They were buying the greenback at between Sh127 and Sh130.30 per unit. Forex bureaus were selling dollars to consumers at between Sh139 and Sh141, compared to Sh142 and Sh146 last week.

The CBK says the code is modelled on the FX Global Code that currently has 51 signatories, including three African countries—South Africa, Mauritius and Angola. The CBK code requires Kenyan banks to submit a quarterly report on the level of compliance within 14 days after the end of every quarter, the first report being due by July 14, 2023.

Banks will also be required to identify conflicts of interest that may compromise or be perceived to compromise their ethical or professional judgment, such as entertainment and gifts. Banks’ boards will be expected to put in place adequate and effective structures to provide oversight, supervision, and controls to deal with rogue market participants.