CBK Forex Bureau Licensing in Kenya: Requirements and Compliance

Forex bureau licensing in Kenya is controlled by the Central Bank of Kenya (CBK) under Part VIA of the Central Bank of Kenya Act (Cap. 491). No person may transact foreign exchange business in Kenya unless they are an authorized dealer, and operating without a licence is a criminal offence. This article sets out the licensing framework, the capital, fee and deposit figures, the application route, and the ongoing obligations of a licensed bureau. It also flags a gap between the Regulations and CBK’s published practice.

The legal framework for forex bureau licensing

Forex bureau licensing rests on four layers of law and practice.

First, section 33A of the Central Bank of Kenya Act provides that no person shall transact foreign exchange business in Kenya except an authorized dealer. A person who contravenes the section commits an offence and is liable to a fine not exceeding KES 500,000, imprisonment for up to three years, or both. Section 33B requires anyone proposing to transact foreign exchange business to apply to CBK for a licence before starting.

Second, the Central Bank of Kenya (Foreign Exchange Business) Regulations, 2007 (Legal Notice 62 of 2007) set the application fee, minimum core capital, licence fee and deposit for foreign exchange bureaus. Third, the Central Bank of Kenya (Foreign Exchange Bureau) (Penalties) Regulations (Legal Notice 82 of 2009) set the penalty regime for bureaus that breach CBK guidelines or directions. Fourth, CBK’s Forex Bureau Guidelines and published licensing procedure govern the detail. Section 33K of the Act lets CBK issue instructions or directions to authorized dealers, and failure to comply is itself an offence carrying the same maximum penalty as section 33A.

Capital, fees and deposit: a discrepancy to understand

Applicants must read the Regulations and CBK’s practice side by side, because they do not match.

The gazetted Regulations state the following. Regulation 3 requires minimum core capital of US$30,000 or its Kenya Shilling equivalent, maintained at all times from commencement of operations. Regulation 2(2) sets a non-refundable application fee of KES 10,000. Regulation 4(1) sets a licence fee of KES 65,000, or such other amount as CBK determines from time to time, and a non-interest bearing deposit of US$30,000 remitted to a CBK dollar account. Under regulation 4(2) the annual licence fee is payable on or before 31 December of the year preceding the licence’s validity, and regulation 2(5) makes a licence valid for one year from issue.

CBK’s own published licensing procedure for forex bureaus, however, asks for a non-refundable application fee of KES 20,000, not KES 10,000, while confirming the KES 65,000 licence fee and the US$30,000 non-interest bearing deposit. The procedure document does not state a minimum core capital figure. Business Daily reported in March 2011 that new CBK guidelines taking effect the following month would double bureau core capital from about US$30,000 to US$60,000. We have not located a numbered Legal Notice amending Legal Notice 62 of 2007, and we have not been able to open the 2011 guidelines themselves. The US$60,000 figure therefore rests on press reporting and on what applicants are told in practice, not on the amended Regulations.

Our advice is practical. Budget for the higher figures, confirm the capital and fee position in writing with CBK’s Bank Supervision Department before you commit funds.

How to apply

CBK’s procedure sets out the route. The promoters first reserve a company name with the Registrar of Companies and obtain CBK’s approval of a name that includes “Forex Bureau”, “Foreign Exchange Bureau” or “Bureau de Change”. The company is then incorporated and an application is made to the Director, Bank Supervision Department, on Form CBK/FXD/1, the form prescribed by regulation 2 of the 2007 Regulations.

The application must be accompanied by the application fee, a certified statement of affairs, certified memorandum and articles of association and certificate of incorporation, and a feasibility study with three-year financial projections, an organisational structure and the physical and postal address of the premises. CBK also requires six months of bank statements for shareholders and directors, completed fit-and-proper forms and credit reference bureau reports for shareholders, directors and principal officers, and declarations about bankruptcy, links to collapsed institutions and convictions for dishonesty. No director or shareholder may hold a similar role in another forex bureau.

CBK’s procedure says it will, within 90 days of lodging, ask for more information, issue a letter of intent, or decline the application. A declined applicant may appeal within 30 days. After a letter of intent the applicant pays the licence fee and remits the deposit, and CBK may inspect the premises before business starts. Note that regulation 4(1) of the 2007 Regulations speaks of a decision within six months of receipt of the application; plan for the longer period.

Ongoing obligations and penalties

A licensed bureau must submit audited annual accounts and the auditor’s report within three months after the end of its financial year, furnish information that CBK requires, and comply with CBK guidelines issued by circular (regulation 6 of the 2007 Regulations). CBK may suspend or revoke the licence of a bureau that contravenes those duties.

The 2009 Penalties Regulations list specific violations that attract monetary penalties. They include failing to file accurate returns, conducting business through a proxy or nominee, changing shareholding or directors without CBK’s prior written approval, and engaging an unvetted foreign exchange officer. CBK must notify the bureau in writing first. Penalties are payable within 14 days of service of the notice, and additional penalties of up to KES 10,000 may accrue for each day a violation continues. If a bureau does not pay, CBK may recover the amount from the non-interest bearing deposit, and the bureau must top the deposit back up within 30 days or risk revocation.

Anti-money laundering duties

The Proceeds of Crime and Anti-Money Laundering Act, 2009 defines a “financial institution” to include a person who conducts the business of trading in foreign exchange, among other activities, so bureaus carry customer due diligence, record-keeping and reporting duties under that Act. The AML thresholds have been amended in recent years, and CBK sets its own bureau-specific reporting thresholds by guideline. We do not state a dollar threshold here because the figures need to be confirmed against current CBK circulars at the time you file. See also our article on outsourcing the MLRO function.