FOREIGN EXCHANGE

BUREAU
GROUP 4
 Group 4 members

NAME REGISTRATION NO EMAIL

WABWILE BRIAN WEKESA G34/3638/2020 brayo305@students.uonbi.ac.ke

NJUGUNA EVA NJERI G34/140237/2020 avanjue@students.uonbi.ac.ke

PRUDENCE MWAGO G34/141001/2020 prudencewaitherero@students.uonbi.ac.

ke
OCHIENG GERALD G34/3530/2020 geraldochieng499@students.uonbi.ac.ke

ESTHER NASIMIYU G34/3564/2020 estherwasike001@students.uonbi.ac.ke

MORACHA OMARI BOAZ G34/3599/2020 boazmoracha@students.uonbi.ac.ke

AMOL GARANG G34/141747/2021 garangamol@students.uonbi.ac.ke

FAITH BOKE CHACHA G34/3596/2020 faithboke@students.uonbi.ac.ke

JUMA JOHN ODALO G34/3651/2020 juante19@students.uonbi.ac.ke

DEFINITION OF FOREIGN EXCHANGE BUREAU

• A forex bureau is defined under section 2 of the Central Bank of

Kenya Act to mean a company incorporated in Kenya whose
liability is limited by shares, with the main object of buying and
selling foreign currency;
The definition brings out the aspect of a forex bureau being a
company. It is therefore also subject to laws that govern companies.
This is especially the case during processes that the forex bureau
may undergo like liquidation.
What happens in a Foreign exchange Bureau?

• Foreign exchange business

• Still under section 2, the main activity undertaken in a foreign
exchange bureau is the activity of buying and selling currency.
• From the definition in section 2, apart from a forex bureau the
following institutions can also engage in foreign exchange
business:
- A specified bank (means any bank within the meaning of such
expression in the Banking Act (Cap. 488) which is specified by the
Bank for the purposes of this Act)
Cont.

• an authorized money remittance provider

• A microfinance Bank
• A specified mortgage finance company
• Any other person or body of persons granted a permit by the bank
under section 63(3) (however, in this case, engagement in such
limited foreign exchange transactions as the bank may permit.
Practical examples of what happens in
foreign exchange business

• Travelers need for different currency notes

• Companies that buy items in large volumes from other states
• Why the dollar is expensive
• The market (section 20 CBK Act) the value of the Kenyan shilling shall be
determined by the market.
• How Pwani Oil was affected by the decrease in dollar reserves in 2022.
relate to the debate on de-dollarization of the world economy.
• most foreign exchange bureaus are recorded in the directory of
licenced foreign exchange bureaus. An example is Classic Forex Bureau
Ltd.
Common ground

• The main similarity between a forex bureau and the

aforementioned institutions is that most of them engage in the
business of:
- buying, selling, borrowing or lending foreign currency or any other business
involving transactions in foreign currency;
- settling payments to or from Kenya or in Kenya between residents and non-
residents
When it comes to forex bureaus however, the transaction of
buying and selling foreign currency forms the main purpose of
the institution unlike the other institutions where it is just a part
of the many businesses that they engage in.
How does a foreign exchange bureau
compare to commercial banks

• SIMILARITIES
• - both regulated by the Central Bank of Kenya - see section 4 A (c)
which states that the bank shall licence and supervise authorized
dealers. This provision, when read together with section 2 that
defines authorized dealers to include both banks and forex
bureaus show that both banks and FBs are regulated by the CBK.
• Both commercial banks and forex bureaus engage in buy and sell
transactions at prevailing market rates. This also means that the
supply and demand of foreign currencies in the market affects
them in the same degree.
Differences

• Commercial banks not only offer foreign exchange services but

also a wider array of financial services. Forex bureaus on the other
hand focus on the transactions of buying and selling foreign
currencies and generate income from charging the transactions.
• The commercial Banks serve a diverse market which comprises of
people from all walks of life whereas a FB serves a specific class of
people. This is because it is mostly travelers and companies that
want to buy items from other countries that seek different
currencies.
The Role of the Central Bank of Kenya (CBK) in the Operations of a
Foreign Exchange Bureau encompasses several key areas,
including:

• Share holder approval

The CBK plays a pivotal role in approving individuals seeking to hold
shares in a forex bureau. It assesses the fitness and propriety of
potential shareholders, ensuring they meet the required standards.
2. Share Transfer Approval:
Additionally, the CBK is responsible for granting approval for the
transfer of shares within a forex bureau. This process ensures
transparency and adherence to regulatory standards.
3. Change in Shareholders or Officers:
The CBK also oversees changes in the shareholders or officers of a forex
bureau. Any such changes require prior approval from the Central Bank.
Cont.
4. Disqualification of Non-Compliant Individuals:
The Central Bank holds the authority to disqualify any shareholder or officer of a forex
bureau who possesses non-performing credit facilities in any financial institution, fails
to meet ongoing vetting requirements, or violates the Forex Bureau Guidelines,
Central Bank of Kenya Act, or any other directives issued by the CBK.
Outlet Expansion and Compliance:
Forex bureaus are allowed to establish additional outlets, subject to CBK approval.
The Central Bank grants this approval following a thorough assessment to ensure:
• a. Financial Soundness of the Bureau.
• b. Certification of the Management's Fitness and Propriety.
• c. Capacity for Online Information Processing.
• d. Adequate Capital Structure and Earnings Prospects.
• e. Enhancement of Public Interest.
• f. Improved Bureau Performance.
 Role of CBK cont.

• Inspection and Conditional Approval:

• The CBK conducts inspections of proposed bureau outlets to determine their
suitability to conduct forex bureau functions effectively. In cases where
deemed necessary, the Central Bank may impose specific conditions upon a
bureau as part of the outlet approval process.
• Head Office Designation:
• Forex bureaus with multiple outlets must designate one outlet as their head
office, consolidating their administrative functions and ensuring clear
operational hierarchy.
• Premises Accessibility and Usage:
• The business premises of a forex bureau should remain accessible to the
general public and the Central Bank. Subletting, leasing, or engaging in other
businesses on bureau premises is strictly prohibited.
Requirements set by the CBK.

• Foreign currency accounts

• Foreign account prohibition
• Management information systems :- see the case of Republic Vs
Central Bank of Kenya Ex Parte Middletown Forex Bureau Ltd
(2016) penalty for splitting of transactions to amounts below US
dollars 10,000 to avoid reporting to the CBK.
• Forex bureaus are directed to provide reports to the CBK in the
following formats; Exchange reporting, transaction reporting,
weekly transaction summaries, quarterly financial statements and
Annual audited reports.
Additional requirements

• In addition to these requirements, forex bureaus must also adhere to any other
reporting mandates as determined by the Central Bank of Kenya, reflecting the
evolving nature of financial regulation. Furthermore, they are obliged to
promptly communicate any suspicious transactions or activities that may
indicate potential money laundering or efforts to obscure the true identity of
customers, emphasizing the role of bureaus in anti-money laundering efforts.
• For forex bureaus with one or more branch locations, it is the responsibility of
the bureau's head office, a vital hub in the regulatory landscape, to consolidate
transaction data and accurate reports from all outlets. These consolidated
reports, whether submitted on- or offline, play a pivotal role in centralizing
oversight and maintaining compliance with regulatory standards.
Money laundering in relation to forex bureaus

• Establishing a forex bureau requires research careful planning and

execution because the process is prone to being complex. The
legal and regulating framework guiding the establishment of a
foreign exchange bureau includes the proceeds of crime and
Money Laundering Act, 2009. The Act provides that foreign
exchange bureaus must comply with counter-terrorism financing
regulation and anti-money laundering regulations. Therefore, the
bureau must report suspicious activities carry due diligence on
their customers and maintain records of transactions.
LICENSING

• Licensing Process and Requirements for Foreign Exchange Bureaus in Kenya

• To obtain a license one must follow a set procedure and process and meet the
provided guidelines. One must:
• Book an appropriate name with the Registrar of Companies and write to the
Central Bank to seek approval for the name. The name should incorporate the
words “Forex Bureau”, “Foreign Exchange Bureau” or “Bureau de Change”.
• After the name has been approved by the Central Bank, register the company and
then make a formal application to the Director, Bank Supervision Department,
Central Bank of Kenya in a duly completed FORM/CBK/FXD1, which can be
downloaded from www.centralbank.go.ke, attaching the following documents:
LICENCING Cont

• non-refundable application fee of Kshs 20,000 for a new licence and

Kshs 10,000 for an outlet of an existing forex bureau (fees are in
bankers’ cheque payable to the Central Bank of Kenya);
• a certified copy of a statement of affairs of the applicant;
• a certified copy of the applicant’s memorandum and articles of
association;
• a certified copy of the applicant’s certificate of incorporation;
• a feasibility study including financial projections for three years
(balance sheet, profit and loss account and cash flow statements),
organizational structure, physical location and postal address;
Cont.

• evidence of existence of a minimum core capital of not less than

US$60,000 or its equivalent in Kenya shillings, which should exist
before commencement of operations and maintained at all times
• bank statements of the bureau’s shareholders and directors for a
period of six months prior to the date of application;
• duly completed fit and proper forms for the shareholders,
directors and principal officers of the bureau;
• credit reports from a credit reference bureau for the
shareholders, directors and the principal officers of the bureau;
Cont.

• a declaration by the applicant that none of its directors and/or shareholders has
ever been declared bankrupt, participated in the management of a collapsed
institution, convicted by any court of competent jurisdiction in Kenya or
elsewhere of a criminal offence involving fraud, money laundering, tax evasion, or
any other act of dishonesty;
• a declaration by the applicant that none of its directors and/or shareholders holds
a similar position or role in any other forex bureau;
• an undertaking by the applicant to comply with the provisions of the Central Bank
of Kenya Act, the Regulations, the Forex Bureau Guidelines and any instructions/
directions issued by the Central Bank of Kenya regarding the establishment and
operations of forex bureaus at all times; and
• any other information as may be required by the Central Bank of Kenya.
Cont.

• The Central Bank of Kenya then shall within 90 days of lodging the
application:
• request for additional information for purposes of processing the application;
• where it is satisfied that all the necessary requirements have been met, issue
a letter of intent to the applicant advising the applicant to: -
• pay the licence fee of Kshs 65,000 to the Central Bank of Kenya by banker’s
cheque;
• ii) transfer the non-interest-bearing deposit of US$30,000 to the Central Bank
of Kenya offshore account;
• invite the Central Bank of Kenya to inspect the bureau’s premises prior to
commencement of business.
Issuance of license

• Upon fulfilment of the above requirements or otherwise the

Central Bank of Kenya shall issue a license to the applicant or
inform the applicant in writing that their application has been
declined and advise the unsuccessful applicant that an appeal to
the Central Bank of Kenya for review of the decision to decline
may be lodged within 30 days from the date the application was
declined.
Renewal of the licence

Section 33B of the Central Bank of Kenya States that a person proposing to transact
foreign exchange business shall before commencing such a business, apply to the bank
for licence. 33(b)(2), An application under this section shall be made in the prescribed
form and shall be forwarded to the bank together with the prescribed fee.
• In considering the application for a licence, the bank may require to be satisfied
with;
• The financial condition and the history of the applicant
• The character of its management
• The adequacy of its capital structure and convenience
• And the needs of the area to be served and the public interest which will be served
by the granting of licence
Cont.

• Therefore, Buying and selling of foreign currency is prohibited

unless one of the parties to the transaction is an authorized dealer
licensed under section 33(B) of the Central Bank of Kenya Act Cap
491.
• The bank has powers to advise and direct dealers, under section
33G(1) of the Central Bank Act, it states that , “if at any time or
upon an inspection under section 33F the Bank has reason to believe
that the business of an authorized dealer is being conducted in a
manner contrary to any of the requirements of this part or any
regulations made thereunder, or in a manner determined to or not
in the best interests of the public, the bank may;
Cont.

• give advice and make recommendations to the authorized dealer with

regard to the conduct of business generally;
• Issue direction regarding measures to be taken to improve the
management business methods of the authorized dealer, or to secure
compliance with the requirements of this part or any other written law;
• appoint a person suitably qualified and competent in opinion of the bank,
to advise and assist the authorized dealer generally, or for the purposes
of implementing any directions issued under paragraph (b), and the
advice of a person so appoint shall have the same force and effect as
direction issued under paragraph (b) and shall be deemed to be a
direction of the Bank under this section.
Revocation of the license

• Under section 6(1)(A) of the Central Bank of Kenya (Foreign

Exchange Business regulations, 2007) a foreign bureau shall
submit, not later than three months after the end of its financial
year, to the central bank of Kenya., it’s annual audited accounts
and a copy of the auditor’s report in the prescribed form.
• In section 6(2) the Central Bank may suspend or revoke the licence
of a foreign exchange bureau which contravenes sub regulation (1)
above.
Operation of a forex bureau

• The forex bureau guidelines 2011, stipulates that the authorized business
activities of a forex bureau include:
• 1.To deal with foreign currency transactions involving cash and other instruments by
the central bank of Kenya.
• 2.To conduct money transfer transactions as agents of mobile phone companies and
as sub agents of international money transfer agents for example western union and
money Gram subject to the approval of the Central Bank and shall;
• a)Submit to the central bank of Kenya copy of the agreement/contract between the
bureau and the telecoms company or the agent.
• b)Submit any other additional information as required by the central Bank of Kenya.
• c) To conduct business in compliance with both the applicable law and regulation
of the Agency and these guidelines
Cont.

• 3. To transact telegraphic transfers through a bank in amounts not exceeding or

equivalent of US 100,000 per customer per day, subject to the conditions of the
Central Bank and shall
• a)not allow or process transactions that or appear to have been deliberately split for
whatever reason.
• b)Carry out customer due diligence as required under section 4.10 (4) and (5) of
these guidelines.
• c) Obtain and maintain records as required under section 4.10 (5) of these guidelines.
• 4.To sell foreign currency drafts to their customers ,transact on travelers
cheques ,purchase foreign currency drafts to their customers that are not in excess
of US 1000 or its equivalent in any other currency and may transact any other
business as approved by the central Bank.
Unauthorized business activities

Forex bureaus shall not be permitted to:

• 1.Engage in lending money.
• 2.Establish letters of credit.
• 3.Act as custodians of foreign currency on behalf of customers.
• 4.Act as authorized dealers in gold.
• 5.Deal in forward market.
• 6.Act as either payment or collection agents on behalf of the customer.
• 7.Conduct approved business via internet.
• 8.Transact in third party cheques
Cont.

• Purchase foreign currency drafts from customers that are from customers that
are in excess of US 1000 or its equivalent in any other currency.
• 10.To introduce new products that are not authorized under section 4.10
without prior consultation and written approval by the central Bank of Kenya.
• 11.To process transactions that are or appear to have been deliberately split
into small amounts equivalent to US 10,000 Dollars or below to avoid the
requirement of reporting to the Central Bank of Kenya.
• 12.Forex bureaus are not permitted to sell foreign currency to non residents
unless the non resident can prove that the Kenyan shilling in his possession was
obtained in Kenya from the sale of foreign currency or from other lawful activity
or from an authorized foreign currency dealer in Kenya or from a legitimate
external source
Ownership and Management

• 1.Directors, principal officers and assistant principal officers of

forex bureaus shall be vetted and approved by the central Bank of
Kenya prior to assuming office.
• 2.Forex bureaus shall appoint;
• a)at least two directors.
• b) a principal officer and an assistant principal officer who will be
responsible for all operations of the bureaus and
• c)an assistant principal officer responsible for each of its outlets.
Cont.

• 3.The nominations of directors, principal officers and assistant principal officers shall be
forwarded to the central Bank of Kenya accompanied by the following documents;
• i)Certified copy of identity card.
• ii)Certified copy of academic and school leaving certificate.
• iii)Curriculum vitae.
• iv)Two passport size
• v)Certificate of good conduct
• vi)Credit reports of the officers from a credit reference bureau.
• Vii)Any other documents as may be required by the Central Bank of Kenya from time to
time.
• 4.The principal officer and his alternate approved by the central Bank of Kenya shall be
full time employees of the forex bureau.
Cont.

• 5.The directors, principal and assistant principal officers should have attained
at least an ordinary level, certificate of education or its equivalent and have
adequate knowledge for forex bureau operations, Forex Bureau guidelines,
the central Bank of Kenya Act, the Proceeds of crime and Anti-Money
Laundering Act,2009 and any other relevant legislation.
• 6.Forex bureaus shall ensure that all staff are adequately trained in the
operations of the forex bureau business and on the regulatory requirements.
• 7.No person shall become a shareholder of a forex bureau unless such a
person is deemed ’fit and proper’ and approved by the central Bank of Kenya.
• 8.No person shall become a shareholder or an officer in more than one forex
bureau in Kenya.
Cont.

• 9.No shares of a forex bureau shall be transferred without prior written

approval of the Central Bank of Kenya.
• 10.An application for transfer of shares in a forex bureau shall be
submitted to the central Bank of Kenya accompanied by any other
document as may be required by the central Bank of Kenya.
• 11.A forex bureau shall not change its shareholders, directors and
principal officers without prior written approval of the central Bank of
Kenya.
• 12.The board of directors and principal officers of a forex bureau shall
develop appropriate procedures to guide all its areas of operations
including human resources and information technology.
Disqualification of officers

• The central Bank of Kenya may disqualify approved shareholders,

directors or principal officers of a forex bureau who;
• i)Fails to adhere to the forex bureau guidelines, Central Bank of
Kenya Actor any other directives issued by the central Bank of
Kenya.
• ii)Fails to meet vetting requirement on an on-going basis.
• iii)Have non-performing credit facilities in any institution
Violations by a foreign exchange bureau

• Legal notice no.82 of 2009 stipulates that violations of a foreign exchange

bureau include;
• Failure by a foreign exchange bureau to;
• i)Submit annual audited accounts and a copy of the auditor’s report in the
prescribed form to the bank within three months at the end of its financial year.
• ii)Furnish at such time and in such manner as the Bank may direct ,any
information in an accurate manner as the bank may require to properly
discharge its functions.
• iii)Comply with the Act, the Forex Bureau Guidelines or other guidelines that the
bank may issue.
• iv)Submit accurate periodic reports and returns to the bank.
Cont.

• v)Maintain a minimum balance of two thousand United states Dollar or any

other amount as may be prescribed by the bank.
• vi)Maintain the minimum capital requirements of 30,000 US Dollars.
• b)Conducting foreign exchange business through a proxy or nominee.
• c)Conducting business which in the opinion of the bank is unsafe.
• d)Transferring shareholding without in a foreign exchange bureau without
obtaining prior written approval from the bank.
• e)Engaging a foreign exchange officer who has not been vetted or approved by
the central bank.
• f)Maintaining foreign currency accounts with more than one prescribed number
of authorized banks.
Penalties for violations

• Penalties.
• The central Bank of Kenya is mandated by law to make regulations
prescribing penalties for dealers who fail to adhere to the
guidelines. This can be buttressed by the case of Republic V
Governor Central Bank of Kenya & Another Exparte capital Hill
Forex Bureau Limited [2013]eKLR, where, the court held that where
any foreign exchange bureau contravenes any of the provisions of
the forex bureau guidelines, penalties shall be issued in accordance
with the provisions of the Central Bank of Kenya Act (Cap 491) and
the Central Bank of Kenya (Foreign exchange Bureau penalties
Regulations,2009.
INSPECTION AND SUPERVISION OF FOREIGN
EXCHANGE BUREAUS

• It is provided for under S.33F of the CBK Act, and the forex Bureau
guidelines of 2011.
• The forex bureau guidelines permit the CBK at any time to enter any
premise where a bureau is carrying on business, or suspects that any
business is being carried on in contravention with the FB guidelines.
• The CBK may authorize any person in writing, to carry out inspection of
any authorized dealer, its books, accounts and records.
• Forex bureaus should maintain a sound management information system
to facilitate collection of accurate and up to date statistical data and
information and provide audits trails for use by auditors and CBK
examiners.
Cont.

• During inspection the authorized dealer, (FB), and its employees shall make
available to the inspector, all books, accounts, records and other documents as
the person making the inspection may require.
• Failure to produce any books, accounts, records and information within the
specified period constitutes an offence; which according to the guidelines, the
authorized dealer shall be issued with 14 days’ notice to show cause why its
license to carry on forex business under the CBK act should not be revoked.
• The accounts, books, records and other documents required to be produced
shall not be removed from the premises of the foreign exchange bureau, in the
course of the inspection.
• The person making inspection may make copies of any books accounts and
other documents required for purposes of his report.
Cont.

• Information collected during inspection shall be treated as confidential.

• Inspection officer shall submit report of his findings to the bank
indicating;
• Any breach/ failure to observe the requirements of the supervision and
any orders or directions made there under.
• Any irregularities in the manner of conduct of the business of the
authorized dealer.
• Any mismanagement/ lack of management skills
• Any other matter discovered in the course of inspection, warranting
remedial actions or further investigation, according to him.
Inspection; Verification and forfeiture of
counterfeits

• Bureau’s duty to cross check and satisfy itself that notes exchanged are
legal tenders and transaction is deemed to be concluded at the
counter.
• Seize all counterfeit notes/instruments presented by the customer and
customers shall be issued with receipt indicating the serial no. of the
counterfeit notes , and the counterfeit notes shall be submitted to the
director in charge of currency operations at the CBK and under no
circumstances should forged items be returned to customers.
• Any bureaus receiving counterfeit notes shall contact law enforcement
agents giving full details of the counterfeits, including serial no. of the
notes , customer’s name, copy of ID and address
Auditors

• AUDITORS
• Every forex Bureau shall at its own expense appoint external auditor, who shall be
a member of good standing of the institute of certified public accountants of
Kenya to carry out annual audit of the transaction of its licensed business.
• CBK may require the auditor appointed to;
• Submit to CBK information as it may require in relation to audits carried out by
the auditor.
• Extend scope of an audit of the business and affairs of the bureau and to submit a
report to the CBK
• Carry out examination or establish any procedure in any particular case
• Remuneration of the auditor for services shall be the responsibility of the bureau
REMEDIAL MEASURES

• Remedial measures in the foreign exchange regulatory framework in Kenya

involve initiatives undertaken by the regulatory body, the CBK, to address
concerns, discrepancies, or challenges in the foreign exchange market. The
main objectives of such measures are to preserve market integrity, protect
investors’ interests and achieve a level and transparent trading environment
• Penalties
• Paragraph 6.0 of the Forex Bureau Guidelines 2011 states that remedial
measures are available. Paragraph 6.1 specifically addresses penalties.
According to Paragraph 6.1(a), if a foreign exchange bureau violates any of the
guidelines, penalties will be imposed in accordance with the Central Bank of
Kenya Act (Cap 491) and the Central Bank of Kenya (Foreign Exchange Bureau)
(Penalties) Regulations, 2009.
Cont. legal notice no. 82

• Legal Notice No. 82 of 2009 outlines violations for foreign

exchange bureaus and individuals who fail to comply with
guidelines and directions issued by the Bank, which shall be
subject to assessment of monetary penalties. These violations
include failure to: submit audited accounts and reports, provide
accurate information, comply with regulations and guidelines,
maintain minimum balances and capital requirements, record
transactions accurately, conduct business in an unsafe manner,
conduct business through proxies or nominees, and transfer
shareholding or change directorship without prior written approval
from the Bank
Cont.

• After reviewing the evidence and confirming a breach of the

Central Bank of Kenya Act or Foreign Exchange Bureau Guidelines,
the Central Bank notifies the bureau in writing and decides
whether to impose a fine or give them time to rectify. The report
sets out a reasonable timeframe for correcting the violation.
• After the specified period or after correction and confirmation,
the Central Bank notifies the Bureau in writing of the assessed
monetary penalty and the payment guidelines.
Suspension and revocation

• The Central Bank of Kenya may suspend the license of a foreign exchange
bureau for non-compliance with regulations or licensing conditions.License
revocation can occur in cases such as failure to conduct forex transactions
within six months, cessation of authorized operations, bankruptcy, non-
payment of license fees, legal convictions related to illegal proceeds, false
information supply, undercapitalization, failure to pay penalties, or persistent
non-compliance.
• The Central Bank must notify the bureau in writing before revoking or
suspending its license.
• The Central Bank provides a 14-day written notice to the authorized dealer
and considers any written representations made by the dealer within that
period.
Cont.

• The regulations currently in place for forex bureaus in Kenya have

a twofold objective: to protect consumers and ensure that these
bureaus adhere to the country's overall economic monetary policy.
If left unchecked, unregulated forex bureaus could have a
negative impact on the foreign exchange rate within the economy.