The Central Bank of Kenya (CBK) has announced the launch of a new Kenya Foreign Exchange Code (FX Code), and commercial banks have been notified. However, President William Ruto expressed his optimism, elucidating that this move will help to ease the current dollar shortage in Kenya.
The Central Bank of Kenya’s new code of conduct for commercial banks
The CBK has released a code of conduct for commercial banks in the wholesale foreign exchange (FX) market to promote integrity and effective functioning. The statement from the CBK states that this will facilitate a better functioning market, creating greater resilience for the economy through Kenya’s flexible exchange rate regime.
The FX Code is a set of guidelines that emphasizes the need for ethical, responsible, and effective engagement in the FX market. It revolves around six key principles: ethics, governance, execution, information sharing, risk management and compliance, and confirmation and settlement processes.
According to the FX Code, market participants are expected to act ethically when negotiating or executing transactions to ensure fairness, clarity, liquidity, and transparency. Communications should be accurate, and clear and protect confidential information.
Furthermore, a robust control and compliance environment needs to be in place to effectively identify any risks associated with engagement in the FX market. Finally, post-trade processes must facilitate the timely settlement of transactions. Together, these principles are expected to play an essential role in maintaining a secure and fair FX market in Kenya.
The CBK announced the immediate implementation of the FX Code, requiring market participants to conduct a self-assessment and submit a report on their level of compliance by April 30, 2023. This comes as President William Ruto revealed his government is working with the CBK to revive the inter-bank foreign exchange market, which has become inactive in recent years due to reported aggressive policing by the central bank.
The resulting shortage of foreign currency has caused significant disruptions in imports such as petroleum, leading to an emergence of a parallel market where money changers offer a lower rate than the official CBK rate, with a discrepancy of up to 10%.
