ESTABLISHMENT OF A FOREX EXCHANGE BUREAU IN KENYA
Establishing a foreign exchange bureau involves setting up a business that facilitates the exchange of one currency for another. These businesses can provide services such as buying and selling foreign currency, wire transfers, currency conversion, and other related services.
The foreign exchange market is a global marketplace where currencies are traded and exchanged 24 hours a day. The market is influenced by various economic and political factors, and exchange rates can fluctuate rapidly, presenting opportunities for profit as well as risks.
Establishing a foreign exchange bureau requires careful planning, research, and execution. This includes identifying the target market, assessing competition, determining capital requirements, obtaining necessary licenses and permits, and setting up operational procedures. The process of establishing a foreign exchange bureau can be complex, and it is important to have a solid understanding of the foreign exchange market and the regulatory requirements involved. Seeking professional advice and assistance can be beneficial in navigating the various legal and operational aspects of setting up a foreign exchange bureau.
The legal and regulatory framework guiding the establishment of a forex exchange bureau in Kenya
The establishment and operation of a foreign exchange bureau in Kenya is regulated by various laws and regulations. They include;
- The Central Bank of Kenya Act. It establishes the Central Bank of Kenya as the regulator of foreign exchange bureaus in the country. Further, it provides for the licensing and regulation of foreign exchange bureaus by the Central Bank of Kenya. Finally, it specifies the conditions that must be met for a foreign exchange bureau to be granted a license to operate in Kenya.
- The Proceeds of Crime and Anti-Money Laundering Act, 2009. The act provides that foreign exchange bureaus need to comply with anti-money laundering and counter-terrorism financing regulations. This includes carrying out customer due diligence, reporting suspicious transactions, and maintaining records of transactions.
- The Banking Act. It provides that foreign exchange bureaus should maintain a minimum capital requirement of Kshs. 5 million ($50,000). Further, it specifies the conditions under which a foreign exchange bureau may conduct business in Kenya.
- The Foreign Exchange Bureau Guidelines. They provide detailed requirements for the licensing, operations, and management of foreign exchange bureaus in Kenya.
The registration process and requirements for establishing a forex exchange bureau in Kenya
To establish a foreign exchange bureau in Kenya, one needs to follow the following registration process and meet the set-out requirements. The process is as follows;
- 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 the prescribed form.
- The application is accompanied by the following additional requirements.
- Non-refundable application fee of Ksh.20,000 (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;
- 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 principal officers of the bureau;
- 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, or convicted by any court of competent jurisdiction in Kenya or elsewhere of a criminal offense 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.
- The Central Bank shall within 90 days of the date of lodging the application:
- Request for additional information for purposes of processing the application where need be;
- 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 license fee of Ksh.65,000 to the Central Bank of Kenya by banker’s cheque;
- 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 the commencement of business.
Upon fulfillment of the above requirements or otherwise, the Central Bank shall within 6 months of the date of lodging the application:
- Issue a license to the applicant; or
- Inform the applicant in writing that the application has been declined and;
- Advise the unsuccessful applicant that an appeal to the Central Bank for review of the decision to decline may be lodged within 30 days from the date thereof.
Finally, The Central Bank of Kenya shall set an annual foreign exchange bureau license fee, payable on or before the 31st of December of the calendar year preceding the validity of the license. License renewal applications shall be supported with evidence that tax returns have been filed by the bureau.
The compliance requirements for a forex exchange bureau operating in Kenya
A foreign exchange bureau operating in Kenya is also required to comply with various regulations and guidelines so as to ensure that the business is conducted in a legal and ethical manner. The compliance requirements include;
- Anti-Money Laundering Regulations: A foreign exchange bureau, is required to comply with Anti-Money Laundering regulations to prevent money laundering and terrorist financing. This includes carrying out customer due diligence, reporting suspicious transactions, and maintaining records of transactions.
- Capital Adequacy Requirements: A foreign exchange bureau is required to maintain a minimum capital requirement of Kshs. 5 million ($50,000) so as to operate a foreign exchange bureau in Kenya.
- Record-Keeping Requirements: A foreign exchange bureau is required to maintain accurate records of all transactions, including customer identification documents, transaction details, and other relevant information.
- Reporting Requirements: A foreign exchange bureau is required to submit periodic reports to the Central Bank of Kenya, including daily transaction reports, monthly financial reports, and annual audit reports.
- Foreign Exchange Bureau Guidelines: A foreign exchange bureau must comply with the Foreign Exchange Bureau Guidelines issued by the Central Bank of Kenya. These guidelines cover areas such as liquidity, risk management, internal controls, and governance.
- Compliance Monitoring: A foreign exchange bureau is subject to compliance monitoring by the Central Bank of Kenya, which may include inspections, audits, and investigations.
- Tax Obligations: A foreign exchange bureau operating in Kenya, is subject to various tax obligations. They include;
- Value Added Tax (VAT): This applies if the annual turnover exceeds Kshs. 5 million ($50,000) and charges VAT on your services at the prevailing rate.
- Withholding Tax: A foreign exchange bureau is required to withhold tax on payments made to non-resident individuals or companies at the prevailing rate
- Corporate Tax: A foreign exchange bureau subject to corporate tax on your profits at the prevailing rate.
- Pay As You Earn (PAYE): a foreign exchange bureau is required to deduct PAYE from your employees’ salaries and remit the tax to the Kenya Revenue Authority (KRA) on a monthly basis at the prevailing rate.
- Excise Duty: A foreign exchange bureau is required to pay excise duty on foreign currency notes and coins sold or exchanged by the foreign exchange bureau at the prevailing rate.
- Stamp Duty: A foreign exchange bureau is required to pay stamp duty on all contracts and agreements executed by the forex exchange bureau where the need arises at the prevailing rate.
In conclusion, there are several benefits to establishing a foreign exchange bureau, including:
- Profitability: Foreign exchange bureaus can be profitable businesses, particularly in areas with high demand for currency exchange services. They earn money by charging a commission or a spread on each transaction.
- Diversification: Establishing a foreign exchange bureau can provide a way to diversify a business portfolio. This can help mitigate risks and provide additional revenue streams.
- Convenient services: Foreign exchange bureaus offer convenient services to customers who need to exchange currency, such as tourists and international business travelers. By offering competitive exchange rates and efficient service, they can attract a loyal customer base.
- Hedging against currency risk: Businesses that deal with foreign currencies can use foreign exchange bureaus to hedge against currency risk. By exchanging foreign currencies at favorable rates, businesses can protect themselves against losses caused by currency fluctuations.
- Economic development: Foreign exchange bureaus can contribute to the economic development of the area where they are located. They provide employment opportunities and can help support the tourism industry.
Overall, establishing a foreign exchange bureau can be a lucrative and beneficial business opportunity, provided that the business is well-planned and operated efficiently.
“The information provided in this article is intended for general legal advice and does not constitute legal advice for any specific transaction or case. Since each transaction presents a unique legal context, it is advisable to retain a legal adviser for specific transactions.”
To contact CR Advocates LLP, send us an email at firstname.lastname@example.org or call +254 100979081 or Book a strategy call HERE or direct message us HERE on WhatsApp at your convenience. Our legal team will be happy to help you.