The Central Bank of Kenya(CBK) yesterday suspended Pan African lender, Ecobank from foreign exchange trading—the second such action against a commercial bank in the country in two years— drawing anxiety among other banks.
The regulator ordered Ecobank to stop foreign exchange dealings between March 29 and April 4 for unsafe trading practices.
“Ecobank did not have sufficiently robust risk controls to prevent breaches on its foreign exchange exposure limits, or the inaccurate reporting of its position,” the central bank said in a statement without revealing the value of money involved in the suspect deals by Ecobank.
The regulator ordered Econbank to fix loopholes in its foreign currency trading platform by March 31.
“The remedial plan should also point to specific measures to address the unsafe trading practices that led to the non-compliance and to enforce adherence to orderly conduct as stipulated in CBK’s guidelines on foreign exchange” the CBK further said.
Under CBK anti-money laundering and terrorism finance regulations, banks have strict responsibilities to flag abnormal transactions by clients that could signal a violation of the law.
Transfers, deposits, and withdrawals of more than Sh999,999, for example, require clients to submit additional information to the bank. Other possible warning signs include an unexplained geographic distance between a customer and the commercial bank.
Ecobank becomes the second bank to be suspended from the forex market since 2020—sending anxiety among other lenders. “Definitely everyone must now review their operations in the forex market to avoid being caught on the wrong side of things,” a forex dealer with one of the banks told Daily Nation.
Rival Absa Bank Kenya was on April 9, 2020, ordered by the CBK to stop foreign exchange dealing for a week until April 15, 2020, for failing to observe anti-money-laundering rules on some trades and will lose profits from the dealings.
The bank also lost part of profits made from foreign exchange trading on March 20 after the regulator said the transactions breached “know your customer checks” in the trades.
“In investigating these and other earlier transactions, it is evident that Absa Kenya did not have a satisfactory assurance of the underlying commercial transactions supporting these trade as is required,” the CBK said in a statement.
“Absa Kenya is required to… reverse the market positions that were created as a result of the flagged transactions.”
The CBK did not provide the value of money involved in the suspect forex trade by Absa which was later cancelled by the lender.
The administrative action against Absa was triggered by transactions by two unnamed global financial institutions.
“These were being executed on behalf of highly reputable global financial institutions, which are regulated in line with best international practice,” said Absa Kenya in a statement when CBK announced its suspension from the forex market in 2020. “The transactions were executed at prevailing market rates.”
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