During an economic downtime, job losses come with send off packages, early redemption of pensions, cancellation of long term policies and a focus on savings which is a goldmine for fraudsters.

As the formerly employed workers roil in the tempest of uncertainty, looking to invest their last bullet on an investment that will allow them to transition from paychecks to a stable return, they are bound to easily get swindled.

Kenya does not have a lot of investment opportunities outside real estate and government securities while the stock market is on a downward tumble, what is being sold as attractive is a very volatile trade in online currencies that operates more like the more famous sports betting.

Online traders from countries like Cypress lure retail unsophisticated investors into foreign exchange markets, and with no local offices not licenses just disappear with Kenyans monies.

The Capital Markets Authority (CMA) has warned small, less sophisticated investors in Kenya to be very cautious before investing their money in the risky retail foreign exchange market.

While laying out various risks that investors should consider before entering the forex market, including the lack of a central clearinghouse to protect against default, opaque pricing system, and the possibility of suffering huge losses, the regulator is also advising against being lured by unrealistic returns into “get rich quick” schemes.

“People have become more innovative in terms of how they can take advantage of one another, they try to over promise at times offering unimaginable returns such as 20 percent per month,” said Lawrence Mumina, a senior manager at CMA in charge of investigations and market surveillance.

These are fraudulent schemes, he added, noting that the number of unlicensed players has increased especially with the rise of social media channels such as Facebook, Twitter, and WhatsApp avenues that the dealers use to woo unsuspecting members of the public.

A standout feature about suspect forex dealers is the inability of the investors and authorities to trace their physical addresses. Contacting them through phone numbers also turns out unhelpful. “You call their numbers; they are not available or they are unresponsive. You go to the police and they’re unable to trace them as well,” said Mr Mumina.

Which begs the question, how should the investing public approach the space? CMA advises that investors should get in touch with the regulator to ascertain the identity and the nature of licenses any dealer out there has before committing their money.

“Whether you’re operating in the USA or elsewhere, you can always check the licensed details of the companies from our website,” explains Mr Mumina.

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Any investor should also ask the dealers whether they’re licensed by the CMA and if so, seek to see their permit, which should be displayed at their physical premises, giving information about the range of services they are permitted to offer in the market. Any inability or ambiguity to demonstrate the above should raise a red flag among potential investors.

“When we give a license, we always look at the professional qualification of the people working there so that when you walk there you have the comfort you are dealing with professionals. One needs to be sure whether the entity is licensed to offer the nature of services that you are seeking,” explains Mr Mumina.

Additionally, a potential investor should study the firm’s history, their financial disclosures, their profile, as well as the businesses they have done before, to help inspire confidence in their ability to handle your money.

The markets watchdog runs a whistleblower portal where one can seek details of target dealers in confidence. “We have been able to take action on people who have been defrauded and restitution is done.”

Kenya’s online forex market has attracted a significant number of players with many falling short of CMA’s regulations that guide on who should be licensed as a broker and what they need to possess to operate.

To reign on unlicensed brokers, the markets watchdog has been working with Safaricom and the Directorate of Criminal Investigations, which has a unit attached to the CMA, in tracing and freezing suspect accounts. This collaboration has also looped in the Central Bank to help streamline the transfer of money involving global payments giants such as Paypal.

At the global level, CMA is liaising with the Madrid-based International Organization of Securities Commissions (IOSCO) by sharing information with a view to promoting adherence to internationally recognized standards for securities regulation.

At the moment, CMA has issued three non-dealing online foreign exchange brokers licenses to EGM Securities Ltd, SCFM Ltd, and Pepperstone Markets Kenya Ltd in line with the Capital Markets Act and the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017.

The authority has also granted a Money Manager license to Standard Investment Bank (SIB) Limited.

An online broker only gives investors the platform to manage his/her portfolio of investments while money managers undertake actual trading on behalf of the investors while keeping them updated on how their portfolio is performing with respect to market trends.

“When investing you need to be very thorough in your understanding of the market otherwise you need the services of a professional trader,” adds Mr Mumina, “When you take to that platform as an individual to trade and you have no experience, you are risking your investment big time.”

“Individual investors who are considering participating in the foreign currency exchange market need to fully understand the market and its unique characteristics,” he said.

Forex trading can be a very risky business, and with a majority of people seeking big returns amid limited offers, thousands of Kenyans keep falling prey to unlicensed players in turn suffering losses.

According to the Capital Markets Act, section 23 (1), "No person shall carry on business as an online forex broker or hold himself out as carrying on such a business unless he holds a valid license issued under this Act or under the authority of this Act’’.

Members of the public who have been affected or become aware of such illegal online foreign exchange transactions are advised to report to the Authority or to the Capital Markets Fraud Investigation Unit.

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