The Capital Markets (Online Foreign Exchange Trading) Regulations

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Online Foreign Exchange Trading) Regulations.

Section 2. Interpretation Section In these Regulations, unless the context otherwise requires— "binary options" means an option which involves making a bet on the price movement of an underlying asset in the near future for a fixed amount; "client" means a person who is registered with an online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") and has executed an agreement with the online forex broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") for dealing through such online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") in foreign exchange transa...

Section 3. Obligation to seek a licence Section 3(1) A person shall not carry on or purport to carry on business as a dealing online foreign exchange broker ("an entity licensed by the Authority to engage in the business of online foreign exchange trading as principal and market maker;") , non-dealing online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") unless that person has been granted the relevant licence by the Authority. Section 3(2) A person who carries on or purports to carry on business as a dealing online foreign exchange broker ("an entity licensed by the Authority to engage in the business of online foreign exchange trading as principal and market maker;") , non-dealing online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") with...

Section 4. Application for a licence Section 4(1) A person who intends to operate as a dealing online foreign exchange broker ("an entity licensed by the Authority to engage in the business of online foreign exchange trading as principal and market maker;") , non-dealing online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") , shall apply to the Authority for a licence in the Form as set out in the First Schedule. Section 4(2)(a) the documents, information and declarations specified in regulation 5 ; Section 4(2)(b) in the case of an application for a dealing online foreign exchange broker ("an entity licensed by the Authority to engage in the business of online foreign exchange trading as principal and market maker;") or a non-dealing online foreign exchange broker licence, a letter from a recognized online foreign exchange trading platform ("an internet-based trading system through which foreign exchange trading is conducted; and") stating that the applicant mee...

Section 5. Eligibility for a licence Section 5(1)(a) is a company incorporated in Kenya and limited by shares; Section 5(1)(b) is a fit and proper person in accordance with section 24A of the Act; Section 5(1)(b)(i) is a fit and proper person in accordance with section 24A of the Act; Section 5(1)(b)(ii) has experience of not less than five years in the business of buying, selling, managing, or dealing in foreign exchange, foreign exchange futures or futures contracts; and Section 5(1)(b)(iii) is a member of a professional body; Section 5(1)(c) has the necessary infrastructure including office space, equipment and staff to effectively discharge its activities; Section 5(1)(d) in the case of a dealing online foreign exchange broker ("an entity licensed by the Authority to engage in the business of online foreign exchange trading as principal and market maker;") , has a person in charge of trading with at least three years' experience in foreign exchange trading, demonstrated ability to perform and in possession of certification from the Association Cambiste Internationale-Financial Markets Association or its equivalent; Section 5(1)(e) has, as its directors, substantial shareholders...

Section 6. Furnishing of information, clarifications,etc. Section require an applicant to furnish such additional information or clarifications regarding any previous dealings in foreign exchange, securities, commodities and any other matter connected thereto; or

Section 7. Grant of licence Section 7(1) The Authority shall grant a licence to an applicant if the Authority is satisfied that the applicant meets the eligibility criteria and the requirements set out in regulations 4 and 5 and inform the applicant in writing of the grant. Section 7(2) Where the eligibility criteria are not met, the Authority shall not refuse to grant a licence without giving the applicant an opportunity of being heard. Section 7(3) Where, after hearing the applicant, the Authority determines that a licence should not be granted, the Authority shall communicate, in writing, the decision to the applicant within fourteen days of the decision, stating the grounds for refusal. Section 7(4) An applicant aggrieved by the decision of the Authority under paragraph (3) may appeal to the Capital Markets Tribunal within fifteen days of receipt of the decision of the Authority.

Section 8. Validity of licence Section A licence granted under regulation 7(1) shall be valid unless suspended or revoked.

Section 9. Annual licence fee Section A dealing or non-dealing online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall pay the relevant annual licence fee set out in the Second Schedule.

Section 10. Suspension of a licence Section failed to comply with any conditions subject to which the licence was granted under these Regulations;

Section 11. Revocation of a licence Section the reasons for the suspension of a licence under regulation l0 have continued during the period of suspension;

Section 12. Automatic revocation of a licence Section is declared insolvent by a court of law;

Section 13. Appeal against suspension or revocation of licence Section A dealing or non-dealing online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") aggrieved by the decision of the Authoriry to suspend or revoke its licence may, within fifteen days of being notified of the suspension or revocation by the Authoriry, appeal to the Capital Markets Tribunal.

Section 14. Online foreign exchange broker ormoney managerto clear liabilities Section Despite a suspension or revocation of a licence under regulations 10 , 11 or 12 , a dealing or non-dealing online foreign exchange broker or money manager shall be responsible for clearing all its outstanding obligations up to the date of the revocation or suspension of the licence.

Section 15. Continuing obligations Section 15(1)(a) the details of any customer complaints and resolution status; Section 15(1)(b) evidence of daily reconciliations; Section 15(1)(c) for the money-manager, reports on the total funds under management; Section 15(1)(d) a full set of monthly management accounts; and Section 15(1)(e) risk-based capital adequacy returns. Section 15(2) In addition to the documents required under paragraph (1) , the Authority may require an online foreign exchange broker or a money manager to provide such other documents as the Authority may consider necessary. Section 15(3) An online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall, on a monthly basis or at such other intervals as the Authority may specify, submit to the Authority a summary of traded volumes per currency, in the prescribed form.

Section 16. Standards of conduct Section 16(1)(a) open clients' accounts; Section 16(1)(b) provide a trading platform; Section 16(1)(c) provide access to market information that the clients may utilize in formulating their strategies; Section 16(1)(d) monitor traders' positions; or Section 16(1)(e) provide end-of-day reports. Section 16(2) A dealing online foreign exchange broker ("an entity licensed by the Authority to engage in the business of online foreign exchange trading as principal and market maker;") may trade as principal and market maker. Section 16(3)(a) choose and manage investments prudently for his or her clients; Section 16(3)(b) develop an appropriate investment strategy; Section 16(3)(c) take positions in the market to meet the investment goals of the client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") ; Section 16(3)(d) undertake financial analysis; and Section 16(3)(e) monitor foreign exchange portfolio investments on behalf of the client ("...

Section 17. Professional indemnity Section An online foreign exchange broker shall determine and obtain adequate professional indemnity insurance for its key personnel.

Section 18. Agreement between online forex broker andmoney manager Section 18(1) A money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall enter into an agreement, in writing, with an online foreign exchange broker that shall clearly set out the scope of activities that the money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") may undertake. Section 18(2)(a) clear duties, responsibilities and performance of the money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") ; Section 18(2)(b) an undertaking by the money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange p...

Section 19. Leverage ratio Section 19(1) An online foreign exchange broker may provide leverage ("the ratio of the market price of an agreed multiple of contracts to the agreed margin where margin is the deposit or payment made to create, vary or maintain a position of the contracts;") , not exceeding four hundred times that of the client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") 's deposit, for foreign exchange trading in a currency pair between any currency pair or underlying assets to its client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") . Section 19(2) The Authority may, by circular, revise the leverage ("the ratio of the market price of an agreed multiple of contracts to the agreed margin where margin is the deposit or payment mad...

Section 20. Systems audit Section An online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall establish risk-management mechanisms, systems and procedures to ensure that the online foreign exchange trading platform ("an internet-based trading system through which foreign exchange trading is conducted; and") provider is credible and that any risks associated with the platform are addressed in a timely manner.

Section 21. Maintenance of books of accounts, recordsetc. Section 21(1) An online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall prepare and maintain books of accounts and other documents which shall disclose a true, accurate and up to date position of the business in electronic or manual form. Section 21(2)(a) journals or other comparable records; Section 21(2)(b) cash books and any other books of original entry that form the basis of entries into any ledger, including books that contain daily records of all orders for purchase or sale of foreign exchange, all purchases and sales of foreign exchange and all other debits and credits; Section 21(2)(c) ledgers or other comparable records reflecting asset, liability, reserve, capital, income and expense accounts; Section 21(2)(d) ledgers or other comparable records reflecting foreign exchange bought or sold, of which the delivery is delayed; Section 21(2)(e) records of all balances of all ledger accounts in...

Section 22. Risk disclosure statements Section furnished the client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") with a separate written risk disclosure statement;

Section 23. Segregation of clients' funds Section 23(1)(a) maintain strict segregation between its own funds and every individual client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") 's funds without any co-mingling between own funds and clients' funds; Section 23(1)(b) open a segregated clients' account with a bank licensed under the Banking Act; and Section 23(1)(c) ensure that all deposits and withdrawals by the clients are only made through the individual client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") 's accounts established under paragraph (b) . Section 23(2) An online foreign exchange broker shall undertake daily reconciliations between the clients' account maintained at the designated bank and individual clients' account ledgers...

Section 24. Handling of clients funds bymoney manager Section shall not receive client ("a person who is registered with an online foreign exchange broker or money manager and has executed an agreement with the online forex broker or money manager for dealing through such online foreign exchange broker or money manager in foreign exchange transactions;") 's money; and

Section 25. Business conduct regulations Section 25(1) An online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") and the associates of online foreign exchange brokers or money managers shall observe high standards of commercial honour and uphold just and equitable principles of trade in the conduct of its foreign exchange business. Section 25(2) An online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall, in the conduct of foreign exchange business comply with the respective practices and standards relating to the conduct of the foreign exchange business for which it is licensed specified in these Regulations. Section 25(3)(a) advertisement by or on behalf of an online foreign exchange broker or money manager ("an entity licensed by the A...

Section 28. The right of the Authority to inspect Section establish that the books of accounts and other books are being maintained in the manner required;

Section 29. Procedure for inspection Section 29(1) The Authority shall, before undertaking an inspection under regulation 32 , give the online foreign exchange broker or money manager a reasonable notice of the Authority's intention to do so. Section 29(2) Notwithstanding paragraph (1) , the Authority may direct, in writing, that an inspection of an online foreign exchange broker or a money manager be carried out without notice to the online foreign exchange broker or money manager if the Authority is satisfied that it is in the interest of the investors or in the public interest that such notice should not be given. Section 29(3) The inspecting officers or any other person authorized by the Authority shall have the power to inspect the online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") in the manner directed by the Authority.

Section 30. Obligations of online forex broker ormoney managerunder inspection Section 30(1) An inspecting officer may require a shareholder, director, an officer or an employee of an online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") which is being inspected to produce, such books, accounts and other documents in his or her custody or control and furnish the inspecting officer with the statements and information relating to foreign exchange transactions within such time as the inspecting officer may require. Section 30(2)(a) allow the inspecting officer reasonable access to the premises occupied by the online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") by any other person acting on behalf of the online foreign exchange broker or money...

Section 31. Action on inspection report Section The Authority may, after considering an inspection report, take the appropriate action provided for under the Act.

Section 32. Appointment of an auditor Section 32(1) The Authority may, in the interest of investors, appoint a qualified auditor to audit the books of accounts or investigate any affairs of an online foreign exchange broker or a money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") . Section 32(2) The Authority may direct that the costs associated with the investigation of the affairs of an online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") under paragraph (1) shall be borne by the online foreign exchange broker or money manager. Section 32(3) A shareholder, director, officer or employee of the online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or i...

Section 33. Prohibited conduct Section 33(1) An online foreign exchange broker or money manager ("an entity licensed by the Authority to engage in the business of managing the online foreign exchange portfolio of an individual or institutional investor in return for a fee based on a percentage of assets under management;") shall not engage in any foreign exchange transaction that is prohibited by any written law. Section 33(2)(a) cheat, defraud or deceive, or attempt to cheat, defraud or deceive any person; Section 33(2)(b) willfully make or cause to be made a false report, or willfully enter or cause to be entered a false record in or in connection with any foreign exchange transaction; Section 33(2)(c) disseminate, or cause to be disseminated, false or misleading information, or acknowledge inaccurate report, that affects or tends to affect the price of any foreign currency; Section 33(2)(d) engage in manipulative acts or practices regarding the price of any foreign currency or foreign exchange transaction; Section 33(2)(e) willfully submit materially false or misleading information to the Authority or its agents with respect to foreign currency transactions; or Section 33(2)(f)...

Section 34. Penalty Section A person who is convicted of an offence under these Regulations shall be liable to such penalty as specified under sections 25A and 34A of the Act and any additional action for damages in respect of the loss occasioned by the commission of the offence.