New Regulatory Charge Imposed on Digital Forex Trading Firms by the Treasury

The Treasury has implemented a new levy targeting online foreign exchange (forex) trading platforms, generating additional income for the Capital Market Authority (CMA). With the modification of the existing 2017 regulations on online forex trading, the Treasury Secretary, Njuguna Ndung’u, announced that these platforms must now pay an annual regulatory charge to the CMA.

Prof. Ndung’u detailed that the updated regulations now include a clause following regulation 25, which mandates online forex platforms to pay an annual charge to the Authority. This charge is calculated from the platform’s total trading revenue for the year, encompassing both commissions and rebates received from affiliated third-party service providers. 

Under the updated policy, online forex platforms, whether dealing or non-dealing, are subjected to a three percent annual fee based on their gross revenues to the CMA. Dealing forex brokers, also known as market makers, typically engage directly in trades with clients, setting buy and sell prices and benefiting from the spread between these prices. 

Conversely, non-dealing brokers provide variable spreads and match traders with opposing parties through liquidity providers, usually resulting in lower spreads compared to dealing brokers. 

This new levy comes as part of the CMA’s increased efforts to safeguard currency traders. The authority has been proactive in forming a collaborative group that includes licensed forex brokers and other relevant entities to develop consumer protection standards. 

This group’s goals include advocating for clear disclosure from brokers and implementing extensive educational initiatives for investors. These measures aim to address the inherent risks and potential financial losses associated with Contracts for Differences (CFDs), which are agreements to exchange the difference in the value of a currency between the opening and closing of a trade. 

The CMA’s initiative responds to a growing interest in forex trading within the investment community. CMA Chief Executive Wycliffe Shamiah highlighted the establishment of a Technical Working Group that includes licensed online forex trading brokers and other stakeholders, like regulatory peers, to evaluate the market’s condition and recommend solutions for the issues faced by investors and licensed entities. 

As part of this regulatory framework, online forex trading continues to be governed by the 2017 Capital Markets (Online Forex Trading) Regulations, which also necessitate that brokers and money managers obtain detailed information from clients about their financial situations and investment goals.