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Treasury Introduces Fresh Levy on Online Forex Brokers

The Treasury has imposed a new regulatory levy on online forex brokers, creating an additional revenue stream for the Capital Market Authority (CMA). In a revision of regulations governing online forex trading, Treasury Cabinet Secretary Njuguna Ndung’u announced that brokers are now obligated to remit an annual fee to the regulator.

Prof Ndung’u stated, “An online forex broker shall pay to the Authority an annual fee based on the gross trading revenue which shall include the commissions and rebates from third-party related service providers for that year, at the rate specified in the Third Schedule.”

Under the updated regulations, both dealing and non-dealing online forex brokers must remit an annual three percent fee to the CMA, calculated on their gross revenue, inclusive of commissions and rebates.

A dealing forex broker or market maker engages by setting bid and ask prices, profiting from buying at lower prices and selling at higher prices, and capitalizing on spreads between bid and ask prices.

Conversely, non-dealing brokers collaborate with liquidity providers, offering clients variable spreads and matching traders with others interested in taking the opposite side of a trade. Non-dealing desk brokers generally feature lower spreads compared to dealing desk brokers.

This levy on online forex brokers follows the CMA’s efforts to enhance protection for currency traders and clients. The capital markets regulator has formed a working group, including licensed Forex brokers and stakeholders, to develop standards aimed at further safeguarding consumers.

The CMA is actively working towards ensuring that licensed forex brokers provide appropriate disclosures and implement a comprehensive investor education program. The objective of the review is to mitigate risks and losses associated with investments in Contract for Differences (CFDs) products. CFDs involve contracts between buyers and sellers, specifying that a buyer must compensate a seller for the difference between the current value of an asset and its value at contract time, with the asset portfolio including currencies.

This move by the CMA to enhance the protection of Forex traders aligns with the sustained interest in forex trading among the investing public. The regulator has facilitated the formation of a Technical Working Group, comprising licensed online foreign trading brokers and other stakeholders, including peer regulators. This group is tasked with assessing the state of the market and proposing recommendations to address challenges faced by investors, traders, and licensed players.

At present, online Forex trading is governed by the 2017 Capital Markets (Online Forex Trading) Regulations, mandating brokers and money managers to gather information from clients regarding their circumstances and investment objectives.

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