Watchdog starts probe on banks for dollar price fixing

The Competition Authority of Kenya (CAK) is investigating several undisclosed banks over allegations of overhauling their forex trading operations, adding a fresh twist to a crisis that has seen lenders run out of dollars on some days.

The antitrust watchdog says “investigations are ongoing” into possible manipulation and collusion over the dollar’s exchange rate, exposing the bankers to fines and up to five years in prison if convicted.

Sources familiar with the investigation believe CAK is pursuing allegations that some merchants in banks used electronic chat rooms and instant messaging to coordinate their trading activities when making quotes to customers buying or selling currencies.

This reflects the intense investigation of global banks for years in Europe, Asia, the United States and South Africa over allegations of price manipulation in the currency markets.

Also Read: Savings of Wealthy Kenyans in Dollars Grow to Sh320 Billion Amid Shortage

Any irregularities discovered by the investigation are expected to lead to the arrest or dismissal of dealers and put pressure on banks to improve their supervision of traders.

The investigation began in June 2022, according to regulatory filings I’ve seen The daily businessThis comes amid the weakness of the shilling against the dollar and the continued widening of the difference between the official market prices and the open market price.

The commission’s investigation is ongoing, and therefore we cannot disclose or discuss the details of the matter. However, the Authority does engage the relevant stakeholders, and the remedies applied shall be as specified in the Competition Law, when the investigation is concluded.”

Restrictive business practices include the direct or indirect fixation of buy or sell prices or other commercial terms.

Another violation that may amount to restrictive business practices in line with competition law is the maintenance of a minimum resale price.

The CAK investigation will also seek to uncover whether banks through an industry lobby – the Kenya Bankers Association (KBA) – would influence the rates to be charged for foreign exchange-related transactions and terms of sale.

Dollar shortages have become an issue of national concern due to the secondary effect of rising consumer prices and potential supply hurdles for major imported commodities.

Also read: Dollar shortage worsens as dividends begin to be redistributed

A black market also emerged in the aftermath of banks buying dollars for less than 130 shillings and selling US currency for more than 140 shillings.

Major corporations began trading dollars among themselves, with hotels and airlines attracting the interest of those who needed the hard currency.

Those with dollars find they can get a better rate by bypassing the banks and selling directly to individuals and businesses in need. Companies buy US currency at rates lower than those quoted by banks.

Last month, the government, in partnership with the central bank, sought to revive the interbank foreign exchange market as part of efforts to fix currency problems.

The interbank hard currency market has been sleepy in recent years due to what traders describe as strict police action by the central bank, which has made it difficult to strike deals.

Central Bank Governor Patrick Njoroge has repeatedly denied unwarranted interference in the market, saying the regulator was playing its part in imposing discipline.

The lack of a vibrant interbank foreign exchange market has been partly blamed on an acute hard currency shortage that has forced the government to seek longer credit terms for essential imports such as gasoline.

It has also given rise to a parallel market, where money changers quote a different foreign exchange rate than the official central bank rate, with a divergence of more than 10 percent.

The trading rate moved away from the average Central Bank of Kuwait rates, widening the gap between the official trading rate and the open market trading rate to 16 shillings in early March from less than 5 shillings last year.

On Wednesday, the shilling traded at an average of 133.72 shillings to the dollar, down from 104.44 shillings at the end of March 2020.

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