FOREX in Somalia : Action Required in protecting Traders and Investors in the Foreign Exchange market
Foreign exchange trading offers vast profiting opportunities for investors and traders around the globe. However, whenever there is an opportunity for profit, there is typically also room for unethical and illegal activities.
As such, Somalia’s Forex trading has boomed despite the country’s developing banking sector and regulatory reforms lagging behind. Somalia does not have licensed Forex brokerages; therefore, traders rely on both international regulated brokerages and unregulated firms.
Somalia’s Forex trade has attracted hundreds of young traders mainly concentrated in Somalia’s capital Mogadishu according to recent research by Trade Invest Somalia. Mogadishu based traders will typically promise good returns, either with a relatively small initial capital or via their managed accounts. Minimum Investments can start around $100 with a monthly settlement.
The industry globalised and decentralised nature means little information is available of its unregulated activities. Legitimate investors are exposed to fraudulent traders offering pyramid scheme scams while purporting to trade in the Forex Market. Traders are themselves open to more serious financial crimes from money laundering and terror financing.
The rise in the number of traders and investors of Forex Market in Somalia together with the on-going implementation of reforms within the national regulator and Banking sector has meant Somali investors are at the mercy of global foreign brokerages regulated or otherwise that offer no protection for any affected clients who run into financial trouble.
The Somali Central Bank (CBS) issued a notice in December 2019 to Somali Banks to suspend all accounts owned by suspected individuals and firms in the unregulated Forex Trade. CBS also instructed commercial banks to provide information about suspect firms historical account deposits.
In recent months we have seen increased oversight from regulatory bodies. However, due to the global decentralised nature of the industry, traders have become very savvy.
Central Bank of Somalia must take further steps to address regulatory, supervisory, investigative, and enforcement jurisdiction to force many unregulated firms to decide between exiting the market or becoming regulated.
Recent events of Somali Forex Traders and Investors activities have demonstrated both the importance of ensuring financial stability and that the current arrangements for dealing with banks do not adequately uphold that confidence in certain circumstances, which could exacerbate the threat of economic instability.
Somalia’s current framework may not adequately deal with existing market failures, particularly relating to the increase uptake of Forex Trading.
Central Bank of Somalia should focus on implementing additional measures to address specifically;
- Terror Finance and money Laundering, Targeting individuals with links to Al-Shabaab directly or indirectly acting as investors or traders in the Forex Trade Market.
- Introduce Registration and Authorisation licensing regime for brokerages inviting multi-national approved firms as part of Banking sector reforms.
- Work with International regulatory bodies to share information and steps it has taken to safeguard investors and traders.
- Provide information for investors about the Somali Forex Market including nationally approved and reputably licensed firms.
- Establish formal monitoring and reporting mechanism with Somali Banks.
- Take steps to become a member and sign up to best practice initiatives taken by other national regulatory bodies efforts at international forums.
- Investors do not have sufficient awareness of, or confidence in, the current arrangements; CBS need to take steps to address it.
- The powers available to the authorities to reduce the likelihood or impact of a bank failing need to be expanded.
- The existing regime for resolving failing banks need to be expanded.
- Regulatory changes need to take place in the context of changing international markets and the need for greater international coordination.
Somalia’s developing financial institutions and regulators must tighten the reigns over the entire industry.
Trade Invest Somalia.