Non-Bank Financial Institutions Regulatory Authority (NBFIRA) is working on establishing a law that regulates forex trading, the watchdog said this week citing risks of fraud and money laundering
The move is a response to the burgeoning interest and participation by Batswana in Contract For Differences (CFD) trading commonly known as forex trading, according to Head Communication & Consumer Affairs, Boa Ntebele.
Presently, the watchdog’s regulatory reach extends across a broad spectrum of financial activities through an array of legislative instruments, including the NBFIRA Act (2023), the Securities Act (2014), the Securities (Online Trading) Regulations (2020), the Financial Intelligence Act (2022), and the Collective Investment Undertakings Act (2021). These regulations are crafted to ensure the smooth functioning of the capital markets and to safeguard the overall financial stability. However, forex trading, particularly speculative activities conducted by non-regulated managers, has largely flown under the radar.
“Currently the Authority does not regulate forex trading activities but requires interested individuals or entities to seek dispensation or permission in order to offer services mainly for speculatory reasons. However, lately it has been observed that an increasing number of people are engaging in forex trading. In light of the above, the Authority is exploring the introduction of a more comprehensive regulation regime,” Ntebele noted.
According to Ntebele, traditionally, foreign exchange (forex) trading was primarily conducted by banks and bureau de changes to facilitate cross-border trade but the advent of electronic trading platforms has made it possible for individuals to engage in CFDs’ trading directly. This has led to a surge in the number of retail investors participating in the market, often referred to as “Forex Trading,” which involves speculative trading in foreign currency pairs and other derivatives.
One of NBFIRA’s central goals is to safeguard investors from potential fraud and mismanagement. The Authority provides a list of licensed entities on its website to help the public verify the legitimacy of service providers. Ntebele further underscored the importance of consumer education stipulating that, “The Authority undertakes public education which is aimed at empowering consumers of their rights and responsibilities across all industries regulated by the Authority.”
NBFIRA also issues public warnings about the risks of high-return promises in forex trading. “Any offers by individuals or entities promising excessive investment returns/profits within short periods should be treated with extreme caution,” Ntebele said.
Responding to a question regarding the regulatory body’s complaint handling stratagem, Ntebele noted that since 2019, NBFIRA has received numerous complaints about forex trading, all of which were referred to the law enforcement agencies for investigations as they contained elements of fraud and obtaining by false pretences.
As NBFIRA ponders the introduction of a new regulatory framework, the implications could be far-reaching. This potential overhaul aims to align Botswana with international best practices, ensuring that forex trading is conducted under stringent standards and enhanced investor protection.
Ntebele further advised investors to stay informed and cautious, leveraging the resources and guidance provided by NBFIRA to navigate this dynamic market effectively.
