Iran's CB Applying AML Rules to Forex Transactions

EghtesadOnline: Governor of the Central Bank of Iran said on Wednesday anti-money laundering rules such as know your customer (KYC) controls are being implemented in the foreign exchange market and the recent crackdown on currency hawkers in the capital was a step in that direction.

News ID: ۷۸۱۸۴۵

24 February 2018

"One of the principles of forex market transparency is that the person or institution offering the service should identify who receives those services. Therefore KYC is a serious issue related to anti-money laundering and combating the financing of terrorism, which requires special sensitivity," Valiollah Seif also said in an interview with the parliament's news website ICANA.

The KYC form is an investment and banking standard that ensures investment advisors know the details about their clients' risk tolerance, investment information and financial status.

Last week, Tehran Police, at the behest of the central bank, raided the hub of Tehran currency hawkers near the British Embassy in Tehran and rounded up 90 traders who were deemed market disruptors, according to Financial Tribune.

Authorities also closed the bank accounts of 775 people suspected of distorting the foreign exchange market with capital movements totaling 200 trillion rials (over $4 billion).

Seif added that these currency traders were part of the underground economy since they did not use their national ID number while trading.

The CBI chief reiterated that no country allows such traders to operate in the black market.

Iran operates two exchange rates: a free market rate and an official rate set by the central bank and used for some state transactions.

The dual currency system and the lack of a formal currency futures market has given rise to a parallel foreign exchange market that includes exchangers licensed by the central bank and many unregulated ones, including street hawkers.

In December 2016, CBI authorized banks to deal in foreign exchange trading at a free-market rate as part of its moves to unify exchange rates.

The central bank has raised the official rate gradually to reduce the gap between the two rates. It intends to unify the exchange rate, make the economy more efficient and create a level playing field for private firms competing with state institutions that have access to cheaper foreign exchange.

The recent volatility in the forex market, however, dampened the enthusiasm for any rate unification as investors scrambled to the safe-haven market.

At the height of the forex market volatility last Tuesday and just before the unveiling of CBI's rescue package, the rial was traded at 49,000 to the greenback, having plunged 14% since the start of 2017.

In order to stem the rial's further depreciation, banks have now been authorized for two weeks to offer interest rates of up to 20% on one-year deposits against the previous 15%.

The volatility also prompted the bank to introduce new tools such as rial- based currency bonds to establish a formal foreign exchange market that ensures stability in the long run.

Continuing Oversight

Seif said on Wednesday that market oversight will continue with Law-Enforcement Forces, Interior Ministry and judiciary having devised forex rules that no one can violate.

He said that in future no one will be allowed to flout the rules and added that the current forex regime remains a "controlled floating" system that is determined by supply and demand.

Noting that CBI feels it incumbent to intervene at times of market volatility, Seif predicted that in the coming days and weeks, the market will find more stability.

On Wednesday, the rial gained 1% against the US dollar and was traded at 45,280 to the greenback, according to Tehran Gold and Jewelry Union's website.