17/03/2025
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17/03/2025
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KUWAIT CITY, Mar 17: Several local banks have initiated contact with exchange companies, instructing them to close their accounts within a specified timeframe or face forced closure and seizure of balances. The banks have not provided explicit reasons for this move, but industry sources suggest it may be part of a broader effort to limit banking exposure to exchange companies, curtail business relationships, and align with the Financial Action Task Force (FATF) recommendations on combating money laundering and terrorist financing.
Sources indicate that the banks involved have cited general account-opening conditions as the basis for their requests, without specifying the exact issues prompting the review of account balances. Exchange companies have been given 10 working days to address the matter. Failure to comply will result in the banks retaining available balances and closing the accounts.
Sudden Shift Raises Concerns
The affected exchange companies have reportedly reached out to Al-Munther Bank seeking clarification for this abrupt change, particularly as no operational or procedural changes have occurred recently. These companies emphasize their adherence to foreign currency controls and their ability to provide sufficient guarantees for foreign currency coverage required to support their external correspondent networks. Despite these assurances, no clear explanations have been provided by the banks, prompting concerns among the companies.
With the account closure deadline still temporary, the affected firms are considering filing a complaint with the Central Bank of Kuwait (CBK), given that they operate under its supervision. While major exchange companies have not been impacted, the move poses a significant challenge to the sector. It could undermine the financial role these companies play in stabilizing the official exchange market and countering shadow exchange activities. The affected companies operate extensive branch networks across various regions, and the potential ripple effects of this decision could disrupt their ability to secure foreign currency coverage, thereby jeopardizing their capacity to facilitate financial transfers for citizens and residents.
Banking Sources Cite Risk Management
Banking sources have revealed that the account closures are part of a cautious approach based on risk assessment and strict adherence to due diligence procedures, particularly for corporate and exchange company accounts. They emphasized that the Central Bank allows individual banks to decide whether to engage with or discontinue relationships with such clients based on their risk sensitivity and internal evaluations.
The sources noted that the decision to close certain accounts stems from the high-risk nature of the activities associated with these accounts and the banks' inability to verify the effectiveness of the companies' anti-money laundering and counter-terrorism financing controls.
Exchange Companies Push Back
Officials from exchange companies have expressed concerns over the lack of specific reasons for the account closures, particularly when no contractual violations have been identified. They argue that if banks suspect irregularities, they should formally notify the companies and take legal action rather than closing accounts based on general suspicions. They also highlighted that these companies are regulated by the Central Bank, which should provide an additional layer of oversight and accountability.
Divergent Perspectives
Opponents of the Measure:
- Affected companies are under CBK supervision and have had no recent operational changes.
- Concerns center on account closures based on vague suspicions rather than concrete violations.
- Fears of weakened foreign currency supply to correspondents and potential defaults.
Supporters of the Measure:
- Banks are aligning with FATF recommendations on anti-money laundering and counter-terrorism financing.
- Reducing exposure to exchange companies is part of a broader strategy to minimize risky relationships.
- Banks retain autonomy to assess client risk and make decisions accordingly.
