KUWAIT: Kuwait is tightening oversight on its money exchange sector as part of efforts to exit the Financial Action Task Force (FATF) “follow-up phase,” which evaluates countries’ progress in combating money laundering and terrorism financing. This week, Minister of Commerce and Industry Khalifa Al-Ajeel launched an inspection campaign to ensure compliance with new regulations for exchange shops, which aim to ensure the sector aligns with international standards. The campaign, covering key areas with high concentrations of exchange offices, is part of Kuwait’s broader efforts to improve financial transparency.

Al-Ajeel emphasized that Kuwait’s leadership is committed to meeting FATF’s requirements, bolstering the nation’s economic standing, and enhancing its reputation in global financial assessments. An FATF report released in November 2024 has found that Kuwait has a legal and supervisory framework in place to combat illicit finance, but faces significant challenges in effectively addressing money laundering and terrorist financing. Countries that fail to comply with FATF’s recommendations may be placed on a “grey list” or “black list,” which can affect their international financial reputation and relationships with other countries and institutions.

A key part of the regulations, which stem from a Cabinet decision in June 2024, mandates that exchange businesses comply with stricter requirements set by the Central Bank of Kuwait, including a minimum capital of two million Kuwaiti dinars. The deadline for the bureaus to comply expired on March 31, 2025, with exchange bureaus failing to meet the requirements facing a suspension of operations. Local banks also issued warnings, requiring exchange companies to close their accounts, with penalties for non-compliance.

An inspection officer stands next to a closed exchange shop.

This regulatory shift involves transferring supervision of exchange bureaus from the Ministry of Commerce and Industry to the Central Bank of Kuwait, which is tasked with ensuring the sector meets financial standards and prevents illicit activities. Other regulations introduced by the Central Bank include prohibiting exchanges from speculating in foreign currencies and requiring internal control systems for businesses.

According to a statement from the commerce ministry, the exchange sector in Kuwait consists of 138 offices regulated by the ministry, with varying capital levels, many far below the two million dinar requirement. In addition, 31 exchange companies are regulated by the Central Bank, Al-Rai reported. Exchange offices are limited to currency exchange activities and do not have licenses for international money transfers, giving them a competitive edge in providing better exchange rates.

These offices also specialize in high-risk currencies like the Iranian rial and Syrian pound, which exchange companies typically avoid. Exchange companies have correspondent relationships with international banks and hold accounts with local banks to cover currency purchases, unlike exchange offices, which operate more locally without these resources. The latter are often located in commercial districts such as Al-Mubarakiya and Fahaheel, near gold shops, while exchange companies are spread across Kuwait’s residential areas.

The inspection revealed that most exchange bureaus had closed following the expiration of the grace period, with only one violation recorded. It remains unclear whether the closures were due to fear of repercussions for failing to meet the Central Bank’s conditions or if the bureaus were simply awaiting approval after taking steps to comply with the requirements. — Agencies