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Kenya: Capital Markets Reforms Welcome
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The East African Standard (Nairobi)
EDITORIAL
6 May 2008
Posted to the web 6 May 2008
Nairobi
After much prodding and many an outcry from the market, the Capital Markets Authority has moved to institute changes in its rules.
In the long list of proposed amendments to the Capital Markets Act and subsidiary regulations, the Authority is tightening the eligibility criteria for licensees in the market, notably stockbrokers and investment banks.
The changes include limits to individual shareholding of brokerage firms and higher capital requirements. By raising the minimum capital requirements seven to tenfold (from Sh5 million to Sh50 million for stockbrokers and from Sh30 million to Sh250 million for investment banks), CMA is seeking to weed out briefcase operators and instill more professionalism in the market.
Stockbrokers, investment banks and fund managers will also now be required to publish their financial statements annually. Although this does not go as far as Central Bank requirements for other financial institutions, it is still a step in the right direction.
More would have been better.
The proposed amendments also seek to tighten the moral rules of conduct (in the so-called 'fit and proper' criteria) for the individuals involved in the business. Further, the amendments would also require stockbrokers and investment banks to closely supervise their agents and be responsible for them.
As we welcome this positive development, it would be wise to remind all of us that legal and regulatory frameworks are put in place to buttress confidence and fairness in the financial markets. They ensure that players meet the standards of business conduct and that stakeholders and players in the market must have confidence in the institutions and structures by having their interests safeguarded and being treated fairly.
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We should remember that enforcement always meets resistance from those who benefit from chaos. It would, therefore, be expected that these proposals will still face some resistance. The Authority will, therefore, need to deftly shepherd the proposals through the mine-fields and ensure that they become law.
Lastly, we should not lose sight of the fact that regardless of the efficacy of the law, it is enforcement that will determine whether any set of laws meet their objectives. Otherwise, as the saying goes, "the proof of the pudding is in the eating". In the past, there have been cases of malfeasance in the market, not because of lack of the law, but because of lack of enforcement.
It is, therefore, our proposal that as the Authority seeks to spruce up the law, it will also spruce up its enforcement mechanisms and tools in order to give effect to the new laws.
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