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Kenya: Proposed Laws to Regulate Capital Markets Welcome
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Business Daily (Nairobi)
COLUMN
7 May 2008
Posted to the web 7 May 2008
Emmanuel Wetang'ula
In the wake of the crisis that engulfed a key component of the securities market- stockbrokers-occasioned by the troubles at Francis Thuo & Partners and Nyaga Stockbrokers, within a period of one year, the regulator, the Capital Markets Authority (CMA) has moved to institute changes in its rules.
There is unanimity that the legal regulatory framework should be strengthened to grant sufficient power to CMA to be able to regulate the market and protect public interests.
The raft of amendments to the CMA Act proposed by the regulator recommend raising capitalisation for stockbrokers and investments banks from Sh5 million to Sh50 million, and from Sh 30 million to Sh250 million respectively. This is no doubt aimed at weeding out briefcase outfits and instilling more professionalism in the market.
Other notable proposed amendments are the demutualisation of Nairobi Stock Exchange, which is long overdue and aimed at delinking the NSE from its owners.
The structure of the NSE, as it stands today, is owned by the 18 stockbrokers and investment banks. There is also a requirement for brokers to make public quarterly financial statements and regulating the activities of the agents.
Due to the importance of the capital markets to the economy and its impact on the livelihood of people, the same is subjected to regulation by the Government. Regulation is designed to promote public confidence in the securities market.
Governments have an interest in developing such confidence in order to encourage their citizens to invest in the securities market or to encourage companies, including foreign companies, to list their shares on what can be presented a well-regulated stock exchange.
It may be too soon to celebrate since the amendments have not yet become law, but they are positive developments nevertheless. But tough draconian laws do not mean automatic compliance. There is bound to be resistance from the brokers, investment banks and the agents against the proposed rules.
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The difficult task lies in enforcing the law, its efficacy as discussed above notwithstanding. It is only through the process of enforcement that will determine whether the law meets its objectives, a task which has to be borne by CMA. Simultaneously, CMA must embark on a progression to strengthen its enforcement mechanisms to effectively handle the daunting task it faces.
But caution should be exercised to avoid creating an overbearing regulator that may in the long-run impede rather than spur the growth of the market.
Wetang'ula is an advocate of the High Court.
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