12 October 2008
Nairobi — The Capital Markets Authority (CMA) has proposed measures to protect the country from the kind of credit crisis currently facing financial markets across the globe.
The proposals include a requirement for each licensed market intermediary to take up professional indemnity insurance.
"In the US and UK markets, as a result of mortgage backed securities, rather than the mortgage interest payments going to the bank that originally made the loan to the borrower, payments went into a pool created by the financial institutions," CMA chairman Prof Chege Waruingi said.
He said the process of securitisation of household mortgages was associated with a tremendous increase in the total volume of US mortgage debt, which grew three times as fast as the Gross Domestic product (GDP) over the last decade.
He said other measures for the local market will involve strengthening the capacity of market intermediaries based on the volume of business each handles.
Licensed entities will be required to publish notice of an AGM containing a summary of the annual financial statement and auditors' report in the print and electronic media.
Capital markets
"Enhancing corporate governance structures of intermediaries by separating ownership from management structures to ensure accountability and transparency is vital," he said during the seventh FiRe award ceremony at KICC.
Prof Waruingi noted that multi-partite memorandum of understandings (MoUs) require to be undertaken between all financial sector regulators to cover areas of risk and ensure no gray areas are unregulated.
All financial sector regulators should also adopt a risk-based supervision approach."More information sharing by financial sector regulators in Kenya on the risk profiles as well as other pertinent information as laid out in a memorandum of understanding is critical."
Prof Waruingi said that with regards to the current CMA regulations on asset backed securities gazetted in October 2007, it has emerged that credit rating is not a reliable measure of a corporation's credit-worthiness.
"Therefore, there is need for different guidelines and procedures for the rating process. Under the ministry of Finance, the Financial Legal Sector assistance Programme (FLSTAP) project on regulatory reforms in the Kenyan capital markets commenced in September 2008," he said.
Markets are only viewed as safe and stable if investors trust and understand the underlying financial reporting structure, he said.
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