CMA regulatory actions should uphold shareholder interest but is that the case?

CMA regulatory actions should uphold shareholder interest but is that the case?

The Public Watchdog returns to Kenya’s capital markets at a time of increasing concern over whether or not the regulatory actions of the regulator are upholding the interests of shareholders or

undermining them in a manner that could see listing of companies dwindling or worse still, existing ones delisting.

Further, investors in the capital markets now feel that regulator Capital Markets Authority’s (CMA) interventions are either coming too little, too late, are misjudged or lack the necessary depth and breadth to engender investor confidence.

Why? Some of the listed companies have been suspended for over 60 days, e.g. CMC Motors Group. What does this portend to investors and liquidity of tradable securities?

Worse still, investors have lost hundreds of millions of shillings, nay, billions of their investments in the form of failed transactions due to fraud involving some rogue firms such as Nyaga Stockbrokers and more recently, Discount Securities.

Complexities of risk

Last week CMA Chief Executive Stella Kilonzo announced that the authority’s Compensation Fund — the equivalent of banks’ Deposit Protection Fund, but which is poorly funded — would pay investors, including National Social Security Fund (NSSF) an amount of Sh50,000 in phases with respect to the winding up of Discount Securities.

The NSSF alone lost over Sh1.2 billion, in a transaction involving Discount Securities and which represented a substantial loss of pensioners’ funds. But have we drawn any useful regulatory lessons?

Public Watchdog believes that we have learnt absolutely nothing, given successive market failures! This explains why investors have reacted to CMA’s payout announcement with jeers! Yes jeers! Not Cheers!

What, then, are compelling issues?

First, the pertinent questions remain: Does CMA have regulatory capacity for those charged with the task of market oversight — supervision, compliance and enforcement? Has the regulatory regime failed to grow in tandem with market dynamism and management of complexities of risk? Or is it a combination of all these?

What has CMA done against those responsible for the supervisory and compliance functions when the stockbroker went under? Who were they? Is it high time we audited the regulatory performance of CMA to determine appropriate responses, including gullibility, review of management, performance, capacity and appropriateness or otherwise of its leadership?