Directors to be held liable for fraud, CMA warns

Capital Markets Authority Chief Executive Paul Muthaura. Directors of Nairobi bourse-listed firms found guilty of false financial reporting and fraud will be held liable as regulators move to restore confidence in the financial sector. (PHOTO: DAVID NJAAGA/ STANDARD)

Directors of Nairobi bourse-listed firms found guilty of false financial reporting and fraud will be held liable as regulators move to restore confidence in the financial sector.  

According to the Capital Markets Authority (CMA), board members will shoulder more responsibility based on their decision-making role in the event financial impropriety is discovered in their firm.

“We have had cases where the board of directors has told us that they only became aware of financial impropriety at the last minute but this will no longer be acceptable because they bear the responsibility of ensuring that the financial reporting and auditing is above board,” CMA Chief Executive Officer Paul Muthaura said.

Mr Muthaura said the authority was also seeking higher fines for companies to discourage mis-reporting in financial statements since the current ones do not match the severity of the crimes. “A case of fraud or mis-reporting of a financial position often has a big risk factor and has significant effects on the markets but the fines handed out are not severe enough to match the extent of the fraud,” he stated.

Muthaura further said that CMA has since issued circulars to listed firms on the responsibility of corporate boards to check against cases of financial mis-reporting or fraud.

Corporate governance

He was speaking yesterday at the beginning of a workshop on fraud by the CMA and other regional financial intermediaries including the Capital Markets & Securities Authority of Tanzania, Central Bank of Burundi and local financial sector intermediaries and regulators.

The conference comes a week after the re-opening of Chase Bank, which was placed under receivership in April 7 by the Central Bank of Kenya, after it emerged that senior bank officials had lent themselves and their business entities a total of Sh16.6 billion. The lender had a further Sh8.7 billion in bad debts. Two other lenders, Dubai Bank and Imperial Bank, were placed under receivership with the former currently in liquidation over mis-reporting financial accounts.Early this year, the CMA revealed that it had fined and reprimanded several stock brokers for violating regulatory provisions.

Since then, it has since published international certification standards for practitioners in the capital markets and an additional code of corporate governance. Mr Muthaura, however, states that these are not enough to deter fraud and guarantee compliance.

“The avenues to tackle fraud and risk cannot be limited to only revisions of the law and regulations but goes to the fundamental perception of risk and the operation and internal structures put in place to influence culture and behaviour,” he said.

Muthaura further stated that the launch of the derivatives market is still on course despite the bearish performance of the Nairobi Securities Exchange (NSE).

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