By Rose Lumumba
We are constrained to respond to issues raised in The Standard, Tuesday February 14, 2012 and make the following comments in the public interest on the issues raised.
1. Suitability of regulatory actions taken: It is not clear which actions the writer is referring to but suspension of companies from trading is mentioned. The Capital Markets Authority (CMA) has and will continue to take actions, at different levels, when there is need to protect the market and investors’ interests.
Globally, all regulators are facing unprecedented circumstances under which they must fulfill their mandate. CMA has taken decisive action on corporate governance in listed companies based entirely on the level of egregiousness.
Suspension from trading is always taken with the sole objective of protecting investors from likely unfavorable price discovery exposure due to release of material information that is considered to be adverse. This intervention is standard so as to forestall dilution in value of investments especially capital losses due to negative price trends.
Lifting of suspension from trading largely depends on how positively the underlying cause has been mitigated hence care is taken before such actions are reversed. This is to safeguard the welfare of investors and to assure the integrity of Kenya’s capital markets as a whole.
2. Losses to investors arising from collapsed operators or fraudulent activities: Collapse of market operators was witnessed in the period March 2007 and February 2010 and CMA has taken various steps to mitigate this trend including, but not limited to reinforcing its legal framework; greater disclosure to the public of intermediaries’ financial position through publishing of their financial results in the newspapers; change of its oversight approach from full compliance to risk-based supervision; strengthening of corporate governance structures with regards to market intermediaries; and introducing regulations to govern the conduct of market intermediaries such as greater capital requirements for the various categories of intermediaries.
CMA has taken firm steps towards strengthening its supervision capacity and with the assistance of the Ministry of Finance and the Commissioner of Police; we set up Capital Markets Fraud Investigation Unit (CMFIU) to combat fraud.
Data from the CMFIU for 2009 to year ending 2011 shows a 77% decline in the number of capital markets fraud cases received or reported to the CMFIU. There is no doubt that the gains of these measures have been noted by investors in the market. It is, therefore, grossly inaccurate to state that the trends are in fact getting worse.
3. Compensation of Investors: The matter of compensating investors who incur losses due to the inability of a stockbroker or dealer to meet their obligations is properly provided for in law.
Every investor who lodges a claim within the required period which is verified as genuine is entitled to a maximum compensation of Sh50,000 from the Capital Markets Investor Compensation Fund. To date up to 90 per cent of claims lodged against Nyaga Stockbrokers Ltd have been fully compensated from the fund.
Other remedies available
The Authority is in the process of compensating the former clients of Discount Securities Ltd (DSL). We expect that 81% of all DSL claimants will be fully compensated by the completion of this phase of compensation; these being the total claimants who lost up to Sh10,000.
Global standards dictate that investor compensation mechanisms for capital markets and banks (such as the Deposit Protection Fund Board whose maximum compensation limit is Sh100,000) have a maximum compensation limit. Both small/retail and large/institutional investors are advised of this prior to investing their funds. In addition, there are other remedies available to large/institutional investors.
4. Regulatory and Enforcement capacity: The Authority continues to improve its capacity in terms of human capital, systems, and enabling legal framework. The Judiciary is handling criminal cases brought forward by the Authority against DSL, Nyaga Stockbrokers, Francis Thuo & Partners Ltd shareholders and/or directors and/or employees.
In conclusion, CMA has a critical mandate of safeguarding the interests of all shareholders regardless of their size in ownership or even literacy on capital markets matters. The Authority must also assure the integrity of Kenya’s capital markets. CMA must proactively ensure solutions to emerging problems are arrived at in relation to investors. In resolving matters CMA at all times upholds fairness and transparency.
The CMA is open to different, opinions, and constructive criticism in an effort to build a market where all investors feel safe and their rights are safeguarded at all times. However, this must be done in the confines of the current legal provisions while balancing the expectations of various stakeholders.
-The writer is Director, Corporation Secretary & Communications at Capital Markets Authority.
