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| Nairobi Securities Exchange Chief Executive Peter Mwangi. The Nairobi bourse has implemented a broker back office system to curb malpractices such as unauthorised selling of clients’ shares. [PHOTO: ANDREW KILONZI] |
By James Anyanzwa
Kenya: The Capital Markets Authority (CMA) has sounded an alarm over new fraudulent activities at the securities market. The market regulator said bourse fraud has changed from simple unauthorised sale of clients’ shares to electronic fraud involving access to high net worth clients’ accounts through identity fraud.
This comes after the regulator revealed that ABC Capital and Tsavo Securities were involved in an unauthorised sale of clients’ securities during the 2012/2013 fiscal year.
According to the authority’s latest annual report (2013), ABC Capital Ltd was directed on June 19, last year to reinstate the affected client Rosalie Osborne for the securities sold.
Key targets
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CMA also raised concerns over the new class of fraud at the securities market targeting high net worth investors, whose accounts have either remained inactive or dormant for long.
The market regulator singled out the elderly, deceased persons and diaspora clients whose accounts, it says, have become a soft target for fraudsters. “Fraud is an area of concern for the financial sector and particularly the capital markets due to its potential impact on market confidence, said the report. “During the year under review, officers under the Capital Markets Fraud Investigation Unit (CMFIU) stepped up their efforts to contain crimes within the securities industry.”
Their efforts were geared towards reducing pending investigations and court cases as well as detection of securities related fraud.
According to the report, the unit continued to work with key stakeholders to speed up cases within the securities industry — aimed at restoring investor confidence. They also identify fraud risk areas and recommend preventive measures to the Authority. The CMFIU has been effective in investigation and prosecution of persons who committed fraud within the securities market.
The officers on preventive measures liaised with market players in developing strategies including updating market players on various prevalent trends.
Less cases
“The focus will be on emerging fraud targeted at high net worth clients’ accounts that are inactive or dormant especially for elderly, deceased persons and diaspora clients,” said CMA. According to the report, there was a steady decrease in cases reported to CMFIU since its inception. During the period under review, a total of 23 cases were reported as compared to 40 cases in 2011/12 financial year and 51 cases in 2010/11 financial year.
According to the report, 11 fraud cases in the securities market were pending before court while eight cases were pending under investigation during the 2012/2013 fiscal year.
During the period under review, four cases were pending before court with known accused persons yet to be arrested. CMA has implemented risk-based supervision and enforcement of conduct rules and corporate governance guidelines to mitigate financial statement fraud.
Other measures include training and encouraging individuals and institutions to report frauds when they occur, and improvement in CMA’s surveillance system to aid detection. This aids in preventing market manipulation and abuses.
