The Capital Markets Authority (CMA) is a statutory institution established in 1989 through an Act of Parliament with the core responsibility of licensing and supervising all capital market intermediaries in Kenya. Capital markets are the part of the financial market that provide funds for long-term development. Capital markets bring together borrowers of capital (companies and institutions that sell securities to the public) and providers of capital (investors and lenders that buy and trade these securities).
The most widely known products in Kenya’s capital markets are equity (stocks), which refer to securities that represents an ownership interest in a limited liability company, and bonds, which are debt instruments issued by the government or corporates for a fixed period at variable or fixed interest rates.
Equity and bonds are, however, not the only capital market products available to investors in Kenya. CMA has been at the forefront of supporting the roll out of innovative new products in recent years. These include real estate investment trusts (REIT), derivatives, exchange traded funds and Islamic finance products. It’s no surprise that CMA has won the coveted Most Innovative Capital Markets Authority Africa Award by the International Finance Magazine for five consecutive years (2015-2019).
CMA has not only leveraged on innovation to diversify the product portfolio in Kenya’s capital markets but has also played an integral role in promoting capital markets stability. This has helped strengthen investor confidence and led to a long-term increase in investor wealth on the Nairobi Securities Exchange (NSE), the main exchange for capital market products in Kenya.
NSE’s total stock market capitalization (total value of listed shares) stood at Sh2.59 trillion in 2021, the Economic Survey 2022 shows. By contrast, market capitalization stood at Sh1.27 trillion in 2012, CMA reports show. This means that, on average, investor wealth in Kenya’s stock market has doubled in the last 10 years.
Strong track record
Many organizations make bold claims about what they intend to achieve but, a couple of years later, find convenient excuses to explain away mediocre outcomes. CMA is not one of them. It has established a strong track record in terms of implementing its strategic plan. Of the 106 activities contained in CMA’s 2013-2017 Strategic Plan, a total of 88 were achieved. That’s equivalent to an achievement rate of 83 per cent, the regulator notes in its Annual Report.
Its current strategic planning cycle (2018-2023) has also been equally successful. The regulator has, for example, been able to include 5 fintech firms into its regulatory sandbox. Sandboxes allow innovators to trial new products, services, and business models in a safe space, to confirm their compliance with existing regulation before implementing them within the wider sector.
CMA has also been able to support the growth of collective investment schemes in Kenya, with assets in these schemes surpassing Sh100 billion. It has also licensed 2 commodities exchange that allow for up to 4 commodities to be traded. Commodities exchange help provide liquidity in commodities market, which is key in ensuring farmers get a market for their produce. CMA has also been able to support 2 counties to tap into the capital markets to rise debt funding through bonds. This is in addition to breathing new life into the corporate bond market. Overall, CMA notes that 85 per cent of its targets under the 2018-2023 strategic plan have already been met.
One way CMA strengthens investor confidence is through investor protection. The regulator has been relentless in its efforts to execute this key part of its mandate. For example, the Investor Compensation Fund, which is aimed at compensating investors who suffer financial losses resulting from the failure of a licensed broker or dealer, grew more than tenfold from Sh210 million to over Sh3 billion.
CMA has also cracked the whip on entities engaged in market misconduct. A prime example is when its successfully thwarted insider trading attempts on the Kenol Kobil stock ahead of the company’s 2018 takeover by French oil marketer, Rubis Energy. Insider trading is the illegal trading of a public company’s stock to make profit or avoid losses based on material nonpublic information about the company.
In 2021, CMA issued cease and desist orders to over forty unlicensed online forex trading entities operating without a license as required under the Capital Markets Regulations, 2017. Many Kenyans have burnt their fingers in online forex trading schemes and scams run by unlicensed players. They usually promise riches untold but make off with investors’ money. So far, CMA has licensed only four non-dealing online foreign exchange brokers namely, EGM Securities Ltd (trading as FXPesa), SCFM Ltd (trading as Scope Markets), Pepperstone Markets Kenya Limited, and Exinity Capital East Africa Limited.
CMA also actively promotes investor education. This is closely linked to its mandate of ensuring investor protection. The CMA has published a comprehensive and detailed investor handbook on its website with useful guidelines for investors of all kinds, regardless of whether one is a novice or a seasoned investor. In addition to the handbook, CMA also regularly educates the public via its social media platforms.
A well-informed investor is likely to protect and grow their capital by avoiding pitfalls that uneducated investors make, including investing funds with unlicensed entities, chasing unrealistic returns overnight and speculating in risky assets such as cryptocurrencies without understanding the downside risks.
CMA has distinguished itself as a forward-thinking and effective regulator. Along with its peer regulators in the financial sector – the Central Bank of Kenya, the Retirements Benefit Authority, the Insurance Regulatory Authority, and the SACCO Societies Regulatory Authorities – CMA plays an indispensable role in securing Kenya’s position as the region’s foremost financial hub.