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CMA Faces Parliamentary Probe as Cytonn Woes Opens Pandora’s Box

The Capital Markets Authority (CMA) is now staring at parliamentary scrutiny for failing to protect investors, following the proliferation of unregulated and illegal investment funds that have led to loss of investor funds in the country.

Garissa Township MP Aden Duale has asked the Finance and National Planning Committee to probe the CMA after investors cried foul over unfulfilled promises over the much hyped Cytonn High Yield Solutions (CHYS), offered by Cytonn Investments Limited.

Cytonn which has for ages marketed the funds as private placements, a closed shop of a few sophisticated investors, limited to 100 investors and didn’t fall under CMA’s radar. However, court filings indicated that Cytonn had raised money from 3,000 investors in breach of regulations that demand funds raised through private placements limits to no more than 100 people.

The Garissa town legislator also indicated various instances which he claimed was a backslide of the CMA to regulate the capital markets effectively in total disregard of Section 11 of the Capital Markets Act.

Over time, investor confidence has been eroded on Kenya’s capital markets, with most investors sharing the sentiments that the Capital Markets watchdog has done little in terms of protecting the retail investors. In recent times however, CMA has taken regulatory action against some of the capital markets illegalities, the most recent being over the Kenol Kobil insider trading.

In addition, the suspension of Deacons, Kenya Airways, ARM Cement, National Bank and briefly Nairobi Business Venture, Marshals East Africa, Atlas, African Lakes Corporation (Africa Online) and Unilever, all have shaken investor confidence, which CMA is ultimately mandated to protect.

MP Duale’s Citations Over CMA
  • The 2005 Imperial Bank corporate bond valued at Kes 2.0 billion to bondholders which was issued despite having ongoing financial fraud within the bank.
  • Clearing Chase Bank to issue Kes 4.8 billion worth of bonds in 2005, after which the bank fell into receivership.
  • Nakumatt Holdings Supermarkets Kes 4 billion commercial paper issuance in 2018. (In default)

Aden Duale, now wants the CMA to disclose the total number of unregulated capital market products in the country including the number of invested persons and the role of the regulator in the proliferation of illegal investment funds.

Further to this, the legislator also wants the effectiveness and efficiency of the CMA established and the total number of firms penalized in last five years including remedial actions issued by the regulator listed