CMA mulls tougher punishment for firms cooking books

The Capital Markets Authority (CMA) is mulling over increasing the penalties on listed companies which publish erroneous financial statements and those who fail to adhere to the rule on issuance of profit warning.

CMA chief executive Paul Muthaura said it was important for the regulator to ensure the fine imposed on the offender was proportionate to the risk of exposure on investors.

“We are reviewing our internal guidelines to give clearer guidance to the market on how we will be calculating our penalties – it has been noted that some of the penalties are not commensurate to the potential risk exposure to the market,” said Mr Muthaura.

CMA regulations currently cap the fine imposed on companies that fail to issue a sufficient profit warning at Sh50,000.

He said he had issued a circular to companies underlining how the regulator will be interpreting obligations of issuing profit warnings.

Companies are required to issue a profit warning within 24 hours of the board of directors becoming aware that profits will fall by more than 25 per cent compared to the previous financial year.

Some companies have in the past sought to escape punishment by arguing they only became aware of the profit slump at the eleventh hour when they made mandatory provisions and adjustments.

“We made it clear that as a board they have responsibility as the owners of those financial statements as well as having the responsibility of risk management oversight. So that explanation will not be acceptable,” said Mr Muthaura.

National Bank of Kenya is currently in the crosshairs of the regulator after it issued a profit warning at midnight only to shock the market with a Sh1.2 billion loss in the morning.

READ: CMA punishes NBK for breach of profit alert rules

Centum Investments was slapped with a Sh50,000 fine in 2013 for failing to alert the market of a 48 per cent profit slump.

The government is working on formation of an independent audit oversight committee to supervise auditors. Public confidence in published financial statements has been waning following disclosures of manipulation.

Imperial Bank and Chase Bank, which have issued CMA-approved corporate bonds were recently put under receivership following discovery of financial malpractice.