Regulator spells out tough penalties for errant CEOs, boards
Capital Markets Authority chief executive Paul Muthaura (left) with ICPAK chief executive Patrick Ngumi (centre) and PwC Partner Michael Mugasa during a forum for CEOs, chief financial officers and auditors in Nairobi on September 1. PHOTO | DIANA NGILA
What you need to know:
Its strict implementation will be key in taming rogue executives amid a growing list of listed company managers accused of committing white-collar crimes such as asset misappropriation, tendering fraud, bribery and corruption, money laundering, tax fraud, and antitrust law infringement.
CEOs and directors in about two months face tough penalties after the Capital Markets Authority (CMA) moved to crack down on errant players through enhanced rules and regulations on governance and portfolio management.
Key among the rules and regulations is the new corporate governance code for listed firms, which replaced the guidelines on corporate governance practices that had been in force since 2002.
The new code becomes effective in March 2017, following a one year transition period given to issuers upon its gazettement on March 4, 2016.
Its strict implementation will be key in taming rogue executives amid a growing list of listed company managers accused of committing white-collar crimes such as asset misappropriation, tendering fraud, bribery and corruption, money laundering, tax fraud, and antitrust law infringement.
“A master class on the code was held in November 2016 to raise awareness among chief executive officers, chief finance officers and company secretaries of public issuers…a master class for boards of issuers is scheduled for February 2017,” said CMA chief executive Paul Muthaura in an opinion piece the Business Daily earlier this month.
The new rules allow the CMA to vet the appointment of chief executives, chief finance officers and directors who serve in the audit committees of public listed companies. This is similar to the practice the Central Bank of Kenya, which vets proposed appointees to boards and senior management of banks before they are formally appointed.
The rules also require listed firms to remunerate top managers and board members using a pay-for-performance formula, which would protect shareholders from overpaying non-performing executives when the companies make losses.
Listed firms will further be required to provide an explanation to shareholders and the CMA in their annual reports or annual general meetings whenever they make decisions that are deemed not to meet the standards set in the code of governance.
Also gazetted this year were guidelines on the prevention of money laundering and terrorism financing in the capital markets, which are aligned to the Kenyan anti-money laundering and counter terrorism financing laws.
The money laundering guidelines are meant to stem the practice of cleaning illegal money through investment in the securities markets, with these rules now placing a greater responsibility on directors of investment firms to ensure that their anti-laundering practices are effective.
Additionally, the CMA issued a circular in August barring fund managers and stockbrokers from offering cash management services to clients, ending the practice that has seen the firms earn millions from managing the wealth of wealthy clients.
The regulator said this practice was unregulated since it is outside the mandate of the CMA Act.
The CMA also recognised the Nairobi Securities Exchange (NSE) as a self-regulating organisation starting July this year, effectively granting the exchange supervisory powers over the upcoming derivatives market.
The NSE was granted the self-regulating organisation status after successfully separating the management structures for its commercial and regulatory functions in line with the Capital Markets (Demutualisation of the Nairobi Securities Exchange Limited) Regulations of 2012.
The powers, however, do not extend to the NSE being allowed to determine market fees for the derivative, equities and bonds markets, which remains the responsibility of the CMA.
In 2017, the markets regulator through the Treasury is expected to gazette regulations on global depository receipts, which will allow firms to issue their shares overseas without being cross-listing on other exchanges.
Pension schemes are also anticipating the finalised regulations by the CMA on licensing of private equity funds, which will pave the way for the schemes to invest freely in the private equity (PE) sector.
Currently, the Retirement Benefits Authority allows pension funds to invest up to 10 per cent of their assets in the PE sector, but a number of the funds are wary of such investment due to the lack of regulations.
