Stockbrokers face capital raise in EA regulation pact
The Nairobi Securities Exchange. Kenya’s sector regulator has tightened corporate governance rules. FILE
What you need to know:
The changes are part of ongoing efforts to standardise capital market regulations across East Africa to make it easier for businesses to tap into regional capital markets.
East African capital market regulators have agreed to set uniform capital adequacy rules applicable to stockbrokers, investment banks, fund managers and all other intermediaries licensed to operate across the region.
The changes are part of ongoing efforts to standardise capital market regulations across East Africa to make it easier for businesses to tap into regional capital markets.
The East African Securities Regulatory Authorities (Easra), the umbrella body for capital markets regulators in Kenya, Uganda, Tanzania, Rwanda and Burundi, said in a statement Monday it had agreed to set the new capital adequacy rules at a joint regulators meeting held in Nairobi last week.
“The framework to be implemented will include financial resources rules, conduct of business and governance rules, formulation of a standardised risk based capital adequacy reporting mechanism and harmonisation of paid up share capital for various licence categories across the region,” said Easra in a statement after their 38th consultative meeting.
Regulators in the region have been pushing for an increase in the share capital of market intermediaries, seeing it as a preventative measure that could help to financially strengthen licensees and thereby reduce the risk of another wave of collapse of stockbrokerages.
Francis Thuo, and Nyaga Stockbrokers and Discount Securities went down between 2008 and 2010 due to fraud and poor governance structures which resulted in the loss of billions of shillings of clients’ money.
Uganda’s capital market has also been rocked by failure of market intermediaries in recent years.
Kenya’s Capital Markets Authority has tightened corporate governance rules and raised capital adequacy requirement for stockbrokers and investment banks.
In 2011 investment banks were required to increase their paid up share capital to Sh250 million from Sh30 million, while stockbrokers were required to increase their paid-up share capital to Sh50 million from Sh5 million.
Common systems
Rwanda’s Capital Markets Authority had also proposed increasing the share capital to Rwf100 million from Rfw $10 million in 2010, but halted the move since stockbrokers in the county said that the market was too small by extension the risk was small to warrant the increase.
At the Nairobi summit, Easra also agreed for common systems and harmonising regulations that will make it possible to issue regional IPOs and listings. Regulations for issuing of regional bonds have already been made and adopted by member countries.
“Additionally, the regulators will work to harmonise their market infrastructure systems in preparation for the adoption of risk–based supervision regionally,” said the statement.
