CMA added powers to fight fraud in schemes

The Treasury has published new regulations that give the Capital Markets Authority (CMA) powers to oversee all investment funds formally solicited from the public in a bid to rein in fraudulent and unregulated schemes where unsuspecting Kenyans lose billions of shillings.

Under new regulations published by Treasury Cabinet Secretary Ukur Yatani no one will be allowed to collect funds from the public and make investments without approval and frequent checks by the CMA.

The CMA will regulate both collective investment schemes and alternative investment funds for private entities.

Currently, people raising money privately only need to notify the CMA that they had arranged a private placement.

The regulator reckons this grey area led to a proliferation of private entities, some of which ended up defrauding Kenyans of billions of shillings.

“We want to regulate all funds done through formal channels in the view of changes in the market environment and to address the trends where some were unscrupulous,” the CMA told the Business Daily.

Now all private funds must maintain a minimum capital of Sh10 million and are limited to just 20 investors at any one time.

The regulations published by Treasury define alternative funds as any money collected privately from two or more investors in Kenya or abroad to invest it under a defined investment policy approved by the authority for the benefit of its investors.

Only investors with more than Sh1 million, who the regulator considers sophisticated enough, will be allowed into alternative funds which have a higher risk appetite, while also diversifying the asset classes available for investors in the country.

It has also published a second set of regulations for collective investment funds (CIS) where small savers with as little as Sh5,000 pool funds for investment overseen by a licensed fund manager and custodian as well as a trustee.

The CIS rules bring all pooled funds under its jurisdiction unless regulated elsewhere like pension schemes or those specifically stated under the Act such as family trusts.

The CMA has sought to dispel anxiety that it wants to regulate everyone, including chamas.

“Chamas are informal we will only look at firms that collect funds through formal channels,” the CMA said.

The move comes after the regulator was summoned by Parliament to explain the trend where Kenyans are increasingly losing money to investment funds on its watch.

Some products such as ‘private placements’ are not regulated and operate undetected unless members of the public raise the alarm.

The CMA said Kenyans have lost over Sh1 billion through unregulated investment products sold to unsuspecting investors with the promise of high returns of up to 20 percent.

The regulator told Parliament it had investigated 500 unregulated products, including online forex frauds, illegally pooled funds, cryptocurrency, real-estate, and ponzi schemes, ordered refunds, and instituted criminal charges.

It also launched investigations into Cytonn Investment’s troubled private funds following complaints by investors who have made reports claiming they lost money in the company even though it does not regulate the two funds.

Cytonn operates both regulated funds and unregulated funds with nearly similar names.

The regulated fund, Cytonn High Yield Fund (CHYF) with Sh960.2 million portfolio is, however, just a small fraction of its two unlicensed funds -- Cytonn High Yield Solutions (CHYS) and Cytonn Project Notes (CPN) holding Sh13.5 billion in real estate investments.

Some investors who sued the company for contract breaches raised issues about the operations of the two funds.

The CMA wants Cytonn to change the names of their products so as not to create confusion. The two parties are stuck in court over the matter.