The Capital Markets Authority (CMA) has moved to tighten regulations to protect the market against the impact of bad decisions made by intermediaries.
The proposed stricter checks target the directors and officers of market intermediaries including stock brokers and investment banks with the view to strengthen its oversight function.
Under the proposed amendments to the conduct of business regulations, which touch on the operations of market intermediaries, the markets regulator supports the firing of directors and officers who fail to meet fit and proper checks.
“When a director or an officer is assessed and found not to be fit and proper to work for a market intermediary, the affected market intermediary shall be required to terminate the services of such a director or officer,” the CMA notes. In addition, a market intermediary shall be required to put in place mechanisms to mitigate any loss or damage to clients, the business or the market resulting from such termination of services.
All directors of market intermediaries are expected to cover the market intermediary from losses arising from the contravention of regulations while officers may be held liable for the acts or omissions of the employees under supervision arising from failure to effectively supervise them.
The 2023 Capital Markets (Conduct of Business) (Market Intermediaries) Regulations further adjudicate on the standard of conduct by market intermediaries, independence, fair and clear communication, charges,’ clients’ rights confidentiality and the protection of clients’ funds.
The proposed fit and proper checks on directors and officers of market intermediaries places the CMA at par with regulators such as the Central Bank of Kenya (CBK) who also demand similar checks on the directors and officers of commercial banks and other regulated financial institutions.
Directors, chief executive officers, and significant shareholders in banks are required to be fit and proper with the approval of the CBK.
“The Central Bank may determine that a person who already is a director or senior officer of an institution is not a fit and proper person to manage or control the institution and upon the institution being notified in writing of that determination, the person shall, if he is a director or senior officer, cease to hold office,” the CBK notes.
