The Capital Markets Authority (CMA) has raised the minimum amount of cash and liquid money equivalents that market intermediaries are required to hold in proposed new regulations meant to revamp the country’s financial markets and boost investor confidence.
The new rules have increased the minimum liquid capital requirement for investment banks and fund managers while introducing new caps for other intermediaries such as broker-dealers, forex brokers, money managers, and Reit managers among others, which were previously not subject to the requirements.
In the new rules, investment banks, which were previously allowed to hold a minimum of Sh30 million, will now be required to hold at least Sh50 million in liquid capital or eight percent of their total liabilities, whichever is higher.
The minimum liquid capital requirement for fund managers has been doubled to Sh10 million, up from Sh5 million, while the stockbrokers’ limit has been maintained at Sh30 million.
Other market intermediaries, including broker-dealers, trustees, custodians, money managers, Real Estate Investment Trust (Reit) managers, and online forex brokers, which previously enjoyed liberty on minimum cash requirement, will now also have limits.
Broker-dealers –entities which trade securities on behalf of clients and also for themselves– will now need to have at least Sh50 million, while dealers and online forex brokers will need to hold at least Sh10 million and Sh30 million respectively.
Money managers, trustees, Reit managers, Reit trustees, and custodians will each be required to maintain a liquid capital of at least Sh5 million, ending the freedom they previously enjoyed.
Liquid capital is the extra cash or short-term assets above the total value of the intermediaries’ priority liabilities – which must be settled first in the event of bankruptcy or liquidation.
CMA has since invited public participation on the proposals.
