Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
State to remove ownership limits in stockbrokers, fund managers
The government is seeking to remove the 33.3 percent shareholding limit for individuals in stockbrokerages, investment banks, fund managers and derivatives brokers.
The government has moved to remove shareholding limits for stockbrokers and investment banks in a bid to lure deep pocketed investors into owning and managing intermediary companies at the capital markets.
In amendments tabled in Parliament, the government is proposing the deletion of clauses in the Capital Markets Authority (CMA) Act which cap individual shareholding in stockbrokerages, investment banks, fund managers and derivatives broker at 33.3 percent.
The proposals are contained in the Capital Markets Amendment Bill, 2025, which has been tabled by the Leader of the Majority Kimani Ichung’wah, on behalf of the government.
The amendments also delete a clause that had previously locked out persons holding more than 25 percent ownership of a company licensed by CMA from being appointed as key personnel within that company.
“The amendments seek to enhance ease of doing business by removing shareholding limits to attract more investment in regulated institutions. Without such limits, larger investors may be more willing to invest significant capital, leading to increased liquidity and expansion opportunities for the institution,” said Mr Ichung’wah.
The amendments introduce a clause that gives power to the National Treasury Cabinet Secretary, in consultation with the CMA, to prescribe shareholding limits for different categories of business licensed by the regulator if deemed necessary.
Mr Ichung’wah said that the proposed changes would provide the flexibility to adapt to changing market conditions and regulatory needs.
“The amendment will ensure that shareholding limits can be aligned with best practice and evolving market standards and thereby support a more robust and effective regulatory environment,” he said.
Raising the bar
Under the current Act, the shareholding for individuals and companies in market intermediaries is capped at 33.3 percent. However, there is no ownership limit for institutional investors like banks and insurers.
Companies in which there is no shareholder has a stake exceeding 25 percent are also exempt from the ownership limit in the intermediaries.
These regulations form part of the minimum requirements that a company must meet in order to be licensed as a stockbroker, investment banker, fund manager or derivatives broker.
The regulator introduced shareholding limits at a time when stockbrokers were struggling with capital inadequacies and poor corporate governance. The introduction of the caps forced the owners of the brokerage firms to invite new investors, who injected new capital and pushed for improved management structures.
Since 2023, CMA has been gradually raising the bar for capital adequacy and corporate governance requirements for stockbrokers and fund managers by issuing new regulations each year.
In the first instance, the regulator focused on character vetting by enforcing the fit and proper test on directors.
Last year, CMA increased the capital thresholds for market intermediaries to ensure their financial soundness. These rules pushed the minimum liquid capital requirement for investment banks to Sh50 million or eight percent of their total liabilities, whichever is higher.
The regulations introduced minimum cash requirements for broker-dealers, trustees, custodians, money managers, Reit managers and online forex brokers.
Breaking family dominance
In June this year, CMA proposed breaking the family dominance in stockbrokers by capping the number of directors with close family ties at one third of the board members through draft regulations which have yet to take effect.
Stockbrokerage firms have largely been family-run businesses, with the founders acting as patriarchs.
