Central Depository and Settlement Corporation (CDSC) chief executive Rose Mambo on November 10, 2016. CDSC's new proposals say no transactions will be allowed on accounts declared dormant. FILE PHOTO | SALATON NJAU | NMG
What you need to know:
CDSC says disabling inactive accounts after two years will ensure that investors’ money is not vulnerable to fraudsters.
The Nairobi Securities Exchange share custodian will lock share accounts that remain inactive for two years in a bid to protect investors against fraud.
Central Depository and Settlement Corporation Ltd (CDSC) in new proposals says no transactions will be allowed on the accounts declared dormant.
“CDSC shall declare an account dormant if there has been no activity in that account for a continuous period of 24 calendar months.
“Upon declaration of dormancy on an account, CDSC shall send a notification to the account holder informing them of the declaration,” says the securities depository’s draft rules.
CDSC head of legal, risk and compliance Hilda Njeru yesterday said disabling inactive accounts after two years will ensure that investors’ money is not vulnerable to fraudsters.
Incidentally, in 2012 regulator Capital Markets Authority brought charges against a CDSC official with transferring shares to three brokers for fraudulent sale. The electronic accounts’ host subsequently paid to settle the matter out of court.
The share accounts marked inactive would have restrictions (caveat) placed on transactions or due diligence enhanced before any transactions are cleared. To get access to their accounts investors would have to prove ownership with relevant documents.
“The inactive accounts are the ones targeted by fraudsters the world over and the move is meant to protect investors’ holdings against fraud,” said Ms Njeru.
“If an account is declared dormant it means it is locked such that if you ever need to come into that account we have taken it upon ourselves to protect that account. The day you will come we will need to confirm it is you.”
Previously there has been no cap on the number of years a CDS account could be declared dormant even with long periods of inactivity.
The industry have hailed the proposed rule as landmark.
“It is a huge step against fraud as rogue employees cannot not collude with criminals to infiltrate the CDS accounts which are inactive for criminal activities,” said John Kirimi, investment director at Sterling Capital.
The CDSC, which started operations in 2004, hosts a central depository system and provides central clearing, settlement and depository services for securities, initially in respect to securities listed on the NSE.
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