About Us

The Capital Markets Authority is a body corporate established under the Capital Markets Act, 1989. The Act was amended in 2000 and renamed as Capital Markets Act. The principal activities of the Authority is to promote and facilitate the development of an ordinary, fair, and efficient capital market in Kenya.


A proactive regulator of a competitive and robust capital market.


To promote the development of Kenya’s capital market to be an investment destination of choice through facilitative regulation and innovation.



We are sensitive to and will deal with issues and situations affecting all our stakeholders in a proactive and timely manner, using flexible decision-making processes.

Innovation and Continuous learning

We are committed to facilitating continuous learning and innovation.


We are committed to acting at all times with honesty, fairness, accountability, transparency, ethically and above board in all our operations.

Collaboration and Teamwork

We are committed to teamwork within the Authority and collaboration with our partners in the provisions of our services.


We shall perform our duties with the highest level of professionalism, dedication with a view to exceeding the expectations of our clients and stakeholders.


The Chairman Mr. James Ndegwa (left) presents a cheque of Kshs 150,000 to Gabriel Mbiti (centre), a student at Jomo Kenyatta University of Agriculture and Technology, who was the overall winner of the Nairobi County Capital Markets University Challenge. Looking on is Chief Executive Mr. Paul Muthaura (right).

The Chairman Mr. James Ndegwa (1st left) and Chief Executive Mr. Paul Muthaura (3rd from right) pose with winners of the Nairobi County Capital Markets University Challenge.

The Chairman Mr. James Ndegwa poses with children of Wema Centre after presentation of a joint donation by the Boards of the Authority, Central Depository and Settlement Corporation and Nairobi Securities Exchange in August 2015.

Capital Markets Authority Chief Executive Paul Muthaura (left), CISI Global Business Development Director, Mr. Kevin Moore (centre) and FSD Africa Director Capital Markets , Financial Inclusion Mr. Mark Napier during the launch of the Chartered Institute for Securities and Investments, an international certification standards program for capital markets professionals in Kenya.

Capital Markets Authority staff representing the Blue Team celebrate the conclusion of a task of assembling an automobile to test creativity and team work.

National Treasury Director General, Budget, Fiscal and Economic Affairs Dr. Geoffrey Mwau, presents a token of appreciation on behalf of the Board of Capital Markets Authority to Ms. Catherine Musakali for her invaluable contribution to the development of the Code of Corporate Governance Practices for Issuers of Securities to the Public.

From left: CMA staff Roseline Mkongo, Zephania Chebii, Mary Kiptoo and Chief Executive Paul Muthaura (right) pose with an award conferred to the Authority by Africa Investor. The Authority was recognized as the most innovative capital markets regulator in Africa in September 2015.

From left: Graduate trainees Margaret Awino, Safia Ramata and Cyrilla Masiache engage with Capital Markets Authority Manager Market Supervision Johnstone Oltetia during their welcome luncheon. CMA hired 10 graduate trainees for a period of two years.

Acting Officer-in-charge of the Capital Markets Fraud Investigation Unit Mr. James Kivindu (left) receives a certificate from the Authority’s Director of Market Operations Mr. Wyckliffe Shamiah (right) for participation in a Regulatory Compliance and Emerging Fraud Risk Workshop held in May 2016.

Capital Markets Authority staff during a team building event.

Board Members

1. Mr. James Ndegwa – Chairman 2. Mr. Paul Muthaura – CEO 3. Dr. Geoffery Mwau, Alt. PS National Treasury 4. Ms. Linda Muriuki 5. Dr. Patrick Njoroge – Governor CBK 6. Dr. Kamau Thugge – PS The National Treasury 7. Mr. Moibi Mose

8. Mr. Paul Ngugi 9. Prof. Githu Muigai – Attorney General 10. Mr. John Birech, Alt. Governor CBK 11. Ms. Christine Okoth 12. Mr. Nevis Ombasa, Alt. Attorney General 13. Dr. Thomas Kibua 14. Mr. Harry Kimtai

Key Management

Paul M. Muthaura

Paul M. Muthaura

Chief Executive

Wyckliffe Shamiah

Wyckliffe Shamiah

Director, Market Operations

Edwin Njamura

Edwin Njamura

Director, Corporate Services

Luke Ombara

Luke Ombara

Acting Director, Regulatory Policy and Strategy

Hellen Ombati

Hellen Ombati

Head Legal Affairs & Corporation Secretary

Esther Maiyo

Esther Maiyo

Manager, Internal Audit

Johnstone Oltetia

Johnstone Oltetia

Manager, Market Supervision

Kamunyu Njoroge

Kamunyu Njoroge

Manager, Investor Education & Public Awareness

James Kivuva

James Kivuva

Manager, Strategic Projects

Abubakar Hassan

Abubakar Hassan

Manager, Investigation and Enforcement

Andrew Muthabuku

Andrew Muthabuku

Manager, Human Capital & Administration

Richard Chirchir

Richard Chirchir

Manager, Information Communications & Technology

John Njoroge

John Njoroge

Manager, Finance

Matthew Mukisu

Matthew Mukisu

Manager, Derivatives

Mary Njuguna

Mary Njuguna

Manager, Corporate Approvals

Chairman’s Statement

“In line with pillar two of the Capital Market Master Plan of ensuring improvements in listings, liquidity and performance of new product areas, the Authority has made positive strides towards the establishment of new products in the market.”

Economic Overview

The world real gross domestic Product (GDP) growth in 2015 was 3.1 percent having declined from the 3.4 percent recorded in 2014. In 2016, the World Bank revised it’s forecast of global growth to 2.4 percent in June from the 2.9 percent projected in January 2016. This outlook arises from the sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. Growth in emerging markets and developing economies is projected to advance at a marginal 0.4 percent this year, whereas growth in imports has been more resilient. These projections are of course still subject to substantial downside risks, including additional growth disappointments in advanced economies and key emerging markets . Rising policy and geopolitical uncertainties. However, and much more positively, the World Bank forecasts growth in Sub-Saharan Africa at 4.2 percent; an ambitious rate following the recorded growth rate in 2015 of 3.8 percent.

The historic and largely unexpected vote in the United Kingdom to withdraw from the European Union portends uncertainty for Britain’s economy and their capital markets. Kenya remains exposed to “Brexit” consequences given its trade ties with the United Kingdom and the considerable UK investments in leading listed companies, in several of which the UK shareholding exceeds 50 percent and in one case is as high as 96.82 percent. Within two weeks of the Brexit vote, the NSE 20-share index declined by 3.4 percent, continuing the already bearish investor sentiment that has the year to date declined by 10.5 percent. The trend however presents good opportunities for potential investors, especially with the shilling exchange rate and interest rates remaining stable.

Turning to Kenya, the country’s economic growth in 2015 was 5.6 percent and is projected to rise to 5.9 percent in 2016 and 6.1 percent in 2017. The positive outlook is predicated on, among other factors, the major infrastructure investments. Fiscal consolidation is expected to ease pressure on domestic interest rates and increase credit uptake by the private sector. Key macroeconomic indicators remained relatively stable during the review period. Overall, inflation eased from 6.9 percent in 2014 to 6.6 percent in 2015 due to lower energy and transport prices. The Kenya Shilling depreciated against major currencies largely driven by the strengthening of the US dollar globally and high imports associated with the infrastructure spending. It is important to note that the Kenya shilling remained comparatively strong against other currencies in the region and has maintained stability at the Kshs 101 – Kshs 102 level to the US dollar. The current account deficit as a percentage of GDP was at 11.4 percent in 2015. Forecasts of the same also indicate a further drop in the deficit to about 6.5 percent attributed to improved tea and horticulture export earning, two of Kenya’s main revenue earners as well as rising remittances from Kenyans living abroad. Kenya’s ranking on the Global Competitiveness Index Survey also witnessed an upward trend in 2015. This was largely attributable to improved market efficiency and well developed financial markets when compared to other Sub- Saharan Africa countries other than Mauritius and South Africa.

The Capital Markets

Kenya’s capital market performance had some bright spots in 2015 and the first half of 2016 amid the broader turbulence affecting emerging markets around the world. Operating under the stewardship of the Capital Market Master Plan (2014 – 2023), the Authority in conjunction with industry players such as the Nairobi Securities Exchange, has worked towards the rolling-out of new products in the market aimed at boosting liquidity and attracting more domestic retail investors given that only about 5 percent of the population currently participates in the local market. This inclusion is in line with the objectives of having a demutualized exchange with one of the benefits being that greater investor participation in the governance of the exchange is being realized. On the regional front, Tanzania took a bold move of opening its capital markets by letting foreigners beyond East Africa invest in Treasury bills and other debt. The Authority applauds this move as it is in line with commitments made amongst the East African Community member countries of deepening the regional capital markets.

Strategic Direction

During the year, Mr. Paul Muthaura was confirmed as the Chief Executive Officer of the Authority through a gazette notice dated 22nd April 2016. Mr. Muthaura had held the position in an acting capacity since July 2012, and during this period he steered the institution through very significant initiatives and innovations including the formulation and launch of the Capital Market Master Plan (2014 – 2023); a Vision 2030 flagship project. Under his leadership the profile and standing of the Authority was raised both locally and abroad, and the various initiatives have resulted in several accolades and international awards.

On behalf of the Authority’s Board, I congratulate Mr. Muthaura on his well deserved appointment as he steers the Authority and other stakeholders towards the implementation of the Capital Market Master Plan whose vision is to make Kenya the heart of African Capital Markets. His distinguished leadership resulted to his appointment to the Board of the International Organization of Securities Commissions (IOSCO) in September 2014, a position he continues to hold and serve in informing and shaping IOSCO policies and standards which are adopted by member jurisdictions, Kenya included.

Market Development Reforms

In line with pillar two of the Capital Market Master Plan of ensuring improvements in listings, liquidity and performance of new product areas, the Authority has made positive strides towards the establishment of new products in the market. Islamic Finance is one of the key areas of interest and with technical and funding support from Financial Sector Deepening Africa (FSDA) the Authority commissioned IFAAS (Islamic Finance Advisory & Assurance Services, an international consultancy specialized in Islamic finance), in association with Simmons & Simmons (an international law firm), to lead the Project Management Office (PMO).

The Authority is carrying out these functions on behalf of the Financial Services Regulators Forum (FRSF) comprising of CMA, RBA, IRA, CBK and SASRA. Kenya’s Islamic Finance Industry is at its nascent stages of development currently with two fully fledged Islamic banks, five Islamic windows of conventional banks, one fund, one Takaful (Islamic insurance) company, and one Retakaful window which are among the licensed financial institutions operating in the country. In addition, two Islamic Saccos have since been registered by the Commissioner of Co-operatives Development.

The Authority thus foresees a positive future for Kenya and the Islamic market and encourages the public to actively participate in building the sector.

On the regulatory front, the Authority introduced the following legislative instruments:

  1. Code of Corporate Governance for issuers of securities to the public, 2015
  2. Capital Markets (licensing requirements)(General) (Amendment) Regulations, 2016
  3. Guidelines on the prevention of money laundering and terrorism financing in the capital markets, 2015
  4. Capital markets (Derivatives) Regulations 2015
  5. Capital Markets (Securities) (Public Offers, Listing and Disclosure) (Amendment) Regulations 2016.
  6. Policy Guidance Note on Exchange Traded Funds

Additionally, the Authority has granted the Nairobi Securities Exchange an initial set of powers to operate as a Self-Regulatory Organization (SRO). This was approved after the NSE successfully separated its management structures for its commercial and regulatory functions in line with the Capital Markets (Demutualization of the Nairobi Securities Exchange Limited) Regulations of 2012.This is in line with the Capital Market Master Plan strategy, where a demutualized exchange would be given the Authority to set its own fees, create and enforce industry regulations and standards, helping it obtain and allocate the resources it needs to rapidly respond to market developments and opportunities. This comes ahead of a derivatives market soon to be launched by the exchange.

The year under review also saw investors gain an opportunity to diversify their investment portfolios through Real Estate Investment Trusts (REITs). On 4th December 2015, the Stanlib Fahari Income Reit was launched for trading, making its debut on the Alternative Investment Market Segment in the Real Estate Investments sector of the NSE. It is such successes that give the Authority momentum to continue pursuing the overall goal of developing the Kenyan Capital Markets.

Performance Management

Being a state corporation, the Authority is required to enter into a performance contract with the Government. Performance contracting is now in its 12th cycle and this initiative has to a large extent contributed towards enhanced service delivery through excellence, integrity, transparency and accountability. In the year 2015/ 2016 the performance contract introduced new aspects that the Authority has embraced and implemented, including;

  1. Implementation of the Mwongozo Code of Conduct.
  2. Incorporating safety measures for the Authority through disaster preparedness programs.
  3. Sensitization and doing business with the Youth, Women and Persons with Disabilities (PWD).

The Authority takes this process and performance commitments made with complete seriousness and the Board will continue to ensure that the performance contract is cascaded to all directorates, departments, sections, units and cadres of employees for the purpose of complete integration of the process. The Authority will also continue applying the Balanced Score Card (BSC) Performance Management System (PMS) in order to link institutional performance to that of individual employees. I am glad to note that in the evaluation of its performance over the years, the Authority has consistently achieved “very good” scores.

International Recognition and Co-Operation

In September 2015, the Authority received an award as the most innovative capital markets regulator in Africa awarded by Africa Investor in New York during the Africa Investor Summit. Launched in 2007, and linked to the Africa investor (Ai) Index Series, the Ai Institutional Investment and Capital Market Awards are based around the Ai Index Series and are the only pan-African Awards designed to recognize Africa’s best performing stock exchanges, listed companies, investment banks, research teams, regulators, socially responsible companies and sovereign wealth and pension fund investors. It is a uniquely African capital markets event.

On behalf of the Board, I wish to congratulate all members of staff and stakeholders that continue to partner with the Authority to improve market liquidity and depth through continuous innovation of capital market products. This award to the Authority is an honour for Kenya and is a recognition of the highly commendable collaboration between regulator and the industry.

As part of its drive to enhance the positioning of Kenya as a premier investment destination, the Authority has launched International Certification Standards for practitioners in the capital markets industry. The launch is the product of the signing of a Memorandum of Understanding (MOU) with the Chartered Institute for Securities & Investment (CISI) in September 2014. The certification programme will ensure that practitioners in the capital markets industry have the requisite skills and apply best practice as Kenya takes its position as “The Heart of African Capital Markets”. For Kenya to be globally competitive and attract significant international flow of funds, client facing staff within capital market intermediaries will be subjected international certification standards to support the introduction of more diversified products in the market, as well as to ensure that engagement with investors is consistent and meets the highest possible professional and ethical standards.

Appreciation and Outlook

The support extended by the Government to the Authority is critical to the success we achieve in performing our duties and responsibilities. I wish to appreciate the Government for ensuring that the Authority’s Board is now fully constituted with the appointments of Dr. Thomas Kibua and Mr. Moibi Mose in October 2015 and of Ms. Christine Okoth and Mr. Harry Kimtai in May 2016 all as new independent members. At the same time, Mr. Paul Ngugi was reappointed for a second term in May 2016. I welcome these members and look forward to their contribution to the work of the Board and its committees.

I also wish to take this opportunity to appreciate the important contribution of Ms. Rose Detho, who represented the Governor of the Central Bank and Ms. Njeri Wachira, who represented the Attorney General on the Board, and to welcome the new alternates appointed during the year being, Mr. John Birech and Mr. Nevis Ombasa respectively. Dr. Chris Kiptoo also left the Board during the year following his appointment as a Principal Secretary and we wish him success in his new responsibilities.

Having completed my first year as Chairman of the Board, I wish to acknowledge the excellent work of the Authority’s management and staff under the able leadership of Mr. Paul Muthaura and thank the whole team for the strong support they provide to the Board. My tenure comes during an important period of initiating implementation work of the Capital Markets Master Plan.

It is now two years since the Master Plan was launched and I am happy to report that about 30 percent of the objectives set in the plan have already been met as a result of a combined effort from all stakeholders through the four set working groups. With this rapid progress I am confident that, while there are inevitable short term challenges to be addressed, the future looks promising as Kenya prepares to position itself as the “Heart of African Capital Markets” by the year 2023. We can therefore look forward to exciting years ahead in the capital markets as new products and innovations are introduced to meet demands from the dynamic set of local, regional and international investors with eyes set on Kenya as an investment destination of choice.

James Ndegwa

Chief Executive’s Statement

“The Authority remains vibrant in spearheading full implementation of the Capital Markets Master Plan by 2023 or sooner as envisioned. Studies confirm that there is a direct and positive correlation between advancements in the financial services sector of a country and economic development.”

Market Performance

Financial year 2015/16 registered a relatively low level of market performance mainly due to a bear market cycle. The NSE 20- share index registered a reduction of 25.78 percent to 3,641 points during the period under review against an index level of 4,906 points during the corresponding period in the previous year . The market had earlier witnessed the highest share index in the financial year in July 2015, of 4,405 points, a 19.78 percent decrease when compared to the highest share index during 2014/15 which was registered in February 2015 at 5,491 points. Similarly, market capitalization recorded a 13.2 percentage decrease in 2015/16 to Kshs. 1,998 Billion against Kshs.2,302 Billion registered during the corresponding period in the previous financial year. During the financial year ended 30th June 2016, the Kenyan market registered an equities turnover of Kshs. 176.46 Billion, reflecting the traded value of the 65 companies listed at the Nairobi Securities Exchange at the time.

Despite the lower performance, the market generally remained resilient albeit with uncertainties following the historic withdrawal of Britain from the European Union. The country therefore remains exposed to Brexit consequences.

Capital Markets Master Plan (CMMP)

The overall implementation of the Capital Market Master Plan is coordinated at the national level by the Capital Market Master Plan National Steering Committee (CMMP –SC) chaired by the Cabinet Secretary for the National Treasury. The role of the CMMP-SC is to provide the overall policy direction during Master Plan implementation as well as to address cross-cutting issues that require cross-sectoral policy coordination. The other members of the CMMPSC are; the Attorney General, the Cabinet Secretary for the Ministry of Agriculture, Livestock and Fisheries; the Cabinet Secretary for the Ministry of Mining; the Governor of the Central Bank; the Chief Executive, Capital Markets Authority; the secretary to the National Economic and Social Council; the Director General, Communications Authority of Kenya; and the Chairman of the Financial Sector Regulators Forum (JFSR).

  1. The operational coordination of the CMMP implementation is being carried out by the Capital Markets Master Plan Implementation Committee (CMMP-IC) which is Chaired by the Chief Executive, Capital Markets Authority and draws membership from public and private sectors as well as the academia.
  2. The CMMP-IC executes its mandate under the guidance of both the CMMP-SC as well as the Board of the Capital Markets Authority.
  3. The Capital Markets Master Plan identified 113 recommendations to be implemented over 10 years (2014 – 2023). The cumulative milestones achieved thus far include;
  4. Gazettement of the Stewardship Code for Listed Companies and Issuers of Securities to the Public on 4th March 2016. The Code repeals the Guidelines on Corporate Governance for Listed Companies, 2002. The development of the Code was necessitated by the corporate governance developments locally and the need to benchmark Kenya’s corporate governance requirements with international standards. The Authority will in the coming financial year roll out a comprehensive sensitization program targeting all parties affected by these Codes but notably top executives listed companies and issuers of securities to the public.
  5. Undertaking of a shadow assessment by the Authority on the ranking of Kenya based on the Morgan Stanley Capital International (MSCI) index framework from frontier market to emerging market and adoption of the Financial Times Stock Exchange (FTSE) Index by the NSE as a first step towards the MSCI and Global Financial Centre Index (GFCI) rankings.
  6. Submission of Tax neutrality proposals on Real Estate Investment Trusts (REITS), Securities Lending & Borrowing (SLB), Asset Backed Securities (ABS) and Short Selling to the National Treasury in January 2016 and subsequent submission of more proposals on Islamic Finance and reclassification of pension sector asset classes in March 2016. Further, the proposal on reclassification of pension sector was adopted through the Finance Bill 2016. The proposals that were not considered will be resubmitted in the coming financial year, with further justifications.
  7. During the year, a validation workshop for the second module of the CISI certification programme was held. CMA staff and industry participants received level one Chartered Institute for Securities & Investment (CISI) certification. Cumulatively, 23 CMA staff and industry participants achieved Level One Introduction to International Securities & Investments (IISI) certification.
  8. The Authority secured funding on acquiring an information repository from Financial Sector Support Project (FSSP) under the World Bank and the procurement process is underway.
  9. The Islamic Finance Project Management Office (PMO) was set up, effective 1st December 2015. During the period under review the PMO made policy and tax submissions to the National Treasury focused on amending the Capital Markets Act to treat Islamic finance products and services like any other conventional products and services for purposes of taxation;
  10. Consultancy funding support to undertake the national and county financing gap analysis and recommendation of funding options through the capital markets was secured, with actual World Bank supported consultancy expected to be completed in the coming financial year
  11. The Bond Market Steering Committee was reconstituted to address all outstanding issues relating to full implementation of a Hybrid Bond Market in Kenya. Specific milestones achieved during the year was the restructuring of the Bond Market Association into a company limited by shares as a key step towards recognition as an Over the Counter (OTC) Exchange modelled as a Self-Regulatory Organization (SRO) as well as the development of draft SRO rules to govern its expected delegated oversight role.
  12. The Authority developed and submitted quarterly capital markets stability reports to the board every quarter during the year to update them on emerging risks in the capital markets or in the financial sector as whole that could impact financial stability, with mitigation measures
  13. The above achievements add onto another 10 percent achieved during 2014/15. Cumulatively, overall progress made in implementing CMMP recommendations account for about 30 percent yet this is just the second year since the launch of the CMMP.

Review of the Policy Framework

Financial year 2015/16 was a reality check for the financial services sector, with the supervision function and the role of the regulator for listed banks in the banking industry was put to test. Three banks, namely Dubai Bank Kenya Limited, Imperial Bank Limited and Chase Bank (K) Limited were put under receivership following claims of mismanagement and under reporting of bad debts/loans from borrowers. These sparked heavy discussions on the perceived inefficiencies in market supervision amongst industry regulators. Despite the concerns, the Authority commends the Central Bank of Kenya for the speed with which interventions were made.

Going forward, the Authority is strongly advocating for a more coordinated approach in the supervision of financial service players to ensure the public is not exposed to the systemic risk of losing their hard earned investments and incomes, made outside the banking system but adversely affected by the closure of commercial banks due to non-segregation from bank deposits. We will also continue to engage with the Central Bank of Kenya and the National treasury to ensure more consultations prior to resolution of commercial banks, whose subsidiaries engage in capital markets services to avoid loss of trust in the financial services sector.

Budget 2016 Interventions

Vision 2030 seeks to position Kenya as the heart of the African Capital Markets by making Nairobi an International Finance Center. Various Government interventions have thus been made, geared towards realizing this.

A key component is the introduction of the Financial Services Authority Bill to the public for comments. The Bill seeks to merge non-banking regulators; that is the Capital Markets Authority (CMA), the Retirement Benefits Authority (RBA), Insurance Regulatory Authority (IRA) and the Saccos Societies Regulatory Authority (SASRA). The FSA Bill seeks to establish uniform norms and standards in relation to the conduct of providers of financial products and financial services through the establishment of the Financial Services Authority, the Financial Sector Ombudsman and the Financial Sector Tribunal. This is so as to provide for the prudential supervision of prudentially regulated non-bank financial institutions, to provide for the promotion and maintenance of a fair and efficient financial sector in Kenya and for connected purposes.

Review of Legal and Regulatory Framework

During the year, there were a number of amendments to the Capital Markets Legal and Regulatory Framework as listed;

a) Companies and Insolvency Legislation (Consequential Amendments) Act, 2015

These amendments align the provisions of the Central Depositories Act, among other Acts, with the new Companies Act, 2015. The amendments also provide clarity on the definition and scope of a dematerialized security.

b) Capital Markets (Nairobi Securities Exchange Limited Shareholding) Regulations, 2016

These regulations introduce restrictions on shareholding of the Nairobi Securities Exchange. An individual or a private company is not allowed to own more than five percent of the equity share capital of the Exchange.

c) Code of Corporate Governance for Issuers of Securities to the Public, 2015

The Code of Corporate Governance for Issuers of Securities to the public, 2015 was gazetted on 4th March 2016. The Code sets out the principles and specific recommendations on structures and processes which companies should adopt in making good corporate governance an integral part of their business dealings and culture. The Code repeals the Guidelines on Corporate Governance Practices for Public Listed Companies in Kenya, 2002. The Code contains both mandatory and voluntary requirements. The Code calls for the adoption of standards that go beyond the minimum prescribed by legislation. Issuers are required to apply the principles and recommendations and where they are not applied, a satisfactory explanation is required.

d) Capital Markets (Securities) (Public Offers, Listing and Disclosure) (Amendment) Regulations, 2016

These amendments were introduced as a result of the need to extract mandatory requirements from the Code of Corporate Governance for Issuers of Securities to the Public, 2015. The amendments provide a framework upon which companies should adopt in making good corporate governance an integral part of their business and dealings. Some of the amendments deal with definitions of directors, composition of the board, functions of the board and other corporate governance requirements.

e) Capital Markets (Licensing Requirements) (General) (Amendment) Regulations, 2016

The Capital Markets (Licensing Requirements) (General) (Amendment) Regulations, 2016 amend the capital market fees, commissions and levies so as to enhance the depth and scope of products and services and increase investor participation in the capital market. The amendments also introduced capping on fees payable to the Capital Markets Authority.

f) Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets, 2015.

The Guidelines are made in line with section 12(1) of the Capital Markets Act and section 24A (3) of the Proceeds of Crime and Anti Money Laundering Act. The Guidelines provide a framework for prevention and detection of money laundering and terrorism financing in the capital markets. The Guidelines require Boards and management of capital market intermediaries (including stock brokers, fund managers, Investment banks, among others) to establish appropriate policies and procedures for the detection and prevention of money laundering.

g) Capital Markets (Derivatives) Regulations, 2015

The Capital Markets (Derivatives) Regulations, 2015 provide a comprehensive framework for the establishment and operation of a derivatives market in Kenya. The Regulations repeal the Capital Markets (Futures Exchanges) (Licensing Requirements) Regulations, 2013.

h) Policy Guidance Note for Exchange Traded Funds in Kenya

The Policy Guidance Note was approved and published in September 2015. The Guidance Note sets out the basic principles for the establishment of exchange trade funds in Kenya’s capital market. The Guidance Note is a precursor to a comprehensive regulatory framework to allow for the operationalization of exchange traded funds in Kenya. The Guidance Note was developed in line with section 12A of the Capital Markets Act which allows the Authority to introduce new products and services by way of notices and guidelines.

Market Supervision and Surveillance

a. Compliance & Risk Management

i) Risk Based Supervision

The Authority continued with its efforts of protecting investors and fostering confidence by ensuring players are operating within the set market regulatory framework and also facilitate market players in meeting their disclosure requirements effectively and efficiently. During the year, the Authority carried out 48 market intermediaries’ inspections. The inspections were done within the Risk Based Supervision framework.

ii) AML/CFT Standalone Inspections

As part of the efforts in ensuring appropriate & effective oversight and further support & enhance the implementation of POCAML Regulations, the Authority developed the guidelines on Prevention of Money Laundering and Combating Financing of Terrorism in Capital Markets. The Guidelines were gazetted on Friday March 4, 2016. The guidelines are aligned to the Kenyan Anti-Money Laundering and Counter Terrorism Financing (AML/CFT) laws, benchmarked against international best practices and the recommendations of the Financial Action Task Force (FATF), the global standard setter for AML/CFT measures. With the technical assistance from the International Monetary Fund (IMF), the Authority developed a robust AML/CFT risk based supervision framework. The Authority successful conducted the first ever risk based AML/CFT standalone inspections on six (6) high risk market intermediaries operating in the Kenyan capital markets.

b. Market Surveillance

The Authority is in the process of establishing a repository whose purpose is to assist in information intelligence gathering to ensure timely information access about financial markets, securities and the economy which is a vital aspect of vibrant, orderly and transparent financial markets. As a regulator and in particular for surveillance and research, this information is key in building up cases and informing surveillance analysts by assisting in supplementing reviews of suspicious trading activities and also in documenting a case for possible investigation and enforcement. The web-based service will provide a global data streaming solution that is able to deliver data with in-depth information and analytics, news, technical data and global financial markets trends to ensure proper oversight. During the year, the Authority finalized the development of specifications for the repository system.

Market Development

During the year, the Authority has actively pursued the operationalization of the derivatives, exchange traded funds and Islamic finance products in the country. To this date, progress has been made to the extent explained below.

i. Derivatives market

The Nairobi Securities Exchange is in its final stages of preparing for the launch of a derivatives exchange in Kenya. The Exchange seeks to offer index and equity futures as initial products upon the launch. The Exchange, having procured an end to end trading, clearing and settlement system in 2011, was found suitable for the day to day operations of the Clearing House and the Exchange. The system which contained a derivatives module was audited on April 2015 and was found suitable to meet the NSE and the Authorities expectations. The Exchange signed in clearing and trading members between February 2015 and December 2015. In addition, the Settlement Guarantee and the Investor Protection Funds were established as a trust and capitalized to a tune of Kshs. 100 Million and Kshs. 10 Million respectively.

Finally, three Committees were constituted in 2015 namely Derivatives Oversight Committee, Product Advisory Committee and the Risk Management Committee in order to provide oversight to the derivatives process.

ii. Islamic Finance

The Capital Markets Authority (CMA) with technical and funding support from Financial Sector Deepening Africa (FSDA) commissioned IFAAS (Islamic Finance Advisory & Assurance Services, an international consultancy specialized in Islamic finance), in association with Simmons & Simmons (an international law firm), to lead the Project Management Office (PMO). CMA is carrying out these functions on behalf of the Financial Services Regulators Forum (FRSF) comprising of CMA, RBA, IRA, CBK and SASRA.

The PMO, housed by CMA, works closely with the financial sector regulators on the development of an institutional, policy and regulatory framework for the Islamic finance industry in Kenya. The project, named “DARAJA” (bridge), started in December 2015 and is due to be completed by the end of March 2017.

IFAAS, Simmons & Simmons and PMO members undertook a fact finding mission in December 2015 that enabled the team to establish the key issues that hinder the development of Islamic finance and establish relationships with all relevant stakeholders, initiating the collection of very important information and data, and, observing local practices.

Kenya’s Islamic Finance Industry is at its nascent stages of development currently with two fully-fledged Islamic banks, five Islamic windows of conventional banks, one fund, one Takaful (Islamic insurance) company, and one Retakaful window which are among the licensed financial institutions operating in the country. In addition, two Islamic Saccos have since been registered by the Commissioner of Co-operatives Development.

The key challenges identified that are impeding the development of the sector classified into five main themes include;

a. Awareness: Lack of understanding of Islamic finance across all levels of the market (especially regulators, practitioners, scholars and consumers); Confusion over Shariah compliance with the operations of Islamic windows; and lack of differentiation between Islamic and conventional products.

b. Shariah Governance: Lack of harmonization between scholarly opinions and Islamic finance interpretations especially on issues of Shariah compliance; Absence of a framework for Shariah compliance within the industry; Absence of a “Fit & Proper Test” criteria for the scholars; and lack of financial expertise among the Shariah scholars.

c. Human Capital: Staff and management of institutions offering the products are not adequately trained; Poorly trained practitioners are impeding awareness further; and lack of structured academic framework for the development of human capital;

d. Regulation: The current regulatory and supervisory frameworks are inadequate for Islamic finance and preventing its growth. Amendments to the tax and accounting framework are required to create a level playing field for the business operations.

e. Technical Assistance: the sector has not been supported to develop relevant Products, acquire the IT systems that support business operations in compliance with Shariah requirements, there is external Shariah Audit to give assurance on the level of compliance etc.

The above challenges not withstanding, stakeholders and market players are confident that Islamic finance has a significant opportunity in Kenya’s domestic market with great potential to position Kenya on the international scene. In order to unlock this potential and avail the opportunities:

The Authority seeks to pursue quick wins to ensure development of Islamic finance in Kenya. These include;

  1. Amendments pertaining to tax treatment of Islamic financial products giving them parity with conventional products.
  2. Providing guidance to the Kenyan Authorities for issuing a sovereign Sukuk.
  3. Proposing Takaful regulation in the Finance Act 2016.
  4. Producing new model bylaws for Islamic cooperatives.
  5. Launching first phase of the Awareness campaign with limited and targeted activities
  6. Undertaking capacity building throughout the project.

The PMO has developed a detailed Project Charter and Project Plan for the period of the project to ensure regular reporting and measurement of progress of the project, as well as milestone are met and quality is sustained.

The PMO has developed a detailed Project Charter and project plan for the period of the project to ensure regular reporting and measurement of progress of the project, as well as milestone are met and quality is sustained.

In order to provide a further guidance to the capital markets sector, the Authority developed the Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets. The Guidelines are awaiting gazettement by the Cabinet Secretary for National Treasury.

Policy/Research Conducted

As one of the initiatives to deepen Kenya’s capital markets, CMA initiated various studies and contributed to financial sector publications;

i. A Paper on Credit Linked Notes

This is a research paper that was developed to provide an overview of the structural and operational aspects of credit linked notes, the risks associated with these instruments as well as highlighting some issues for regulatory consideration.

ii. A study on spot, online currency trading and currency derivatives

With the expectations of an operational derivatives exchange in the country, the Authority launched a study on currency derivatives aimed at informing its role in creating market enablers for successful operationalization of the derivative products and developing necessary risk management framework. This was then followed by an enabling policy framework on the same.

Foreign Investor Survey 2015

Kenya recognizes the importance and potential risks associated with private and foreign capital. Worth noting from the global financial and economic crisis is that, while foreign investments have become increasingly important for developing economies, they are also sources of vulnerabilities to such economies. Results from the 2015 survey show that: Foreign Direct investment accounted for 57.2 percent while Portfolio investment accounted for 35.3 percent of the stock of foreign liabilities in 2013.

Foreign capital inflows increased by 6.1 percent from Kshs. 342,234 Million in 2012 to Kshs. 363,269 Million in 2013.

The stock of financial assets held abroad increased by 14.0 percent to Kshs. 230,514 Million in 2013 from Kshs. 202,267 Million in 2012.

The EAC remains the preferred destination of FDI assets abroad constituting 87.8 percent and 86.6 percent in 2012 and 2013 respectively. More than half of the foreign assets abroad were held in Uganda and US destinations.

Respondents perceived domestic market growth potential, rule of law and existing regulations, availability of skilled workforce, quality of Infrastructure and logistics as the five major factors attracting them to do business in Kenya. With regard to the direction of investment, majority of the respondents indicated that they would most likely improve on existing products, diversify range of products, recruit locals, ensure gender balance and acquire additional capital goods.

iii. Stewardship Code

The Code of Corporate Governance for Issuers of Securities to the Public, 2015 recommends that institutional investors should have transparent, honest and fair practices in their dealings with the companies in which they invest so as to promote sustainable shareholder value and long term success of such companies. This recommendation resulted in the development of the Stewardship Code for Institutional Investors. The Stewardship Code seeks to encourage the institutional investment community to take action to serve as responsible stewards for their beneficiaries and to help to promote good corporate governance and the sustainable success of listed companies. The Code was submitted to the National Treasury in November 2015 and is currently awaiting gazettement.

Kenya Financial Sector Stability Report

This is a joint annual publication prepared by the Financial Sector Regulators Forum, which brings together the Central Bank of Kenya, Capital Markets Authority, Insurance Regulatory Authority, Retirement Benefits Authority and Sacco Societies Regulatory Authority under a Memorandum of Understanding (MOU) for collaboration in several areas of mutual interests.

iv. Study on Direct Market Access (DMA)

In a bid to increase investor options on market access, the Authority conducted a study on Direct Market Access. This is a service that enables sophisticated private investors to place buy and sell orders directly on the exchange order books without operating through brokers. DMA enables private investors to level their playing field and trade like market professionals.

Study on Securities Lending and Borrowing (SLB)

During the year, the Authority in conjunction with the World Bank conducted a study on the policy considerations for securities lending and borrowing and short selling. This is in line with the Authority’s vision of strengthening and deepening the Kenyan Capital Markets.

Conducted online surveys :

To inform policy and the regulatory framework the Authority conducted two online market surveys during the period under review, whose findings were informative and offered more insight on market operations. The two surveys were on;

  1. Private Equity and Venture Capital Firms; and
  2. Online currency trading in Kenya

Financial Highlights

The Authority’s financial position will be presented in detail in the audited financial statements for the financial year ended 30 June 2016. The results for the year are as summarized below.

Future Outlook

The Authority remains vibrant in spearheading full implementation of the Capital Markets Master Plan by 2023 or sooner as envisioned. Studies confirm that there is a direct and positive correlation between advancements in the financial services sector of a country and economic development.

The World Bank for example, in computing the annual ease of doing business index, takes into account ten (10) indicators. Five of these include; ease of trading, ease of getting credit, ease with which investors are protected, ease of dealing with licenses and ease of enforcing contracts.

These indices directly reflect on the functionality and operations within the financial services and capital markets industry. To achieve this, combined efforts from all industry players is paramount. The Authority confirms its agility and commitment towards providing an enabling environment for businesses and investors to operate and raise capital ensuring resources are allocated based on the Pareto efficiency principle that seeks to ensure optimum use of resources.

In conclusion therefore, I wish to thank the Board for their guidance and unfailing support throughout the year. The achievements witnessed during the year are as a result of the Board’s commitment as well as responsiveness. I would also like to extend my sincere appreciation to the various stakeholders both in Government and private sectors who have made the development and implementation of the CMMP a reality.

My special appreciation goes to the National Treasury for the overwhelming support accorded to the Authority throughout the year.

I also commend the management and staff of the Authority for their hard work and great effort in fulfillment of the responsibility entrusted to us, thus moving us ever closer to facilitating the Kenyan capital markets to become the true Heart of African Capital Markets.

Mr. Paul Muthaura
Chief Executive

Report of the Auditor General

Statement of Financial Performance

Statement of Financial Position

Statement of Changes in Net Asset

Statement of Cash Flows

Statement of Cash Flows year on year Comparison

Statement of Comparison of Budget and Actual Amounts

Notes on Statement of Comparison of Budget and Actual Amounts

Notes on the significant variances

a) Low market trading volumes in the year affected the revenue performance.

b) Licenses of new products like REITS resulting in a higher income.

c) Income realized was low due to reduced market capitalization of the listed companies.

d) Low market trading volumes in the year affected the revenue performance.

e) Substantial portion of the projects being supported by donor funding extending to 2016/17.

f) The income level was above budget as the Authority continued investing excess cash per policy.

g) Other income line was above budget arising from partner support for the University challenge activities.

h) The Authority’s staff complement was only gradually filed in the year.

i) This cost is below budget due to alignment of adjusted service charges in the year.

j) This line was well within the budget.

k) This cost is below budget due to cost control strategies that the Authority continued to apply in the year.

l) Particular activities (documentary production and airing) were committed to but actualization will be in early 2016/17.

m) The medical costs were well within the budget allocation.

n) The budget was utilized to within target, as some few trainings are being undertaken in the 2016/17.

o) Cost control strategies (e.g. use of fuel cards, negotiated transport rates, pooling of taxi cabs) contributed to the low costs.

p) There was less than anticipated travel and subscriptions to professional bodies.

q) The Board was not fully constituted for part of the year.

r) The underspend is largely due to carry over of activities into next year.

s) The actual spend was lower than budget as the number of court cases was insignificant, and alternative complaints resolution mechanisms were enhanced.

t) Was lower than budget due to support of programmes by donor funding.

u) This was below budget as main activities in the implementation were working group road maps.

v) Projects mainly supported by the donor funding were spread over two-year period. We expect the completion in the FY2016/17.

w) Was lower than budget due to the low capital expenditure addition in the year.

x) This line was well within the budget level as no new intangible assets were acquired.

y) Audit fees bidding process placed actual cost lower than budget

z) The actual was below budget as some of the activities whose commitment was done in the 2015/16, spilled over to the following year.

aa) Although substantial number of meetings were held, the Tribunal’s other activities (like training) were minimal.