This archive report was first published on 9 January 2020.
January 9, 2020, marked a significant day for the Kenyan capital markets as Cytonn Group Chief Executive Officer (CEO), Edwin H. Dande, filed a petition against the Capital Markets Authority (CMA) to broaden the eligibility for trustees to a set of different institutions, not just banks.
The current laws and regulations at the CMA only allow specific banks to act as trustees in the Capital markets. This limited eligibility has led to the dominance of five banks - KCB Bank, Cooperative Bank, Stanbic, National Bank, and HF Bank - in the capital markets.
A trustee plays a crucial role in a Collective Investment Scheme (CIS), such as a Money Market Fund, alongside the Investor and the Fund Manager. However, the Trustee's primary responsibility is to ensure the Fund Manager uses the investor's money effectively.
Cytonn CEO Edwin H. Dande believes that banks with the mandate to become trustees in Capital markets will use the opportunity for their own benefits, favoring investments into their own fixed deposits account.
According to Dande, broadening the eligibility for trustees will prevent banks from controlling the Capital Market where they have vested interest. He also mentioned that there was a previous agreement to expand eligibility but CMA refused to submit the text to the Secretary of Treasury for gazettement.
“So why is trusteeship limited just to 5 banks, some of whom are also players in the fund management industry? We went as far as drafting the necessary regulatory amendments, brought on board legislators, lobby groups and associations and we met CMA, we agreed the text to expand eligibility, but CMA just refused to submit them to the Secretary of Treasury for gazettement,” said the Cytonn boss.
Regulating the trustees' eligibility in money markets regulates the type of investment a fund manager dives into, resulting in fewer returns from the capital markets to help finance businesses. This, in turn, means the economy grows slowly if businesses are struggling to get financing.
According to World Bank Data, businesses in Kenya rely on banks for over 95% of their funding, with capital markets providing less than 5%. Dande emphasized that capital markets are essential to financing businesses, leading to a growing economy, increased employment, and ultimately higher standards of life.
However, he was sure to mention that banks are still important to the economy, but they shouldn't be the sole trustees of the Capital Markets.
“Don't get me wrong, banks are incredibly important institutions, we need them for our economy to grow, we just don't need them as the exclusive referees in a game where they have a vested interest,” he warned.
The constitutional petition filed by Dande seeks to open up eligibility for a capital markets referee to other institutions, not just banks.
