The Treasury in Kenya has published new regulations that give the Capital Markets Authority (CMA) powers to oversee all investment funds formally solicited from the public in a bid to rein in fraudulent and unregulated schemes where unsuspecting Kenyans lose billions of shillings.
No one would be able to collect cash from the public or conduct investments without authorisation and periodic checks by the CMA, according to new laws announced by Treasury Cabinet Secretary Ukur Yatani.
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For private entities, the CMA will regulate both collective investment plans and alternative investment funds.
People that raise money privately currently just need to notify the CMA that they have set up a private placement.
According to the regulator, this gray area resulted in the emergence of a slew of private businesses, some of which went on to defraud Kenyans of billions of shillings.
All private funds must now have a minimum capital of Sh10 million and can only have 20 investors at any given time.
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Alternative funds, according to Treasury laws, are any money raised privately from two or more investors in Kenya or abroad for the purpose of investing it according to a stated investment philosophy approved by the authorities for the benefit of its investors.
Only skilled investors with more than Sh1 million would be permitted to invest in alternative funds with a higher risk appetite, hence widening the asset classes available to investors in the country.
It also released a second set of laws for collective investment funds (CIS), which allow small depositors with as little as Sh5,000 to pool funds for investment under the supervision of a licensed fund manager, custodian, and trustee.
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Unless otherwise controlled, such as pension plans or those specifically indicated under the Act, such as family trusts, the CIS laws put all pooled funds under its supervision.
The decision comes as Parliament invited the CMA to explain why Kenyans are increasingly losing money to investment funds under its supervision.
The regulator informed Parliament that it had investigated 500 unregulated items, including online forex frauds, illegally pooled funds, cryptocurrency, real estate, and ponzi schemes, and had issued refunds and criminal penalties in response.
It also initiated investigations into Cytonn Investment’s struggling private funds after receiving complaints from investors who claimed they lost money in the company, despite the fact that the two funds are not regulated by it.
Cytonn manages both regulated and unregistered funds, all of which have essentially identical names.
Cytonn High Yield Fund (CHYF) is a regulated fund with a Sh960.2 million portfolio. Its two unlicensed funds, Cytonn High Yield Solutions (CHYS) and Cytonn Project Notes (CPN), contain Sh13.5 billion in real estate investments.
Some investors who sued the corporation for contract violations cited concerns about the two funds’ activities.
To avoid confusion, the CMA wants Cytonn to modify the titles of its goods. The two parties are locked in a legal battle over the issue.
To read more about the regulations, click here.
regulations investment funds Kenya regulations investment funds Kenya
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer