Capital markets regulator to review unit trust laws

Capital Markets Authority chief executive Wyckliffe Shamiah. FILE PHOTO | NMG

By CHARLES MWANIKI
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Summary

• Collective investment schemes or unit trusts have come under sharper scrutiny following the loss of client funds in risky investments, such as Amana Capital’s investment in a commercial paper issued by collapsed retailer Nakumatt.
• The wider review comes at a time when the CMA has also issued new reporting guidelines to the schemes to improve disclosure of where they put client money, how they value their assets and report their returns.

Laws governing collective investment schemes are set for a comprehensive review as the Capital Markets Authority (CMA) moves to curb the loss of investor funds due to a lack of transparency.

The markets regulator said on Tuesday it had, in partnership with FSD Africa, brought on board a consultant to review the Capital Markets (Collective Investment Schemes) Regulations, 2001 “to make them more robust and facilitative to market dynamics”.

Collective investment schemes or unit trusts have come under sharper scrutiny following the loss of client funds in risky investments, such as Amana Capital’s investment in a commercial paper issued by collapsed retailer Nakumatt.

The regulator is concerned that schemes are taking on riskier investments in search of higher yields, which have been the main marketing point to attract clients.

“The proposed legal framework review is designed to address stakeholders’ concerns with the current framework and facilitate the development of a robust asset management sector,” said CMA chief executive Wyckliffe Shamiah in a statement Tuesday.

“A need has (also) emerged for sophisticated products such as pooled funds that are well managed and currently not available in the existing asset classes. There are also calls for greater flexibility and risk/investment strategy to determine portfolio allocation among asset classes.”

The wider review comes at a time when the CMA has also issued new reporting guidelines to the schemes to improve disclosure of where they put client money, how they value their assets and report their returns.

The guidelines also stipulate the maximum exposure in different asset classes allowed for the various unit trusts in the market, which include money market, fixed income, equity and balanced funds.

“The guidance, which takes effect on January 1, 2021, is expected to entrench international best practice in the capital markets by standardising investment performance measurement and presentation by collective investment schemes,” said the CMA.

The total asset base of the 19 active licensed collective schemes amounted to Sh88.1 billion by the end of June 2020, having grown from Sh76.1 billion in December 2019.

The CMA in its 2014-2023 masterplan had projected the asset base to hit Sh132 billion by the end of this year, but the prolonged downturn in the equities market and the Covid-19 pandemic have slowed down growth.