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CMA Seeks To Review Collective Investment Schemes Regulations In Respect To Market Dynamics

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As part of its market deepening strategy, the Capital Markets Authority (CMA), with the support of FSD Africa, has onboarded a consultant to review the Capital Markets (Collective Investment Schemes) Regulations, 2001 to make them more robust and facilitative to market dynamics.

The CMA Chief Executive, Mr. Wyckliffe Shamiah, explained that 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, in line with the aspirations of the 10-year Capital Market Master Plan (2014-2023). The Master Plan projected that assets under management in Collective Investment Schemes (CISs) in Kenya were expected to increase from Kshs40 billion ($ 360 million) in January 2014 to Ksh132 billion ($ 1.2 billion in 2020), rising to Ksh220 billion ($ 2 billion) in 2023. As at 30 June 2020, assets under management in CISs was Ksh88.1 billion ($ 801 million). The growth projections have been slowed down largely by the effects of Coronavirus pandemic that affected most sectors of the economy.

‘’We recognize that the development of a strong asset management sector is critical to creating investor confidence that boosts deepening of the capital markets. By putting in place a robust legal framework it will spur increased interest and participation by investors in Collective Investment Schemes’’, observed Mr. Shamiah.

Mr. Shamiah said; ‘’While CISs have traditionally offered avenue to retail investors with minimal investment capital to benefit from professional asset management, a need has 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’’.

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The CMA Chief Executive added that as the market develops, there is need to review the eligibility and regulatory requirements for different regulated entities in the CIS ecosystem to ensure responsiveness to market dynamics including an emerging need for property developers to pool funds to support development projects such as affordable housing, which is aligned to the Government’s Big 4 Agenda.

The review of the Regulations follows the issuance of the new Guidance to Fund Managers of CISs on Valuation, Performance Measurement and Reporting (Guidance) by CMA in September 2020. The Guidance, which takes effect on 1 January 2021, is expected to entrench international best practice in the capital markets by standardizing investment performance measurement and presentation by collective investment schemes.

Under the Guidance, fund managers will be required to establish comprehensive, documented investment policies and procedures to govern the valuation of assets held by a CIS. The policies will identify the methodologies that will be used for valuing each type of asset and will clearly indicate how performance will be calculated, measured and presented. Fund managers will also be required to have policies and procedures in place to detect, prevent and correct pricing errors that result in material harm to CIS investors. The Guidance requires fund managers to provide performance measurement reports to the Authority and all existing and prospective investors, within 21 days after the end of each quarter.

The Guidance is aligned to the Principles for the Valuation of Collective Investment Schemes by the International Organization for Securities Commissions (IOSCO) and are aligned to the Global Investment Performance Standards (GIPS).

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