Cytonn Group Chief Executive Officer (CEO), Edwin H. Dande, has 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. Actually, the CMA only allows 5 banks to be trustees for capital markets in Kenya. These banks include KCB Bank, Cooperative Bank, Stanbic, National Bank, and HF Bank.
A trustee is one among three key decision-makers in a Collective Investment Scheme(CIS) for example a Money Market Fund. The other two include the Investor and the Fund Manager.
However, the Trustee should just be a watchdog that makes sure the fund manager puts the investor’s money to good use. The Cytonn CEO believes that banks that have been given the mandate to become trustees in Capital markets will use the opportunity for their own benefits.
According to Dande, giving banks the sole mandate to be trustees in Capital Markets will have them favoring investments into their own fixed deposits account. Dande explains that not unless the eligibility for trustees is broadened, banks will still control the Capital Market where they have vested interest.
The Cytonn boss also said 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.
How it affects the economy
According to the Cytonn CEO, regulating the trustees’ eligibility in money markets regulates the type of investment a fund manage dives into. This, in turn, means there is fewer returns from the capital markets to help finance businesses. The economy grows slowly if businesses are struggling to get financing.
In a normal, developed and well-functioning economy, businesses rely on banks for only 40% of their financing, the balance of 60% comes from capital markets funding. Unfortunately in Kenya, businesses have to rely on banks for over 95% of their funding, with capital markets providing less than 5%. Both figures according to World Bank Data.
“Capital markets are essential to financing businesses; well-funded businesses lead to a growing economy, increased employment, and ultimately higher standards of life. In short, we cannot uplift the standards of living without a vibrant capital market,” Dande said.
However, he was sure to mention that banks are still important to our economy just that 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 I have filed seeks to open up eligibility for a capital markets referee to other institutions, not just banks,” he concluded.