CDSC reveal measures to curb fraud
By John Otini, August 29, 2023
The Central Depository and Settlement Corporation (CDSC) has announced stringent measures to enhance customer due diligence protocols, in a bid to cushion investors in the sector.
This is in response to a surge in fraudulent activities involving changes to client account information, which have led to significant financial losses for investors and potential damage to the market’s reputation.
Investors have borne the brunt of these malicious activities, suffering substantial financial setbacks, while the Central Depository Authority (CDA) faces the risk of sanctions due to compromised security measures.
Fraudulent amendments
“Instances of fraudulent amendments to client account information have increased significantly, leading to substantial losses for Investors and potential sanctions to the CDA. It is also a source of significant reputational damage for the market,” said CDSC acting chief executive Jesse Kagoma in a statement.
Last month, a man impersonating various registered shareholders was charged in court with attempting to defraud investors and their respective stockbrokers of shares worth Sh3 million.
Patrick Musau Munguti was charged with stealing and fraudulently selling shares of KCB, Equity Bank, Standard Chartered, Bamburi Cement, Absa, Co-operative Bank, Nation Media Group, Centum and Kengen at stockbroker SBG Securities.
To address these pressing concerns, all CDAs will now be mandated to enforce a set of safeguards with immediate effect.
Key highlights of the CDSC’s new regulations include the use of Integrated Population Registration System (IPRS) Verification.
New regulations
“Brokers dealing with retail investors are strongly urged to implement the Integrated Population Registration System for thorough identity verification during account opening and any subsequent changes,” said the regulator.
Brokers are also prohibited from initiating any amendment requests in the Central Depository System (CDS) before establishing the request’s authenticity.
Dealers must rigorously evaluate and verify the accuracy, thorough verification process serves as an additional layer of security to thwart unauthorized amendments.