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Cytonn Investment has questioned the practicality of the proposed draft regulatory changes by the Capital Markets Authority (CMA), in a move likely to rekindle the recurring differences between the two organisations. 

The investment firm has while commenting on the Draft CMA Investments Regulations 2021 in its weekly report said it is its view that proceeding with the regulations as proposed would not be good for the market.

“As published, the current drafts are likely to impact negatively on our capital markets not to mention the likelihood of facing a lot of legal challenges,” it added.

Cytonn has singled out 15 areas of concerns, which it has recommended for a review ahead of the September 24 when stakeholders and public participation deadline lapses.

“Having analysed the proposed regulations, we have identified five positives and 15 areas of improvement.

Consequently, it’s our view that proceeding with the regulations as proposed would not be good for the market,” Cytonn said in the report.

It has recommended that CMA first publishes a regulatory impact assessment to contextualise draft regulation and also take into account comments from the public to produce revised drafts that have more positive than negatives to the market

The capital markets regulator had last month called for a stakeholder views on two crucial draft regulations expected to address emerging issues and needs of the investors involved with Collective Investment Schemes (CIS).

Market dynamics

It published two draft regulations, the Capital Markets (Collective Investment Schemes) Regulations 2021 and the Capital Markets (Collective Investment Schemes) (Alternative Investment Funds) Regulations 2021, meant to update the current CIS regulations given the changes in the market dynamics since the last published Regulations in 2001.

Additionally, the draft Alternative Investment Funds’ (AIFs) regulations seek to create a regulatory environment for privately pooled funds whose investors seek higher returns by investing in specified alternative asset classes.

But a chunk of those proposals are raising apprehensions from Cytonn with whom the regulator has previously accused of operating unregulated Collective Investment Schemes and faulted for taking advantage of loopholes in the law.

“There is a lack of harmony between the proposed regulations, the Act and other Regulations or Guidance within the Capital Markets Framework leading to inconsistencies and contradictions,” argued Cytonn. 

Further, the firm wants a review of the capping of maximum number of investors to just 20, arguing the figure may limit the uptake of Alternative Investment Funds (AIFs), as well as a review of the set minimum investment amount from the current Sh1 million to Sh100,000 to “allow more Kenyans to enjoy the benefits that come with investing in AIFs.”

These two draft rules are expected to enhance the legal form and structure of the CIS and segregation and protection of client assets, improvement of disclosure, asset valuation, pricing, and redemption of units.