Lewis Njoka @LewisNjoka

Investment management firm, Cytonn has been offering an unregulated product from as early as 2016 and defied numerous efforts to regulate them, Capital Markets Authority (CMA) has revealed.

In a report to the National Assembly, CMA said efforts taken over the five year period to have Cytonn place the contentious product under its regulation have so far failed.

CMA was responding to a query raised by Garissa Township MP Aden Duale last month where he accused the markets regulator of failing in its duties resulting in the loss of investor money estimated at Sh36.8 billion. 

Duale’s query was prompted by a public outcry  after it emerged that investors in the Cytonn High Yield Fund  risked losing Sh10 billion owing to the fund manager failure to pay upon maturity. 

The fund had promised to pay investors a return of 18 per cent annually but failed to honour the promise citing Covid-19 pandemic.

Cytonn’s cash management service, the precursor to the high yield fund, has over the years changed names from Cash Management to Cytonn High Yield Solutions (CHYS) and transitioned to Cytonn High Yield Fund (CHYF), but is still unregulated to date.

“Prior to 2016, CMA noted that some licensed capital market intermediaries and Cytonn Investments Limited (CIML) were offering ‘a cash management product’ that would pool funds from the public for a guaranteed return,” reads the statement.

“As a result, CMA stopped it from offering the  product vide a Circular No. 8/2016. The circular directed all licensed intermediaries to cease and desist from offering and engaging in unregulated activities outside the perimeter of regulated products under the Capital Markets Act,” it adds.

Despite the order, Cytonn, which was not licensed by CMA at the time, continued offering the contentious cash management service.

In its defence, CMA accused Cytonn of failing to take advantage of the grace period granted to have the contentious product placed under regulation, a move that saw CMA forward the matter to investigative agencies for legal action.

Efforts to have what began as Cash Management regulated started with the market regulator granting Cytonn Asset Managers Limited, a subsidiary of Cytonn, a fund manager license in March 2018. 

Chase away buyers 

Using this licence, Cytonn registered three products namely Cytonn Africa Financial Services, Fund Cytonn High Yield Fund, and Cytonn Money Market USD Fund. 

Cytonn was then (in June 2018) ordered to stop the cash management service.

But later that month, Cytonn informed CMA that it had difficulty stopping its cash management service as had been directed citing several reasons.

It argued that  doing so would render it unable to complete pre-sold units, chase away buyers and cause it to default on its contracts. 

 CMA eased its stand and ordered Cytonn to close the product, by now renamed Cytonn High Yield Solutions, progressively.