CMA issues tough rules on entities seeking to raise capital from the public


CMA issues tough rules on entities seeking to raise capital from the public

In Summary

  • Business units will be prompted to make among other disclosures audited financial statements in addition to a three-year outlook on enterprise performance.
  • Further rules will see the capital raising institutions share their level of indebtedness with the capital markets regulator and tell of their intended use of acquired funds.
  • The new rules which are on the back of increased flagging of suspect capital raising initiatives by the CMA and lie in line with the regulator’s securities offers and disclosure regulations of 2002.

The Capital Markets Authority (CMA) has issued tough rules on entities seeking to raise funds from members of public irrespective of their listing status.

The now mandatory disclosures are set to cover both private and restricted/target issues of capital in line with the regulator’s mandate on investor protection.

Business units will be prompted to make among other disclosures audited financial statements in addition to a three-year outlook on enterprise performance.

Further rules will see the capital raising institutions share their level of indebtedness with the capital markets regulator and tell of their intended use of acquired funds.

At the same time, the issuers will be required to attach the pair of directors and shareholder approvals as part of the supporting documents in their application of new capital issues.

“Where a profit forecast or estimate appears, the principal assumptions upon which the issuer has based its forecast or estimate must be stated. Where so required, the forecast or estimate must be examined and reported on by the reporting accountants or auditors,” reads part of the private investor prospectus checklist.

The new rules which are on the back of increased flagging of suspect capital raising initiatives by the CMA and lie in line with the regulator’s securities offers and disclosure regulations of 2002.

Disclosures to future capital raising initiatives make it hard for entities to source for public funds without requisite oversight by the CMA.

At the same time, the fresh capital raising directive comes just a week to the freeze on accounts of Women Investing in Entrepreneurship (WIIE) incubator whose disclosures to the public were found to have discrepancy to that issued to the CMA upon an inquiry into the firm’s capital raising structure.

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Story By Kepha Muiruri
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