CMA seeks to tame private issuers after Cytonn drama

The Capital Markets Authority (CMA) has set its sights on taming privately placed investment funds following its recent fallout with Cytonn Investments over a similar issue.

The capital markets regulator has issued new draft regulations covering what it terms as alternative investment funds.

The Capital Markets (Collective Investment Schemes) (Alternative Investment Funds) regulations of 2021 describe an alternative investment fund as collective investment scheme in any legal form but established in Kenya.

The definition further covers a privately pooled investment vehicle which collects funds from two or more investors for the purpose of investing in accordance to a defined investment policy.

Upon the enforcement of the regulations, no entity or person shall operate or describe itself as an alternative investment fund without CMA’s approval.

A fund falling within the description of an alternative investment fund shall be required to comply with the regulations six months after the effective date of the operation of the new rules.

Meanwhile an entity which fails to make an application for registration under the regulations shall cease to carry out operations as an alternative investment fund.

Recognized alternative funds will be required to have a fund manager and spell out its investment strategy, purpose and methodology to investors.

An alternative fund will be required to have assets of at least Ksh.10 million and accept a minimum Ksh.1 million from each investor.

A fund must also have no more than 20 investors.

Other provisions in the draft regulations cover general obligations, responsibility and transparency of alternative funds, inspection and procedure for auction in the case of default.

The draft regulations come hot in the heels of the Capital Markets Authority fiasco that pit it against Cytonn Investments over the management of its two privately issued funds- the Cytonn High Yield Solutions (CYHS) and the Cytonn Projects Notes (CPN).

The CMA had commenced a probe against the company’s management of the pair of funds following complaints of non-payment by some investors.

On its part, Cytonn has insisted that the CMA lacks the latitude to probe the privately issued funds as it argues challenges facing the funds are administrative rather than criminal in nature.

In the most recent, Cytonn Investment has threatened to sue the markets regulator and has sort the ouster of its Chief Executive Officer Wycliffe Shamiah.

Recently, the CMA appeared before the National Assembly Finance and National Planning Committee where it was squeezed on its role in supervising the investments space following a number of high profile bursts.