REMARKS BY MR. PAUL MUTHAURA CHIEF EXECUTIVE OF THE CAPITAL MARKETS AUTHORITY AT THE POLICY ROUNDTABLE FORUM HELD AT THE KENYA SCHOOL OF MONETARY STUDIES , NAIROBI ON 11TH OCTOBER 2018
Ladies and Gentlemen
It gives me great pleasure to extend to you all, on behalf of the Capital Markets Authority, our deepest appreciation for joining us for this stakeholder engagement that marks the 2018 Policy Proposals Roundtable Forum. I am looking forward to your valuable input into the deliberations.
Since 1995, the Authority has been presenting the National Treasury with a Memorandum of Policy Proposals annually for consideration in the Fiscal Budget. The focus of these proposals has been to create an enabling environment for Capital Market development to facilitate mobilizing of long-term financial resources for the realization of Kenya’s national development goals and priorities including: the over-arching Vision 2030, Sustainable Development Goals and the Big 4 Agenda on development.
Ladies and Gentlemen: The theme of this year’s forum “Accelerating Capital Market development and deepening in Kenya”- resonates with the aspirations of the recently launched 2018-23 Capital Market Authority Strategic plan which envisages for Kenya to attain an MSCI Emerging market status by 2023. This will boost capital flows and also reinforce Kenya’s position as International Financial Centre. As you may be aware, globally, capital markets play a critical role in driving long-term resource mobilization, raising savings and investment levels and overall financial sector stability for economic growth and development.
Well developed and properly functioning financial markets have an important role to play in achieving Kenya’s target of transforming itself into a newly industrialized, middle income country, both by generating wealth and safeguarding it.
Ladies and Gentlemen: Technology use in the financial sector is already disrupting the traditional regulatory tools forcing regulators to keep pace with the changes. Going forward, increase in use of machine learning and artificial intelligence among other technologies, in the capital markets is a writing on the wall. The complexities in the capital markets are only going to increase with time. CMA needs to upgrade its regulatory capacity to properly comprehend the nuances of technological changes with a view to staying ahead of the curve.
Cyber security is clearly an area CMA is actively involved in. I am happy to note that CMA is on the verge of implementing explicit standards on cyber resilience owing to the high reliance on technology in the securities and derivatives markets.
Ladies and Gentlemen: The CMA strategic focus has borrowed heavily from the outcomes anticipated in the Governments Big 4 Agenda to ensure the fruition of the government objectives through the capital markets. I am pleased to note that the capital market is going to be instrumental in supporting the delivery of the Big 4 Agenda on development targeting Food security, Affordable housing, Manufacturing and Universal healthcare which will continue to guide priority objectives towards the accomplishment of several projects.
Ladies and Gentlemen: allow me to highlight the performance of the capital markets as at September 2018. Year to September 2018 Equity turnover stood at Kshs 140.22 Billion while Market capitalization stood at Kshs 2,211.33 Billion. Other composite indicators such as the NSE All Share and NSE 20 Share indices stood at 149.67 points and 2,875.51 points as at September 2018 respectively. The bond market has registered a turnover of Kshs 444.54 Billion year to September 2018.
Some of the key risks within the Kenyan Capital markets include high concentration certain few counters and investor category, low liquidity, low products uptake, both global and domestic economic risks. Globally, key risks include rise in interest rates, protectionism and geopolitical risks.
I am happy to indicate that; in the advent of major positive policy incentives that the capital markets are set to benefit from, following the Budget Statement as well as the alignment of the CMA Strategic Plan 2018-2023 to the Big Four Agenda, capital markets performance for the second half of the year is expected to be revamped.
Ladies and Gentlemen: In the June 2018 Budget statement, some of the major pronouncements that will have a positive impact on the development of the capital markets include the following:
§ The Amendments to the Capital Markets Act which is expected to address key capital markets malpractices including corporate governance, embezzlement of investor funds, front running, and provision of misleading information and effective management of the ICF board;
§ The Proposed foreign income tax amnesty filing extension to 30th June 2019 as well as the extension of declaration period to allow individuals to repatriate income earned up to 31st December 2017 has the potential of attracting Diaspora inflows into the country;
§ Revival of the privatization program could stimulate the capital markets through new listings of State Owned Enterprises and a multiplier effect of listing of private sector entities;
§ The Setting up of the National Credit Guarantee Fund will potentially provide support to potential NSE Growth Enterprise Market Segment (GEMS) entities and FinTech startups in the proposed sandbox framework; among others;
§ With the establishment of the Kenya Mortgage Refinancing Company (KMRC), it is expected that the institution will leverage on capital markets to raise funds through bonds for on-lending to banks and other mortgage financing companies and is therefore also a positive development for capital markets deepening;
§ Establishment of the Kenya Development Bank that is expected to leverage the capital markets to meet the financing requirements of the sectors previously served by the three entities;
§ The Amendment of the Proceeds of Crime and Anti-Money Laundering Act to address Money Laundering and terrorism financing risks associated with non-face- to- face businesses and transactions will enhance Kenya’s Anti-Money Laundering measures, and help in abiding to global standards on anti-money laundering and financing of terrorism. Ultimately, this will enhance improved market integrity hence attract both domestic and international investors; and
§ The establishment of the Financial Markets Conduct Authority that is expected to deal with inadequacies in consumer protection and unregulated lending in the financial sector thus addressing issues of predatory lending by credit providers.
Ladies and Gentlemen: the aforementioned initiatives coupled with political stability, relaxation of interest rate caps and economic realignment with the Big Four Agenda; capital markets performance is expected to significantly improve driven by recovery in private sector investment, increased foreign investor activity and increased market activity within the domestic banking industry serving as a major contributor to overall market turnover.
Ladies and Gentlemen: I also wish to recognize the various industry working groups under the Capital Markets Master Plan as well as the Implementation Committee members, some of whom are represented here today for their committed efforts to secure the proper implementation of the Capital Markets 10 year Master Plan.
Allow me to mention some of the key milestones achieved in the implementation of the Capital Market Master Plan (CMMP).
§ Diversification of products and services to enhance global reach and spur market liquidity through the development of innovative products such as Global Depositary Receipts/ Notes, Exchange Traded Funds;
§ Creation of enabling legislations to support Online Forex Trading, Securities Lending and Borrowing and Asset Backed Securities;
§ Adoption of International Certification Standards (CISI) with the overall objective to create a deeper, more knowledgeable and diversified pool of capacity within Kenya’s capital markets sphere ;
§ Harmonization of financial market regulations in the EAC through council directives;
§ Issuing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) guidelines which has seen Kenya dropped from the FATF grey list;
§ Gazettement of the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017 to help regulate online traders, dealers and money managers. The regulations are expected to increase participation of stakeholders in online forex trading for hedging and forward transactions. I note will delight that CMA has licenced one Forex Online Broker;
§ Approval of the secondary listing of the first ETF in Kenya in February 2017. The listing was of 400,000 gold bullion debentures by New Gold Issuer (RF) Limited on the Main Investment Market Segment of the Nairobi Securities Exchange.
§ Approval of the Nairobi Securities Exchange to set up a Derivatives Market. The market segment is scheduled to go live in the course of 2018, mainly trading Equity and Index futures contracts;
In order to support higher economic growth, there is a need for concerted effort towards further developing the Kenyan securities market so as to increase market based financing and supply of risk capital. In the coming years, CMA will continue with its endeavour of providing the right regulatory environment and facilitating development of market infrastructure to meet the financing need of economic activities through the securities market.
Ladies and Gentlemen: I wish to extend sincere appreciation to the National Treasury who are represented here today for its commitments towards executing its role in facilitating an unvarying process of setting up suitable policy and regulatory frameworks, which is also very crucial in the implementation of the Financial Sector initiatives.
Distinguished Guests: the future is bright with expectations and we have to face it with resolve. It is my hope that today’s discussions will help point to solutions for some of the challenges in expanding the financial ecosystem. It is also my hope that the forum will provide a roadmap for the work ahead of us, especially in discerning and tapping into the existing opportunities. I look forward to interesting and lively discussions on how we can use the challenges and opportunities to enhance financial inclusion and foster growth and deepening of Kenya’s capital market.
I wish you fruitful deliberations and look forward to the outcome of your deliberations.