Capital Markets Authority Should Do More To Protect Shareholder Interests

CMA kenya

According to an article published by the Business Daily, hundreds of Kenyan investors who bought shares of UK company Atlas African Industries have lost all means of tracking its performance after the firm’s website recently went offline.

Atlas which offers support services to the oil and gas industry began running into problems soon after listing on the NSE’s Growth Enterprise Market Segment (GEMS) in 2014 and was eventually suspended from trading in May last year leaving investors with illiquid shares.

So far, the Capital Markets Authority (CMA) which is supposed to protect the interests of shareholders in publicly listed companies, response with regards to the situation has been that it will launch an investigation into the company. “That is something that we will be engaging the company on”, CMA’s chief executive Paul Muthaura said.

In Kenya where promises of investigations rarely bear fruit, shareholders need to ask themselves whether the CMA is fulfilling its mandate effectively. The case of Atlas going dark is just one example of the rampant flouting of regulations by a number of publicly listed companies on the NSE.

As more publicly listed firms continue to issue profit warnings, shareholders have been caught unawares by the announcements in spite of CMA clearly spelling out the procedure of doing so.

This year alone 12 firms on the NSE have already issued profit warnings with the extended electioneering period and sluggish economic growth being cited as the main culprits. While issuing profit warnings is provided for in the regulatory framework, it appears that a number of listed firms have been abusing this provision.

Last year, the CMA sent out a circular to all participants of the NSE indicating that it would be cracking down on issuers who issue profit warnings either at the same time they release their audited accounts or immediately prior to releasing their audited accounts.

CMA further noted that good corporate governance dictates that firms prepare financial accounts periodically which should make management aware of declining profits before an external audit is done and should then notify investors within 24 hours of finding out profits will decline by more than 25 percent.

In the recent past, no listed firm has been penalized with the regulator instead choosing to go after brokerages. In 2016, CMA penalized seven brokers including Standard Investment Bank (SIB), Dyer & Blair and Faida Investments for manipulating share prices of companies at the NSE like Kenya Orchards, causing investors substantial losses.

Although the regulator punished Uchumi’s former chair Khadija Mire and Chief Executive Jonathan Ciano by barring them from holding positions of a listed company for two and five years consecutively, there is undoubtedly room for CMA to tighten regulations if it intends to increase the level of participation on the NSE.

 

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