CMA fires shot over financials cheats

The Capital Markets Authority is mulling over increasing penalties meted on listed companies, which publish erroneous financial statements and those that fail to adhere to the issuance of profit warning.

CMA chief executive Paul Muthaura said it is important for the regulator to ensure the fine imposed on the offender is proportionate to the risk exposure on investors.

“We are reviewing our internal guidelines to give clearer guidance to the market on how we will be calculating our penalties – it has been noted that some of the penalties are not commensurate to the potential risk exposure to the market,” said Mr Muthaura yesterday in Nairobi.

CMA regulations currently cap the fine imposed on companies that fail to issue a sufficient profit warning to Sh50,000.

Mr Muthaura said he had issued a circular to listed companies underlining how the regulator will be interpreting obligations of issuing profit warnings.

Companies are required to issue a profit warning within 24 hours of the board of directors becoming aware that returns will fall by more than 25 per cent compared to the previous financial year.

Some companies have in the past sought to escape punishment by arguing they only became aware of the profit slump at the 11th hour when they make mandatory provisions and adjustments.

“We made it clear that as a board they have responsibility as the owners of those financial statements as well as having the responsibility of risk and oversight management so that explanation will not be acceptable,” said Mr Muthaura.

National Bank of Kenya is currently in the crosshairs of the regulator after it issued a profit warning at midnight only to shock the market with a Sh1.2 billion loss in the morning.

Listed investment firm Centum was slapped with Sh50,000 fine in 2013 for failing to alert the market of a 48 per cent profit slump.

The government is working on formation of an independent audit oversight committee to supervise auditors. Public confidence in published financial statements has been waning following disclosures of manipulation.

Imperial Bank and Chase Bank, which have issued corporate bonds approved by the market regulator, have recently been put under receivership following discovery of financial misdeeds.

Listed retailer Uchumi Supermarket, has been accused of cooking its books to cover its loss position of Sh1.9 billion in 2014. The retailer had announced a loss of Sh262 million for that period.

CMA is yet to declare the action taken on the errant companies.