Investment firms downgrade licences on CMA’s new rules

The new minimum capital requirements and performance of the stock market have triggered changes in the operation of players in the capital markets industry.

This has seen five firms applying to the Capital Markets Authority, the industry regulator, to revoke their licenses while some investment banks have reverted into stockbrokerage business.

“Notice is hereby given to members of the public to raise any unresolved and outstanding issues with the following companies within 45 days from the date of publication of this notice,” CMA chief executive, Stella Kilonzo, said about the five firms in an advertisement appearing in the dailies on Wednesday.

Among the five, Africa Alliance Kenya Securities Ltd and Africa Alliance Kenya Management Ltd have applied to CMA to have their stockbrokerage and fund management licenses revoked after successfully applying for an investment bank license — Africa Alliance Investment Bank Ltd.

“With the capital requirements, we felt we can comfortably transact all our businesses under one license,” Mr Ewrt Salins, chief executive officer, Africa Alliance Kenya Securities Ltd, told the Nation.

Others that have applied for the revocation of licenses are two investment advisory firms, Equilibrium Capital Ltd and Finconsult Ltd, and an authorised depository, Dubai Bank Kenya Ltd.

Investment banks had until March 31, 2011 to increase their minimum capital from Sh30 million to Sh250 million, while stockbrokers are increase it from Sh5 million to Sh30 million. Fund managers are required to have Sh10 million.

Following the CMA announcement, a licensing review process conducted between the end of November 2010 to April 2011 has seen some investment banks opting to covert into stockbrokerage business.

While some of them may have taken the decision for difficulties in capitalising, other have opted to downgrade their licenses because they feel the sum is too high, coming at a time the stock market is yet to fully recover from the 2008/09 downturn.

These are ApexAfrica Capital Ltd, Afrika Investment Bank Ltd, Drummond Investment Bank Ltd, Ketrel Capital (EA) Ltd and Sterling Investment Bank Ltd.

The new CMA rules requires that Lead Transaction Advisors (LTA’s) must be licensed investment banks or receive specific approval from CMA.

Stockbroker’s mandate involves giving investment and corporate advice to the investing and issuing clients.

In CMA’s advertisement, Equatorial Investment Bank Ltd, which is part of the part of Sameer Group, has been given an extended license, a short-term allowance to enable it operate while working towards meeting certain conditions.

It is only after meeting the conditions that it will be issued with the annual license, which is effective between January 1, 2011 and December 31, 2011.