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Investment firms face tough rules

By Steve Umidha
Wednesday, September 16th, 2020
Capital Markets Authority. Photo/Courtesy
In summary

Steve Umidha @UmidhaSteve

Capital Markets Authority (CMA) is banking on a new raft of guidelines to restore dwindling investor confidence by among others requirements demand more disclosures from fund managers.

The new rules which takes effect in January is expected to entrench international best practice in the capital markets by standardising investment performance measurement and presentation by collective investment schemes (CISs).

In an advert, the regulator said it has noted inconsistencies in performance measurement and presentation in the collective investment schemes industry.

Performance reports

“These observations and feedback from the market necessitated the development of the new guidance to enhance the comparability and consistency of information presented in performance reports generated by CISs’, said CMA Acting CEO Wyckliffe Shamiah.

The standardisation of performance measurement and presentation is critical to investor protection and the fair treatment of customers.

Diana Muriuki-Maina. Chief Executive Officer at the Institute of Certified Investment and Financial Analysts (ICIFA) said the guidance will enhance accountability and transparency in the reporting of CISs’ performance which will in turn boost investor confidence.

Under the guidance, fund managers will be required to establish comprehensive, documented investment policies and procedures to govern the valuation of assets held by a CIS.

Such policies will also identify the methodologies that will be used for valuing each type of asset and will clearly indicate how performance will be calculated, measured and presented.

Correct pricing

Fund managers will also be required to have policies and procedures in place to detect, prevent and correct pricing errors that result in material harm to CIS investors.

The Guidance requires fund managers to provide performance measurement reports to the Authority and all existing and prospective investors, within 21 days after the end of each quarter.

In determining the total assets under management, fund managers will consider: - the aggregate fair value of all assets without double counting any assets, actual assets managed by the fund manager including fee-paying and non-fee-paying portfolios and assets outsourced to another fund manager.

The fund manager will also disclose the period of the benchmark if it returns are calculated less frequently than monthly.

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