CMA turns to risk-based supervision as Kenya's capital markets attract more investors
Kenya’s capital markets are attracting more investors as money market funds, exchange-traded funds (ETFs), real estate investment trusts (REITs) and digital investment platforms expand access to financial products.
The Capital Markets Authority (CMA) says it is adapting its oversight through risk-based supervision, digital market surveillance and enforcement against unlicensed investment providers. Daniel Warutere, CMA’s Director of Market Regulation, explained the approach, as the regulator balances market development with its responsibility to protect investors.
The developments come as collective investment schemes approach KSh1 trillion in assets under management. According to figures reported by TechTrendsKE, the sector held KSh948.7 billion as of June 30, 2026, across 66 approved schemes comprising 320 funds, with approximately 4.14 million investors. The market has also expanded beyond traditional money market funds, with fixed-income and Special Funds accounting for a growing share of pooled investments.
The changing investment landscape is creating new demands for the regulator, particularly as more Kenyans access financial products through mobile applications and other digital channels. CMA is also considering reforms to Kenya’s REIT framework that would reduce the minimum investment threshold from KSh5 million to KSh100,000, potentially opening property-backed investment products to a wider retail investor base.
CMA adopts risk-based supervision as investment market grows
Warutere said CMA operates under a dual mandate covering market development and regulation, with the authority facilitating the introduction of new products while ensuring that investors’ interests remain protected. He said several products envisioned under the Capital Markets Master Plan, introduced in 2014, had taken time to reach the market because Kenya experienced a prolonged bear run. Over the past three to four years, however, more of those products have entered the market, creating new opportunities for investors and businesses seeking capital.
The expansion has also changed the regulator’s supervisory responsibilities. Warutere explained that CMA previously relied more heavily on compliance-based supervision, under which inspectors could conduct periodic on-site inspections across a relatively small number of regulated entities. With hundreds of regulated firms now operating in the market, maintaining the same inspection schedule across every institution has become more demanding.
CMA has consequently adopted risk-based supervision, which allows it to allocate regulatory resources according to the level of risk presented by individual firms. Warutere said the authority considers factors such as technology deployment, cybersecurity exposure, the types of investors served, geographical coverage and the value of assets managed by an intermediary. These considerations feed into a risk-rating framework that determines the intensity and frequency of supervisory activities.
Firms serving large numbers of retail investors may require particular attention because of the operational and compliance demands associated with managing substantial investor populations. Intermediaries operating technology-driven platforms also face risks arising from their information systems, making their cybersecurity and risk-management arrangements important areas of regulatory oversight.
Warutere clarified that risk-based supervision does not mean CMA stops supervising firms considered to pose lower risks. All licensed entities remain subject to oversight, although the level of attention differs according to their activities and exposure. An investment adviser that does not hold client assets, for example, may require a different supervisory approach from an investment bank, fund manager or stockbroker managing substantial investor funds.
The approach is relevant as the collective investment industry diversifies. Money market funds held approximately KSh460 billion in June 2026, representing 49% of collective investment scheme assets, down from about 90% in March 2020. Special Funds accounted for 27%, while Fixed Income Funds represented 24%, according to figures reported by TechTrendsKE.
This diversification introduces different investment exposures, including foreign currency movements, credit risk and liquidity considerations. CMA has also proposed introducing ratings for unit trust funds and their managers, with the assessment framework covering areas such as fund assets, credit risk, liquidity, currency exposure and management capabilities. Such measures would provide additional information for investors evaluating the products available in the market.
Digital platforms create new challenges for market surveillance
The growth of digital channels has complicated the way investment information circulates and how regulators identify possible market misconduct. Warutere said traditional market surveillance relied heavily on conventional media, including newspapers and broadcast platforms, but social media has expanded the volume and speed of information reaching investors.
CMA has responded by enhancing its surveillance capabilities to synthesise information from traditional media and social platforms. Warutere said the authority uses this information to identify developments that could distort the market and take appropriate action. The regulator’s objective includes preventive intervention where information circulating in the market could contribute to manipulation.
He said much of the surveillance work focuses on listed stocks, examining information circulating around companies alongside share-trading activity to identify possible cases of market manipulation. This allows the authority to assess developments in the market and intervene when necessary.
The challenge extends beyond the stock exchange as digital platforms provide access to a wider range of investment products. Safaricom, for example, has expanded its M-Pesa financial services ecosystem through products including Ziidi Money Market Fund and Ziidi Trader. The company’s wealth management service had attracted 2.2 million active customers, with assets under management reaching KSh21.1 billion, according to figures reported by TechTrendsKE.
Digital distribution has also created opportunities for unlicensed operators to solicit funds through social media, messaging applications and online platforms. CMA’s previous warnings against unlicensed forex, cryptocurrency and digital savings schemes illustrate the risks facing investors who encounter investment offers outside the regulated market.
Warutere said the regulator’s surveillance work therefore covers both traditional and digital information channels, allowing it to respond to potential market misconduct as it emerges. He emphasised the importance of acting before market distortion occurs rather than relying exclusively on enforcement after investors have suffered losses.
CMA warns investors against unlicensed investment providers
CMA’s investor-protection mandate extends to investment businesses operating outside the regulated market. Warutere said the authority had recently issued a public notice concerning 15 firms that were mobilising funds from investors without the necessary licences.
He explained that the regulator has responsibility for ensuring that entities offering investment products to the Kenyan public have obtained the required authorisation. CMA can take action against businesses that offer or purport to offer investment products without the necessary licences or approvals.
Warutere urged Kenyans to verify the licensing status of an investment provider before committing their money. He said CMA maintains a list of licensed entities on its website and social media platforms, allowing prospective investors to check whether a company is authorised to conduct the relevant investment activities.
Investors can access the list through the investor protection section of the CMA website at cma.or.ke, under licences and market players. Warutere said dealing with an unlicensed provider could leave investors with difficulties accessing regulatory support or obtaining recourse when problems arise.
The distinction is particularly relevant as CMA considers lowering the minimum investment required for certain REIT structures from KSh5 million to KSh100,000. The proposed reduction is intended to widen retail participation in property investment, while other proposed changes would give institutional investors more flexibility in holding REIT units.
A broader retail investor base would increase the importance of accessible information about investment structures, underlying assets and associated risks. Income REITs generate returns from rental properties, while Development REITs finance property projects, exposing investors to different sources of risk depending on the structure and performance of the underlying assets.
CMA’s proposed changes also include reducing the minimum public ownership requirement from 25% to 15%, standardising REIT conversion fees at KSh150,000 and allowing REIT managers to guarantee loans taken by associated projects or special-purpose vehicles. These measures are intended to improve the flexibility of REIT structures and support property financing.
The proposals follow subscription rates of 115% for ALP Investment REIT and 103.3% for TRIFIC Green I-REIT, according to CMA figures. The offers point to demand for property-backed investment products as Kenya’s capital markets develop beyond conventional pooled investment funds.
Whistleblowers can earn up to KSh5 million for market intelligence
CMA is also relying on information from the public to identify suspicious investment activities and potential breaches of capital markets regulations. Warutere said the authority receives intelligence through several channels, including a dedicated whistleblowing portal, a complaints portal, email, telephone calls and social media.
The whistleblowing framework is particularly important for individuals who possess information about possible misconduct but may be uncomfortable sharing it through ordinary reporting channels. Warutere said CMA introduced an incentive mechanism in 2023 that provides anonymity for people submitting actionable intelligence, alongside a financial reward tied to recoveries resulting from the information supplied.
Under the arrangement, qualifying whistleblowers can receive 3% of the funds recovered following the provision of actionable intelligence, subject to a maximum payment of KSh5 million. The mechanism is intended to encourage people with useful information to report suspected wrongdoing and support the authority’s investigations.
The complaints portal also allows members of the public to report concerns, whether or not they are direct investors. CMA can use the information received to identify potential violations and initiate investigations where necessary.
Warutere said a whistleblowing bill before Parliament was expected to strengthen the existing mechanisms once passed into law. He described public intelligence as an important part of the authority’s surveillance work, particularly where information from investors and other market participants can help identify activities that might otherwise remain difficult to detect.
Investors also have access to the Investor Compensation Fund, which provides a separate layer of protection in circumstances involving the failure of licensed stockbrokers or dealers to meet their contractual obligations. The fund is not intended to cover ordinary investment losses arising from market performance, but provides a mechanism for eligible investors affected by intermediary failure.
New investment products bring fresh regulatory demands
Beyond investor protection, Warutere said CMA has been working to make it easier for businesses to raise capital through the capital markets. He acknowledged that potential issuers often face complex regulatory requirements and need clarity on how long product approvals may take before they can access funding.
The authority has simplified its application process by translating regulatory requirements into checklists that potential issuers can use when preparing applications. Warutere said CMA also engages directly with businesses considering capital markets financing, helping them understand the requirements before committing resources to transaction advisers and other professional services.
The regulator’s market-deepening department provides guidance to prospective issuers, while licensed investment banks and other intermediaries help businesses structure transactions and identify suitable fundraising options. Warutere said local intermediaries had developed the expertise needed to handle products such as ETFs, sustainable finance instruments and derivatives, supported by partnerships with firms from more developed markets.
These efforts come as the Nairobi Securities Exchange records stronger trading activity and new investment products enter the market. NSE equity turnover reached KSh395 billion during the first nine months of 2026, according to figures reported by TechTrendsKE, while the exchange’s investor base reached 2.36 million by September.
The expansion creates opportunities for companies seeking alternative financing and investors looking for exposure to different asset classes. It also places greater responsibility on intermediaries to manage client assets, maintain appropriate risk controls and provide the disclosures required under capital markets regulations.
Warutere attributed the recent improvement in market activity partly to a more supportive macroeconomic environment and efforts by stakeholders to promote capital raising through the capital markets. He said government participation, market intermediaries, issuers and the media had all contributed to improving awareness and encouraging businesses to consider capital markets financing.
He said CMA was working to sustain the progress while ensuring that investors’ interests remain protected as the market develops.
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