CMA orders Equity to pay Sh47m CDSC

May 25, 2009

, NAIROBI, Kenya, May 25 – The Capital Markets Authority (CMA) has directed Equity Bank to pay Sh47.7 million shillings to the Central Depository and Settlement Corporation (CDSC).

In a statement CMA Chief Executive Stella Kilonzo said the money was lien collected by the bank for the accounts it financed during the Safaricom Initial Public Offering (IPO).

Mrs Kilonzo, who arbitrated on the matter, said: “I find that Equity Bank had a legal obligation to levy, collect, and remit Sh1,000 on every financed account as lien due to CDSC. I hold that all the sums that Equity Bank was legally bound to collect on behalf of CDSC must be paid to CDSC forthwith.”

According to the Central Depository Rules, a Central Depository Agent (CDA) that charges a fee of Sh1,000 for the creation of a lien over the shares used as collateral should remit that fee to the CDSC,” added the CMA Chief Executive.

Mrs Kilonzo observed that Equity Bank, in its letter of offer during the Safaricom IPO stated that the Safaricom shares would be used as security although not as the primary security. However, Equity Bank had the intention to create a security and they did so through the required custody service agreement with its customers.

Mrs Kilonzo explained:  “From research carried out and information submitted, I find that for all the CDS accounts opened and financed by Equity Bank, Sh1,000 lien  was collected and converted into custody fees. This finding is based on analysis of information submitted during the arbitration, where a lien fee was clearly indicated.’’

CDSC suspended Equity Bank on April 8 in its role as a Central Depository Agent (CDA) due to the outstanding payment. But CMA immediately revoked the suspension so as not to prejudice investors who hold CDS accounts through Equity Bank, pending the resolution of the dispute through arbitration by CMA.

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