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CMA to automate market surveillance

NAIROBI, Kenya, Oct 18 – The Capital Markets Authority (CMA) is set to implement an automated surveillance system to monitor activities in the capital markets.

This is in line with the CMA drive towards implementing risk based supervision at the capital markets to improve efficiency and protect shareholders’ investments.

CMA Chief Executive Officer Stella Kilonzo said the move was geared towards allowing the regulator to continuously monitor activity of stockbrokerage firms and the intermediaries as well as keep an updated database of transactions.

“Other than us undertaking a manual approach, we also want to be in line with automated auditing, which means automated inspections so that any of our inspectors can at any time have access to monitor and ask certain questions and input into that particular system,” Kilonzo said.

Risk based supervision is aimed at restoring investor confidence where a number of stockbrokers have collapsed and are unable to reimburse investors.

This will require the market intermediaries to submit reports on their capital adequacy to the authority at prescribed intervals. This will also ensure that they remain liquid at all times to avoid collapses.

CMA has already received funding to purchase the system, with the CEO adding it is expected to be in place early next year.

Kilonzo says the system will allow the regulator to intervene at much earlier stages when irregularities are flagged and take action against the offending parties.

“It is a world best practice and we have had initials consultation with players to get their views on it. We intend to roll the profiling to ensure that they remain liquid at all times,” she said.

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CMA relies on compliance-based supervision that is considered to be resource intensive. This type of supervision has resulted in the collapse of about four stockbrokerage firms over the past three years.

Kilonzo expects the automated surveillance system will enhance its capability of mitigating exposure of shareholders as we well as build a database of information for all stockbrokers.

“We have already started profiling different categories of our market intermediaries based on level of risk, complaints, capital structure and income streams which we will now be able to monitor on a real-time basis,” she said.

David White of International Securities Consultancy, the firm implementing the process, said it is such veiled protection that the supervisory model is expected to curb and ensure a financially stable and sound capital market operation.

“It is the lessons learnt from the collapse of the firms that have resulted into this kind of supervision. It is important that investors in the capital market now take courage in this kind of profiling,” White said.

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