By Njeri Wagacha, Partner and Faith Wamuyu, Associate, Corporate & Commercial Law at Cliffe Dekker Hofmeyr (CDH) Kenya
NAIROBI, Kenya, Sept 2 – The Capital Markets (Amendment) Act, 2025 (Amendment Act) introduces a significant shift in the regulation of ownership structures within Kenya’s capital markets sector. The Amendment Act repeals the statutory ownership restrictions previously contained in section 29(4) to (7) of the Capital Markets Act (Cap. 485A) (CMA Act) and replaces them with a framework under which ownership limits will be prescribed through regulations issued by the Cabinet Secretary responsible for matters relating to capital markets in consultation with the Capital Markets Authority (CMA). Importantly, the repeal does not affect the core licensing provisions under section 29 or the broader licensing and supervisory framework applicable to capital markets intermediaries.
While this enhances responsiveness to market developments, it also introduces a period of uncertainty as the detailed ownership rules will now be set through subsidiary legislation yet to be issued. For market intermediaries, investors, shareholders and prospective acquirers, this has important implications for ownership structures, transaction planning, licensing considerations and regulatory compliance.
Previously, shareholding limits were embedded directly in section 29 of the CMA Act and could only be changed through legislative amendment. This provided certainty but limited regulatory agility, particularly in responding to evolving market structures, new investment models and sector-specific risks.
The Amendment Act removes subsections (4), (5), (6), and (7) of section 29 in their entirety, effectively eliminating fixed statutory thresholds. Before their removal, section 29(4) to (7) imposed a detailed statutory ownership and control regime for stockbrokers, investment banks and fund managers. In broad terms, these provisions prohibited any person who directly or indirectly held more than 25% of the issued share capital or voting rights, had the right to appoint more than 25% of the board of a company, or was entitled to receive more than 25% of aggregate dividends and interest on shareholder loans, from serving as an executive director or holding a senior management position. They also restricted any individual or corporate person from exceeding those same thresholds in relation to ownership, voting rights, board appointment rights or economic participation, subject to limited exemptions for regulated corporate entities and sufficiently diversified corporate shareholders. Transitional provisions required persons who did not comply with those thresholds to regularise their positions by 31 December 2009.
Their removal is significant because the Amendment Act has repealed the CMA Act’s fixed, hard-coded ownership and control caps. In effect, the law no longer prescribes the 25% thresholds at the statutory level for those categories of capital markets intermediaries. Instead, a new section 29(3A) authorises the Cabinet Secretary, acting in consultation with the CMA, to prescribe ownership limits through regulations.
These may differ across categories of licensed or approved entities, allowing for a more tailored regulatory approach based on risk profile, activity and market function. This means that the reform should be understood as a shift from fixed statutory thresholds to delegated regulation, rather than as a removal of regulatory oversight over ownership and control.
To manage the transition, a new section 40 introduces interim protections. Existing licences, including approved shareholding and governance structures, remain valid until regulations under section 29(3A) take effect. The CMA will continue issuing licences in accordance with those forthcoming regulations once published.
In practical terms, the principal M&A effect is that acquisitions of controlling or strategic stakes in licensed intermediaries are no longer constrained by the former one-size-fits-all statutory cap in subsections 29(4) to 29(7). This should make it easier, in principle, for local or foreign strategic investors to acquire majority or controlling stakes in stockbrokers, investment banks, fund managers, derivatives brokers and similar intermediaries, subject to other regulatory approvals and licence conditions.
The reform reflects a clear policy shift towards a more flexible ownership framework for licensed capital markets intermediaries. By repealing the fixed statutory shareholding caps, the amendments are intended to facilitate investment into regulated institutions, support recapitalisation and growth, and allow ownership restrictions to be tailored through regulation rather than prescribed in primary legislation. In principle, this should make it easier for strategic and institutional investors to deploy capital into the sector and may create greater scope for consolidation, partnerships and market development.
However, the benefits of this flexibility are, for the moment, tempered by uncertainty. The regulations that will prescribe the new ownership thresholds have not yet been published, leaving investors, promoters and existing shareholders without visibility on the limits that may apply to future acquisitions, restructurings and licensing applications. Until the new framework is clarified, ownership-related compliance will remain an important consideration in transaction planning, and market participants may need to build additional regulatory contingencies into deal structures and timelines.
While existing approved shareholding and governance arrangements remain protected on an interim basis, that protection should not be viewed as permanent. Once regulations are issued under section 29(3A), market participants will need to assess whether existing structures remain compliant with any new thresholds, approval requirements or governance expectations. As a result, regulatory due diligence and early engagement with the CMA are likely to become increasingly important. Although the reforms are expected to enhance the attractiveness and competitiveness of the sector over the longer term, market participants should closely monitor the publication of the regulations, which will ultimately determine the practical scope of the new regime.
