The Capital Markets Authority (CMA) has defended its move to bar Cytonn Asset Managers from taking new clients, arguing it took the drastic step to protect investors from potential risks.
In a reply to the petition pending before the High Court, the regulator said its directive was meant to protect the new clients, who may be exposed by the lack of a performing trustee in place and unknowingly expose them to commercial risk.
“That noting the integral role of a trustee to the operation of the scheme and being alive to the dangers/risks that may be posed by the absence of a performing trustee, including conflict of interest transactions, commingling of funds and use of trust funds for fund manager’s business, amongst others, the respondent acting in good faith, suspended the onboarding of new clients from January 1, 2020,” the reply by the regulator reads.
The CMA had in a letter dated December 20 barred Cytonn from recruiting new clients until the firm gets a new trustee. Cytonn says the decision was malicious as its investors were not given notice. A Nairobi court later suspended the directive to await the hearing of the case.
The CMA has further said it acted within its statutory powers, objectives and duties to protect the interest of investors and the general public.
In an affidavit, Abubakar Hassan, the acting director of market operations, said Cytonn failed to appoint a trustee to replace Co-operative Bank, which had resigned. The bank is obliged to remain as trustee until it is replaced.
The law, Mr Hassan said, has established a tripartite structure of a fund manager, the trustee and the custodian and accorded the CMA a supervisory role to ensure total compliance.