Analysis of the Capital Markets (Amendment) Bill 2025: Implications for Market Intermediaries and Investors

Executive Summary

The Capital Markets (Amendment) Bill, 2025 proposes significant structural reforms to Kenya’s capital markets ecosystem by removing statutory ownership caps previously imposed on market intermediaries. The Bill transfers authority for determining shareholding thresholds to the Cabinet Secretary for the National Treasury, working in consultation with the Capital Markets Authority (CMA). This report outlines the major provisions of the Bill, evaluates the opportunities and risks stemming from the proposed changes and provides recommendations for policymakers, regulators and market participants.

The change is expected to reshape Kenya’s investment landscape by enabling consolidation, attracting fresh capital and facilitating modernization of market intermediaries. However, it introduces heightened concerns around market concentration, governance, consumer protection and regulatory preparedness.

Key Legal Changes Introduced by the Bill

1. Removal of Statutory Ownership Limits

The Bill repeals subsections of Section 29 of the Capital Markets Act that previously restricted any individual or corporate entity from owning more than one‑third of the share capital of a licensed intermediary (including brokers, fund managers, derivatives brokers, investment banks).

2. Delegation of Ownership‑Threshold Determination

The Bill empowers the Cabinet Secretary for the National Treasury to set ownership thresholds through subsidiary regulations. The CMA will provide technical recommendations, but the CS retains primary statutory authority.

3. Repeal of Related Governance Restrictions

The deletion of statutory caps indirectly affects provisions on board control, dividend distribution and shareholder‑loan interest structures all previously tied to ownership limits.

Potential Opportunities

A. For Large Investors

1. Strategic Control and Integration: Investors can acquire controlling stakes in intermediaries, allowing vertical integration into banking, insurance or asset‑management conglomerates.
2. Recapitalization of Distressed Intermediaries: New capital injections can rehabilitate poorly performing intermediaries.
3. Foreign Investor Attraction: Removal of rigid ownership barriers improves Kenya’s competitiveness among regional markets.

B. For Small Investors and the Market

1. Better Services and Innovation: Larger, well‑capitalized intermediaries may introduce digital transformation, advanced trading tools and wider product offerings.
2. Enhanced Market Liquidity: Stronger intermediaries typically support improved market‑making and higher trading volumes.

Key Risks and Challenges

A. Market‑Concentration Risks

• Reduced Competition: Consolidation could reduce the number of independent intermediaries, limiting investor choices.
• Potential for Dominant Firms: Large financial groups may gain excessive market power, influencing pricing and market dynamics.

B. Governance and Consumer‑Protection Risks

• Related‑Party Transactions: Controlling shareholders may prioritize group interests over client protection.
• Conflict of Interest: Without strong firewalls, intermediaries may route trades or investment decisions to benefit parent companies.
• Transparency Concerns: Complex ownership structures can obscure beneficial‑ownership information.

C. Regulatory Risks

• Insufficient Regulatory Readiness: CMA must enhance surveillance capacity to oversee conglomerates.
• Uncertainty During Transition: Immediate removing of caps without published regulations may create legal ambiguity.

D. Small‑Investor Exposure

Retail investors face risks including reduced competition, greater exposure to systemic shocks from large conglomerates, and limited ability to detect intra‑group risks.

Likely Beneficiaries and Those at Risk

Beneficiaries

• Large domestic financial groups and regional funds seeking market consolidation.
• Foreign investors acquiring controlling stakes.
• More sophisticated investors who benefit from improved infrastructure and new products.

Those at Risk

• Small, independent intermediaries unable to compete.
• Retail investors in the short term, particularly if consolidation leads to fewer choices and increased systemic risks.

Recommendations

A. For Policymakers and CMA

1. Introduce Transitional Regulations: Temporary caps should remain until final subsidiary regulations are published.
2. Strengthen Disclosure Requirements: Mandatory beneficial‑ownership transparency and related‑party‑transaction reporting.
3. Implement Conflict‑of‑Interest Safeguards: Clear rules on Chinese walls, research independence and client‑first principles.
4. Set Differentiated Thresholds: Different categories of intermediaries may require different ownership limits.
5. Enhance Supervisory Capacity: Invest in technology, staff and cross‑border supervision.

B. For Market Participants

1. Small Investors: diversify, examine intermediary ownership structures and avoid over‑exposure to single groups.
2. Large Investors: engage early with regulators, conduct thorough due diligence and commit to advanced governance standards.

Conclusion

The Capital Markets (Amendment) Bill, 2025 marks a pivotal transition from fixed statutory restrictions to a more flexible regulatory framework. While it may unlock capital, attract new investors and strengthen intermediaries, its success depends entirely on the quality and timing of supporting regulations. Without robust oversight, the reforms may increase concentration, expose retail investors to hidden risks and undermine confidence in market fairness. With prudent regulation and phased implementation, however, the Bill could modernize Kenya’s financial markets and align them with international best practice.

References

Capital Markets (Amendment) Bill, 2025 

Capital Markets Act, Cap 485A, Laws of Kenya.

CMA Annual Reports

International Organization of Securities Commissions (IOSCO) Principles for Market Intermediaries.

Parliament Removes Ownership Caps for Capital Market Intermediaries