How CMA is leveraging on innovation and technology
Sponsored by Capital Markets Authority
Globally, with the advent of technology and innovations, businesses continue to evolve and new ways of doing things keep emerging.
A lot entails using technology to create more efficient organisations. A most notable push in this respect in recent times, is Covid-19. Since its outbreak to date, the pandemic has impacted the way people operate, hastening wider adoption of virtual meetings, online learning, and working from home, among others.
The adoption of new ways of doing business has triggered many organisations to retool and reconfigure their work environments, including placing innovation and technology at the forefront.
Considering this background, the Capital Markets Authority (CMA) is committed towards facilitating an environment that embraces technology for not just the regulator, but also intermediaries.
According to research, there were 23.35 million internet users in Kenya in January 2022. Kenya’s internet penetration rate stood at 42.0 percent of the total population at the start of 2022. The Kepios analysis indicates that internet users in Kenya increased by 1.6 million (+7.4 percent) between 2021 and 2022.
In this regard, the Authority developed a Capital Markets Mobile Application, the aim being to provide pertinent capital markets information to the public.
The application has been developed further to link all market intermediaries with the objective of providing access to the market and to facilitate products uptake. The application has features such as information on the different investment products available; and links to all the market intermediaries participating in the capital markets, i.e. stock brokers, investment banks, fund managers, Central Depository and Settlement Corporation (CDSC), and REIT managers, etc. It further enables investors to open trading and CDS accounts with the market intermediaries.
As a strategy to deepen its support for innovative solutions in the capital markets industry, the Authority joined 23 regulators on five continents to develop innovative financial products, services, business models, and regulatory technologies.
The cross-border testing is conducted as part of the Global Financial Innovation Network (GFIN). It aims to provide innovative companies with a more efficient way to interact with regulators and to navigate between countries when trying to scale new ideas. This includes pilot projects for companies wishing to test innovative products, services or business models in multiple jurisdictions. It also aims to create a new framework for cooperation among financial services regulators on innovation-related issues, gain insights, and share different experiences, lessons learnt, and approaches.
The implementation of the regulatory sandbox has also been another way that CMA has supported FinTech. It allows for the live testing of innovative capital markets related products, solutions, and services, with the potential to deepen and develop the capital markets prior to launching into the mass market.
The admitted entities provide periodic reports to the Authority on the implementation of their test plans, achievement of test objectives, risks and challenges observed during the testing period, and a final report prior to the expiry of its testing period.
Additionally, CMA has ensured access to finance through crowd funding. Over the years, the Authority has come up with regulations for crowdfunding, opening up yet another source of capital. It allows start-ups and growing businesses that are unable to raise capital through existing securities issuances to raise money from the public through technological portals to help finance or re-finance their activities.
The Authority is also exploring avenues of leveraging on AI and big data through the research department. Big data enables capital markets firms to help employees make better financial decisions on behalf of clients. Furthermore, CMA has adopted the electronic “know your customer” technique. It is a digital process wherein the customer’s identity and address are verified electronically through an authentication system that aids in investor onboarding.
The use of mobile-based platforms is to enhance access. Investment platforms are online services that allow users to buy and hold shares, bonds, and funds in one place. These services can include making it easy to invest in stocks and shares, ISAs, or mutual funds.
Tokenisation of real estate
The concept of tokenisation of real estate assets involves creating a virtual token that represents ownership of a particular type of asset. Tokens can represent real estate-related property in a variety of ways due to their increased flexibility of use.
A token becomes a record that has legal meaning and therefore economic value. In addition to representing ownership of an asset, they can also represent an interest in a legal entity that controls the asset, an interest in a liability secured by the asset, a right to share in the revenue or profits generated by the asset, or any other variation determined by the issuer of the tokens.
Since tokens are backed by physical assets, their value fluctuates as the asset performs, similar to real estate investments, but with an added convenience that blockchain technology offers, specifically the secure and frictionless storage and transmission of the cryptographic tokens.
The benefits are increased liquidity and market access. This way, transactions are also transparent and of a low cost to both the investors and the public.
Written by Education, Awareness, and Certification Department staff of the Capital Markets Authority