Part I- An Overview of the New Licensing Categories
Kenya’s capital markets regulatory landscape is undoubtedly undergoing a significant transformation. In this first part of our series on the Capital Markets (Licensing Requirements) (General) Regulations, 2025 (the “2025 Regulations”), we examine the newly introduced licensing categories and what they mean for market intermediaries, fintech players and other participants in the financial services sector.
The 2025 Regulations introduce higher licensing, capital adequacy, governance, and compliance standards for market intermediaries, while repealing the Capital Markets Licensing Requirements General Regulations 2002 (the “2002 Regulations”), which have formed the foundations of capital markets in Kenya for over two decades. With the introduction of new licensing categories and the recognition of fintech in capital markets, the Regulations present a significant shift aimed at modernizing financial markets and enhancing investor protection. Below is a highlight of the license categories introduced under the Regulations.
Over-the-Counter (OTC) Platforms
The 2025 Regulations provide for the licensing of Over the Counter (OTC) Platforms. OTC platforms are trading systems that allow for the direct trading of listed and unlisted securities, currencies or other instruments outside a centralized exchange framework. The regulation of OTC platforms aims to mitigate opacity and counterparty risks by bringing these decentralized digital platforms under formal regulatory oversight.
Regulation 11(3)(e) mandates that the proposed platform must be digitally enabled, and the applicant must provide evidence of market facilities such as quotation and information boards. Furthermore, the applicant must submit a code of conduct and trading rules that define membership requirements, the instruments to be traded, and clear procedures for trading, clearing, settlement, and platform supervision.
Broker-Dealers
The 2025 Regulations also introduce Broker-Dealers as distinct market players. These are entities licensed to engage in the business of a stockbroker or a dealer, including arranging or promoting the underwriting of securities issuance. Regulation 22 of the 2025 Regulations permits Broker-Dealers to act as both dealers and stockbrokers. As such, entities licensed as Broker–Dealers shall be capable of buying, selling, dealing, or trading securities on both client accounts and their own account, unlike Stockbrokers.
By allowing a single entity to trade both for clients and on its own account, the 2025 Regulations create a more versatile market participant. This effectively provides a mid-tier option between standard stockbrokers, who are restricted from own-account trading, and Dealers who may trade and earn profits from their own capital.
Custodians
Custodians of capital markets products are required to be licensed under the 2025 Regulations. A custodian is responsible for the safe-keeping of investor assets, including custody funds, securities, financial instruments, or documents of title to assets. Under Regulation 41(3), eligibility for this license is strictly limited to banks licensed by the Central Bank of Kenya or other licensed financial institutions that demonstrate the specific capacity and expertise to carry on custodial business.
The regulation of custodians aims to ensure the absolute protection of investor property. The 2025 Regulations mandate custodians to open accounts in the name of each client for the exclusive benefit of the investment portfolio. This ensures that investors’ funds and the custodian’s assets are clearly separated. Furthermore, custodians are required to ensure that entitlements are separately identified in electronic records, providing a robust audit trail that mitigates the risk of asset commingling.
Trustees
The 2025 Regulations also mandate the licensing of entities that act as note trustees for debt instruments or trustees for collective investment schemes. The licensing and regulation of trustees aims to ensure that investment schemes and debt issues are overseen by entities with sufficient financial and technical capacity.
Importantly, Regulation 47 of the 2025 Regulations tasks Trustees with ensuring that investment schemes are managed in accordance with their constitutive documents. Trustees are also tasked with reporting any irregularities or undesirable practices by fund managers to the CMA.
Intermediary Service Platform Providers (ISPs)
An Intermediary Services Platform (ISP) is a digital application that facilitates the aggregation, marketing and distribution of capital market products and services. The 2025 Regulations provide that ISPs that have partnered with licensed market intermediaries must be licensed by the CMA. ISPs’ license applicants are required to have a business plan detailing their business model, a business continuity and disaster recovery plan, as well as a risk management framework that provides for fraud detection and preventative measures. Proof of adequate system security and functionality is also required for an entity to be licensed as an ISP provider.
Robo-Advisers
Digital platforms that provide automated, algorithm-driven investment advisory services (Robo-Advisors) are also required to be licensed under the 2025 Regulations. This brings the methodologies used by robo-advisers to a dedicated regulatory fold. Regulation 14 mandates Robo-advisers to maintain their principal bank account in Kenya and have adequate capital for their operations.
In addition to establishing safeguards for data protection and data integrity, Robo-advisers must also have documented and robust methodologies, a risk management framework to mitigate platform-specific risks, and strict client onboarding procedures.
Conclusion
In conclusion, the 2025 Regulations represent a significant shift and modernization of Kenya’s capital markets landscape. With the introduction of essential categories such as Broker-Dealers, Robo-advisers and Intermediary Services Platforms, this transition aligns Kenya with international best practices. Additionally, the 2025 Regulations formalize the “in-principle” approval, permitting these new entrants to establish their physical and technical infrastructure before the official issuance of a license.
In the following article in this series, we shall explore the Licensing Requirements and the Mandatory Reporting Obligations of the market intermediaries. Read more on our website.
This publication is meant for general information only and does not constitute legal advice, nor does it create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us at advocate@lexgroupafrica.com for tailored legal support.
Authored:
CG Mbugua, Partner, Corporate Commercial Practice Group
Co-Authored:
Joseph Barasa, Associate
Ian Mwithi, Legal Assistant
