The Capital Markets Tribunal has dismissed an application by Cytonn Asset Managers Ltd seeking orders to compel the regulator to grant it more time to comply with investment limits set by the authority for two of its funds.
The investment company wanted the tribunal to compel the Capital Markets Authority (CMA) to grant it an extension to comply with limits in Cytonn Money Market Fund and Cytonn High Yield Fund.
But the tribunal chaired by Paul Lilan dismissed the appeal saying there was no obligation on the regulator to grant the approvals if the fund manager failed to comply with the regulatory standards set out in the CMA Act and within the required timelines.
“The appellant cannot therefore blame the respondent (CMA) for non-compliance with the Act and the Regulations,” the Tribunal said.
CMA had written to Cytonn to reduce the exposure of its high yield fund in two of its real estate projects, citing breach of investment guidelines.
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Cytonn had put Ksh123 million ($897,000) in the real estate properties which was 64 per cent of the money pooled by investors in the Cytonn High Yield Fund, a collective investment scheme (CIS). This was contrary to the CMA regulations that only allow a pooled fund to invest less than 25 per cent in one single entity.
Further the law prohibits CIS funds from investing more than 10 per cent in related parties which means Cytonn had breached both limits.
Unlawful rejection
Cytonn termed CMA’s decline as unlawful since no reasons were given, neither was the decision communicated timely. Further, the tribunal heard that Cytonn sought approvals from the regulator for advertisement of the products on February 17, 2022 but it was declined without “a valid reason.”
Cytonn said its investment limits went off-track after a press release by the CMA on June 17, 2021 insinuating that its products were unregulated by the authority.
The company said it ought to be granted an extension of one year to bring the fund back to its limit and a temporary order, stopping the enforcement of June 29, 2022 or any other enforcement action related to the fund limits.
CMA said the statement was made in the interest of protecting investors in line with its mandate under the CMA Act. In any case, CMA submitted that Cytonn was regulated but it cautioned investors from investing in other unregulated schemes.
The regulator added that the parties were in communication but Cytonn had not rectified or adequately supported the rates in the advertisement as required by the authority.
CMA said it declined to approve the advertisement to avoid misleading investors. CMA said Cytonn was not compliant with the investment limits as far back as June 2021, before the publication of the press release.
In its ruling, the tribunal said the CMA has the obligation to give reasons for any decision that adversely affects another party. Mr Lilan and members of the tribunal noted that at the time of writing the judgment, the one-year period would have lapsed.
“It would therefore not be in the interest of justice to grant any further extension of the compliance period as sought by the Appellant,” the tribunal said.
