Kenya’s Capital Markets Authority (CMA) is poised to dramatically reshape the leadership and oversight of the country’s largest listed companies and financial market intermediaries.
The new Capital Markets (Corporate Governance) Regulations, 2025, finalized after recent stakeholder consultations, target significant weaknesses in corporate governance, aiming to boost market integrity and restore investor confidence.
The regulations introduce sweeping changes designed to curb misconduct and enforce accountability:
1. Separation of Powers: A core rule mandates the complete separation of the chairman and the executive officer roles. No individual can hold both top positions, forcing a clear division between board oversight and executive management. The chairman must now explicitly be a non-executive or independent director.
2. Stricter Independence for Directors: The definition of an independent director is significantly tightened. To qualify, a director must:
- Not own shares in the company;
- Not have been an executive or employee within the past three years;
- Not have had any significant business relationship with the firm in the last five years.
3. Term Limits: Independent directors now face a maximum limit of nine years. This aims to prevent board entrenchment and ensure fresh perspectives.
4. Board Composition: At least one-third of a market intermediary’s board must consist of these strictly defined independent directors.
5. Enhanced Compliance & Internal Controls: Compliance officers gain substantial new authority, including direct access to the board and oversight of all regulatory matters. Boards are explicitly tasked with establishing effective internal control systems, with quarterly reporting mandated. Accountability for breaches is pinned directly to key C-suite positions.
6. Regulator Veto Power: In an unprecedented move, the CMA gains significant control over top appointments. Companies must now seek the regulator’s prior written approval for any changes involving shareholders holding five percent or more, directors, chief executives, or other key personnel. This gives the CMA direct influence over who runs Kenya’s key market players.
7. Curbing Familial Influence: To curb familial influence and potential conflicts of interest, the rules cap close relations—including spouses, parents, siblings, children, and in-laws—of any director at not more than one-third of the board’s composition.
Experts indicate these rules will fundamentally reshape oversight and accountability within Kenya’s blue-chip firms and financial institutions, many of which have faced criticism for governance lapses. The CMA concluded collecting public views on the draft last week, paving the way for formal ratification and implementation.
However, the increased regulatory reach is not without critics. Guard Hill Digital, an economics consultancy with I.C. Group, voiced strong opposition:
“Right now, the government wants to put its hand and fingers in economic sectors where it does not have the competency to do so. It just needs to let the private sector run the show.”
Despite this criticism, the CMA is moving forward. Boards will also be required to develop or review corporate governance charters, codes of conduct, and performance evaluation frameworks aligning with these stricter standards.
The regulations represent the most significant overhaul of Kenyan corporate governance rules in recent years, signaling a new era of enforced accountability for the nation’s leading companies.
– By Nusurah Nuhu
