Kenyan legislation

The Capital Markets (Asset-Backed Securities) Regulations

Edition: 2022-12-31 · In force

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Part I – PRELIMINARY

1. Citation

These Regulations may be cited as the Capital Markets (Asset-Backed Securities) Regulations.

2. Application

(1)These Regulations shall apply to all offers of asset-backed Application securities to the public or a section thereof in Kenya including issues by state corporations and other public bodies.

(2)The Rules and Regulations governing the issue, offer and listing of fixed income securities shall apply to asset-backed securities to the extent that the same do not conflict with the provisions of these Regulations.

3. Interpretation

In these Regulations, unless the context otherwise requires—"advisor" means a person appointed to arrange, package, place or market the application for issue, offer and listing of the asset-backed securities;"allowable expenses" includes trust fees, ongoing fees paid to rating agencies, servicing fees, origination fees; acquisition expenses, liquidation expenses, bank service charges, legal fees, audit fees and other direct charges incurred in the ordinary course of business, exclusive of organizational and offering expenses, conversion expenses and extraordinary expenses, all being deemed incidental expenses relating to the authorization and issue of asset-backed securities offered for purchase by the general public for the purposes of the Income Tax Act (Cap. 470);"asset-backed securities" means securities—

(a)that are issued as part of a securitization transaction in which assets are transferred to a third party that issues the securities; and

(b)that are primarily serviced, with respect to both return of investment and return on investment, by cash flow from assets described in paragraph (a) above;

"asset-backed securities holder" means the person whose name appears in the register of asset-backed securities holders;"Authority" means the Capital Markets Authority established under section 5 of the Capital Markets Act (Cap. 485A);"day" means any calendar day excluding Saturdays, Sundays and public holidays;"Cabinet Secretary" Act means the Cabinet Secretary for the time being responsible for matters relating to finance;"Central Bank" means the Central Bank of Kenya established by section 3 of the Central Bank of Kenya Act (Cap. 491);"close relation" means a relationship supported by documentary evidence of a spouse, parent, sibling, child, father-in-law, son-in-law, daughter-in-law, mother-in-law, brother-in-law, son-in-law, grand child or spouse of a grandchild;"credit enhancement" means any arrangement including but not limited to insurance, letters of credit, lines of credit, collateralization, guarantees and other arrangements intended to decrease the credit risk on the asset-backed securities;"credit enhancer" means a person or entity that provides credit enhancement;"credit rating" means an objective and independent opinion on the creditworthiness of the debt instrument to be issued based on relevant risk factors;"Commissioner" means the Commissioner of Insurance appointed under the Insurance Act;"eligible assets" means assets which are the subject matter of the securitization transaction;"independent director" means a director who—

(i)is not and has not been employed by the originator in an executive capacity within the five year period preceding the date of application;

(ii)is not a member of the issuer or originator's senior management or a significant customer or supplier to the issuer or originator or is an entity that receives significant contributions from the issuer or originator; or within a period of five years immediately preceding the date of application has not had any business relationship with the issuer or originator (other than service as a director) for which the issuer has been required to make disclosure;

(iii)has no personal service contract with any of the shareholders, directors or members of the senior management of the issuer or originator;

(iv)is not employed by a company at which a director of the issuer or originator serves as a director;

(v)is not a close relation of any person described above; or

(vi)has not had any of the relationships described above with any affiliate of the issuer or originator;

"information memorandum" means any prospectus , document, notice, circular, advertisement, or other invitation in print or electronic form containing information in relation to an issue of asset-backed securities and inviting offers from the public or a section of the public to subscribe for the purchase of asset-backed securities;"issuer" means an entity that seeks to offer or offers asset-backed securities to the public or a section thereof;"liquidation expenses" means the expenditures necessary to convert residual or non-performing eligible assets or any underlying collateral, into cash, including expenditures necessary to collect on credit enhancement;"liquidity provider" means a person who provides funds to a servicing agent for the settlement of payments due to asset-backed securities holders in accordance with the schedule of payments stipulated for the terms and conditions of asset-backed securities to cover any short-term cashflow shortfalls;"originator" means the entity that seeks to transfer its assets in a securitization transaction;"origination fees" means all fees, commissions or other consideration, paid by any party to any party in connection with the origination and sale of eligible assets to the Issuer, but not including the purchase price of the eligible assets, initial fees paid to rating agencies and professional fees paid to advocates, valuers and similar professionals for providing routine professional services;"securitization transaction" means an arrangement which involves the transfer of assets or risk to a special purpose vehicle where such transfer is funded by the issuance of securities to investors and payments to investors in respect of such debt securities are principally derived, directly or indirectly, from the cash flows of the transferred assets;"selling agent" means the entity appointed to distribute or offer the asset-backed securities to the public or a section thereof;"servicing agent" means an entity appointed to manage collections on the assets underlying the asset-backed securities and administering the cash flows of the asset pool;"transfer," means the transfer of legal and beneficial title to the assets that are the subject matter of a securitization transaction;"trustee" means the person or institution appointed to enforce the rights of the Asset-Backed Securities holders pursuant to the securitization;"working hours," means between 8.00 a.m. and 5.00 p.m. on any working day.

Part II – PARTIES TO SECURITIZATION

4. Eligibility to be originator

The originator shall be—

(a)a public company incorporated or registered under the Companies Act;

(b)a statutory corporation, local authority or Government Ministry; or

(c)an entity established in Kenya under the provision of any written law;

(d)such other entity as may be approved by the Authority.

5. Purchase of asset-backed securities by originator

(1)An originator may, subject to regulation 37, purchase no more than the cumulative sum of ten percent at any time of the total value of any asset-backed securities issued pursuant to a transfer of its own assets to the Issuer unless otherwise permitted by the Authority.

(2)The restriction in paragraph (1) shall not apply to the holding of subordinated securities by the originator.

6. The Issuer

(1)An Issuer shall be a company incorporated under the Companies Act (Cap. 486) or be of such other form as may be approved by the Authority.

(2)An issuer shall unless otherwise approved by the Authority be a newly created entity with no pre-existing creditors or other claims against it other than formation expenses.

(3)At least one third of the members of the board of directors of the issuer shall be independent directors.

7. Functions of the issuer

The objects of an issuer shall be to—

(a)offer, issue and list of asset-backed securities;

(b)purchase of eligible assets, enter into principle agreements required in connection to a securitization transaction; and

(c)the undertake of any other matters incidental thereto.

8. No relation of issuer to originator

An issuer shall neither be marketed as a subsidiary or a company within the group of the originator nor shall the name of the issuer or the asset-backed securities product imply any relation to the originator.

9. Dissolution of issuer

An issuer shall not be voluntarily wound up until the asset-backed securities issued by the issuer are fully redeemed in accordance with the terms and conditions of the asset-backed securities.

10. Voluntary winding up of issuer

The written consent of the board of directors or governing body of the issuer and the Authority shall be sought before the commencement of any voluntary winding up proceedings of the issuer.

11. Auditor of the Issuer

An auditor appointed by an issuer shall be a member of the Institute of Certified Public Accountants of Kenya and shall comply with the international standards on auditing in conducting the audit.

12. Record keeper of the Issuer

Where an issuer delegates the record keeping functions to another entity, the officer in-charge of the other entity shall be a member of the Institute of Certified Public Secretaries of Kenya.

13. Appointment of servicing agent

An issuer shall appoint a servicing agent in accordance with these Regulations.

14. Eligibility for appointment

A servicing agent shall be independent of the issuer, but may be the originator in so far as the originator provides these services on an arms-length basis and subject to market terms and conditions.

15. Records to be maintained by servicing agent

(1)A servicing agent shall keep such books of account, records and statements in the name of the issuer as may be necessary to give a complete record of—

(a)all receipts and payments in respect to the eligible assets and asset-backed securities;

(b)the portfolio of eligible assets; and

(c)every transaction carried out by the issuer.

(2)A servicing agent shall permit authorized agents of the Authority to inspect such books of account, records and statements at any time during working hours.

16. Remittance of funds

A servicing agent shall, unless operating as the credit enhancer, be under no obligation to release any funds for the benefit of the asset-backed securities holders unless or until it has received the same from the issuer.

17. Provision of liquidity by servicing agent

A servicing agent may operate as a liquidity provider to ensure that timely payments are made to the asset- backed securities holders where there is a cashflow shortfall on a payment or repayment date in respect to the relevant asset-backed securities.

18. Resignation of servicing agent

(1)A servicing agent who intends to resign shall give three months notice in writing to the issuer and copy the notice to the Authority, stating such intention and the reasons for resignation.

(2)Notwithstanding the notice period stipulated in subparagraph (1), the resignation shall not come into effect until a replacement has been duly appointed by the issuer.

19. Removal of servicing agent

An issuer who intends to terminate the appointment of a servicing agent shall inform the Authority of such intention at least three months prior to the termination and shall provide the Authority with the copy of the relevant notice and the reasons for termination.

20. Appointment of new servicing agent

An issuer shall appoint a new servicing agent at least thirty days before the expiry of the term of the outgoing servicing agent and ensure that there is adequate time for the hand-over and transfer of all information within itself in relation to its contractual duties to enable the incoming servicing agent to properly execute their duties.

21. Handover to new servicing agent

An outgoing servicing agent shall hand over to the incoming servicing agent all the books of account, documents and records that are required to be kept under these Regulations.

22. Liquidity provider

(1)A liquidity provider may decline to advance sums to an issuer unless it is certain that such amounts are recoverable and payable in full from the issuer pari passu or in priority to credit enhancers and asset-backed securities holders.

(2)A liquidity provider shall not underwrite the credit risk of an issuer or otherwise operate as a credit enhancer unless appointed to act as a credit enhancer.

23. Appointment and role of trustee

An issuer shall appoint a trustee who shall—

(a)be the trustee for the asset-backed securities holders;

(b)enforce the rights of the asset-backed securities holders as against the issuer, credit enhancer or any other such person against whom the trustee and the asset-backed securities holders have recourse; and

(c)have such other duties and obligations as indicated by the terms and condition of its trust deed.

24. Rights of trustee

A trustee shall have all such rights as may accrue to the asset-backed securities holders including but not limited to access to information on the performance, operation of the securitization transaction and the asset-backed securities issued thereunder.

Part III – ISSUE OF ASSET-BACKED SECURITIES

25. Advisors

(1)An originator shall appoint an advisor from among duly licensed investment banks, stock brokers and investment advisors which advisor shall be responsible for liaising with the Authority on the offer, issue or listing of the asset-backed securities.

(2)An originator may also appoint such other advisors as it deems necessary.

26. Form of application

(1)An application for approval for the offer, issue or listing of asset-backed securities shall be submitted to the Authority in the prescribed form.

(2)Compliance with the requirements set out in these Regulations does not guarantee an applicant's suitability which shall be determined by the Authority in consultation with the Mi

(3)The application be to submitted shall be accompanied by—

(a)a term sheet setting out the salient terms and conditions of the proposed structure of the proposed securitization transaction including

(i)name, date and place of incorporation, names and professions of directors, names and interests of shareholders and proposed structure of the Issuer

(ii)name, date and place of incorporation, names and professions of directors, names and interests of shareholders the of originator;

(iii)names and addresses of the transaction advisors;

(iv)securitization transaction overview;

(v)proposed arrangements for the transfer of eligible assets and nature of the eligible assets;

(vi)currency and principal amount of proposed issue;

(vii)tenor of proposed issue

(viii)details of proposed credit enhancement and provision of liquidity by the liquidity provider (where applicable);

(ix)details of utilization of proceeds;

(x)indicative credit rating;

(xi)confirmation on whether the offer is to be listed and structure of issue; and

(xii)conditions precedent;

(b)The following documents relating to the originator—

(i)resolution of the board of directors approving the transfer of eligible assets to the issuer; and

(ii)written consent from any existing secured creditor enjoying any security interest of any nature over the proposed eligible assets agreeing to wholly discharge their security in respect of the eligible assets to be transferred;

(c)Where the originator is a company incorporated under the Companies Act it shall submit a certified copy of its certificate of incorporation including any certificate of change of name and the memorandum and articles of association;

(d)The constitution documents relating to the issuer together with a written undertaking to comply with the requirements of these Regulations.

(e)declarations from the originator, issuer and advisor confirming that they have taken all reasonable care in structuring the issue, preparing the information memorandum and developing all projections on performance;

(f)a legal opinion confirming that the transferred eligible assets would not be available to the creditors, liquidators or receiver managers of the originator in the event of the bankruptcy, winding up, insolvency or receivership of the originator;

(g)all reports by any expert included or referred to in the information memorandum;

(h)draft copies of material contracts (where applicable) including the credit-enhancement agreement, proposed servicing agreement between the issuer and servicing agent and guarantee agreement where applicable;

(i)duly executed declarations by the directors of the issuer in the form prescribed in the First Schedule;

(j)where applicable, a letter of no objection from the relevant primary regulator of the originator;

(k)a credit rating report of the proposed issue from an independent credit rating agency ; and

(l)the prescribed application fee.

27. Consultation with Cabinet Secretary

The Authority shall upon receipt of an application to issue or list asset-backed securities inform the Cabinet Secretary of its decision to approve or reject the application at least fourteen days prior to communicating that decision to the Applicant.

28. Documents to be lodged and available for inspection

(1)The information memorandum and all required information relating to the proposed securitization and asset-backed securities shall be submitted to the Authority in a period of not less than twenty eight days before the opening of the offer period and the Authority may require additional disclosures as it deems fit.

(2)All documents which are required to accompany the application and the documents referred to in the information memorandum shall be made available for inspection at the registered office of the issuer for the period which the asset-backed securities are in issue, unless otherwise advised by the Authority.

29. Offer Period

The offer period shall not exceed thirty days from the date of the opening of the offer unless the Authority approves otherwise.

30. Manner of subscription

Subscription for the issue of asset-backed securities shall be made through one or more of the selling agents.

31. Subscription proceeds

(1)The subscription amount shall be deposited with the selling agent and all the proceeds shall be held in a separate trust account in the name and for the benefit of the issuer and shall be applied by the issuer for the purposes specified in the information memorandum immediately after the offer period is closed.

(2)Notwithstanding paragraph (1) where the minimum subscription is not raised, the issuer shall refund the subscribers their subscription amount.

32. Investor Compensation Fund

The interest deemed to accrue on the subscription proceeds shall be paid into the Investor Compensation Fund in accordance with section 18 of the Act.

33. Allotment of securities

(1)The allotment of securities offered to the public shall be made in strict accordance with the allotment policy disclosed in the information memorandum.

(2)Notwithstanding paragraph (1) where the results of the subscription make such policy impractical, the allotment policy may be amended with the prior written approval of the Authority.

(3)Where the Authority approves amendment under paragraph (2), the issuer shall announce the fact of approval within twenty four hours of the grant of the approval.

34. Publication of results of offer

The results of the allotment of a public offer shall be published after the Authority has been received prior notification of not less than twenty four hours.

Part IV – ASSETS TO BE SECURITIZED

35. Eligible assets

The assets to be securitized for purposes of issuing asset-backed securities shall be—

(a)capable of generating a true and identifiable revenue stream that is projected to be sufficient to service the return of and return on investment as well as allowable expenses for the life of the asset-backed securities;

(b)free from any encumbrances or impediments to their free transfer and their transfer shall not constitute an event of default or acceleration trigger under any security agreement relating to the assets of the originator; and

(c)transferred at fair value.

36. Rights to transfer of assets

An originator shall have and demonstrate an unencumbered right to transfer all legal and beneficial interests in the eligible assets and the rights to the eligible asset.

37. Transfer of assets

(1)An originator shall transfer all its rights, title, interests and obligation in the assets to the Issuer and shall not retain any beneficial interest or liability.

(2)Where the eligible assets have declined to a level that renders the asset securitization transaction uneconomical to carry on, the originator may retain a first right of refusal to repurchase assets from an Issuer at a fair value; or

(3)The originator may repurchase assets from the issuer where the originator is under an obligation to do so under a securitization transaction when it has breached any conditions, representation or warranty in respect of the securitization transaction.

Part V – CREDIT RATING AND CREDIT ENHANCEMENT

38. Credit rating

All securitization transactions shall be rated by an independent credit rating agency approved and registered by the Authority.

39. Credit enhancement

(1)An issuer may seek credit enhancement of the issue, which enhancement may be in the form of—

(a)over-collateralization;

(b)a standby letter of credit or line of credit issued by a bank or financial institution that is licensed by the Central Bank;

(c)a guarantee by a bank or financial institution that is licensed by the Central Bank;

(d)surety bond issued by an insurance company licensed by the Commissioner of Insurance other than the originator or its subsidiary, its parent company or the parent company;

(e)an instrument issued by a bilateral or multilateral institution of which Kenya is a member;

(f)issue of subordinated tranches;

(g)an instrument issued by the Government of Kenya; or

(h)such other instrument or mechanism from such other entity as may be approved by the Authority.

(2)Where the credit enhancement is to be provided by a bank, financial institution or insurance company licensed in Kenya, the credit enhancement shall only be provided with the prior written consent of the Central Bank in the case of a bank or financial institution or the Commissioner of Insurance in the case of an insurance company

Part VI – LISTING, SUSPENSION OF DEALING AND DE-LISTING

40. Listing

Upon the approval and issue, the asset-backed securities may be listed on the fixed income securities market segment at an approved securities exchange in Kenya.

41. Suspension or de-listing to be approved by the Authority

No asset-backed securities shall be suspended or delisted by a securities exchange without the prior written approval of the Authority.

42. Publication of suspension or de-listing

Where an asset-backed security has been suspended or delisted, the securities exchange shall within forty eight hours publish such information in at least two local dailies of national circulation.

Part VII – FEES AND CHARGES

43. Fees

An issuer of asset-backed securities approved to offer, issue or list shall pay the prescribed fees.

Source: Kenya Law · Imported 4 October 2026