Related documents
- Is amended by 24th Annual Supplement
LAWS OF KENYA
CAPITAL MARKETS ACT
THE CAPITAL MARKETS (INVESTMENT-BASED CROWDFUNDING) REGULATIONS
LEGAL NOTICE 175 OF 2022
- Published in Kenya Gazette Vol. CXXIV—No. 206 on 7 October 2022
- Commenced on 7 October 2022
- [Revised by 24th Annual Supplement (Legal Notice 221 of 2023) on 31 December 2022]
Part I – PRELIMINARY
1. Citation
These Regulations may be cited as the Capital Markets (Investment Based Crowding) Regulations.2. Interpretation
In these Regulations, unless the context otherwise requires—"Act" means the Capital Markets Act;"Authority" means the Capital Markets Authority established under section 5 of the Act;"cooling off period" means a contractual period within which an investor can withdraw from a crowdfunding transaction without any restrictions;"crowdfunding" means the act of raising money from many individuals or entities to either finance a project or business through a crowdfunding platform;"crowdfunding platform" means a website, internet based portal or such other technological application, which facilitates interactions between investors and issuers and other related interactions;"crowdfunding platform operator" means an entity licensed by the Authority to facilitate transactions involving the offer or sale of investment instruments through a crowdfunding platform;"custodian" means a bank licensed under the Banking Act (Cap. 488) and appointed by the Crowding Platform Operator to receive and hold funds raised through the crowding platform;"investment-based crowdfunding" means crowdfunding in exchange for shares, debt securities or any other investment instruments approved by the Authority;"investor" means any person or entity that seeks to make, or has made an investment through a crowdfunding platform;"investment instruments" means securities as defined under the Act;"issuer" means a company which issues the security or investment instrument, which is hosted on the crowdfunding platform for purposes of crowdfunding;"key personnel" has the meaning assigned to it under the Act;"liquid capital" means part of an entity’s assets that it holds as cash or assets that can easily be converted into cash;"medium enterprise" means a company whose annual turnover ranges between five million and fifty million Kenya shillings and employs between fifty to three hundred employees;"micro enterprise" means a company registered as such under the Micro and Small Enterprises Act (Cap. 499C);"retail investor" means an investor who is not a sophisticated investor;"small enterprise" means a company registered as such under the Micro and Small Enterprises Act (Cap. 499C);"sophisticated investor" has the meaning assigned to it under the Act;"start-up" means a company incorporated in Kenya that is newly established or has not been in existence for more than ten years, which is established for the sole purpose of developing an innovative and scalable product or service;"trading facility" means system that facilitates the exchange of crowdfunded investment instruments between parties; and"trust account" means a bank account opened in trust by the Crowdfunding Platform Operator for the benefit of the issuers and investors and managed and monitored by the Custodian.3. Application
Part II – THE CROWDFUNDING PLATFORM OPERATOR
4. Licensing requirement
5. Application for licence and accompanying documents
A person who intends to be a crowdfunding platform operator shall apply to the Authority for licensing in the form set out in the First Schedule accompanied by the following documents—6. Eligibility for licensing
An applicant shall be eligible for licensing as a crowdfunding platform operator, if that applicant—7. Criteria for licensing
The Authority shall license an applicant as a crowdfunding platform operator if it is satisfied that the applicant—8. Rules for the operation of business
The Rules of the crowdfunding platform operator shall provide for—9. Grant of a license
10. Denial of grant of license
11. Suspension, restriction or revocation of a licence
The Authority may suspend, restrict or revoke a crowdfunding platform operator’s licence in accordance with sections 26 of the Act.12. Cessation of business
A crowdfunding platform operator shall not cease to operate as such without prior thirty days’ notice in writing to the Authority who may impose any terms and conditions to ensure orderly cessation of business of the crowdfunding platform operator.Part III – CROWDFUNDING PARTICIPANTS
(A) Issuers
13. Eligible issuers
14. Fundraising limits
15. Prohibited issuers
The entities listed below are prohibited from raising funds through a crowdfunding platform—(a)public listed companies and their subsidiaries;(b)entities with a poor governance record;(c)entities that intend to use the funds raised to provide loans or invest in other entities; and(d)any other entity as may be specified by the Authority.(B) Investors
16. Eligible investors
The following persons are eligible to invest in crowdfunding investments—Part IV – THE CROWDFUNDING TRANSACTION
17. Permitted investment instruments
Investment instruments allowed for purposes of crowdfunding under these Regulations include shares, debt securities including bonds or debentures or any other instruments as shall be approved by the Authority from time to time.18. Offering document
19. Requirements for issuers
An eligible issuer shall, in addition to any other obligations that may be imposed by a crowdfunding platform operator—20. Crowdfunding transaction
21. Use of funds
22. Transaction fees
A crowdfunding platform operator shall, in addition to any other fees that they may charge for use of their platform, levy a transaction fee as specified in the Third Schedule for each successful crowdfunding transaction facilitated through its platform which amount shall be payable and remitted to the Authority directly within thirty days of such transaction.23. Restrictions on crowdfunding platform operator
Part V – TRADING FACILITY
24. Requirements of the trading facility
Part VI – DUTIES OF A CROWDFUNDING PLATFORM OPERATOR
25. Requirements for the crowdfunding platform operator
A crowdfunding platform operator shall—26. General obligations
27. Obligations on risk disclosures
A crowdfunding platform operator shall disclose all risks associated with the crowdfunding investment which includes information on—28. Cautionary statement
29. Risk acknowledgement form
30. Due diligence
31. Operation of trust account
32. Duties of a custodian
The duties of a custodian shall include—33. Data protection and privacy
A crowdfunding platform operator—34. Record keeping
35. Continuous reporting
Part VII – GENERAL PROVISIONS
36. Inspections
The Authority may carry out inspections on a crowdfunding platform operator or on any of its facilities satisfy itself as to the integrity of the platform, financial soundness and stability, risk management and its control systems.37. Offence
Any person who contravenes the provisions of these Regulations for which no penalty is provided, that person shall be liable, upon conviction, to the penalty specified under section 34A of the Act and general damages where applicable, for any loss occasioned to the other party.38. Applicability of capital markets laws
A crowdfunding platform operator shall comply with—39. Transition provision
Any person operating an investment-based crowdfunding platform or holding itself out as a crowdfunding platform operator prior to the commencement of these Regulations shall obtain a license within twelve months after the commencement of these Regulations.History of this document
31 December 2022 this version
Revised by
24th Annual Supplement
07 October 2022
Commenced