CMA Issues New Corporate Governance Code and Guidelines on AML

The authority also issued a related legislation targeted at disclosures to curb money laundering and prevent terrorism funding through the market.

Notes specific to the Code of Corporate Governance Practices for Issuers of Securities to the Public

1.    Executive Pay Provisions – the Code provides ‘Companies shall remunerate Board members fairly and responsibly. The Board shall establish and approve formal and transparent remuneration policies and procedures that attract and retain Board members. The remuneration policy for Board members shall clearly stipulate the elements of such remuneration including directors’ fees, attendance allowances and bonuses. The Board shall ensure that the remuneration policies are aligned with its strategies. The Board remuneration policies and procedures shall be disclosed in the annual report’.

(a)    Level of remuneration – the Code provides ‘the Board shall determine the remuneration of the directors. The Board of directors shall set up an independent remuneration committee or assign a mandate to a nomination committee or such other committee executing the functions of a nomination committee, consisting mainly of independent and non-executive directors, to recommend to the Board the remuneration of the executive and non-executive directors and the structure of their compensation package. The directors’ remuneration shall be sufficient to attract and retain directors to run the company effectively and shall retroactively be approved by shareholders in an Annual General Meeting. The executive directors’ remuneration shall be structured in line with remuneration for other directors in the same industry and shall be aligned with the business strategy and long-term objectives of the company. The remuneration of the executive directors shall include an element that is linked to corporate performance, including a share option scheme, so as to ensure the maximization of the shareholders’ value. The remuneration of non-executive directors shall be competitive and in line with remuneration for other non-executive directors in the same industry. The remuneration package to directors shall be appropriately disclosed’.

2.    Age limit for board members – the Code recommends an age limit of 70 years.  The Code states, ‘it is desirable for board members to retire at the age of seventy years. However, members at an annual general meeting may vote to retain a Board member who is over seventy years’.

3.    Director term – the Code provides, ‘the tenure of an independent board member shall not exceed a cumulative term of nine years, an independent board member may continue to serve on the board subject to re-designation as a non-independent board member. The assessment criteria of independence of directors shall also include tenure. Long tenure can impair independence. As a result, the tenure of an independent Board member is capped at nine years. The nine years can either be a consecutive service of nine years or a service of nine years with intervals’.

4.    Board Diversity – the Code provides, ‘the board shall have a policy to ensure the achievement of diversity in its composition. Each board shall consider whether its size, diversity and demographics make it effective. Diversity applies to academic qualifications, technical expertise, relevant industry knowledge, experience, nationality, age, race and gender. The appointment of members shall be gender sensitive and shall not be perceived to represent a single or narrow constituency interest. Where companies establish a diversity policy, the companies shall introduce appropriate measures to ensure that the policy is implemented’.

Specific Notes on the Guidelines on Prevention of Money Laundering and Terrorism Financing

1.    Account opening requirements for residents and non-residents
Account opening requirements in establishing the true identity of resident customers who are natural persons include but not limited to: a birth certificate, a national identity card, a driver’s license, a passport or any other official means of identification that may be prescribed.

Those of a body corporate include: evidence of registration or incorporation, the Act establishing the body corporate, a corporate resolution authorizing a person to act on behalf of the body corporate together with a copy of the latest annual return submitted in respect of the body corporate in accordance with the law or any other item as may be prescribed.

For prospective non-resident customers who wish to open an account with a market intermediary, the Guidelines provides for adoption of effective identification procedures  similar to those applied to Kenyan resident customers. This does not therefore imply that non-resident (foreign) customers will be required to present themselves physically when opening new accounts.

It is important to note that even Kenyan resident customers are not necessarily required to present themselves physically to open accounts where they opt to open accounts and transact as non-face-to-face clients. The provisions for non-face-to-face clients apply in these cases. The specific requirements for face-to-face and those of non-face-to-face transactions verification are contained on Guidelines 5.6 and 7.2, 7.3, 7.4 & 7.5 respectively.

For non-resident customers, the Guidelines indicate that such customers will be required to provide identity documents including a copy of their passport, national identity card or documentary evidence of address which shall be certified by a diplomatic mission of the country of issue, commissioner of oaths or notary public, or a senior officer of the market intermediary.

For more information on account opening requirements for different classes of investors refer to: Section 45 of The Proceeds of Crime and Anti-Money Laundering Act 2009, Part IV of the Proceeds of Crime and Anti-Money Laundering Regulations, 2013 and Clause 5 of The Guidelines on Prevention of Money Laundering and Combating Financing of Terrorism in Capital Markets 2016.

2.    Suspicious Transaction Reporting Obligations
All reporting institutions under the supervision of the Authority are required to report suspicious transactions reports to the Financial Reporting Centre within seven days of the date of the transaction or occurrence of the activity that is considered suspicious.

In addition, the reporting institutions are required to report to the Financial Reporting Centre all cash transactions equivalent to or exceeding USD 10,000 or its equivalent in any other currency whether or not the transaction appears to be suspicious.

3.    Link to Financial Reporting Center (FRC) and Proceeds of Crime and Anti-Money Laundering (POCAMLA)
All reporting institutions are required to comply with the laws, rules and Guidelines in the prevention of money laundering and combating financing of terrorism in Kenya. On enforcement, the law provides that any person, reporting institution or supervisory body who contravenes the provisions commits an offense and shall, on conviction, be liable to a fine not exceeding five million shillings or to imprisonment for a term not exceeding three years or both fine and imprisonment.

The Authority has signed an MoU with the Financial Reporting Centre aimed at governing the working relationship between the Financial Reporting Centre and the Authority as well as setting out how the respective institutions will jointly undertake anti-money laundering oversight of the reporting institutions under the Authority’s purview. The Proceeds of Crime and Anti-Money Laundering Act 2009 establishes the Anti- Money Laundering Advisory Board, the Financial Reporting Centre (FRC), the Asset Recovery Agency and the Criminal Asset Recovery Fund.

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