I85PREP
⌘ K
Regulations and Market Practice (Kenya) study materials
Regulations and Market Practice (Kenya) study resources

Regulations and Market Practice (Kenya) practice questions

One question at a time. Build your Regulations and Market Practice (Kenya) understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Kenyan regulatory architecture and supervisory authorities

Which body is Kenya's principal prudential regulator of banks and is established under the Banking Act?

  1. The Insurance Regulatory Authority
  2. The Capital Markets Authority
  3. The Sacco Societies Regulatory Authority
  4. The Central Bank of Kenya Correct answer.

Explanation

The Central Bank of Kenya derives its banking supervisory mandate from the Banking Act and licenses, supervises and where necessary places banks under statutory management. The other bodies regulate securities, insurance and deposit-taking SACCOs respectively rather than commercial banks.

Question 2Kenyan regulatory architecture and supervisory authorities

Under Kenya's regulatory architecture, which statute is the primary source of the Capital Markets Authority's licensing and enforcement powers?

  1. The Retirement Benefits Act
  2. The Banking Act
  3. The Insurance Act
  4. The Capital Markets Act Correct answer.

Explanation

The Capital Markets Act establishes the Capital Markets Authority and confers its powers to license market intermediaries, approve listings and investigate market misconduct. The Banking Act, Insurance Act and Retirement Benefits Act each govern distinct sectors and different regulators.

Question 3Kenyan regulatory architecture and supervisory authorities

A Kenyan insurer wishes to vary its licence to add a new class of general insurance business. Which authority must approve the variation?

  1. The Insurance Regulatory Authority Correct answer.
  2. The Capital Markets Authority
  3. The Central Bank of Kenya
  4. The Competition Authority of Kenya

Explanation

The Insurance Regulatory Authority licenses insurers and approves changes to the classes of business an insurer may write under the Insurance Act. Licensing scope is a core supervisory tool held by the sector regulator, not by the central bank or competition authority.

Question 4Kenyan regulatory architecture and supervisory authorities

Which body regulates and supervises retirement benefits schemes in Kenya?

  1. The Sacco Societies Regulatory Authority
  2. The Capital Markets Authority
  3. The Retirement Benefits Authority Correct answer.
  4. The Insurance Regulatory Authority

Explanation

The Retirement Benefits Authority is established by the Retirement Benefits Act to register, regulate and supervise pension schemes and their service providers. It is distinct from the insurance, securities and SACCO regulators even where the same institution offers related products.

Question 5Kenyan regulatory architecture and supervisory authorities

Which authority is responsible for supervising deposit-taking SACCOs in Kenya?

  1. The Sacco Societies Regulatory Authority Correct answer.
  2. The Capital Markets Authority
  3. The Retirement Benefits Authority
  4. The Central Bank of Kenya

Explanation

The Sacco Societies Regulatory Authority, created under the Sacco Societies Act, licenses and supervises deposit-taking SACCOs. Commercial banks remain with the Central Bank of Kenya, so the two prudential regimes run in parallel.

Question 6Kenyan regulatory architecture and supervisory authorities

Which body is Kenya's integrated financial sector conduct and market regulator with a statutory mandate covering financial education and consumer protection across the sector?

  1. The Kenya Revenue Authority
  2. The Financial Sector Conduct Authority Correct answer.
  3. The National Treasury
  4. The Financial Reporting Centre

Explanation

Kenya has established a financial sector conduct regulator with a cross-sector conduct, market integrity and financial education mandate. It is separate from the prudential regulators and from the Financial Reporting Centre, which focuses on anti-money-laundering intelligence.

Question 7Kenyan regulatory architecture and supervisory authorities

Which institution hosts Kenya's Financial Reporting Centre and receives suspicious transaction reports from reporting institutions?

  1. The Insurance Regulatory Authority
  2. The Central Bank of Kenya
  3. The Financial Reporting Centre as an autonomous body Correct answer.
  4. The Capital Markets Authority

Explanation

The Financial Reporting Centre is established under the Proceeds of Crime and Anti-Money Laundering Act as the national financial intelligence unit. It receives suspicious transaction reports from banks, insurers, brokers and other reporting institutions and shares intelligence with law enforcement.

Question 8Kenyan regulatory architecture and supervisory authorities

Which body sets and administers Kenya's monetary policy and issues the Kenya shilling?

  1. The Central Bank of Kenya Correct answer.
  2. The Capital Markets Authority
  3. The Kenya Deposit Insurance Corporation
  4. The National Treasury

Explanation

The Central Bank of Kenya is mandated by the Constitution and the Central Bank of Kenya Act to formulate monetary policy, issue currency and maintain price stability. The National Treasury handles fiscal policy, while the other bodies have no currency-issuance role.

Question 9Kenyan regulatory architecture and supervisory authorities

A bank becomes critically undercapitalised and the Central Bank of Kenya appoints a statutory manager. Which statutory framework governs that intervention?

  1. The Sacco Societies Act
  2. The Capital Markets Act
  3. The Banking Act Correct answer.
  4. The Companies Act

Explanation

The Banking Act empowers the Central Bank of Kenya to place an institution under statutory management and sets out the manager's powers and the grounds for intervention. The Companies Act provides general insolvency mechanisms but does not displace the bank-specific resolution regime.

Question 10Kenyan regulatory architecture and supervisory authorities

Which body administers the Kenya Deposit Insurance Corporation and funds depositor compensation when a bank is liquidated?

  1. The Kenya Deposit Insurance Corporation Correct answer.
  2. The National Treasury
  3. The Central Bank of Kenya
  4. The Capital Markets Authority

Explanation

The Kenya Deposit Insurance Corporation is the statutory deposit insurer, funded by member institutions, and pays insured depositors when a bank or deposit-taking institution fails. The Central Bank of Kenya conducts supervision and resolution but does not itself administer the deposit insurance scheme.

Question 11Kenyan regulatory architecture and supervisory authorities

A listed company plans a rights issue. Which regulator must approve the offer document before the offer proceeds?

  1. The Capital Markets Authority Correct answer.
  2. The Insurance Regulatory Authority
  3. The Central Bank of Kenya
  4. The Competition Authority of Kenya

Explanation

The Capital Markets Act requires public offers of securities to be approved by the Capital Markets Authority, which reviews the information memorandum for adequate disclosure. The Central Bank of Kenya and other sectoral regulators do not approve securities offerings.

Question 12Kenyan regulatory architecture and supervisory authorities

Which regulator is responsible for approving a merger between two Kenyan insurance companies where the combined entity will hold significant market share?

  1. The Capital Markets Authority alone
  2. The Insurance Regulatory Authority acting with the Competition Authority of Kenya Correct answer.
  3. The Central Bank of Kenya alone
  4. The National Treasury alone

Explanation

Insurance mergers require approval from the Insurance Regulatory Authority, and where the transaction raises competition concerns the Competition Authority of Kenya also reviews it under the Competition Act. This dual review reflects the separation of prudential and competition mandates.

Question 13Kenyan regulatory architecture and supervisory authorities

Which document issued by the Central Bank of Kenya sets out prudential requirements such as capital adequacy and liquidity for banks?

  1. The Securities Code
  2. The Banking Code
  3. The Insurance Regulations
  4. The Prudential Guidelines Correct answer.

Explanation

The Central Bank of Kenya issues Prudential Guidelines that translate the Banking Act into operational standards on capital, liquidity, large exposures and risk management. Supervisors assess compliance through ongoing reporting and inspection.

Question 14Kenyan regulatory architecture and supervisory authorities

A fintech firm wants to offer mobile money services through a telecommunications platform. Which framework primarily governs its authorisation?

  1. The Insurance Act
  2. The National Payments System framework administered by the Central Bank of Kenya Correct answer.
  3. The Banking Act
  4. The Capital Markets Act

Explanation

Mobile money and payment service providers are authorised under the national payments system framework overseen by the Central Bank of Kenya, which licenses payment service providers and sets interoperability standards. Banking, securities and insurance laws apply only where the activity falls within those regimes.

Question 15Kenyan regulatory architecture and supervisory authorities

Which body is responsible for coordinating Kenya's financial stability monitoring across sector regulators?

  1. The Capital Markets Authority alone
  2. The Central Bank of Kenya through the Financial Stability Committee Correct answer.
  3. The Kenya Revenue Authority
  4. The Insurance Regulatory Authority alone

Explanation

The Central Bank of Kenya chairs a financial stability committee that brings together the sector regulators to identify systemic risks and coordinate responses. This arrangement reflects the macroprudential role of the central bank alongside sectoral supervision.

Question 16Kenyan regulatory architecture and supervisory authorities

A director of a licensed stockbroker is convicted of market manipulation. Which regulator is empowered to take disciplinary action against the firm's licence?

  1. The Insurance Regulatory Authority
  2. The Capital Markets Authority Correct answer.
  3. The Sacco Societies Regulatory Authority
  4. The Central Bank of Kenya

Explanation

The Capital Markets Authority licenses and sanctions market intermediaries, including stockbrokers, and can suspend or revoke licences for market misconduct. The other regulators have no jurisdiction over securities intermediaries.

Question 17Kenyan regulatory architecture and supervisory authorities

Which statute establishes the Financial Reporting Centre and imposes customer due diligence obligations on reporting institutions?

  1. The Banking Act
  2. The Proceeds of Crime and Anti-Money Laundering Act Correct answer.
  3. The Insurance Act
  4. The Capital Markets Act

Explanation

The Proceeds of Crime and Anti-Money Laundering Act creates the Financial Reporting Centre and imposes anti-money-laundering duties, including customer due diligence and suspicious transaction reporting, on financial and designated non-financial institutions. Sector statutes like the Banking Act operate alongside it but do not establish the centre.

Question 18Kenyan regulatory architecture and supervisory authorities

An insurer is placed under statutory management by the Insurance Regulatory Authority. What is the primary statutory objective of that intervention?

  1. To maximise returns for shareholders
  2. To transfer the insurer to a foreign buyer
  3. To suspend the insurer's tax obligations
  4. To protect policyholders and restore the insurer to sound financial condition or facilitate orderly resolution Correct answer.

Explanation

Statutory management under the Insurance Act is a protective measure aimed at safeguarding policyholders and stabilising or resolving the insurer. It is not designed to maximise shareholder returns or to alter tax liabilities.

Question 19Kenyan regulatory architecture and supervisory authorities

Which regulator approves the listing of a company's shares on the Nairobi Securities Exchange?

  1. The Capital Markets Authority Correct answer.
  2. The Nairobi Securities Exchange acting alone
  3. The National Treasury
  4. The Central Bank of Kenya

Explanation

The Capital Markets Authority approves the listing and the offer document, while the exchange admits the securities to trading under its own listing rules. Both steps are required, but statutory approval rests with the Capital Markets Authority.

Question 20Kenyan regulatory architecture and supervisory authorities

Which body supervises insurance brokers and agents in Kenya?

  1. The Central Bank of Kenya
  2. The Competition Authority of Kenya
  3. The Capital Markets Authority
  4. The Insurance Regulatory Authority Correct answer.

Explanation

The Insurance Regulatory Authority licenses and supervises insurance intermediaries, including brokers, agents and loss adjusters, under the Insurance Act. Intermediary licensing is a core part of its market conduct and prudential role.

Question 21Kenyan regulatory architecture and supervisory authorities

A bank applies to open a representative office in Nairobi. Which regulator processes the application?

  1. The Capital Markets Authority
  2. The Central Bank of Kenya Correct answer.
  3. The Retirement Benefits Authority
  4. The Insurance Regulatory Authority

Explanation

The Banking Act and the Central Bank of Kenya's licensing framework govern the establishment of banks and representative offices, including fit-and-proper assessments of controllers and directors. Other regulators deal with non-banking activities.

Question 22Kenyan regulatory architecture and supervisory authorities

Which feature best distinguishes Kenya's prudential regulators from its conduct regulator in the financial sector architecture?

  1. Prudential regulators focus on the safety and soundness of individual institutions, while the conduct regulator focuses on fair treatment of customers and market integrity Correct answer.
  2. Prudential regulators are funded by levies, while the conduct regulator is funded by the Exchequer
  3. Prudential regulators report to the National Treasury, while the conduct regulator reports to Parliament
  4. Prudential regulators supervise banks only, while the conduct regulator supervises all other institutions

Explanation

Prudential supervision examines capital, liquidity and risk management to protect the solvency of institutions and their depositors or policyholders. Conduct regulation examines how firms treat customers and behave in markets, which is a distinct objective even where the same firm is subject to both.

Question 23Kenyan regulatory architecture and supervisory authorities

In a bank resolution, the Central Bank of Kenya and the Kenya Deposit Insurance Corporation must coordinate. Which statement best describes their respective roles?

  1. The Central Bank of Kenya pays depositors, while the Kenya Deposit Insurance Corporation sets monetary policy
  2. Both bodies must jointly issue banking licences to new entrants
  3. The Kenya Deposit Insurance Corporation supervises banks, while the Central Bank of Kenya pays depositors
  4. The Central Bank of Kenya supervises and may appoint a statutory manager, while the Kenya Deposit Insurance Corporation funds insured depositor payouts and supports resolution Correct answer.

Explanation

The Central Bank of Kenya is the prudential supervisor and resolution authority, while the Kenya Deposit Insurance Corporation holds the deposit insurance fund and manages payouts and resolution support. Coordination between the two is essential to preserve confidence and limit contagion.

Question 24Kenyan regulatory architecture and supervisory authorities

A group operates a bank, an insurer and a securities dealer in Kenya. Which statement best captures how the regulatory architecture allocates supervision of the group?

  1. The Capital Markets Authority supervises the group because it has the broadest statutory mandate
  2. The Central Bank of Kenya supervises all three entities because they belong to one group
  3. The National Treasury supervises the group directly
  4. Each licensed entity is supervised by its sector regulator, with coordination through cross-sector stability arrangements and consolidated oversight of the bank Correct answer.

Explanation

Kenya uses a sector-based licensing model in which each entity is supervised by its relevant regulator, supplemented by coordination mechanisms for systemic risk and consolidated supervision of banking groups. No single regulator supervises all three entities solely because of common ownership.

Question 25Kenyan regulatory architecture and supervisory authorities

Which statement best explains why Kenya's anti-money-laundering obligations apply to both financial institutions and designated non-financial businesses and professions?

  1. Because the Capital Markets Authority supervises all reporting institutions
  2. Because the Financial Reporting Centre relies on reports from a broad set of gatekeepers to detect laundering across the economy Correct answer.
  3. Because the Insurance Act imposes AML duties on every business
  4. Because the Central Bank of Kenya licenses all designated non-financial businesses

Explanation

The anti-money-laundering regime extends beyond banks to lawyers, accountants, dealers in precious metals and others because those gatekeepers can detect and deter laundering flows. The Financial Reporting Centre aggregates their reports into intelligence for law enforcement.

Question 26Kenyan regulatory architecture and supervisory authorities

A Kenyan bank wishes to appeal a decision of the Central Bank of Kenya refusing its licence application. Under the statutory framework governing the banking sector, to which body may the bank first direct such an appeal?

  1. The Banking Appeals Tribunal established for that purpose Correct answer.
  2. The National Treasury Cabinet Secretary
  3. The High Court of Kenya sitting as a judicial review court
  4. The Competition Authority of Kenya

Explanation

Kenyan banking law provides for a dedicated appeals mechanism: an aggrieved applicant or institution may appeal a licensing or supervisory decision of the Central Bank of Kenya to the Banking Appeals Tribunal before any resort to the courts. The Tribunal is a specialist body, so the High Court is not the first port of call for merits appeals.

Question 27Kenyan regulatory architecture and supervisory authorities

Which Act is the principal statute governing the licensing, supervision and resolution of banks and financial institutions in Kenya?

  1. The Microfinance Act
  2. The Banking Act Correct answer.
  3. The Kenya Deposit Insurance Act
  4. The Capital Markets Act

Explanation

The Banking Act is the core legislation under which the Central Bank of Kenya licenses and supervises banks and financial institutions, including provisions on capital, liquidity, inspection and statutory management. The other statutes govern distinct segments of the financial sector.

Question 28Kenyan regulatory architecture and supervisory authorities

A Kenyan insurance company wants to change its shareholding structure so that a new investor acquires a controlling stake. Which body's prior approval is required for that change of control?

  1. The Insurance Regulatory Authority Correct answer.
  2. The Central Bank of Kenya
  3. The Retirement Benefits Authority
  4. The Capital Markets Authority

Explanation

The Insurance Regulatory Authority is the sector supervisor for insurers, and Kenyan insurance law requires its approval before a person acquires or increases a significant or controlling shareholding in a licensed insurer. The central bank's approval is not the relevant consent for an insurer's change of control.

Question 29Kenyan regulatory architecture and supervisory authorities

Which body is Kenya's statutory financial sector regulator with a mandate covering both prudential supervision and market conduct across banks, insurers, securities dealers and pension schemes?

  1. The Financial Sector Regulatory Authority Correct answer.
  2. The National Treasury
  3. The Central Bank of Kenya
  4. The Capital Markets Authority

Explanation

Kenya created a single integrated financial regulator, the Financial Sector Regulatory Authority, which took over the mandates previously exercised separately by the central bank, the insurance, capital markets and retirement benefits regulators. Its remit therefore spans both prudential and conduct supervision across the financial sector.

Question 30Kenyan regulatory architecture and supervisory authorities

A payments service provider wants to know which authority licenses and oversees payment service providers and payment systems in Kenya. Which body performs that role?

  1. The Communications Authority of Kenya
  2. The Central Bank of Kenya Correct answer.
  3. The Capital Markets Authority
  4. The Competition Authority of Kenya

Explanation

The Central Bank of Kenya is the designated authority for licensing and overseeing payment service providers and payment systems under Kenya's national payments legislation. It sets entry requirements, operational standards and oversight rules for the payments ecosystem.

Question 31Licensing, authorisation and market-entry requirements

Under Kenya's Capital Markets Act, which body is the principal regulator responsible for licensing market intermediaries and approving the issuance of securities to the public?

  1. The Insurance Regulatory Authority
  2. The Central Bank of Kenya
  3. The Capital Markets Authority Correct answer.
  4. The Nairobi Securities Exchange

Explanation

The Capital Markets Act establishes the Capital Markets Authority as the statutory regulator of the securities market, with powers to license intermediaries and approve public offers. The Central Bank regulates banking, the Exchange operates the trading platform, and the Insurance Regulatory Authority oversees insurers.

Question 32Licensing, authorisation and market-entry requirements

A firm wishes to operate as an investment adviser in Kenya and provide advice to retail clients. Which authorisation does it primarily need from the Capital Markets Authority?

  1. A licence as an investment adviser Correct answer.
  2. A certificate of registration as a credit reference bureau
  3. A practising certificate from the Law Society
  4. A banking licence from the Central Bank

Explanation

Investment advisory services fall within the regulated activities under the Capital Markets Act, so the firm must hold an investment adviser licence from the Authority. The other approvals relate to unrelated sectors and do not authorise securities advice.

Question 33Licensing, authorisation and market-entry requirements

Which document must a Kenyan issuer publish and have approved before offering securities to the public for the first time?

  1. An information memorandum circulated only to institutional buyers
  2. A trust deed filed with the Central Bank
  3. A shareholders' circular sent after allotment
  4. A prospectus approved by the Capital Markets Authority Correct answer.

Explanation

A public offer of securities requires an approved prospectus containing the disclosures prescribed for investors. The Authority reviews and approves the prospectus before the offer opens to the public.

Question 34Licensing, authorisation and market-entry requirements

A company wants its shares admitted to trading on the Nairobi Securities Exchange. Which sequence best reflects market-entry requirements in Kenya?

  1. Notify the Insurance Regulatory Authority and list without further approval
  2. Apply to the Exchange for listing and begin trading before seeking regulatory approval
  3. Obtain Capital Markets Authority approval of the listing and the Exchange's admission to trading Correct answer.
  4. Register with the Central Bank as a bank holding company and then list

Explanation

Admission to listing on a Kenyan exchange requires regulatory approval of the listing together with the exchange's own admission process. Trading cannot lawfully commence before those approvals are in place.

Question 35Licensing, authorisation and market-entry requirements

A collective investment scheme intends to solicit subscriptions from the Kenyan public. What is the key market-entry requirement?

  1. Approval by the Registrar of Companies alone
  2. A foreign collective investment scheme licence from another jurisdiction
  3. Endorsement by the scheme's custodian without regulatory filing
  4. Registration of the scheme and approval of its offer document by the Capital Markets Authority Correct answer.

Explanation

Collective investment schemes offered to the public must be registered and their offer documents approved under the capital markets framework. Custodian endorsement or foreign licensing does not replace that registration.

Question 36Licensing, authorisation and market-entry requirements

An unlicensed individual has been soliciting investors in Kenya to buy shares in an offshore entity. Which regulatory concern is most directly engaged?

  1. Non-payment of stamp duty on share transfers
  2. Unlicensed dealing and marketing of securities in breach of the Capital Markets Act Correct answer.
  3. Breach of prudential capital ratios for banks
  4. Failure to file annual returns with the Registrar of Companies

Explanation

Soliciting investment in securities without a licence contravenes the capital markets licensing regime, and the Authority may take enforcement action. The other matters concern company filings, tax, or banking prudential rules.

Question 37Licensing, authorisation and market-entry requirements

Which factor does the Capital Markets Authority typically assess when reviewing an application for a dealing licence?

  1. The applicant's fit and proper status, capital adequacy and operational capability Correct answer.
  2. The applicant's preferred office location in Nairobi
  3. The number of social media followers the applicant has
  4. The applicant's marketing budget for the coming year

Explanation

Licensing assessment centres on fitness and propriety of the applicant and its principals, financial resources, and the systems and controls needed to conduct regulated activity. Marketing reach or office location are not licensing criteria.

Question 38Licensing, authorisation and market-entry requirements

A licensed stockbroker wants to add portfolio management for clients' discretionary accounts. What is the appropriate regulatory step?

  1. Commence the activity and inform the Authority at the next annual renewal
  2. Apply to vary the licence to include the additional regulated activity Correct answer.
  3. Rely on the existing dealing licence because all intermediary activities are bundled
  4. Register a new company with the Registrar of Companies and proceed

Explanation

A licence authorises only the activities specified in it, so extending into another regulated activity requires a variation or additional licence. Informing the regulator retrospectively or relying on corporate registration does not cure the gap.

Question 39Licensing, authorisation and market-entry requirements

Which statement correctly describes the treatment of a prospectus that has been approved by the Capital Markets Authority?

  1. Approval exempts the issuer from ongoing disclosure duties
  2. Approval confirms the document meets disclosure requirements but does not guarantee investment returns Correct answer.
  3. Approval guarantees the accuracy of every statement made by the issuer
  4. Approval transfers liability for misstatements to the Authority

Explanation

Regulatory approval signifies that the prospectus satisfies prescribed disclosure standards; it is not a warranty of accuracy or a guarantee of performance. Issuers remain liable for their disclosures and continue to owe ongoing reporting obligations.

Question 40Licensing, authorisation and market-entry requirements

A foreign asset manager with no Kenyan establishment wishes to serve Kenyan retail clients directly. What is the most accurate statement of the entry requirement?

  1. It only needs to notify the Nairobi Securities Exchange
  2. It may serve retail clients freely because it is regulated abroad
  3. It must obtain the appropriate Kenyan licence or operate through a licensed local entity Correct answer.
  4. It must first list its own shares in Kenya

Explanation

Regulated activity directed at Kenyan clients requires local authorisation or provision through a licensed domestic entity; home-country regulation alone does not confer Kenyan market access. Notification to an exchange or self-listing does not satisfy licensing requirements.

Question 41Licensing, authorisation and market-entry requirements

Which of the following best describes the role of a custodian in the Kenyan capital markets licensing framework?

  1. A licensed entity that safeguards client assets and settles transactions under regulatory standards Correct answer.
  2. A trade association that sets listing fees
  3. A government department that approves prospectuses
  4. An unregulated agent who may hold client funds without oversight

Explanation

Custodians are licensed intermediaries whose function is to hold client assets safely and support settlement in line with regulatory standards. They are subject to oversight rather than operating as unregulated agents.

Question 42Licensing, authorisation and market-entry requirements

An issuer plans a rights issue to existing shareholders. Which regulatory principle most directly applies to the offer document?

  1. The offer may proceed once the board passes a resolution
  2. Only the company's auditors must approve the circular
  3. The offer must comply with applicable disclosure and approval requirements for securities offerings Correct answer.
  4. No disclosure is needed because existing shareholders already know the company

Explanation

Rights issues remain securities offerings and must satisfy the disclosure and approval requirements applicable to them, even where the audience is existing shareholders. Board or auditor sign-off alone does not replace regulatory compliance.

Question 43Licensing, authorisation and market-entry requirements

What is the primary purpose of the Capital Markets Authority's fit and proper assessment for directors of a licensed intermediary?

  1. To ensure directors are residents of Nairobi
  2. To check directors belong to a trade association
  3. To confirm directors have relevant commercial experience and personal integrity Correct answer.
  4. To verify directors hold shares in the intermediary

Explanation

Fit and proper tests examine integrity, competence and financial soundness of directors and senior officers so that regulated firms are prudently managed. Residency, shareholding or association membership are not the test.

Question 44Licensing, authorisation and market-entry requirements

A licensed dealer applies to the Authority and is refused. Which statement best reflects the legal position?

  1. The applicant may seek review or appeal through the mechanisms provided by the governing statute Correct answer.
  2. The refusal is final with no avenue for challenge
  3. The applicant may simply continue operating pending a court case
  4. The applicant must reapply to the Central Bank instead

Explanation

Statutory licensing decisions are subject to the review or appeal mechanisms set out in the governing law, including possible recourse to the courts. Unilateral continuation of regulated activity is not permitted while a challenge is pursued.

Question 45Licensing, authorisation and market-entry requirements

Which activity is most clearly outside the scope of a licence held by a fund manager authorised to manage collective investment schemes?

  1. Managing the assets of a registered collective investment scheme
  2. Taking deposits from the public and lending them at interest Correct answer.
  3. Providing investment advice to the scheme's investors
  4. Reporting to the scheme's trustees on portfolio performance

Explanation

Deposit-taking and lending are banking activities requiring a banking licence and fall outside a fund management authorisation. Managing scheme assets, advising investors and reporting to trustees are consistent with the fund manager role.

Question 46Licensing, authorisation and market-entry requirements

Kenya's regulatory framework for securities market entry is principally contained in which statute?

  1. The Insurance Act
  2. The Companies Act
  3. The Banking Act
  4. The Capital Markets Act Correct answer.

Explanation

The Capital Markets Act is the primary statute governing licensing of market intermediaries and the conduct of securities business in Kenya. The other statutes govern company law, banking and insurance respectively.

Question 47Licensing, authorisation and market-entry requirements

An intermediary's licence is subject to annual fees and continuing obligations. What is the most likely consequence of failing to meet those obligations?

  1. Automatic conversion of the licence to a permanent one
  2. Transfer of the licence to another firm without approval
  3. Regulatory sanctions, including suspension or revocation of the licence Correct answer.
  4. Exemption from future reporting duties

Explanation

Continuing obligations such as fee payment and reporting are conditions of holding a licence, and breach can attract sanctions up to suspension or revocation. Non-compliance never upgrades or transfers a licence.

Question 48Licensing, authorisation and market-entry requirements

Which of the following is a recognised function of the Central Bank of Kenya in relation to capital markets oversight?

  1. Setting listing rules for the Nairobi Securities Exchange
  2. Acting as banker and fiscal agent to government and overseeing the payments system Correct answer.
  3. Approving collective investment scheme offer documents
  4. Licensing stockbrokers and approving prospectuses

Explanation

The Central Bank's mandate includes acting as banker to government, managing monetary policy and overseeing the payments system, which supports the wider financial infrastructure. Licensing brokers, listing rules and CIS approvals sit with the capital markets regulator and the exchange.

Question 49Licensing, authorisation and market-entry requirements

A firm applies for licensing as a securities dealer. Which document is most likely to be required as part of the application?

  1. A copy of the firm's marketing brochure only
  2. A detailed business plan and description of systems and controls Correct answer.
  3. A guarantee of future profits
  4. A personal reference from a competitor

Explanation

Applications require evidence of how the firm will conduct regulated activity, including business planning, governance and operational controls. Marketing material, competitor references or profit guarantees do not demonstrate regulatory readiness.

Question 50Licensing, authorisation and market-entry requirements

Which statement best describes the treatment of an offer of securities made to fewer than a specified number of sophisticated investors under Kenyan rules?

  1. It may fall within an exemption from the prospectus requirement, subject to prescribed conditions Correct answer.
  2. It is prohibited entirely
  3. It is always a public offer requiring a prospectus
  4. It requires Central Bank approval instead of Capital Markets Authority approval

Explanation

Capital markets frameworks commonly provide exemptions for limited offers to sophisticated or restricted groups, subject to conditions such as investor numbers or minimum subscription. Such offers are neither automatically public offers nor prohibited.