In a week dominated by headlines on inflation, political standoffs, and underwhelming earnings results, a subtle but profound legislative amendment slipped through the cracks. Parliament, through the Capital Markets (Amendment) Bill 2025, has quietly proposed the insertion of Section 29(3A) of the Capital Markets Act. This clause removes the ceiling placed on ownership stakes in market intermediaries regulated by the Capital Markets Authority (CMA). This legislative adjustment, tucked away within a broader effort to liberalise and modernise Kenya’s financial architecture, may not be sparking widespread public debate. But make no mistake: this is a foundational change with wide-reaching implications for market structure, investor behaviour, and regulatory control.

Section 29(3) of the Capital Markets Act established a statutory limit on the shareholding percentage that a single person or entity can hold in CMA-licensed market intermediaries, including stockbrokers, investment banks, and fund managers. The purpose was straightforward: to prevent the concentration of control, promote corporate governance, and mitigate the systemic risk posed by any dominant player. These restrictions, although sometimes seen as bureaucratic hurdles by institutional investors, were intended as safeguards. In a market still in the growth phase, with inconsistent enforcement, legacy governance issues, and evolving risk management practices, such limits were regarded as a safeguard against excesses and failures that could spread through the financial system.

The Case for Repeal

The amendment’s supporters frame this change as a progressive, investor-friendly move aimed at enhancing Kenya’s competitiveness in attracting capital and deepening market participation. Indeed, global best practice has shifted primarily toward allowing market-driven ownership, particularly where disclosure, risk controls, and surveillance mechanisms are deemed sufficiently robust. Foreign investors, private equity players, and even institutional investors have long decried the rigid capital ownership structures in Kenya’s regulated space. For instance, acquiring a controlling stake in a stockbroker or fund manager was often a logistical and regulatory nightmare, even if the transaction promised improved capital, technology infusion, or market expertise.

The removal of Section 29(4) to (7) is being marketed as a way to unshackle the sector from artificial constraints, enable consolidation where necessary, and make room for bolder, better-capitalised players who can innovate, absorb shocks, and expand the scope of financial services.

The repeal, however, is not without its critics and with good reason.

Why Risk it?

At its core, the restriction was not just about numbers; it was about balance. When one shareholder dominates a regulated institution, it introduces a host of governance risks, including self-dealing, client favouritism, and risk-taking that is misaligned with client interests. In a market where enforcement is sometimes slow and regulatory resources stretched, it is not far-fetched to imagine a scenario where monopolistic behaviour or abuse of control erodes trust.

Moreover, the law is changing more rapidly than the institutions tasked with enforcing it. Without a parallel strengthening of CMA’s supervisory capacity, Kenya could be opening itself up to new vulnerabilities, especially in an era where fintech disruption and cross-border capital flows have already blurred traditional oversight lines.

The Bigger Picture: Market Evolution or Deregulatory Drift?

Whether this move will catalyse growth or merely reallocate power among financial elites will depend largely on how the CMA responds. Regulatory vigilance must now shift from ownership to behaviour. That means tougher reporting obligations, real-time surveillance systems, and more explicit rules of engagement on related-party transactions, client money management, and conflicts of interest.

Additionally, there is a risk that the repeal could trigger predatory acquisition behaviour, particularly as distressed intermediaries seek bailouts or buyouts. The removal of shareholding caps makes it easier for aggressive capital to swoop in, and unless guidelines are in place, these deals could ultimately undermine competition and consumer welfare.

Conclusion

Kenya has taken a bold step in introducing Section 29(3A). The motivations are clear: attract investment, enhance flexibility, and catalyse growth in the capital markets. But with greater freedom must come greater accountability. The market is watching not just to see who buys, but what they build.