GAZETTE NOTICE NO. 1419

NOTICE is given that the following applicants have, pursuant to the provisions of the Kenya Information and Communications Act, made applications to the Communications Authority of Kenya for the grant of the licences as below: Applicant Licence Category Wananchi Satellite Distribution Limited, P.O. Box 10286— 00100, Nairobi Satellite landing rights for broadcasting services Mashariki Television Network, P.O. Box 747-60200, Nairobi Commercial Free-to-air television on the digital terrestrial television platform Clarity Limited, P.O. Box 38911-00100, Nairobi Commercial free-to-air television on the digital terrestrial television platform Tencent Courier Limited, P.O. Box 5264-00506, Nairobi International courier service provider The Authority wishes to notify the general public that any legal or natural person, or group of individuals, who are desirous of making any representation and/or any objection to the grant of said licenses herein, to do so vide a letter addressed to the Director-General, Communications Authority of Kenya, Waiyaki Way. P.O. Box 14448 - 00800, Nairobi indicating the licence category on the cover enclosing it. The said representation and/or objection must be filed on/or before expiry of thirty (30) days from the date of this notice and the copy of the same be forwarded to the concerned applicant. Dated the 1st March, 2016. FRANCIS W. WANGUSI, PTG/2247/15-16 Director-General. GAZETTE NOTICE N0. 1420 THE CAPITAL MARKETS ACT (Cap. 485A) IN EXERCISE of the powers conferred by sections 11 (3) (v) of the Capital Markets Act, the Capital Markets Authority issues the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015, for application by both listed and unlisted public companies in Kenya. THE CODE OF CORPORATE GOVERNANCE PRACTICES FOR ISSUERS OF SECURITIES TO THE PUBLIC 2015 PART I: PRELIMINARY CHAPTER 1 1.1 INTRODUCTION I .1 . I Cilalioll This Code may be cited as the Code of Corporate Governance Practices for Issuers of Securities to the Public 2015. This Code succeeds the Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002. The Code sets out the principles and specific recommendations on structures and processes, which companies should adopt in making good corporate governance an integral part of their business dealings and culture. The Code advocates for the adoption of standards that go beyond the minimum prescribed by legislation. The Code has moved away from the "Comply or Explain" approach to "Apply or Explain". This approach is principle-based rather than rule-based, and recognizes that a satisfactory explanation for any non-compliance will be acceptable in certain circumstances. The approach therefore requires boards to fully disclose any non-compliance with the Code to relevant stakeholders including the Capital Markets Authority with a firm commitment to move towards full compliance. However, the Code contains mandatory provisions which are the minimum standards that issuers must implement, and these are replicated in the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002. Where Mandatory provisions are imposed by this Code, it is stated that companies shall comply with the particular requirement. Issuers of restricted offers of securities to sophisticated, institutional or professional investors are exempted from strict compliance with the mandatory provisions and may adopt them as a matter of best practice. 4th March, 2016 THE KENYA GAZETTE 873 1.1.2 Interpretation In this Code, unless the context otherwise requires— "board charter" means a document outlining the role and responsibilities of the Board of directors, powers of the Board, various Board committees and their roles, separation of roles between the Board and Management and the policies and practices of the Board in respect of corporate governance matters; "board member" means a board member who is a director of the company; "board work plan" means a document setting out activities of the board over a period of time; "capital markets" means financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments; "conflict of interest" means a situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person's self- interest and professional interest or public interest; "corporate governance" means the process and structure used to direct and manage the business and affairs of a company towards enhancing business prosperity and corporate accountability with the ultimate objective of realising long-term shareholder value, whilst taking account of the interests of other stakeholders; "directors emoluments" includes salary, fees and bonuses, any sums paid by way of expense allowances in so far as these are chargeable to income tax, any contribution paid in respect of the director under any pension scheme, and the estimated money value of any other benefits received by the director otherwise than in cash; "executive director" means a member of the board who also serves as a manager of the company; "equitable terms of shareholders" includes the treatment of shareholders equally according to the rights conferred on them including— - (a)the right to attend general meetings; (b)the right to vote in general meetings; (c)the right to receive a copy of the annual report and financial statements of the company; (d)the right to receive a dividend; and (e)the right to the product of liquidation; "fiduciary" means the legal or ethical relationship between two or more parties; "fiduciary duties" includes the duties of care, skill and diligence; "governance audit" means an assessment to determine the degree of adherence to good corporate governance practices; "independent director" means a member of a board of directors who does not have a material or pecuniary relationship with the company or related persons, is compensated through sitting fees or allowances, does not own shares in the company and after nine years of service, a continuing independent director ceases to be one and assumes the position of a non-executive director; "integrated reporting" means a process that — (a)brings together the material information about an organization's strategy, governance, performance and prospects in such a way that reflects its commercial, social and environmental context within which it operates; (b)provides a clear and concise representation of how an organization demonstrates stewardship and how it creates value, now and in the future; and (c)combines the most material elements of information currently reported in separate reporting strands (financial, management guidelines, governance and remuneration, and sustainability) into a coherent whole; "internal control" means the process effected by a company's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations; "material information" means any information that may affect the price of an issuer's securities or influence investment decisions and includes information on— (a)a merger, acquisition or joint venture; (b)a stock split or stock dividend ; (c)earnings and dividends of an unusual nature; (d)the acquisition or loss of a significant contract; (e)a significant new product or discovery; W a change in control or significant change in management; (g)a call of securities for redemption; (h)the public or private sale of a significant amount of additional securities; (i)the purchase or sale of a significant asset; (j)a significant labour dispute; (k)a significant lawsuit against the issuer; (1) establishment of a programme to make purchases of the issuer's own shares; (m)a tender offer for another issuer's securities; (n)significant alteration of the memorandum and articles of association of the issuer; or (o)any other peculiar circumstances that may be controversial and that may prevail with respect to the issuer or the relevant industry; "non-executive director" means a member of the board of a company who does not form part of the management team and who is not an employee of the company or affiliated with it in any other way but can own shares in the company; "regulator" means a governmental agency or department that ensures compliance with laws, regulations and established rules; "related party transaction" means a business deal or arrangement between two or more parties who are joined by a special relationship prior to the deal and includes, a business transaction between a major shareholder, or any company in which he holds shareholding, and the company; "risk" means the quantifiable likelihood of loss or less-than- expected returns; "risk management" means a logical and systematic process of identifying, assessing, managing and reporting all risks associated with a company's business activities that enables it to minimize losses and • maximize opportunities as it pursues its strategic goals; "majority shareholder" includes a person or group of persons— (a)entitled to exercise powers of the company and control its affairs; (b)controlling three quarters of the votes and who would have a complete control in terms of special resolutions; or (c)who holds more than fifty percent or seventy five percent of the voting rights of a company; "minority shareholder" means a person or group of persons who cannot exercise the powers of a company or control its affairs; "substantial or significant shareholder" means a person who is the beneficial owner of, or is in a position to exert control over, not less than fifteen percent of the shares of a company; "shareholder rights" means the rights which a shareholder acquires when he or she purchases the shares of a company and these rights include information rights, voting rights and financial rights; "stakeholder" means a party that has an interest in an enterprise or project and primary stakeholders in a typical company including its investors, employees, customers and suppliers whereas other stakeholders include the community, government and trade associations; "sustainability" means conducting operations in a manner that meets existing needs without compromising future needs; and "triple bottom line" means the accounting system which expands the traditional reporting framework to take into account social and environmental performance in addition to financial or economic performance. 1.1.3 Implementation and oversight Issuers are encouraged to implement this Code immediately but not later than one year after its publication in the Gazette. Where an issuer does not implement this Code one year after it has been published, the issuer shall disclose to the Capital Markets Authority the reasons for non-application, and clearly indkate the time frame required and the strategies to be put in place towards full application. At the end of every year, the board shall disclose in its annual report a statement of policy on good governance and the status of application of this Code. The Authority shall work with other complementary institutions in ensuring compliance with this Code. The complementary institutions are— (a)the Licensed Securities Exchanges; (b)the Registrar of Companies; and (c)the Courts. This Code is prepared in a format, which contains three sections. These are the broad principles, the recommended practices and the guidelines. The details of what is contained under each section are as follows— Principles The principles of governance encapsulate broad concepts underpinning good corporate governance that companies should apply when implementing the recommendations. Recommendations The recommendations are standards that flow from the principles, and which companies are expected to adopt as part of their governance structure and processes. Issuers of securities to the public shall explain in their annual reports how they have applied the recommendations. Guidelines Each recommendation is followed by a guideline, which seeks to assist companies in understanding the recommendation. It also provides some guidance to companies in implementing the recommendations. 1.1.4 Purpose This Code is intended to provide the minimum standards required from shareholders, directors, chief executive officers and management of a listed company or an unlisted company that issues securities to the public, so as to promote high standards of conduct as well as ensure that they exercise their duties and responsibilities with clarity, assurance and effectiveness. The Code should not restrict or replace the proper judgement of the management and employees. 1.1.5 Scope The Code sets out the principles and specific recommendations on structures and processes, which companies shall adopt in making Corporate Governance an integral part of their business dealings and culture. 1.1.6 Responsibility The Board of directors of each company shall be responsible for formulating policies, procedures and guidelines, which ensure that— (a)all directors, chief executive officers and management are made fully aware of the requirements of this Code; (b)all management decisions are made in accordance with prudent corporate governance practices; and the shareholders of each institution are responsible for the appointment of a competent and dedicated Board of directors. PART II CORPORATE GOVERNANCE PRINCIPLES AND RECOMMENDATIONS CHAPTER 2 BOARD OPERATIONS AND CONTROL Overview The single most important institution in corporate governance is the Board of directors. Effective corporate governance requires a Board composed of qualified and competent members capable of exercising objective and independent judgment, and focused on guiding strategy development and monitoring management. A proper understanding of the role and responsibilities of the Board must be shared not only by members of the Board, but also by company executives and external stakeholders, to ensure that the Board has appropriate autonomy, authority, and accountability in exercising its functions and that it can be held accountable by stakeholders. 2.1 Appointment, composition, size and qualifications of Board members Principle There shall be a formal and transparent procedure in the appointment of Board members and all persons offering themselves for appointment as directors should disclose any poter tial area of conflict that may undermine their position or service as director. 2.1.1 Recommendation Procedure for Board appointments The Board shall have transparent and documented procedures for appointment of new Board members. Guideline (a)Shareholders are ultimately responsible for appointments to the Board and it is in their best interest to ensure that the Board is properly constituted. Information relating to those nominated for Board positions should be availed to shareholders in advance of any decision making. As the information is disseminated, the Company should ensure the use of a wide variety of communication channels so as to cater for shareholders diverse media consumption habits. (b)To the extent that the duty is vested in general meetings, the shareholders should ensure that only credible persons who can add value to the company's business are elected to the Board of directors. (c)Board appointment procedures shall be transparent and clearly documented and approved by the Board before they can be used. The procedures should be formal and a matter for the Board as a whole, assisted by the nomination committee, and subject to shareholder approval when necessary. (d)The appointment process should be well managed to ensure that a balanced mix of proficient individuals is attained and that each of those appointed is able to add value and bring independent judgment to bear in the decision-making process. (e)All persons offering themselves for appointment as Board members shall disclose any potential areas of conflict that may undermine their position or service as director. (9 Board members should receive formal letters of appointment setting out the main terms and conditions relative to their appointment. 2.1.2 Recommendation Role of the Nomination Committee in Board appointments The Board shall appoint a nomination committee consisting mainly of independent and non-executive Board members with the responsibility of proposing new nominees for appointment to the Board and for assessing the performance and effectiveness of the directors of the Company. Guideline (a)The Board through the nomination committee shall on an annual basis review the required skills mix and expertise that the executive directors as well as independent and non- executive directors bring to the Board and make disclosure of the same in its annual report. (b)The nomination committee shall recommend to the Board candidates for directorships to be considered for appointment by the shareholders. (c) The nomination committee shall consider only persons of calibre, credibility and who have the necessary skills and expertise to exercise independent judgement on issues that are 4th March, 2016 THE KENYA GAZETTE 875 necessary to promote the company's objectives and performance in its area of business. (d) The nomination committee shall consider candidates for directorships proposed by all the shareholders including the majority shareholders. 2.1.3 Recommendation Board composition The Board shall comprise a balance of executive and non- executive directors, with a majority of non-executive directors. Independent non-executive directors shall be at least one third of the total number of Board members. Guideline (a) The structure of the Board shall comprise a number of directors, which fairly reflects the company's shareholding structure. The composition of the Board shall not be biased towards representation by a substantial shareholder but shall reflect the company's broad shareholding structure. The composition of the Board shall provide a mechanism for representation of the minority shareholders without undermining the collective responsibility of the directors. (b) In instances where there is no major shareholder but there is a substantial shareholder, the Board shall exercise judgment in determining the representation on the Board of such shareholder and of the other shareholders that effectively reflects the shareholding structure of the Company. (c) Executive members of the Board shall manage the conflict that arises between their management role and their role in the Board. 2.1.4 Recommendation Board size The Board shall be of a sufficient size. Guideline The Board shall be of such a number that enables the requirements of the company's business to be met. The size of the Board shall not be too large to undermine an interactive discussion during Board meetings or too small such that the inclusion of wider expertise and skills to improve the effectiveness of the Board and the formation of its committees is compromised. 2.1.5 Recommendation Diversity The Board shall have a policy to ensure the achievement of diversity in its composition. Guideline 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 Board 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. 2.1.6 Recommendation Multiple directorships There shall be-a limit to the number of directorships a member of the Board holds at any given time. Guideline A director of a listed company except a corporate director shall not hold such position in more than three public listed companies at any one time. This is to ensure effective participation by such directors in the Board. In a case where the corporate director has appointed an alternate director, the appointment of such alternate director shall be restricted to two public listed companies at any one time. An executive director of a listed company shall be restricted to one other directorship of another listed company. A chairperson of a public listed company shall not hold such position in more than two public listed companies at any one time, in order to allow the chairperson to devote sufficient time to steering the Board. 2.1.7 Recommendation Alternate Board members An alternate directoi shall be nominated by the substantive director but subjected to vetting by the nomination committee. Guideline (a)A person may act as an alternate director to a director of a company. (b)An alternate director has all the obligations imposed on the substantive director. (c)Each substantive director, whether body corporate or natural person shall have only one alternate director. (d)A body corporate shall not be nominated as an alternate director. (e)Alternate directors shall not be appointed as members of the audit committee. 2.1.8 Recommendation Succession planning The term of office of the Board members shall be organised in a manner that ensures that there is a smooth transition. Guideline The term of office of the members of the Board shall be organised in such a way that they end at diffirent times. This ensures retention of institutional memory and makes it easier to induct new Board members. Where possible, no more than one third of the Board members shall retire at the same time. 2.2 Structure of the Board Principle The Board shall be constituted to ensure effectiveness and value addition to the Company. 2.2.1 Recommendation Skills and experience The Board and its committees shall have the appropriate balance of skills, experience, independence and knowledge of the company and its business, to enable them discharge their respective duties and responsibilities effectively. Guideline The Board shall be structured in a way that it has different skills and expertise within itself. An effective. Board is one that facilitates the effective discharge of the duties imposed by law and adds value in a way that is appropriate to the particular company's circumstances. The Board shall be structured in such a way that — (a)it has a proper understanding of, and competence to deal with, the current and emerging issues of the business; (b)it exercises independent judgement; (c)it encourages enhanced performance of the Company; and (d)it can effectively review and challenge the performance of Management. 2.2.2 Recommendation The Board shall establish relevant committees with written terms of reference, which set out their authority and duties. Guideline The Board shall establish committees to cover broad functions of the company such as: audit, Board nominations, risk management, remuneration, finance, investment and governance. The committees shall be appropriately constituted with members who have the necessary skills and expertise to handle the responsibilities allocated to them. Where some skills are not available, the Board may co-opt independent and external professionals to that committee. The Board shall review the mandate of the committees periodically to ensure that they remain relevant. The Board shall also ensure that each Board committee has its own Charter. The Board shall specifically— (a)establish audit and nomination committees; (b)appoint chairpersons of committees; (c)determine the procedure and process within which the committee may be allowed to engage independent professional advice at the company's expense; and (d)review the effectiveness and performance of committees annually. 2.2.3 Recommendation The Nomination Committee The chairperson of the nomination committee shall be an independent director. Guideline In order to exercise independent judgment and be impartial in discharging his or her responsibilities, the chairperson of the nomination committee shall be an independent director. In the absence of a nomination committee, all the duties that would have been performed by this committee must be performed by another designated committee of the Board. 2.2.4 Recommendation The Audit Committee The Board shall establish an audit committee of at least three independent and non-executive directors. Guideline The chairperson of the audit committee shall be an independent and non-executive director and at least one of the committee members shall hold a professional qualification in audit or accounting and be in good standing with his or her respective professional body. The important attributes of committee members shall include— (a)broad business knowledge relevant to the company's business; (b)keen awareness of the interests of the investing public and familiarity with basic accounting principles; and (c)objectivity in carrying out their mandate without any conflict of interest. (11) must owe the company a duty to hold in confidence all information available to them by virtue of their position as a Board member. 2.3.2 Recommendation Functions of the Board and Management The Board shall establish clear functions reserved for the Board and those to be delegated to the management. Guideline The functions of the Board shall be separate from those of the Management. The Board shall— (a)define the company's mission, vision, its strategy, goals, risk policy plans and objectives, including approval of its annual budgets: (b)capital expenditures and review corporate performance and strategies at least on a quarterly basis; (c)identify the corporate business opportunities as well as principal risks in its operating environment, including the implementation of appropriate measures to manage such risks or anticipated changes impacting on the corporate business; (d)develop appropriate staffing and remuneration policy including the appointment of the Chief Executive Officer and the senior staff, particularly the finance director, operations director and the company secretary as may be applicable; (e)review on a regular basis the adequacy and integrity of the company's internal control, acquisition and divestitures and management information systems, including compliance with applicable laws, regulations, rules and guidelines; ()) establish and implement a system that provides necessary information to the shareholders, including shareholder communication policy for the company; (g)monitor the effectiveness of the corporate governance practices under which the company operates and propose revisions as may be required from time to time; and (h)take into consideration the interests of the company's shareholders in its decision-making process. Members of the board should clearly understand the organization's expectations of them in terms of allocation of individual responsibilities. To this end, formal letters of appointment setting out the key terms and conditions relative to their appointment are useful and should be given. The functions of management, which are mainly in the area of execution include: planning, organizing, staffing, co-ordinating, controlling, reporting and budgeting. 2.3.3 Recommendation Roles of Chairperson and Chief Executive Officer (CEO) The functions of the Chairperson and the Chief Executive Officer shall not be exercised by the same individual. Guideline (a)The division of responsibilities between the Chairperson and the Chief Executive Officer shall be clearly established, set out in writing and agreed by the Board and shall be clearly defined in the Board Charter. (b)Separation of the positions of the Chairperson and the Chief Executive Officer promotes accountability and facilitates division of responsibilities between them. (c)Separation of the roles of the Chairperson and the Chief Executive Officer ensures balance of power and authority and provides for checks and balances such that no one individual has unfettered powers of decision making. (d)The responsibilities of the chairperson shall include leading the board in oversight of management. (e)The Chief Executive Officer focuses on the day-to-day management of the company. He or she is responsible for implementing the Board's corporate decisions. (f)There shall be a clear flow of information between the Management and the Board in order to facilitate both quantitative and qualitative evaluation and appraisal of the company's performance. 2.3 The functions of the Board Principle Every company shall be headed by an effective Board, which shall offer strategic guidance, lead and control the company and which is accountable to its shareholders. 2.3.1 Recommendation Fiduciary duties The Board shall establish clear roles and responsibilities in discharging its fiduciary and leadership functions. Guideline In exercising fiduciary duties, each Board member— (a)must exercise reasonable degree of care, skill and diligence; (b)must act in the best interests of the company and not for any other purpose; (c)must act honestly at all times and must not place themselves in a situation where personal interests conflict with those of the company; (d)must at all times exercise independent judgement; (e)must devote sufficient time to carry out their responsibilities and enhance their skills; (1) shall promote and protect the image of the company; (g)must owe their duty to the company and not to the nominating authority; and 4th March, 2016 THE KENYA GAZETTE 877 (g) The Chief Executive Officer is obliged to provide such necessary information to the Board in the discharge of the Board's business. 2.3.4 Recommendation The position of Chairperson The Chairperson of an issuer shall be a non-executive Board member. Guideline The Chairperson shall not be involved in the day-to-day running of the business so as to provide effective oversight to the company. 2.3.5 Recommendation Access to information The Board shall establish procedures to allow its members access to relevant, accurate and complete information and professional advice in order to discharge its duties effectively. Guideline In the course of seeking accurate information in order to discharge its duties and responsibilities properly, the Board shall seek legal, fmancial, governance or any other expert advice necessary. The Board shall be entitled to seek external advice at the company's expense through an agreed procedure. 2.3.6 Recommendation Promoting sustainability The Board shall ensure that the company's strategies promote the sustainability of the company. Guideline The Board shall have formal strategies to promote sustainability. Attention shall be given to Environmental, Social and Governance (ESG) aspects of the business which underpin sustainability. 2.3.7 Recommendation Related party transactions The Board shall put in place a policy on related party transactions. Guideline All related party transactions shall meet the requirements of the law and be approved by the Board before being executed. 2.3.8 Recommendation Conflict of interest The Board shall put in place a policy to manage conflict of interest. Guideline (a)Upon appointment to the Board and thereafter, where circumstances so demand, directors shall declare any real or perceived conflict of interest with the company. (b)Directors shall not take part in any discussions or decision- making regarding any subject or transactions in which they have a conflict of interest. (c)The company shall maintain a register of declared conflict of interest. 2.3.9 Recommendation The Company Secretary The Board shall be assisted by a suitably qualified and competent company secretary who is a member of the Institute of Certified Public Secretaries of Kenya (ICPSK) in good standing. Guideline The Board shall regularly consult the company secretary on procedural and regulatory matters. The company secretary plays an important role in supporting the Board by ensuring adherence to Board policies and procedures. A more detailed Guideline on the company secretary is as follows— (a)The Board shall have power to appoint or remove the company secretary. (b)The Board shall empower the company secretary to enable him or her effectively carry out his or her role. (c)The company secretary shall not be a member of the Board. (d)The company secretary shall provide guidance to the Board on its duties and responsibilities and on other matters of governance. (e)The company secretary shall ensure the timely preparation and circulation of the Board and Committee minutes and other relevant papers. (f)The company secretary shall assist the Board with evaluation exercise. (g)The company secretary shall coordinate the governance audit process. (10 The company secretary shall have custody of the organization's seal and shall account to the Board for its use and maintain a record of its use. The company secretary shall maintain and update the register of conflict of interest. (f) The company secretary shall facilitate effective communication between the organization and the shareholders. 2.4 Board independence Principle The Board shall have policies and procedures in place to ensure independence of its members. 2.4.1 Recommendation Independent Board members The status of independent Board members shall be assessed annually by the entire Board. Guideline The Board shall determine who the independent members are on an annual basis. Independent Board members bring independent and objective judgement to the Board and this mitigates risks arising from conflict of interest or undue influence from interested parties. An independent Board member is one who: (a)has not been employed by the company in an executive capacity within the last three years; (b)is not associated with an adviser or consultant to the company or a member of the company's senior management or a significant customer or supplier of the company or with a not- for-profit entity that receives significant contributions from the company; or within the last three years, has not had any business relationship with the company (other than service as a director) for which the company has been required to make disclosure; (c)has no personal service contract with the company, or a member of the company's senior management; (d)is not employed by a public listed company at which an executive officer of the company serves as a director; (e)is not a member of the immediate family of any person described above, or has not had any of the relationships described above with any affiliate of the company; (f)is not a representative of a shareholder who has the ability to control or significantly influence management; (g)is free from any business or other relationship which could be seen to interfere materially with the individual's capacity to act in an independent manner; (h)does not have a direct or indirect interest in the company (including any parent or subsidiary in a consolidated group with the company) which is either material to the director or to the company. A holding of five percent or more is considered material; (1) does not hold cross-directorships or significant links with other directors through involvement in other companies or bodies; and (j) has not served for more than nine years since they were first elected. 2.4.2 Recommendation Tenure of independent Board members The tenure of an independent Board member shall not exceed a cumulative term of nine years. Upon completion of the nine years, an independent Board member may continue to serve on the Board subject to re-designation as a non-independent member. Guideline The assessment criteria for independence of directors shall also include tenure. Long tenure can impair independence. As a result, 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, 2.5 Age limit for Board members Principle There shall be an age limit for the members of the Board. 2.5.1 Recommendation Age limn An age limit of seventy years is recommended. Guideline 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. 2.6 Board tools Principle The Board shalt have the necessary tools and aids in place to enable it M be effective in discharging its roles and responsibilities. 2.6.1 Recommendation Code of Ethics and Conduct The Board shall formalise its ethical standards through, the development of a Code of Ethics and Conduct and shall ensure that it is complied with. Guideline A key role of the Board is to establish a corporate culture with ethical conduct that permeates the whole company. The Board needs to develop a Code of Ethics and Conduct and ensure the implementation of appropriate internal systems to support, promote and ensure compliance. The Code of Ethics and Conduct shall include appropriate communication and feedback mechanisms which facilitate whistle-blowing. The Board shall periodically review its Code of Ethics and Conduct. Besides, 4 summary of this code shall be made available on the company's website. 2.6.2 Recommendation Board Charter The Board shall establish, periodically review and make public its Board Charter. Guideline In establishing a Charter, it is important for the Board to set out the key values, principles and mode of operation, as policies and strategy development are based on these considerations. The Charter shall set out the strategic intent and outline the Board's roles and responsibilities. The Charter shall be a source reference and primary induction literature for incoming Board members and, provide insights to prospective Board members and senior management. It should also assist the Board in the assessment of its own performance and that of its individual directors. Although created in the primary charter, Board committees shall have their own Charters. The Charter shall be made public by being published on the company's website. The Board Charter and the Code of Ethics and Conduct shall be established as two separate documents. 2.6.3 Recommendation Annual Board Work-plan The Board shall develop an annual work-plan to guide its activities. Guideline The Board work-plan shall as a minimum, focus on— (a)strategic plan development and review; (b)assessment of management's implementation of strategies, policies and plans; (c)risk assessment and management; (d)budgeting and financial management; (e)quality assurance processes; and board evaluation. 2.6.4 Recommendation Board evaluation toolkit The Board shall determine and agree on its annual evaluation toolkit. Guideline Board members shall agree on the parameters to be used in the annual evaluation process. The parameters, to be contained in an evaluation tool shall be reviewed when necessary so as to keep up with new developments in corporate governance. The Board shall work with independent governance specialists to develop the parameters to be included in the evaluation toolkit. 2.7 Board induction and continuous skills development Principle All Board members shall receive induction on joining the board and shall update their skills and knowledge at regular intervals. 2.7.1 Recommendation Induction of Board members The Board shall establish a formal induction program and ensure that every in-coming member is inducted. Guideline The Chairperson shall ensure that new Board members receive a full, formal and tailored induction on joining the Board. Newly appointed Board members shall be provided with necessary orientation in the area of the company's business. This enables them become familiar with the company's operations, senior management and the business environment and enhance their effectiveness in the Board. New Board members shall also be introduced to their fiduciary duties and responsibilities. 2.7.2 Recommendation Board members development The Board shall ensure competence up-skilling programs are organised for its members. Guideline The chairperson shall regularly review and agree with each Board member on his or her development needs. Thereafter arrangements shall be made to ensure Board members go through the necessary training. 2.7.3 Recommendation Continuous Board development In view of the changing business environment, continuous Board members' development shall be undertaken in order to enhance governance practices within the Board itself and in the interest of the company. Guideline Board members shall be required to secure at least twelve hours of Board development per year on areas of governance from credible sources. 2.8 Annual evaluation of Board members, including the CEO and Company Secretary Principle The Board shall undertake an annual evaluation of its own performance, the performance of the Chairperson, that of its committees, individual members, the Chief Executive Officer and company secretary. (h) 4th March, 2016 Guideline Following an evaluation exercise, the Board- shalt discuss the evaluation results and implement any recommendations. Development needs, of the Board membersmay be determined from the results of the evaluation exercise. 2.9 Remuneration of Boardmembers Principle Companies, shall remunerate Bomb membens fairly and =gonad*. 19,.111 commendation Itentranrcation policies andpirecedurec The Bernd shall estahllini and almanac forme and transperent raniunciatimr policies and pmeedunis than Monet and retails Saud menthe:en Guidialirre 61); The remuneration policy for Rona* nanditas- shalt dearly stipulate the elements of suck remuneration ihirkding dbeettwe anzautionce allowantursanabonuses. (?))? The Board shall mount that the mmuneratitirr manes are aligned with, its strategies. (c) The Board remuneration policies and procedures shall be disclosed itr the annual report 192 Reco". LeveEcirectuneration Meant& schnilldientmatirdte ren" of direetors. Guideline (a) The &mid of directors slink set up an independent remuneration committee or anew a mandate to a nentination 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. * direstme? remuneration= shalt he salecient to attract and retain directors tt• rare the companat effectively and shall retroactively be approved by shanaltolders in an Annual General Meeting. (c) 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. 64 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. (e) The remuneration of non-executive directors shall be competitive and in line with remuneration for other non- executive directors in the same industry. . 0 The remuneration package to directors shall be appropriately disclosed. 2.10 Compliance with Laws, Regulations and Standards Principle The Board shall ensure the company complies with the Constitution, all applicable laws and regulations, national and international standards, as well as its internal policies. 2.10.1 Recommendation The Board shall identify all applicable laws, regulations and standards that the company shall comply with. Guideline The company shall comply with applicable laws which include but are not limited to National and County Legislation, supporting rules and regulations, this Code, relevant circulars and guidelines issued by the Capital Markets Authority and other government entities, applicable regional regulations and international treaties and standards. 2.10.2 Recommendation The Board shalt diming, and implement a strategy on compliance with all applicable laws, regulations and standardh Guideline The Board shall establish internal procedures- and monitoring systems to promote compliance' with applicable laws, regukations and standrads. In addition the %Aid AAA Mare that the compliance strategy is aligned totite operationeerithetrommers. z tea Recommendation The Beard shall ranee far a Ilegd1 anti etispilinatt audit to be carried out on a perm basis. gradatane The Board shalt more the failkonitug-- OP Save for when the inapanditat kepi and campliance audit is eneriedi auk as atonal IRO and tatopifotat salt shall be carried: out on an anneal Win. ands the okiediVe of estabhshing the level at wilbasesta bas appliabIe laws, regulations emit standard% 06),i That a conipathensive indtplaretag 1101 es& is carried out at bast once every two gents bar a *pi psolassiesat in good standing with the Law Seemly, efirign 60, That the Gnaw from the anclias one Wadi litass and any non- compliance issues arising cortatind an eareseatty. 2.11 Governance audit Pinciktik The Board shalt ensure that a gowlenne. ow& is carried out at ]least amok to conflict the tenpaav is optative on sound governance practices. Z. I I. t Recommeadation The Bo.ard shaft subject the company to as 4141Vomai governance audit by a competent and recognized professional accredited for that purpose by the Institute of Certified Public Secretaries of Kenya (ICESK), in order to cheek on the level of compliance with sound governance practices. Guideline The governance audit shaft at one taw area cover the company's govensance practices in the following leadership and strategic management; transparency and disclosure; compliance with laws and regulations; communication with stakeholders; Board independence and governance; Board systems wad procedures; consistent shareholder and stakeholders' value enhancement; and corporate social responsibility and investment. After undergoing the governance audit, the Board shall provide an explicit statement on the level of compliance. CHAPTER 3 RIGHTS OF SHAREHOLDERS 3.0 Overview Shareholder rights and investor protection are key factors to consider when determining the ability of companies to raise the capital they need to grow, innovate, diversify and compete effectively. If the legal and governance framework does not provide such protection, investors may be reluctant to invest unless they become the controlling shareholders. It is critical that the governance framework ensures the equitable treatment of all shareholders, including the minority. 3.1 The rights of shareholders Principle The Board shall recognize, respect and protect the rights of shareholders. 3.1.1 Recommendation The Board shall facilitate the effective exercise of the rights of shareholders. Guideline (a)All shareholders shall receive relevant information on the company's performance through the distribution of annual reports and accounts, and half-yearly results as a matter of best practice. Such reports shall be availed across multiple communication channels suitable to shareholders' different media consumption habits. These include websites, postal mail and newspapers. (b)All shareholders have a right to receive relevant sufficient and timely information concerning the date, location and agenda of the Annual General Meeting as well as full and timely information regarding issues to be decided during the Annual General Meeting. Such information shall be received at least 21 calendar days before the Annual General Meeting. (c)The Board shall make shareholders expenses and convenience a primary criterion when selecting the venue and location of Annual General Meeting. (d)The shareholders have a right to a secure method of transfer and registration of ownership of their shares. (e)Every shareholder has the right to participate and vote at the general shareholders meeting including the election of directors. (/) The shareholders are encouraged to participate in the Annual General Meetings and to exercise their votes. (g) The Board shall ensure that shareholders' right to full participation at Annual General Meetings are protected by giving shareholders- (i)sufficient information on each subject to be discussed at the Annual General Meeting. (ii)sufficient information on voting rules or procedures; (iii)proxy models with different voting options: (iv)the opportunity to question the management; (v)the opportunity to place items on the agenda at Annual General Meetings; (vi)the opportunity to vote in absentia; and (vii)sufficient information to enable them to consider the costs and benefits of their votes. (h) Every shareholder shall be entitled to ask questions, seek clarification on the company's performance as reflected in the annual reports and accounts or on any matter that may be relevant to the company's performance or promotion of shareholders' interests and to receive explanation from the directors and/or management. This right shall be exercised in such a way as not to disrupt the business of an Annual General Meeting. 0 Every shareholder is entitled to distributed profit, in form of dividends, and other rights for bonus shares, script dividend or rights issue, as applicable and in the proportion of its shareholding in the company. 0) The Board shall maintain an effective communication policy that enables both management and the Board to communicate effectively with its shareholders, stakeholders and the public in general. (k) The annual report and accounts to the shareholders must include highlights of the operations of the company, financial performance and status of application of this Code. (1) Companies shall employ modem communication techniques including the use of teleconferencing, videoconferencing, websites, and emails to communicate with shareholders. (m)Companies, as a matter of best practice, are encouraged to organize regular investor briefings and in particular when the half-yearly and annual results are declared or as may be necessary to explain their performance and promote interaction with investors. . (n)The Board shall encourage the establishment and use of the company's website by shareholders to speed up communication and interaction among shareholders and the company. 3.2 Equitable treatment of shareholders Principle The Board shall ensure that all shareholders are treated equitably. 3.2.1 Recommendation The Board shall ensure there is equitable treatment of all holders of the same class of issued shares. Guideline (a)The Board should ensure that all shareholders, including minority and foreign shareholders are treated in an equitable manner. (b)Minority shareholders shall be protected from any adverse actions by the controlling shareholders, acting either directly or indirectly, and shall have effective means of redress. 3.3 Institutional investors Principle Institutional investors under the jurisdiction of the Capital Markets Authority (CMA) shall have transparent, honest and fair practices in their dealings with the companies in which they invest. 3.3.1 Recommendation Institutional investors shall take up the role of stewardship as the representatives of their clients or investors in listed companies and other approved products through their organizations. Guideline Institutional investors are particularly encouraged to make direct contact with the company's management and Board to discuss performance and corporate governance matters as well as vote during the Annual General Meetings of the Company. 3.3.2 Recommendation Institutional investors shall commit themselves to complying with principles of a Code that governs the roles and responsibilities of institutional investors operating under the jurisdiction of the Capital Markets Authority. Guideline The principles of the Code governing institutional investors should include— (a)public disclosure on discharge of stewardship responsibilities; (b)a policy on conflict of interest in relation to stewardship which should be publicly disclosed; (c)monitoring and evaluation of their client's investments; (d)guidelines on when and how they will escalate their stewardship activities; (e)a policy on voting at Annual General Meetings and disclosure of voting activity; and (fi A policy on periodic reporting to their clients. 3.4 The media and corporate governance Principle The Board shall proactively engage the media on dissemination of important company information and issues relating to good corporate governance in order to inform and protect investors and other stakeholders. 3.4.1 Recommendation Information to the media should be released proactively on a timely basis to ensure effective reporting on corporate affairs as well as issues of corporate governance. Guideline Reporters who cover company or industry events communicate constantly with industry observers, participants, critics and supporters. They sometimes develop insights that are even deeper than a company's management may have. They can serve as an early warning system of trouble ahead although companies often see them as having a biased view. Such early warning systems shall assist companies to take corrective measures in areas they were not doing well. CHAFFER 4 STAKEHOLDER RELATIONS 4.0 Overview Effective management of stakeholders will positively impact the company's achievement of its strategy and long-term growth. 4th March, 2016 THE KENYA GAZETTE 881 Stakeholders are considered to be any group who can affect, or be affected by the Company, its decision and its reputation. They include shareholders, customers, suppliers, employees, creditors, regulators, lenders, media, auditors and potential investors. The Corporate Governance framework should recognise the rights of stakeholders and encourage active co-operation between companies and stakeholders in creating wealth, and sustainability of financially sound enterprises. 4.1 Managing stakeholder relations Principle The Board shall proactively manage the relationship with stakeholders. 4.1.1 Recommendation The Board shall have a stakeholder-inclusive approach in its practice of corporate governance and shall identify its various stakeholders. Guideline The Board shall identify all its stakeholders, and map out areas of interaction with such stakeholders. A stakeholder-inclusive approach to corporate governance recognises that a Company has many stakeholders that can affect or be affected by it, in the achievement of its strategy and long-term sustained growth. 4.1.2 Recommendation The Board shall develop strategies and suitable policies to manage relations with different stakeholder groups. Guideline Having identified its key stakeholders, the Company shall develop a strategy and suitable policies on how it shall manage its relations with each of its stakeholder groups. 4.1.3 Recommendation Constructive engagement with stakeholders shall be deliberate and planned. Guideline The Board shall identify mechanisms and processes that can support constructive engagement with stakeholders so as to promote enhanced levels of corporate governance. 4.1.4 Recommendation The Board shall take into account the interests of all key stakeholder groups before making its decisions. Guideline The Board should strive, while acting in the best interests of the Company, to achieve an appropriate balance between the interests of its various stakeholders, in order to achieve the long-term objectives of the Company. The Board, while accountable to the company, should take into account the legitimate expectations of its stakeholders in its decision-making. Board decisions on balancing the interests of stakeholders should be guided by the aim of ultimately advancing the best interest of the Company. 4.1.5 Recommendation The Board should recognise, test, where necessary, and respect the governance practices of stakeholders in an effort to improve the company's own governance practices. Guideline If a company and its stakeholders in general adhere to the same standards of corporate governance, mutual respect will be a natural consequence. It is therefore important for the company to monitor the quality of corporate governance practised by its strategic stakeholders. An inclusive corporate governance approach enables the company and its stakeholders to adopt a collaborative approach that promotes reciprocal trust and respect between the company and its key stakeholders. 4.2 Communication with stakeholders Principle The Board shall ensure effective communication with stakeholders. 4.2.1 Recommendation Transparent and effective communication is important for building and maintaining trust that results in good relationships with stakeholders. Guideline The Board shall proactively supply relevant information to stakeholders, and have regard for the best interests of the company in determining what information is to be shared. In addition, the Board shall establish whistle-blowing mechanisms that encourage stakeholders to bring out information helpful in enforcing good corporate governance practices. 4.3 Resolving internal and external disputes Principle The Board shall establish a formal process to resolve both internal and external disputes. 4.3.1 Recommendation The Board shall ensure the established channels of dispute resolution are used in the first instance. Guideline Disputes involving companies are an inevitable part of doing business. Companies shall establish mechanisms for resolving the disputes in a cost effective and timely manner. Mechanisms to avoid their recurrence shall also be established and implemented. It is incumbent upon directors and executives, in carrying out their duty of care to a company to ensure that disputes are resolved effectively, expeditiously and efficiently. Further, dispute resolution shall be cost effective and not a drain on the finances and resources of the company. CHAPTER 5 ETHICS AND SOCIAL RESPONSIBILITY 5.0 Overview To make ethical and responsible decisions, companies shall not only comply with their legal obligations, but shall consider the reasonable expectations of their stakeholders. It is important for companies to demonstrate their commitment to appropriate corporate practices and strive to be socially responsible. Good corporate citizenship is the establishment of ethical relationship between the company and the society in which it operates. As good corporate citizens of the societies in which they do business, companies have, apart from rights, legal and moral obligations in respect of their social and natural environments. The company as a good corporate citizen should protect, enhance and invest in the well-being of society and the natural ecology. 5.1 Ethical leadership and corporate citizenship Principle The Board shall set standards of ethical behaviour required of its members, senior executives and all employees and ensure observance of those standards. In setting the standards, the Board shall have regard to the national standards on ethical conduct by public entities. 5.1.1 Recommendation The Board shall ensure that all deliberations, decisions and actions are founded on the core values underpinning good governance.. Guideline The core values underpinning good governance are— (a)Responsibility: the Board shall assume responsibility for the assets and actions of the company and be willing to take corrective actions to keep the company on its strategic path. (b)Accountability: the Board must be able to justify its decisions and actions to shareholders and other stakeholders who require it to do so. (c)Fairness: in its decisions and actions, the Board shall ensure it gives fair consideration to the interests of all stakeholders of the company. (d)Transparency: the Board shall disclose information in a manner that enables stakeholders to make an informed analysis of the company's performance. 5.2 Management of company's ethical issues Principle The Board shall ensure that the company's ethical issues are managed effectivey. 52.1 Reoesoinenthanan The Board shall costae That ethical asks and egportimities are incomonited ia Ste Oak anansigetnianpriacess. Guide/line An ethics risk gorge shall be compiled, reflecting the company's negative ethics risks (threats) as well as its positive ethics risks (oppoitanities). 'this wall enable the company to ciglait the risk opporoanities while avoiding the risks threats. 5.21 RVC01211011 The Board shall ensure that a Code of Ethics and Conduct is developed and implemented. Guideline The Board shall approve the progeny's Code of Ethics and Conduct , stipulating the ethical values, standards as well as specific guidelines that the company shall adhere to, in its interaction with its internal and external stakeholders. The Code of Ethics and Conduct shad be reviewed and notated on a regular basis. 5.2.3 Recommendation The Board shall ensure that compliance with the Code of Ethics and Conduct is integrated in the operations of the company. Guideline The Board shall ensure that the company's ethical standards as set out in the Code of Ethics and Conduct and related policies are integrated into the company's strategies and operations. 5.2.4 Recommendation The Board shall ensure that the company's performance on ethics is assessed, monitored and disclosed. Guideline The Board shall assess the company's perfortnance on ethics, and disclose findings to internal and external stakeholders. The Board should also reinforce good ethical conduct and sanction any misconduct. 5.2.5 Recommendation The Board shall establish and put into effect a whistle blowing policy for the company. Guideline The aim of the policy shall be— (a)to ensure all employees feel supported in speaking up in confidence and reporting matters they suspect may involve anything improper, unethical or inappropriate; (b)to encourage all improper, unethical or inappropriate behaviour to be identified and challenged at all levels in the company; (c)to provide clear procedures for reporting of such matters; (d)to manage all disclosures in a timely, consistent and professional manner; and (e)to provide assurance that all disclosures shall be taken seriously, treated as confidential and managed without fear of retaliation. 5.3 The Board and corporate citizenship Principle The Board should ensure that the company is and is perceived to be a responsible corporate citizen. 5.3.1 Recommendation The Board should ensure that management develops corporate citizenship policies for use by the Company. Guideline A good corporate citizen is one that has :comprehensive policies and practices in place thmughoutIhe business that enables it to make decisimis andla/induct its ;nperations ethically, meet Al requirements and show consideration for society, communities and the environment. 5.3.2 Recommendation The Board dhatl consider not only the financial performance but also the impact of the company's operations on society and the environment. Guideline The Board is not only responsible for the:cimmany's financial bottom line, but for the company's performance in respect of its triple bottom tine. This implies that the Board reports to its rtharehrlders and other 'stakeholders on the company's economic, social and environmental performance. 5.3.3 Recommendation The Board shall protect, enhance and invest in the well-being of the economy, society and the environment. Guideline Although the company is an economic institution, it remains a corporate citizen and therefore has to balance between economic, social and environmental value. The triple hong= line igpmadh enhances the potential of a company to create cominnic value. By looking beyond immediate financial gain, the company ensures that its reputation, one of =its most significant assets, is protected. Besides, there is growing understanding in business that social and environmental issues have financial consequences. 5.4 Strategies and policies relating to good corporate citizenship Principle Companies shall develop strategies and policies to guide their activities in becoming and remaining good cornorate citizens. 5.4.1 Recommendation The Board shall ensure that activities leading to good 'corporate citizenship me well coordinated. Guideline Corporate citizenship shall be manifested in tengible plogrammes and results which can be reported, based on staedard perfcamance measures. There • is no universal approach to good citizenship programmes. However, the key success factor is that such programmes shall have the commitment of the leadership and shall focus on corporate citizenship rather than on public relations. The strategies and policies 'designed to achieve good corporate citizenship shall be planned and co-ordinated across all sections of the company. Negative consequences of fragmentation include duplication and missed opportunities for synergies. CHAPTER 6 ACCOUNTABILITY, RISK MANAGEMENT AND INTERNAL CONTROL 6.0 Overview The Board has a responsibility to ensure adequate systems and processes of accountability, risk management and internal control are in place in order to achieve its strategic objectives. The Board shall put in place adequate structures to enable the generation of true and fair financial statements. The Board should understand that business involves the taking of risk in expectation of rewards. A considered and systematic approach to risk underpins the success of the company. Risk management is the practice of identifying and analysing the risks associated with the business and taking adequate steps to manage these risks. Risk management should not be viewed as a repotting process to satisfy governance expectations only. The rigours of risk management should seek to provide interventions that optimise the balance between risk and reward in the Company. Internal controls are important for risk management and the Board should be committed to articulating, implementing and reviewing the company's internal control system. 'Internal control' has been defined as; 4th March, 2016 THE KENYA GAZETTE 883 "the process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations." (Report by Committee of sponsoring organisations of the Anseriean institute of Certified Public Aertoutunsets titied-Internai Control-Integrated Framework). 6,1i Financial and business reporting Principle There shalt be a structure to independently verify and safeguard the integrity of the finutteini =win process. 6.111" The Shaul shall put in place a structure of review and authorisation designed to. ensure the truthful. and factual presentation of the computes financial position. This structure shall include- * review and consideration of the financial statements by the Audit Committee, and 91), a process to mare the independence and competence of the Company's external anditens. Guide/bre The Board shalt have processes in place to ensure the books of account are prepared on a timely basis. In addition, the Board shall recognise- the vahte elan efketive Audit Committee in ensuring the financial statements of the Company are a reliable source of financial infotmation. The Audit Committee shall amongst other items, ensure that the Ctimpany's financial statemeuts comply with applicable financial reporting standards as this is integral to the reliability of %amid statements. 6.1.2 Recommendation The Bank shalt explain, in its amid repeat its resPohsthilitY for prepaying the annual. report and' accounts, and there shall be a statement by the external auditor about then reporting responsthilities. Guideline The bend shalt take Ad* responsibility for the grunciai 6,J .2 The shareholders shalt appoint indopetielen (external) auditors at each Annual General Meetingi n line with company law. Paiiltitne (, Thee award shalt establish a formal and tranwent arraugettiot bear shareherlders to effect the armoionnent of independent auditors at each Annual General Meeting. (0) The Board shall establish a format and transparent arrangement for amistioiq a professional interaction with the connplIfe% auditors,. (c)) The *editor of pal* listed company shall be a member of the bustitute of Certified Public Accountants of Kenya (ICM), in good standing and shall Comply with the International Auditing Standards,. 1.4 Recommendation The: Board shalt rotate independent auditors every six to nine etitikilne Tbit Board shall recommend to its shareholders in an Annual Cmicenl Meeting the rotation of auditors in order to imptote their - independerice• objectivity and professional erit rtue. 6,1.5Aecourorndation - The Board *A contittuallyi work tea ed%the Mandtection integrated rePortieR, Guicisilue- Inergrseedi KeVagift St a moms *at twins% WOW watatial inisbroottion. about an osgaukdierees Westra, gwoomance4 perlAwmance sock prospects in such a14109 dint mem* GMNAVVRig, will and 001.91304411t4 MOW( OriflitAWib posvidasa clear and concise representation of how an organization demonstrates stewardship and how it creates value, now and in the future. Integrated reporting combines the most material elements of information currently reported in separate reporting strands (financial, management guidelines, governance and remuneration, and *limitability) into a coherent whole. Adoption of integrated reporting shall lead to more effective disclosure. From the company's point of view, it means that more issues and areas have been taken into account in running the business including, suppliers, customers, regulators, government, creditors, debtors, investors and even the community where this business is located. Taking care of the interests of varied stakeholders can only lead to better management and control of the company. The various stakeholders will be able to assess the status of the company from the integrated reports. 6.2 Recognise and manage risks Principle The Board shall have an effective risk management framework for the company in place. 6.2.1 Recommendation The Board shall establish an effective risk management framework for the company. Guideline The Board shall determine the company's level of risk tolerance and actively identify, assess and monitor key business risks to safeguard shareholders' investments and the company's assets 6.3 Internal control.systems Principle The Board shall put in place an effective system of internal control. 6.3.1 Recommendation The Board shall establish and review on a regular basis the adequacy and integrity of the company's internal control systems and the management of information systems, including compliance with applicable laws, regulations, rules and guidelines. Guideline Internal controls are important for risk management and the Board should be committed to articulating, implementing and reviewing the company's internal control systems. Periodic testing of the effectiveness and efficiency of the internal control procedures and processes must be conducted to ensure that the system is viable and robust. 6.3.2 Recommendation The Board shall set out its responsibility for internal control in the Board Charter. Guideline The Board shall clearly delineate its responsibility for internal control in the Board Charter, indicating the steps that need to be taken to achieve a good internal control position for the company. 6,3,3 Recommendation The Board shall delegate to the management the responsibility of designing, implementing and monitoring effectiveness of internal control systems. Guideline The Board shall set out in the Board Charter the role to be played by management in enhancing a good system on internal controls. 6.4 Checking on risk management and internal control practices PriNcOle The Board shall confirm the effectiveness of the company's risk management and internal control practices on a regular basis. 6.4.1 Recommendation The Board shall review the effectiveness of the company's risk manapratent and internal control practices on an annual basis. thriablios Ike Board shall, at least annually. ensure that a review of the effectiveness of the company's risk management practices and internal y of the control systems is conducted and report to shareholders that they have done so. The review shall cover all material controls including financial, strategic, operational and compliance. 6.5 Audit Committee Principle The Company shall have an effective Audit Committee. 6.5.1 Recommendation The Board shall establish an Audit Committee with written terms of reference. Guideline Duties of Audit Committees Audit committees shall have adequate resources and authority to discharge their responsibilities. The members of the audit committee shall— (a)be informed, vigilant and effective overseers of the financial reporting process and the company's internal controls; (b)review and make recommendations on management programmes established to monitor compliance with the Code of Ethics and Conduct; (c)consider the appointment of the external auditor, the audit fee and the questions of resignation or dismissal of the external auditor; (d)discuss with the external auditor before the audit commences the nature and scope of the audit, and ensure co-ordination where more than one audit firm is involved; (e)review management's evaluation of factors related to the independence of the company's external auditor.; (/) in liaison with management, assist the external auditor in preserving independence; (g) review the quarterly, half-yearly and year-end financial statements of the company, focusing particularly on- (i)any changes in accounting policies and practices; (ii)significant adjustments arising from the audit; (iii)the going concern assumption; and (iv)compliance with International Accounting Standards and other legal requirements. (1) discuss problems and reservations arising from the interim and final audits and any other matter the external auditor may wish to discuss, in the absence of management where necessary; (1) review any communication between external auditor(s) and management; U) consider any related party transactions that may arise within the company or group; (k) consider the major findings of internal investigations and Management responses; (1) have explicit authority to investigate any matter within its terms of reference, and shall be availed the resources it needs to do so and be accorded full access to information; (m)obtain external professional advice and to invite outsiders with relevant experience to attend its meetings if necessary; and (n)consider other issues as defined by the Board including regular review of the capacity of the internal audit function. 6.5.2 Recommendation The Board shall establish an internal audit function which reports directly to the Audit Committee. Guideline . The Board shall establish an internal audit function„ whether internally based or externally sourced and identify a head of internal audit who reports directly to the Audit Committee. The head of internal audit shall have relevant accounting or auditing qualifications and be responsible for providing assurance to the Board that internal controls are operating effectively. Internal auditors shall carry out their functions in accordance with the International Standards in Auditing (ISA), any standards promulgated by 'tile Institute of Internal Auditors (IIA) and the Code of Ethics and.Conduct. Audit Committee and Internal Audit Functions The audit committee shall determine the responsibilities of the internal audit function and in particular— (a)review of the adequacy, scope, functions and resources of the internal audit function, and ensure that it has the necessary authority to carry out its work; (b)review the internal audit program and results of the internal audit process and where necessary ensure that appropriate action is taken on the recommendations of the internal audit function; (c)review any appraisal or assessment of the performance of members of the internal audit function; (d)approve any appointment or termination of senior staff members of the internal audit function; (e)ensure that the internal audit function is independent of the activities of the company and is performed with impartiality, proficiency and due professional care; determine the effectiveness of the internal audit function; and (g) be informed of resignations of internal audit staff and provide the resigning staff members an opportunity to submit reasons for resigning. Participation in the Meetings of Audit Committee (a)The chairperson of the Board, Chief Executive Officer and the finance director may attend meetings of the audit committee upon invitation by the audit committee. (b)At least once a year, the Committee shall meet with the external auditors without members of Management being present. (c)The Audit Committee should meet regularly, with adequate notice of the issues to be discussed and should record its conclusions. (d)The Board should disclose, in an informative way, details of the activities of Audit Committee, the number of Audit Committee meetings held in a year and details of attendance of each Audit Committee member at such meetings. CHAPTER 7 TRANSPARENCY AND DISCLOSURE 7.0 Overview Transparency and disclosure are crucial for the market-based monitoring of companies and are central to a shareholder's ability to exercise his or her ownership rights. Disclosure is a powerful tool for influencing companies and protecting investors. It can help to attract capital and maintain confidence in the markets. Weak disclosure can contribute to the practice of unethical behaviour, weakening of market integrity and loss of investor confidence. Insufficient or unclear information may hamper ability of markets to function, increase cost of capital and result in poor resource allocation. Disclosure also allows stakeholders to understand a company's activities, policies and performance with regard to environmental and ethical standards, as well as its relationship with the communities where the company operates. Transparency and disclosure allows companies to differentiate themselves from firms which do not practice good governance. 7.1 Timely and balanced disclosure Principle The Board shall promote timely and balanced disclosure of all material information concerning the company. 7.1.1 Recommendation The Board shall ensure the company has appropriate corporate disclosure policies and procedures. Guideline The company shall have internal corporate disclosure policies and procedures, which are practical and include feedback from stakeholders. These policies and procedures shall ensure compliance with the disclosure requirements set out in the listing requirements. In formulating these policies and procedures, the Board shall be guided by best practices. 4th March, 2016 THE KENYA GAZETTE 885 Some key areas requiring disclosure and the recommended disclosure practices are as follows — (a) Audit. Committee The Board shall disclose in its annual report whether it has an Audit Committee, the members, their qualifications, independence and the mandate of such committee. (b) Board Charter The Board shall disclose the company's Board Charter on its website. (c) Board Evaluation The Board shall disclose whether evaluation of the Board, the chairperson, the Chief Executive Officer and company secretary has been undertaken in the annual report and financial statements of the company. (d) Board structure The Board shall disclose in its annual report whether independent and other non-executive directors constitute at least-two' thirds of the Board and if it satisfies the representation of the minority shareholders. (e) Code of Ethics and Conduct The Board shall disclose the company's Code of Ethics and Conduct on its website. (f) Company vision, mission, values and strategic objectives The Board shall ensure that the annual report includes a statement on the company's vision, mission values and strategic objectives and how these influence Board and management's behaviour towards maximization of shareholder value. (g) Compliance with Laws, Regulations and Standards The Board shall disclose- (i)that a legal and compliance audit was carried out as required; (ii)the level of compliance with laws, regulations and standards; and (iii)any material departures from required compliance, the causes of non-compliance and the measures to address the non- compliance. (h) Details about Board members Current names of Board members shall be disclosed. Additional information to be disclosed includes- (i) qualifications of directors; (ii)other board memberships; (iii)the selection process; (iv)whether directors are regarded as independent and if so, the criteria used to support their independence; and (v)any other material information. Ethical leadership and corporate citizenship The Board shall disclose the company's policy on corporate social responsibility and investment. It shall also disclose the company's policy on conflict of interest. 0) Environmental Social and Governance policies • The Board shall ensure that the company discloses its environmental, social and governance policies and implementation thereof in its annual report and website. (k) Financial reporting The Board should disclose the management discussion and analysis. This is a narrative which sets out— (a)management's assessment of the factors that affected the Company's financial condition and results of operation over the period covered by the financial statements; and (b)known trends that are reasonably likely to have a material effect on the Company's fmancial condition and results of operations in the future. The Board shall disclose whether it has complied with the International Financial Reporting Standards (IFRS) in preparing their financial statements. Any deviation from these financial standards should be disclosed. (1) Governance audit The Board shall disclose that a Governance audit was carried out. (m)Governance structures The Board shall include in its annual report the governance structure including the composition and size of the Board, the committees of the Board, management and their mandate. (n)Information technology and corporate reporting The Board shall disclose the company's policy on information technology. (o)Insider dealings While recognizing that insider dealings are illegal, the Board must confirm that there were no known insider dealings. (p)Key company's risks and sustainability The Board shall disclose the company's risk management policy. ' (q) Key stakeholder groups The Board shall disclose the key shareholders and the extent of their shareholding. In this regard, the following information should be disclosed- - (i) the top ten direct shareholders; (ii) a complete list of shareholders to the Registrar of Companies on an annual basis; (iii) in the case of a subsidiary, the name of the parent company and parent company of the group; (iv) as per IFRS requirements, consolidation and a discussion of the basis for consolidation that would include mention of relevant subsidiaries; and (v) the key stakeholders who may have an influence on the company's performance and sustainability. (r) Policy on corporate governance The Board shall include in its annual report a statement on compliance with corporate goilernance principles. The statement shall indicate aspects of this Code which have not been applied, the reasons thereof, indicative timelines and proposed strategies towards application. (s) Procurement The Board shall disclose the company's policy on procurement. (t) Related party transactions The Board shall disclose all related party transactions. (u) Remuneration structure The Board shall, annually, disclose in its annual report, its policies for remuneration including incentives for the Board and senior management particularly the following— (a) quantum and component of remuneration for directors including non-executive directors on a consolidated basis in the following categories- (i)executive directors' fees; (ii)executive directors' emoluments; (iii)non-executive directors' fees; and (iv)non-executive directors' emoluments. (v) share options and other forms of executive compensation that have to be made or have been made during the course of the financial year; and (vi) aggregate directors' loans. (v) Resignation of Board members The Board shall disclose resignation of a serving Board member in— (a)two newspapers with national reach immediately it happens; (b)the company's website immediately it happens; and (c)the annual report at the end of the financial year. In addition, Capital Markets Authority shall be notified immediately the resignation takes place and such notification shall include detailed circumstances necessitating the resignation. (w) Whistle-blowing policy The Board shall disclose the company's Whistle Blowing Policy on its annual report and website. 8.0 The Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002, are revoked.* Dated the 15th December, 2016.. JAMES NDEGWA, Chairman, Capital Markets Authority. PAUL MUTHAURA, Ag. Chief Executive, MR/8827378 • Capital Markets Authority. *G.N. 3362/2002. GAZETTE NoTiff No. 1421 THE CAPITAL MARKETS ACT (Cap. 485A) GUIDELINES ON THE PREVENTION OF MONEY LAUNDERING AND TERRORISM FINANCING IN THE CAPITAL MARKETS ARRANGEMENT OF GUIDELINES I. Citation 2.Interpretation 3.Responsibility of the board and management 4.Risk based approach 5.Customer identification 6.Customer due diligence 7.Record keeping 8.New technology and non-face-to-face transactions 9.Foreign branches and subsidiaries 10.Suspicious transactions 11.Reporting requirements 12.The role of the capital markets authority 13.Continuous monitoring 14.Internal policies, compliance and training 15.Audit 16.Tipping off 17.Reliance on third parties 18.Combating the financing of terrorism Appendix 1: Indicators of potential money laundering activities in the capital markets THE CAPITAL MARKETS ACT (Cap. 485A) IN EXERCISE of the powers conferred by section 12 A ( 1 ) of the Capital Markets Act, the Capital Markets Authority, issues the following Guidelines— GUIDELINES ON THE PREVENTION OF MONEY LAUNDERING AND TERRORISM FINANCING IN THE CAPITAL MARKETS I. These Guidelines may be cited as the Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets. 2015. 2. (I) In these Guidelines, unless the context otherwise requires "Act" means the Proceeds of Crime and Anti-Money Laundering Act, 2009; "AN11" laundering: "Authority" means the Capital Markets Authority; "CDD" means customer due diligence; "CIS" means collective investment scheme; "EDD" means enhanced due diligence; "Financial Action Task Force" means the intergovernmental body established in 1989 by ministers of member jurisdictions, representing most major international financial centers to set standards and promote effective implementation of legal, regulatory and operational measures from combating money laundering, terrorist financing and other related threats to the integrity of the international financial system; "Financial Reporting Centre" means the Centre established under section 21 of the Act; "market intermediary" means a person approved or licensed to transact business by the Capital Markets Authority under Part IV of the Capital Markets Act; "Regulations" means the Proceeds of Crime and Anti-Money Laundering Regulations, 2013; and "terrorism financing" includes the offence specified under section 5 of the Prevention of Terrorism Act, 2012. 2.2 (1) Despite the variety of methods employed, the money laundering process is accomplished in three stages. These stages, described below, may comprise of numerous transactions by the persons engaged in money laundering that could alert an institution of the criminal activity. (a) Placement - A person engaged in money laundering introduces his or her illegal profits into the financial system; (h) Layering - In this phase, the person engaged in money laundering engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channeled through the purchase and sales of investment instruments; Integration - This is the provision of apparent legitimacy to criminally derived wealth. If the layering process has succeeded, an integration scheme places the laundered proceeds back into the legitimate economy in such a way that they re-enter the financial system appearing as normal business funds. (2)The three basic steps may occur as separate and distinct phases. Alternatively, they may occur simultaneously or, more commonly, they may overlap. How the basic steps are used depends on the available laundering mechanisms and the requirements of the criminal organizations. (3)Money laundering in the capital markets can take place in all the three stages, as capital markets are no longer predominantly cash based, they are more likely to be used in the layering stage rather than placement stage of money laundering. However, where the transactions are in cash, there is still the risk of capital markets being used at the placement stage. Capital markets offer a vast array of opportunities for transforming money into a diverse range of assets. For liquid assets, they allow a high frequency of transactions which aid the layering process. Hence, capital markets are particularly attractive to persons engaged in money laundering for layering their illicit proceeds for eventual integration into the general economy. (4)The capital markets are global in nature and with the increasing developments in technology, payment systems, and other direct gateways into the markets, the speed and the relative anonymity of these avenues make them an option for persons engaged in money laundering. (5)The capital markets have an additional distinguishing money laundering risk factor in that not only can it be used to launder illicit funds that result from illegal activity outside of the financial markets but it can also be used to generate illicit funds from the market itself, for example, in cases of insider trading. Factors presenting higher risk might include - (a)services that inherently have provided more anonymity; (b)ability to pool underlying customers' funds, collective investment schemes, real estate investment trusts, mutual funds, among others; (c)liquid securities with high volumes so that ease of detection is much less than illiquid securities where volumes are lower and therefore irregularities are easier to detect; (d)options contracts which are executed through an exchange are risky due to the relative ease of access by persons engaged in money laundering via brokers, the global nature of exchanges, the volume of transactions conducted on an exchange which present monitoring challenges and the ability to rapidly enter and exit the markets. 4th March, 2016 THE KENYA GAZETTE 887 (6)Persons engaged in money laundering can buy or sell futures via brokers thus layering transactions on Exchanges. This is done through taking large positions and providing illicit funds to cover margin calls. They can also realize profits or losses at any time since exiting the market is as simple 'as entering into the reverse transaction thus recouping outstanding margin deposits and bringing the funds back into the broader financial system with seeming legitimacy. The distribution channel for products may alter the risk profile of a customer and may include online sales, postal or telephone channels where a non-face-to-face account opening approach is used. Business sold through intermediaries may also increase risk as the business relationship between the customer and a market intermediary may become indirect. (7)Trust, nominee and fiduciary accounts are a popular vehicle for criminals wishing to avoid the identification procedures and mask the origin of the money accrued from criminal activities they wish to launder. Particular care needs to be exercised when the accounts are set up in locations with strict bank secrecy or confidentiality rules. Where the market intermediary has not previously Verified the identity of a trustee or has no current relationship with a trustee, verification of the identity of the trustee or where there are several trustees, the identity of all the trustees should be undertaken in line with the normal procedures as set out in Regulation 19 of the Proceeds of Crime and Anti Money Laundering Regulations, 2013. (8)Terrorists or terrorist organizations require financial support in order to achieve their aims. There is often a need for them to obscure or disguise links between them and their funding sources. It follows then that terrorist groups shall similarly find ways to launder funds, regardless of whether the funds are from a legitimate or illegitimate source, in order to be able to use them without attracting the attention of the authorities. 3. (1) The Board of directors of a market intermediary shall be responsible for the— (a) establishment of appropriate policies and procedures for the detection and prevention of money laundering and terrorist financing and ensuring their effectiveness; and (6) the market intermediary's compliance with these Guidelines, the Proceeds of Crime and Anti Money Laundering Act, 2009, and all other legal and regulatory requirements thereto. (2)A market intermediary shall formulate and implement internal controls and other procedures that will deter criminals from using its facilities for money laundering and terrorist financing and ensure that business is conducted in conformity with the law and high ethical standards and that service is not provided where there is good reason to suppose that transactions are associated with money laundering activities or terrorist financing. (3)A market intermediary shall co-operate fully with law enforcement agencies and relevant regulatory bodies, and shall take appropriate measures to disclose information to the Financial Reporting Centre and other enforcement agencies. (4)A market intermediary shall review its policies, procedures and controls at least once in every two years to ensure their effectiveness as required by.the Regulations. 4. (1) Where customers are assessed to be of higher money laundering risk, a market intermediary shall take enhanced measures to manage and mitigate those risks. Where the risks are lower, simplified measures may be applied. Simplified measures include reducing the frequency of customer identification updates or reducing the degree of ongoing monitoring and scrutinizing transactions, based on a reasonable monetary threshord. (2)A market intermediary shall identify, assess and take effective action to mitigate money laundering risks and adopt a holistic approach to the Risk Based Approach and should avoid a silo approach when assessing the relationship between risks. (3)A market intermediary may assess the money laundering risks of individual customers by assigning money laundering risk rating to their customers. (4)While there is no agreed upon set of risk factors and no single methodology to apply these risk factors in determining the money laundering risk rating of customers, a market intermediary shall consider the following factors: (a) In relation to country risk, customers with residence in or connection with high risk jurisdictions for example- (i) those that have been identified by the Financial Action Taskforce, as jurisdictions with strategic AML deficiencies; (ii) countries subject to sanctions, embargos or similar measures issued by, for example, the United Nations; (iii) countries which are vulnerable to corruption; or (iv) countries that are believed to have strong links to terrorist activities. (6) In assessing country risk associated with a customer, consideration may be given to data available from the United Nations, the International Monetary Fund, the World Bank, the Financial Action Taskforce, among others and the market intermediary's own experience or the experience of other group entities where the market intermediary is part of a multi-national group, which may have indicated weaknesses in other jurisdictions. (c) The following are examples of customers who might be considered to carry lower money laundering risks – (i)customers who are employed or with a regular source of income from a known legitimate source which supports the activity being undertaken: (ii)the positive reputation of the customer, e.g. a well-known, reputable public or private company, with a long history that is well documented by independent sources, including information regarding its ownership and control; or (iii)a public entity. (d) Some customers, by their nature or behaviour might present a higher risk of money laundering. Factors might include -- (i)a politically exposed person, or the public profile of the customer indicating involvement with, or connection to, politically exposed persons; (ii)complexity of the relationship, including use of corporate structures, trusts and the use of nominee accounts where there is no legitimate commercial rationale; (iii)a request to use numbered accounts or undue levels of secrecy with a transaction; (iv)) involvement in cashLintensive businesses; (v) nature, scope and location of business activities generating the funds or assets, having regard to sensitive or high-risk activities; (vi) where the origin of wealth cannot be easily verified; or (vii) retail participants who tend to have a greater level of money laundering risk associated to them in contrast to wholesale customers who usually will have a regulatory status and an established business. Persons engaged in money laundering will tend to avoid licensing obligations and regulatory scrutiny preferring the opacity of private corporations and trusts. (5)A market intermediary shall keep records and relevant documents of the risk assessment for a minimum of seven years from their official date of creation or issuance, as appropriate, so thatit can demonstrate to the Financial Reporting Centre or other competent authorities— (a) how it assesses the customer's money laundering risk; and, (6)that the extent of CDD and ongoing monitoring is appropriate based on that customer's money laundering risk. (6) A securities or derivatives exchange shall have surveillance systems and mechanisms that are designed to detect activities that might be a result of market manipulation for instance, wash selling, pump and dump or insider trading which are predicate offences to money laundering. (7)The surveillance staff at a securities or derivatives exchange, on noticing activity that may amount to market manipulation, insider trading or any other anomaly, should alert the market intermediary involved in that particular trade to cross check on whether the transaction can be classified as suspicious thus requiring further investigation and reporting to the Financial Reporting Centre as a suspicious transaction. 5. (1) A market intermediary shall obtain satisfactory evidence of the identity and legal existence of the persons applying to do business with it. The evidence shall be verified by reliable documents or other verifiable and independent means. A market intermediary shall not engage in any business transactions with a client who fails to provide evidence of their identity. A market intermediary shall not keep anonymous accounts or accounts in fictitious names of their clients. (2)A collective investment scheme manager shall verify the identity of a customer using reliable and independent sources. The collective investment scheme manager shall retain copies of all reference documents used in identity verification and the identification information. (3)A market intermediary shall implement and maintain appropriate guidelines for its agents and employees to assist them in learning and establishing essential facts about their customers' backgrounds. A market intermediary shall keep records of enforcement of these guidelines for not less than seven years from the date of any action taken against the employee or agent. 6. (1) A market intermediary shall conduct ongoing due diligence and scrutiny of customers' identity and their investment objectives. This shall be done throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the market intermediary's knowledge of the customer, its business and its risk profile. (2) For customers that require additional caution to be exercised when transacting with them, such customer's activities shall be monitored on a regular basis for suspicious transactions. Where a customer fails to comply with the due diligence requirements, the market intermediary shall not commence business relations, or, where there is an existing business relationship, the market intermediary shall terminate such relationship and consider lodging a suspicious transaction report with Financial Reporting Centre. A market intermediary, when handling new account applications, shall identify if the applicant is a domestic or foreign politically exposed person and if so, the market intermediary shall take adequate control measures and conduct periodic reviews. (3) A market intermediary shall adopt risk-based approach where they employ enhanced customer due diligence process for higher risk categories of customers, business relationships or transactions. (4) A market intermediary shall perform such customer due diligence measures as may be appropriate to its existing customers having regard to own assessment of materiality and risk. (5) Where the market intermediary obtains information or documents from the customer or a third party, it should take reasonable steps to assure itself that such information or documents are reliable and where appropriate, reasonably up to date at the time they are provided to the market intermediary. (6) On face-to-face transactions verification, a market intermediary may, where due to a perception of increased risk, additional 'documentation is required, request a reference letter from a current employer, professional or members' organization, bank statements, a lease for a rental house or business premises or seek further independent verification of a passport or a national identity card submitted. (7) For prospective customers who are not normally resident in Kenya but who wish to open an account with a market intermediary in Kenya, it is important that verification procedures similar to those for Kenyan resident customers be carried out and the same information obtained. More importantly, the copy of passport, national identity card or documentary evidence of his or her address shall be certified by— (a)the embassy, consulate or High Commission of the country of issue, (b)Commissioner of oaths or Notary Public, or (c)senior officer of the market intermediary whose full name and title shall appear on the face of the copy. The senior officer shall stamp, date and sign with the words "originals sighted by me". (8) A market intermediary may independently verify identity with a reputable institution authorized to carry out this role in the applicant's country of residence. For prospective non-resident customers who wish to open investment accounts by post, independent verification of identity should therefore be sought from a reputable institution authorized to carry out this role in the applicant's country of residence. Verification details requested should covet and may include but not be limited to the true name or names used, current permanent address and verification of signature. (9) Because of the possible difficulties of identifying beneficial ownership, and the complexity of their organizations and structures, corporate and legal entities are the most likely vehicles for money laundering, particularly when fronted by a legitimate trading company. The following measures should be taken-- (a)Particular care should be taken to verify the legal existence of the applicant and to ensure that any person purporting to act on behalf of the applicant is fully authorized. The principal requirement is to look behind the corporate entity to identify those who have ultimate control over the business and the company's assets, with particular attention paid to any shareholders or others who inject a significant proportion of the capital or financial support. Enquiries should be made to confirm that the company exists for a legitimate trading or economic purpose and that it is not merely a "shell company" where the controlling principals cannot be identified. (b)The CDD measures for legal persons should include reasonable actions to understand whether the customer is acting as an agent or a beneficial owner, as well as the business nature and the purpose of trade. (c)Before a business relationship is established, measures should be taken by way of a company search or other commercial enquiries to ensure that the applicant company has not been, or is not in the process of being, dissolved, struck off, wound- up or terminated. (d)As with personal accounts or facilities, the "know your customer" principle is an on-going process. If changes to the company structure or ownership occur subsequently or 'if suspicions are aroused by a change in the nature of the business transacted or the profile of payments through a company account, further checks should be made to ascertain the reason for the changes. (e)In addition, enquiries should be made from time to time to establish whether there have been any changes to directors or shareholders or to the original nature of the business or activity. Such changes could be significant in relation to potential money laundering activity even though authorized signatories have not changed. (10) In the case of partnerships, unit trusts and other unincorporated businesses whose partners have not previously been verified by the market intermediary, the identity of all partners and signatories to the account should be verified. Additionally, the partnership agreement, the trust deed or other relevant documentation should be obtained. In cases where a formal partnership arrangement exists, a mandate from the partnership authorizing the opening of an account and conferring authority on those who will operate it should be obtained. (11) Trust, nominee and fiduciary accounts are a popular vehicle for criminals wishing to avoid the identification procedures and mask the origin of the money accrued from criminal activities they wish to launder. Particular care needs to be exercised when the accounts are set up in locations with strict bank secrecy or confidentiality rules. Where the market intermediary has not previously verified the identity of a trustee or has no current relationship with a trustee, verification of the identity of the trustee, or where there are several trustees, the identity of all the trustees should be undertaken in line with the normal procedures as set out in Regulation 16 of the Proceeds of Crime and Anti Money Laundering Regulations, 2013. (12) In cases where, a nominee opening an account on behalf of another whose identity has not been previously identified by the market intermediary, the identity of that nominee or any other person who will have control of the account shall be verified. (13) Nominee accounts may be established by and in the name of persons in order to engage in securities transactions on behalf of their clients. When the market intermediary opens a nominee account for a customer who is an institution supervised by the Authority, the risk of the omnibus account being used for money laundering or terrorist financing is generally lower. The market intermediary can consider if it may perform simplified CDD measures, so that there is no need to identify and verify the underlying clients of the market intermediary. However, when the market intermediary opens a nominee account for a customer who is a foreign financial institution, the risks associated with the account in some circumstances may be considered to be potentially higher, and enhanced CDD measures may be appropriate. 4th March, 2016 THE KENYA GAZETTE 889 (14) A CIS manager shall perform CDD measures when unit holders subscribe or take part in the CIS or the CIS manager enters into negotiations with an entity with a view to signing a trust deed for establishment. (15) Upon determining a customer as "high risk", the market intermediary should undertake EDD processes on the customer which should include (a)enquiring on the purpose for opening an account; (b)enquiring the level and nature of trading activities intended; (c)enquiring on the ultimate beneficial owners; (d)enquiring on the source of funds; (e)obtaining senior management's approval for opening an account; and (/) conducting enhanced ongoing monitoring of the business relationship. (16) EDD should be carried out when: (a)there is a transaction that is significant, having regard to the manner in which the account is ordinarily operated; (b)there is a substantial change in the market intermediary's own customer documentation standards; (c)there is a material change in the way that business relations with the customer are conducted; (d)the market intermediary becomes aware that it may lack adequate identification information on a customer; and (e)the market intermediary becomes aware that there may be a change in the ownership or constitution of the customer or the" person authorized to act on behalf of the customer in its business relations with the market intermediary. (17) Where' the market intermediary obtains information or documents from the customer or a third party, it should take reasonable steps to assure itself that such information or documents are reliable and where appropriate, reasonably up to date at the time they are provided to the market intermediary. (18) Where the customer is unable to produce original documents, the market intermediary may accept documents that are certified to be true copies by the originators of the documents, or if this is not possible, certified by magistrates, advocates, commissioners for oaths or notaries public. (19) A market intermediary may often encounter cases where, to its knowledge, the customer is a manager of a portfolio of assets and is operating the account in that capacity. In such cases, the underlying investors of the portfolio will be beneficial owners. However, the Authority recognizes that a market intermediary may not be able to perform CDD on the underlying investors. For instance, the portfolio manager may be reluctant, for legitimate commercial reasons, to reveal information on the underlying investors to the market intermediary. In such circumstances, the market intermediary should evaluate the risks arising from each case and determine the appropriate CDD measures to take. In this regard and for each client in this category, the market intermediary shall prepare a report of the evaluation and make the same available to the Authority upon request. (20) A market intermediary may consider whether simplified CDD measures could be applied, so that identification and verification of the underlying investors as beneficial owners are dispensed with. In addition, where a collective investment scheme is the customer for a market intermediary, the latter should take steps to identify whether it is an exehange-listed CIS, and if it is, the market intermediary shall conduct higher CDD measures. 7. (1) A market intermediary shall ensure that— (2)A market intermediary shall undertake periodic or ad hoc reviews of existing customer records. (3)A market intermediary shall retain documents and records pertaining to a matter which is under investigation or which has been the subject of the Financial Reporting Centre for such longer period as may be necessary in accordance with any request or order from the Authority, the Financial Reporting Centre or from other relevant competent authorities. (4)A market intermediary shall maintain and keep records of all transactions for a minimum period of seven years from the date the relevant business or transaction was completed or following the termination of an account or business relationship. Retention may be by way of original documents, stored on computer disk or in other electronic form. 8. (1) A market intermediary shall establish policies and procedures to address any specific risks associated with the use of new technology and non-face-to-face business relations or transactions, and these shall be documented and be easily accessible to the employees of the market intermediary. (2) On non-face-to-face transactions verification,. a market intermediary shall, adopt procedures which are more robust as those for face-to-face verification to confirm the identity of the client and to provide for reasonable steps to avoid single or multiple fictitious applications or substitution (impersonation) or fraud for the purposes of money laundering. The procedures adopted shall- (a)ensure that a person bearing the name of the applicant exists and lives or is resident at the address provided; and (b)ensure that the applicant is actually that person. (3) Stringent measures and procedures shall be undertaken while using new technologies and non-face-to-face business transactions. (4) A market intermediary should take one or more of the following measures to mitigate the heightened risk associated with not being able to have face-to-face contact when establishing business relations: (a)telephone contact with the customer at a residential or business number that can be verified independently; (b)confirmation of the customer's address through an exchange of correspondence or other appropriate method; (c)subject to the customer's consent, telephone confirmation of the customer's employment status with the customer's employer's personnel department at a listed business number of the employer; (d)confirmation of the customer's salary or any other source of income details by requiring the presentation of recent bank statements from a bank; (e)certification of identification documents by magistrates, commissioners of oaths or notaries public presented by the customer; or (f)any other reliable verification checks adopted by the market intermediary for non-face-to-face business. (5) A market intermediary may use the following as a means of verification— (a)recent utility bill, personal identification number issued by the Kenya Revenue Authority, bank reference; or (b)computerized system, for internal or external application database checks, to check for any inconsistencies in the information provided. (6) A market intermediary shall use the following types of • information as minimum acceptable standard for determining the legitimacy of funds and transactions- (a)for multiple or nominee accounts, or similar or related transactions, a written statement from the client confirming the reason and the need for multiple or nominee accounts, or similar or related transactions; (b)for large or unusual transfers or payments of funds, appropriate documentation as to the identity of the recipient or sender of the transferred or paid funds, and the reason underlying the transfer or payment; (c)for large or unusual investments, a written statement from the client confirming that the investments are bona fide and (a)all requirements imposed by law relating records and documentation are met; (b)all records of customers, business relationship and transactions remain up-to-date, relevant and accessible; (c)any transaction undertaken by the market intermediary can be reconstructed so as to provide, if necessary, evidence for prosecution of criminal activity; and (d)the records can be accessed and shared within a reasonable time or such period imposed by law, where any inquiry or order is made by the Authority, the Financial Reporting Centre or any other relevant law enforcement agency. consistent with the goals and objectives of the client's reasonable and normal business activities; (d) for large and unusual foreign transactions, a written confirthation from the client indicating the nature, reason and appropriate details of the foreign transactions sufficient to determine the legitimacy of such transactions. 9.A market intermediary that is incorporated in Kenya shall develop a group policy on anti-money laundering and countering financing of terrorism and this policy shall apply to all its branches and subsidiaries where applicable outside Kenya. 10.(1) Where the form or amount of any transaction appears unusual in relation to the customer, or if the economic purpose or legality of the transaction is not immediately clear, a market intermediary shall clarity the economic background and purpose of the transaction or business relationship. Special attention shall be given to complex and unusual patterns of transactions. Appendix 1 provides indicators of potential money laundering activities in the capital markets. (2) If a market intermediary becomes aware of suspicious activities or transactions which indicate possible money laundering activities, the market intermediary shall report the same to the Financial Reporting Centre immediately or in any case within seven days of the date of the transaction or occurrence of the activity that is considered suspicious. (3) A market intermediary shall disclose sufficient inlbrmation which indicates the nature of and reason for the suspicion, and where the market intermediary has additional supporting documents, the documents shall also be availed. (4) A market intermediary shall establish robust reporting mechanisms for suspicious transactions. (5) A market intermediary shall keep a record of all transactions referred to the Financial- Reporting Centre together with all internal findings and analysis done in relation to them. I I. A market intermediary shall report to the Financial Reporting Centre all cash transactions carried out by it, equivalent to or exceeding USD 10,000 or its equivalent in any other currency whether or not the transaction appears to be suspicious in accordance with Regulation 34 of the Proceeds of Crime and Anti Money Laundering Regulations, 2013. 12.(I) The Authority shall undertake its reporting obligations in accordance with Regulation 33 of the Proceeds of Crime and Anti Money Laundering Regulations, 2013. (2) The Authority shall take into account a market intermediary's compliance with the Act and the Regulations and these Guidelines, as well as measures put in place to ensure continued compliance, in determining the suitability of the market intermediary and persons managing or controlling the market intermediary for the maintenance of a license or an approval by the Authority. 13.( 1 ) A market intermediary shall monitor on an ongoing basis, its business relationships with its customers. (2)A market intermediary shall, during the course of busines relations, observe the conduct of the customer's account and scrutinize. transactions undertaken to ensure that the transactions are consistent with the market intermediary's knowledge of the customer, its business and risk profile and where appropriate, the source of funds. (3)A market intermediary shall periodically review the adequacy of customer identification information and ensure that the information is kept up to date, particularly for the high risk category of customers. (4)The extent of monitoring should be linked to the risk profile of the customer which has been determined through the risk assessment. To be most effective, resources should be targeted towards business relationships presenting a higher risk of money laundering. Financial institutions shall take additional measures when monitoring business relationships that pose a higher risk. High risk relationships, for example those involving politically exposed persons, non-face-to-face customers, will require more frequent and intensive monitoring. In monitoring high • risk situations, tele ;Int considerations may include - (a) whether adequate procedures or management information systems are in place to provide relevant staff (e.g. Compliance Officer, Money Laundering Reporting Officer, front line staff, relationship managers, Account Opening Personnel and Operation Managers) with timely information that might include, as a result of EDD or other additional measures undertaken, any information on any connected accounts or relationships; and (6) how to monitor the sources of funds, wealth and income for higher risk customers and how any changes in circumstances will be recorded. 14. (I) A market intermediary shall develop, adopt and implement internal programmes, policies, procedures and controls to prevent and detect any offence under the Act. Such programmes and policies shall include--- (a) the establishment of procedures to ensure high standards of integrity of its employees or persons acting on their behalf; (6) on-going training programmes and capacity building sessions to ensure that the requirements under the Act, Regulations and Guidelines are well understood and implemented; a money laundering compliance function led by the money laundering reporting officer; 01 an independent audit function to check compliance with the legal requirements; a strong and sound internal control system. (2)Timing and content of training for various sectors of staff will need to be adapted by individual market intermediaries for their own needs. The following shall he considered in frequency and content of the training - (a) For new employees, a general appreciation of the background to money laundering, and the subsequent need for reporting of any suspicious transactions to the money laundering reporting officer should be provided to all new employees who will be dealing with customers or their transactions, irrespective of the level of seniority preferably within the first month of their employment. They should be Made aware of the importance placed on the reporting of suspicions by the market intermediary, the legal requirement to report, mid the personal statutory obligation in this respect. (6) Members of staff who are dealing directly with the public are the first point of contact with potential persons engaged in money laundering and their efforts are therefore vital to the market intermediary's reporting system for such transactions. Training should be provided on factors that may give rise to suspicions and on the procedures to he adopted when a • transaction is deemed to be suspicious. (e) Those members of staff responsible for account opening and acceptance of new customers should receive the basic training given to front line staff. In addition, further training should be provided in respect of the need to verify a customer's identity and on the business' own account opening and customer verification procedures. They should also be familiarized with the business' suspicious transaction reporting procedures. (6/) A higher level of instruction covering all aspects of money laundering procedures should be provided to those with the responsibility for supervising or managing staff. This will include the offences and penalties arising for non-reporting and for assisting persons engaged in money laundering, procedures relating to the service of production and restraint orders, internal reporting procedures and the requirements for verification of identity and the retention of records and disclosure of suspicious transaction reports. (e) For the money laundering reporting officer, - an in-depth training covering all aspects of the legislation and internal policies will be required. In addition, the money laundering reporting officer will require extensive initial and on-going instruction on the validation, investigation and reporting of suspicious transactions and on the feedback arrangements and on new trends and patterns of criminal activity. (3)A market intermediary shall develop appropriate compliance management arrangements, including at least, the appointment of a money laundering reporting officer. 15. A market intermediary shall maintain an independent and adequately resourced audit function which is able to regularly assess the effectiveness of the market intermediary's internal policies, procedures and controls, and its compliance with regulatory requirements. 16. (I) It is an offence for anyone who knows, suspects or has reasonable grounds to suspect that a disclosure has been made, or that 4th March, 2016 THE KENYA GAZETTE 891 the authorities are acting, or are proposing to act, in connection with an investigation into money laundering or terrorist financing, to inform the person who is the subject of a suspicion, or any third party of the disclosure, action or proposed action. (2)Preliminary enquiries of a customer in order to verify his identity or to ascertain the source of funds or the precise nature of the transaction being undertaken may not trigger a tipping off offence before a suspicious transaction report has been submitted in respect of that customer unless the enquirer knows that an investigation is underway or the enquiries are likely to prejudice an investigation. (3)Where it is known or suspected that a suspicious transaction report has already been disclosed to the Financial Reporting Centre or other authorized agency and it becomes necessary to make further enquiries, great care shall be taken to ensure that a customer does not become aware that their identity has been brought to the attention of the authorities. 17. (1) A market intermediary may rely upon a third party to perform any part of the CDD measures specified in Part IV of the Regulations, subject to the criteria set out in Regulation 28. However, the ultimate responsibility for ensuring that CDD requirements are met remains with the market intermediary. (2) For the avoidance of doubt, reliance on third parties does not apply to— (a)outsourcing or agency relationships, where the agent is acting under a contractual arrangement with the market intermediary to carry out its CDD function. In such a situation the outsource or agent is to be regarded as synonymous with the market intermediary; and (b)business relationships, accounts or transactions between market intermediaries for their clients. (3) The reliance on third parties often occurs through introductions made by another member of the same financial services group, or in some jurisdictions from another market intermediary or third party. (4) Categories of third party intermediaries which may be relied upon include— (a)domestic intermediaries: market intermediaries may rely upon other domestic intermediaries, subject to such intermediaries also being reporting institutions under the Act and who are able to satisfy the market intermediary that they have adequate procedures in place to prevent money laundering. (b)a market intermediary may only rely upon an overseas intermediary carrying on business or practicing in an equivalent jurisdiction where the intermediary- (i)falls into one of the following categories of businesses or professions which are subject to that jurisdiction's anti- money laundering reporting obligations- (aa) an institution that carries on a business similar to that carried on by the market intermediary; (aa) a notary public; (cc) an auditor, a chartered or certified accountant, or a tax advisor; and (dd) a registered trust company carrying on trust business. (ii)is required under the law of the jurisdiction concerned to be registered or licensed or is regulated under the law of that jurisdiction; (iii)has measures in place to ensure compliance with anti- money laundering requirements. (iv)is supervised for compliance with those requirements by an authority in that jurisdiction which performs functions similar to the Capital Markets Authority, the Retirement Benefits Authority, the Central Bank of Kenya, the Insurance Regulatory Authority or the Sacco Societies Regulatory Authority. (5) Compliance with the requirements set out above for both domestic and overseas intermediaries shall require the market intermediary-- (a) to review the intermediary's AML policies and procedures; and (b)to make enquiries concerning the intermediary's stature and regulatory track record and the extent to which any group's AML standards are applied and audited; (c)after carrying out the actions set out in subparagraphs (a) and (b) to satisfy itself that the anti-money laundering legal framework applicable to the proposed third party is comparable to that applicable in Kenya and that the third party's legal framework is satisfactorily applied and observed by the third party. 18. (1) 'Where relevant, the references to a "customer" in this paragraph include beneficial owners, beneficiaries and beneficial owners of beneficiaries. (2) Market intermediaries shall, upon receipt from the Authority, keep updated the various resolutions passed by the United Nations Security Council (UNSC) on counter terrorism measures in particular the UNSC Resolutions 1267 (1999), 1373 (2001), 1718 (2006), 1988 (2011) and such other relevant Resolutions which require sanctions against individuals and entities belonging or related to the Taliban and the Al-Qaida organization among others. (3) Market intermediaries shall maintain a database of names and particulars of listed persons in the UN Consolidated List and such lists as may be issued under Regulation 13 of the Prevention of Terrorism (Implementation of the United Nations Security Council Resolutions on Suppression of Terrorism) Regulations 2013 in relation to the domestic list by the Counter Financing of Terrorism Inter-Ministerial Committee. (4) Market intermediaries shall ensure that the information contained in the database is updated and relevant, and made easily accessible to its employees at the head office, branch or subsidiary. (5) Upon receipt of the designations or sanctions list from the , Capital Markets Authority, market intermediaries shall conduct regular checks on the names of new customers, as well as regular checks on the names of existing customers and potential customers, against the names in the database. If there is any name match, market intermediaries shall take reasonable and appropriate measures to verify and confirm the identity of its customer. (6) Once confirmation has been obtained, market intermediaries shall— (a)immediately freeze. the customer's funds or block the transaction, where applicable, if it is an existing customer without delay and without notice to the entity; (b)within twenty four hours of detecting the funds and freezing them, file a suspicious transaction report with the FRC; (c) reject the potential customer, if the transaction has not commenced; and (d)inform the Authority and other relevant bodies. (7) Market intermediaries shall submit a suspicious transaction report when there is an attempted transaction by any of the persons listed in the Consolidated List or lists issued by the Counter Financing of Terrorism Inter-Ministerial Committee under Regulation 13 of The Prevention of Terrorism (Implementation of the United Nations Security Council Resolutions on Suppression of Terrorism) Regulations, 2013. (8) Market intermediaries shall ascertain potential matches with the Consolidated List to confirm whether they are true matches to eliminate "false positives". Market intermediaries shall make further . inquiries from the customer or where relevant, the counter-party to assist in determining whether the match is a true match. (9) Market intermediaries may consolidate their database with the other recognized lists of designated persons or entities issued by other jurisdictions. Appendix I (para. 10(1)) Indicators of potential money laundering activities in the capital markets I Customer due diligence 1. The customer provides the market intermediary with unusual or suspicious identification documents that cannot be readily verified or are inconsistent with other statements or documents that the customer has provided. This indicator may apply to account openings and to interaction subsequent to account opening, such as wire transfers. 2.During the account opening process, the customer refuses to provide information to complete CDD/KYC (e.g. occupation, prior financial relationships, etc.). 3.The customer, whether a person or entity, is reluctant to provide the market intermediary with complete information about the nature and purpose of the customer's business, prior financial relationships, anticipated account activity, the entity's officers and directors or business location. 4.The customer, whether a person or entity, is located in a jurisdiction that is known as a bank secrecy haven, a tax shelter or high risk geographic locations. 5.The customer is reluctant to meet personnel from the market intermediary in person, is very secretive or evasive or becomes defensive when asked to provide more information. 6.The customer refuses to identify a legitimate source of funds or provides the market intermediary with information that is false, misleading, or substantially incorrect. 7.The customer engages in frequent transactions with money services businesses. 8.The customer's background, whether a person or entity, is questionable or does not meet expectations based on business activities. 9.The customer has no discernible reason for using the firm's service or, the firm's disadvantageous location does not discourage the customer. 10.The customer refuses to provide information regarding the beneficial owners of an account opened for an entity, or provides information that is false, misleading or substantially incorrect. 11.The customer's address is associated with multiple other accounts that do not appear to be related. 12.The customer has a history of changing financial advisors or using multiple firms or banks. This indicator is heightened when the customer uses firms located in numerous jurisdictions. 13.The customer is known to be experiencing extreme financial difficulties. 14.The customer is, or is associated with, a PEP or senior political figure. 15.The customer refuses to invest in more appropriate securities when those securities would require a more enhanced CDD/KYC procedure. 16.The customer with a significant history with the securities firm abruptly liquidates all of his or her assets in order to remove wealth from the jurisdiction. 17.The customer appears to be acting as a fiduciary for someone else but is reluctant to provide more information relating to whom he or she may be acting for. 18.The customer is publicly known to have criminal, civil or regulatory proceedings against him or her for crime, corruption or misuse of public funds or is known to associate with such persons. Sources for this information include news items or Internet searches. 19.The customer inquires as to how quickly he or she can liquidate accounts or earnings without explaining why or provides suspicious reasons for doing so. 20.The customer opens an account or purchases a product without any regard to loss, commissions or other costs associated with that account or product. 21.The customer has commercial or other types of relationships with risky persons or institutions. 22.The customer acts through intermediaries, such as money managers or advisers, in order not to have his or her identity registered. 23.The customer exhibits unusual concern with the securities firm's compliance with government reporting requirements or the firm's AML policies. 24.The customer is reluctant to provide the securities firm with information needed to file reports or fails to proceed with a transaction once asked for documentation or learns of any recordkeeping requirements. 25.The customer is interested in paying higher charges to the securities firm in order to keep some of his or her information secret. 26.The customer tries to persuade an employee. of the securities firm not to file a required report or not to maintain required records. 27.The customer funds, deposits, withdraws or purchases financial or monetary instruments below a threshold amount in order to avoid any reporting or recordkeeping requirements imposed by the jurisdiction. 28.The customer requests that account openings and closings in his or her name or in the name of family members be done without producing a paper trail. 29.Law enforcement has issued search warrant to the market intermediary regarding a customer or account. II Fund transfers and deposits 1.Wire transfers are sent to, or originate from, financial secrecy havens, tax shelters or high: risk geographic locations for instance jurisdictions known to produce narcotics or psychotropic drugs or related to terrorism, without an apparent business reason or connection to a securities transaction. 2.Wire transfers or payments from unrelated third parties whether foreign or domestic or where the name or account number of the beneficiary or remitter has not been supplied. 3.Many small, incoming wire transfers or deposits are made, either by the customer or third parties, using cheques, money orders or cash that are almost immediately withdrawn or wired out in a manner inconsistent with the customer's business or history. 4.Incoming payments made by third I )party cheques or cheques with multiple endorsements. 5.Deposit of large amount of small denomination currency to fund account or exchanges of small notes for bigger notes. 6.Wire transfer activity that is unexplained, repetitive, unusually large or shows unusual patterns or with no apparent business purpose. 7.The securities account is used for payments or outgoing wire transfers with little or no securities activities (e.g. account appears to be used as a depository account or a conduit for transfers). 8.The controlling owner or officer of a public company transfers funds into his personal account or into the account of a private company that he or she owns or that is listed as an authorized signatory. 9.Quick withdrawal of funds after a very short period in the account. 10.Transfer of funds to financial or banking institutions other than those from where the funds were initially directed, specifically when different countries are involved. 11.Transfers or journals between different accounts owned by the customer with no apparent business purpose. 12.Customer requests that certain payments be routed through nostro or correspondent accounts held by the market intermediary or sundry accounts instead of its own account. III Unusual securities transactions and account activity 1.Transaction where one party purchases securities at a high price and then sells them at a considerable loss to another party. This may be indicative of transferring value from one party to another. 2.A customer's transactions include a pattern of sustained losses. This may be indicative of transferring value from one party to another. 3.The purchase and sale of non listed securities with a large price differential within a short period of time. This may be indicative of transferring value from one party to another. 4.Payments effected by administrators and asset managers in cash, bearer cheques or other transferable instruments without identifying who they are for or providing very little information regarding the underlying account holder or beneficiary. 5.A company uses cash to pay dividends to investors. 6.Use of shell companies to purchase public company shares, in particular if the public company is involved in a cash intensive business. 4th March, 2016 THE KENYA GAZETTE 893 7 Transfer of assets without a corresponding movement of funds, such as through joumaling or effecting a change in beneficial ownership. 8. A dormant account that suddenly becomes active without a plausible explanation (e.g. large cash deposits that are suddenly wired out). . 9. A customer's transactions have no apparent economic purpose. 10.A customer who is unfamiliar with a financial product's performance and specifications but wants to invest in it nonetheless. 11.Transactions that show the customer is acting on behalf of third parties. 12.The purchase of long term investments followed by a liquidation of the accounts shortly thereafter, regardless of fees or penalties. 13.Transactions involving an unknown counterparty. 14.Large sum cash purchases of financial instruments and mutual funds holdings followed by instant redemption. IV Activity that is inconsistent with the customer's business objective or profile I. The customer's transaction patterns suddenly change in a manner that is inconsistent with the customer's normal activities or inconsistent with the customer's profile. 2.There are unusual transfers of funds or joumaling among accounts without any apparent business purpose or among apparently unrelated accounts. 3.The customer maintains multiple accounts, or maintains accounts in the names of family members or corporate entities with no apparent business or other purpose. 4.The customer's account is not used for its intended purpose. 5.The customer enters into a financial commitment that appears beyond his or her means. 6.The customer begins to use cash extensively. 7.The customer engaged in extremely complex transactions where his or her profile would indicate otherwise. 8.Customer's credit usage is in extreme amounts that do not correspond to his or her financial status or collateral, which is provided by an unrelated third El party. 9.The time zone in customer's location is not consistent with the times that the trades were executed, with no apparent business or other purpose, or there is a sudden change inconsistent with the customer's typical business activity. 10.A foreign based customer that uses domestic accounts, to trade on foreign exchanges. 11.The customer exhibits a lack of concern about higher than normal transaction costs. 12.A customer-relationship with the market intermediary that does not appear to make economic sense, for example, a customer who carries out frequent large transactions which do not fit his economic background. 13.Transactions in which funds are withdrawn immediately after being deposited, unless the customer's business activities furnish a plausible reason for immediate withdrawal. 14.Transactions that cannot be reconciled with the usual activities of the customer, for example, switching from trading only lowly priced stocks to predominantly blue chips. 15.Sudden increase in intensity of transactions, without plausible reason, of what was previously a relatively inactive customer trading account 16.Corporate finance transactions under consideration that do not make economic sense in respect of the business operations of the customer, particularly if the customer is not a listed company. 17.Unexpected repayment of a delinquent account without any plausible explanation. 18.Buying and selling of a security with no discernible purpose or in circumstances which appear unusual. 19.Provision of margin collaterals in the form of large cash amounts. 20.Provision of funds for investment and fund management purposes in the form of large cash amounts. 21.Frequent withdrawal of large cash amounts that do not appear to be justified by the customer's business activity. 22.Large cash withdrawals from a previously dormant or inactive account or from an account which has just received an unexpected large credit from abroad. 23.Crediting of customer trust or margin accounts using cash and by means of numerous credit slips by a customer such that the amount of each deposit is not substantial, but the total of which is substantial. 24.Payments or deposits containing counterfeit notes or forged instruments. 25.Customers making large and frequent cash deposits but payments made from the account are mostly to individuals and firms not normally associated with their business. 26.A large amount of cash is withdrawn and immediately credited into another account. V Rogue employees 1.The employee appears to be enjoying a lavish lifestyle that is inconsistent with his or her salary or position. 2.The employee is reluctant to take annual leave. 3.The employee is subject to intense jobi i related demands, such as sales or production, goals that may make him more willing to engage in or overlook behaviour that poses AML risks. 4.The employee inputs a high level of activity into one customer account even though the customer's account is relatively unimportant to the organization. 5.The employee is known to be experiencing a difficult personal situation, financial or other. 6 The employee has the authority to arrange and process customer affairs without supervision or involvement of colleagues. 7.The management or reporting structure of the market intermediary allows an employee to have a large amount of autonomy without direct control over his or her activities. 8.The employee is located in a different country to his or her direct line of management, and supervision is only carried out remotely. 9.A management culture within the market intermediary focuses on financial reward over compliance with regulatory requirements. 10.The employee's supporting documentation for customers' accounts or orders is incomplete or missing. II. Business is experiencing a period of high staff turnover or is going through significant structural changes. Dated the 15th December, 2016. JAMES NDEGWA, Chairman, Capital Marked Authority. PAUL MUTHAURA, Ag. Chief Executive, MR/8827378 Capital Markets Authority. *G.N. 3362/2002.