MasiboLaw

By Meshack Masibo and Joy Kawira

What if raising capital was as easy as ABC?  What if investing was as easy as XYZ?  Well, what if it just meant that you sign up on a website and match with people willing to invest some money in your business?  Well, this is what crowdfunding is all about and foreign as it may seem some local companies like Pezesha have been doing it for years.  However, for the longest time,  the industry has been subject to a lot of uncertainty because of unclear laws and regulations.

To resolve this issue and to create a legal framework that allows for companies like Pezesha to be licensed and operate, the Capital Markets Authority and the Cabinet Secretary for National Treasury and  Planning, introduced the Capital Markets (Investment-Based Crowdfunding) Regulations, 2022.  The Regulations provide a guideline for investment-based crowdfunding which involves raising funds in exchange for investment instruments such as shares and bonds in listed companies.

One of the Regulations introduced a requirement that a Crowdfunding Platform Operator has to be duly licensed by the Capital Markets Authority.

Here’s a simplified guide on how to get a Crowdfunding Platform Operator (CPO) license in Kenya;

1. Eligibility for Licensing

As an applicant for a crowdfunding platform operator license, you are required to apply through a registered company limited by shares with a minimum paid-up share capital of Kenya shillings five million(KES 5,000,000)  and a minimum liquid capital of Kenya shillings ten million(KES 10,000,000) or eight per cent  (80%) of its liabilities, whichever is higher.

2. Application documents

The license application should be accompanied by the following:

∙ A certified copy of the certificate of incorporation.

∙ Evidence of your financial soundness and capital adequacy through audited financial statements, management accounts and certified bank statements.

∙ Rules for the operation of your business setting out your planned activities and conduct of your platform users.

∙ Details of your organization’s structure and profiles of the directors, management and key personnel.

∙ Evidence of adequate human resources with adequate knowledge and competence in the crowdfunding business.

∙ A business plan that includes financial projections.

∙ Your business continuity and disaster recovery plan.

∙ An adequate risk management framework that includes details of your fraud detection and prevention measures.

∙ The proposed standard offer document to provide investors with enough clear and concise information so they can conduct comprehensive due diligence and make an informed investment decision.

∙  A copy of your data protection policy in compliance with the relevant local laws.

∙ A comprehensive and contextualized policy on preventing anti-money laundering and terrorism financing.

∙ Evidence of payment of the requisite application fees and any other additional documents or information as the Authority may require.

In conclusion, getting a crowdfunding platform operator license in Kenya involves a structured process regulated by the CMA. By meeting the eligibility criteria, preparing the necessary documentation, and adhering to compliance requirements, you can successfully launch and operate a crowdfunding platform in Kenya.

The writers are lawyers who specialize in offering legal services to people in technology, in case you need further assistance, don’t hesitate to reach them at info@masibolaw.co.ke