Business Type: Authorized depositories, or custodians, are banks licensed under the Banking Act or financial institutions approved by the CMA to hold in custody funds, securities, financial instruments, or documents of title to assets registered in the name of local, East African, or foreign investors, or of investment portfolios. Every investment adviser and fund manager that manages discretionary funds must appoint a custodian for the assets of the fund.
Licensing Requirements: Must be licensed to operate as a bank under the Banking Act or as a financial institution or an authorized depository, cannot contract agents to discharge its functions except for offshore investments (where overseas sub-custodians may be engaged), and must render custodial services in accordance with written service agreements with investment advisers or fund managers.
Government Fees: Application fees are approximately KES 80,000 to KES 100,000 for financial institutions seeking approval as custodians (banks already licensed under the Banking Act may pay lower fees). Annual renewal fees are around KES 50,000 to KES 70,000.
Timeline: The approval process typically takes 45 to 60 days for established banks and financial institutions, as they already meet many regulatory requirements.
Limitations: Custodians cannot delegate their functions except for offshore investments, must maintain robust systems for safe custody of assets, implement proper reconciliation and reporting processes, ensure segregation of client assets, and comply with service level agreements.
Penalties: Violations may result in loss of approval to act as custodian, financial penalties, investor compensation claims, and prosecution for gross negligence or fraud affecting client assets.
Enforcement: The CMA monitors custodial operations, reviews service agreements, conducts audits of asset custody systems, and ensures proper segregation and reporting of client assets.