The Capital Markets (Asset-Backed Securities) Regulations

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Asset-Backed Securities) Regulations.

Section 2. Application Section 2(1) These Regulations shall apply to all offers of asset-backed Application securities to the public or a section thereof in Kenya including issues by state corporations and other public bodies. Section 2(2) The Rules and Regulations governing the issue, offer and listing of fixed income securities shall apply to asset-backed securities to the extent that the same do not conflict with the provisions of these Regulations.

Section 3. Interpretation Section that are issued as part of a securitization transaction in which assets are transferred to a third party that issues the securities; and

Section 4. Eligibility to be originator Section a public company incorporated or registered under the Companies Act;

Section 5. Purchase of asset-backed securities by originator Section 5(1) An originator may, subject to regulation 37, purchase no more than the cumulative sum of ten percent at any time of the total value of any asset-backed securities issued pursuant to a transfer of its own assets to the Issuer unless otherwise permitted by the Authority. Section 5(2) The restriction in paragraph (1) shall not apply to the holding of subordinated securities by the originator.

Section 6. The Issuer Section 6(1) An Issuer shall be a company incorporated under the Companies Act (Cap. 486) or be of such other form as may be approved by the Authority. Section 6(2) An issuer shall unless otherwise approved by the Authority be a newly created entity with no pre-existing creditors or other claims against it other than formation expenses. Section 6(3) At least one third of the members of the board of directors of the issuer shall be independent directors.

Section 7. Functions of the issuer Section offer, issue and list of asset-backed securities;

Section 8. No relation of issuer to originator Section An issuer shall neither be marketed as a subsidiary or a company within the group of the originator nor shall the name of the issuer or the asset-backed securities product imply any relation to the originator.

Section 9. Dissolution of issuer Section An issuer shall not be voluntarily wound up until the asset-backed securities issued by the issuer are fully redeemed in accordance with the terms and conditions of the asset-backed securities.

Section 10. Voluntary winding up of issuer Section The written consent of the board of directors or governing body of the issuer and the Authority shall be sought before the commencement of any voluntary winding up proceedings of the issuer.

Section 11. Auditor of the Issuer Section An auditor appointed by an issuer shall be a member of the Institute of Certified Public Accountants of Kenya and shall comply with the international standards on auditing in conducting the audit.

Section 12. Record keeper of the Issuer Section Where an issuer delegates the record keeping functions to another entity, the officer in-charge of the other entity shall be a member of the Institute of Certified Public Secretaries of Kenya.

Section 13. Appointment of servicing agent Section An issuer shall appoint a servicing agent in accordance with these Regulations.

Section 14. Eligibility for appointment Section A servicing agent shall be independent of the issuer, but may be the originator in so far as the originator provides these services on an arms-length basis and subject to market terms and conditions.

Section 15. Records to be maintained by servicing agent Section 15(1)(a) all receipts and payments in respect to the eligible assets and asset-backed securities; Section 15(1)(b) the portfolio of eligible assets; and Section 15(1)(c) every transaction carried out by the issuer. Section 15(2) A servicing agent shall permit authorized agents of the Authority to inspect such books of account, records and statements at any time during working hours.

Section 16. Remittance of funds Section A servicing agent shall, unless operating as the credit enhancer, be under no obligation to release any funds for the benefit of the asset-backed securities holders unless or until it has received the same from the issuer.

Section 17. Provision of liquidity by servicing agent Section A servicing agent may operate as a liquidity provider to ensure that timely payments are made to the asset- backed securities holders where there is a cashflow shortfall on a payment or repayment date in respect to the relevant asset-backed securities.

Section 18. Resignation of servicing agent Section 18(1) A servicing agent who intends to resign shall give three months notice in writing to the issuer and copy the notice to the Authority, stating such intention and the reasons for resignation. Section 18(2) Notwithstanding the notice period stipulated in subparagraph (1), the resignation shall not come into effect until a replacement has been duly appointed by the issuer.

Section 19. Removal of servicing agent Section An issuer who intends to terminate the appointment of a servicing agent shall inform the Authority of such intention at least three months prior to the termination and shall provide the Authority with the copy of the relevant notice and the reasons for termination.

Section 20. Appointment of new servicing agent Section An issuer shall appoint a new servicing agent at least thirty days before the expiry of the term of the outgoing servicing agent and ensure that there is adequate time for the hand-over and transfer of all information within itself in relation to its contractual duties to enable the incoming servicing agent to properly execute their duties.

Section 21. Handover to new servicing agent Section An outgoing servicing agent shall hand over to the incoming servicing agent all the books of account, documents and records that are required to be kept under these Regulations.

Section 22. Liquidity provider Section 22(1) A liquidity provider may decline to advance sums to an issuer unless it is certain that such amounts are recoverable and payable in full from the issuer pari passu or in priority to credit enhancers and asset-backed securities holders. Section 22(2) A liquidity provider shall not underwrite the credit risk of an issuer or otherwise operate as a credit enhancer unless appointed to act as a credit enhancer.

Section 23. Appointment and role of trustee Section be the trustee for the asset-backed securities holders;

Section 24. Rights of trustee Section A trustee shall have all such rights as may accrue to the asset-backed securities holders including but not limited to access to information on the performance, operation of the securitization transaction and the asset-backed securities issued thereunder.

Section 25. Advisors Section 25(1) An originator shall appoint an advisor from among duly licensed investment banks, stock brokers and investment advisors which advisor shall be responsible for liaising with the Authority on the offer, issue or listing of the asset-backed securities. Section 25(2) An originator may also appoint such other advisors as it deems necessary.

Section 26. Form of application Section 26(1) An application for approval for the offer, issue or listing of asset-backed securities shall be submitted to the Authority in the prescribed form. Section 26(2) Compliance with the requirements set out in these Regulations does not guarantee an applicant's suitability which shall be determined by the Authority in consultation with the Mi Section 26(3)(a) name, date and place of incorporation, names and professions of directors, names and interests of shareholders and proposed structure of the Issuer Section 26(3)(a)(i) name, date and place of incorporation, names and professions of directors, names and interests of shareholders and proposed structure of the Issuer Section 26(3)(a)(ii) name, date and place of incorporation, names and professions of directors, names and interests of shareholders the of originator; Section 26(3)(a)(iii) names and addresses of the transaction advisors; Section 26(3)(a)(iv) securitization transaction overview; Section 26(3)(a)(v) proposed arrangements for the transfer of eligible assets and nature of the eligible assets; Section 26(3)(a)(vi) currency and principal amount of proposed issue; Section 26(3)(a)(v...

Section 27. Consultation with Cabinet Secretary Section The Authority shall upon receipt of an application to issue or list asset-backed securities inform the Cabinet Secretary of its decision to approve or reject the application at least fourteen days prior to communicating that decision to the Applicant.

Section 28. Documents to be lodged and available for inspection Section 28(1) The information memorandum and all required information relating to the proposed securitization and asset-backed securities shall be submitted to the Authority in a period of not less than twenty eight days before the opening of the offer period and the Authority may require additional disclosures as it deems fit. Section 28(2) All documents which are required to accompany the application and the documents referred to in the information memorandum shall be made available for inspection at the registered office of the issuer for the period which the asset-backed securities are in issue, unless otherwise advised by the Authority.

Section 29. Offer Period Section The offer period shall not exceed thirty days from the date of the opening of the offer unless the Authority approves otherwise.

Section 30. Manner of subscription Section Subscription for the issue of asset-backed securities shall be made through one or more of the selling agents.

Section 31. Subscription proceeds Section 31(1) The subscription amount shall be deposited with the selling agent and all the proceeds shall be held in a separate trust account in the name and for the benefit of the issuer and shall be applied by the issuer for the purposes specified in the information memorandum immediately after the offer period is closed. Section 31(2) Notwithstanding paragraph (1) where the minimum subscription is not raised, the issuer shall refund the subscribers their subscription amount.

Section 32. Investor Compensation Fund Section The interest deemed to accrue on the subscription proceeds shall be paid into the Investor Compensation Fund in accordance with section 18 of the Act.

Section 33. Allotment of securities Section 33(1) The allotment of securities offered to the public shall be made in strict accordance with the allotment policy disclosed in the information memorandum. Section 33(2) Notwithstanding paragraph (1) where the results of the subscription make such policy impractical, the allotment policy may be amended with the prior written approval of the Authority. Section 33(3) Where the Authority approves amendment under paragraph (2), the issuer shall announce the fact of approval within twenty four hours of the grant of the approval.

Section 34. Publication of results of offer Section The results of the allotment of a public offer shall be published after the Authority has been received prior notification of not less than twenty four hours.

Section 35. Eligible assets Section capable of generating a true and identifiable revenue stream that is projected to be sufficient to service the return of and return on investment as well as allowable expenses for the life of the asset-backed securities;

Section 36. Rights to transfer of assets Section An originator shall have and demonstrate an unencumbered right to transfer all legal and beneficial interests in the eligible assets and the rights to the eligible asset.

Section 37. Transfer of assets Section 37(1) An originator shall transfer all its rights, title, interests and obligation in the assets to the Issuer and shall not retain any beneficial interest or liability. Section 37(2) Where the eligible assets have declined to a level that renders the asset securitization transaction uneconomical to carry on, the originator may retain a first right of refusal to repurchase assets from an Issuer at a fair value; or Section 37(3) The originator may repurchase assets from the issuer where the originator is under an obligation to do so under a securitization transaction when it has breached any conditions, representation or warranty in respect of the securitization transaction.

Section 38. Credit rating Section All securitization transactions shall be rated by an independent credit rating agency approved and registered by the Authority.

Section 39. Credit enhancement Section 39(1)(a) over-collateralization; Section 39(1)(b) a standby letter of credit or line of credit issued by a bank or financial institution that is licensed by the Central Bank; Section 39(1)(c) a guarantee by a bank or financial institution that is licensed by the Central Bank; Section 39(1)(d) surety bond issued by an insurance company licensed by the Commissioner of Insurance other than the originator or its subsidiary, its parent company or the parent company; Section 39(1)(e) an instrument issued by a bilateral or multilateral institution of which Kenya is a member; Section 39(1)(f) issue of subordinated tranches; Section 39(1)(g) an instrument issued by the Government of Kenya; or Section 39(1)(h) such other instrument or mechanism from such other entity as may be approved by the Authority. Section 39(2) Where the credit enhancement is to be provided by a bank, financial institution or insurance company licensed in Kenya, the credit enhancement shall only be provided with the prior written consent of the Central Bank in the case of a bank or financial institution or the Commissioner of Insurance in the case of an insurance company

Section 40. Listing Section Upon the approval and issue, the asset-backed securities may be listed on the fixed income securities market segment at an approved securities exchange in Kenya.

Section 41. Suspension or de-listing to be approved by the Authority Section No asset-backed securities shall be suspended or delisted by a securities exchange without the prior written approval of the Authority.

Section 42. Publication of suspension or de-listing Section Where an asset-backed security has been suspended or delisted, the securities exchange shall within forty eight hours publish such information in at least two local dailies of national circulation.

Section 43. Fees Section An issuer of asset-backed securities approved to offer, issue or list shall pay the prescribed fees.