CDSC Reveal Measures to Counter Fraud

In an effort to protect investors in the industry, the Central Depository and Settlement Corporation (CDSC) has proposed strict measures to improve client due diligence measures.

This is in response to an increase in fraudulent operations including modifications to client account information, which have resulted in large financial losses for investors and the potential for reputational harm to the market.

Investors have suffered significant financial losses as a result of these nefarious acts, and the Central Depository Authority (CDA) is at risk of fines as a result of weakened security measures.

“Instances of fraudulent amendments to client account information have increased significantly, leading to substantial losses for Investors and potential sanctions to the CDA. It is also a source of significant reputational damage for the market,” said CDSC acting chief executive Jesse Kagoma in a statement.

A man was charged in court last month with attempting to defraud investors and their respective stockbrokers of shares worth Sh3 million by posing as a group of registered shareholders.

In the case of stockbroker SBG Securities, Patrick Musau Munguti was accused of stealing shares of KCB, Equity Bank, Standard Chartered, Bamburi Cement, Absa, Co-operative Bank, Nation Media Group, Centum, and Kengen and selling them fraudulently.

All CDAs will now be required to enforce a set of safeguards with immediate effect in order to address these urgent issues.

The usage of the Integrated Population Registration System (IPRS) Verification is one of the new laws from the CDSC’s standout features.

“Brokers dealing with retail investors are strongly urged to implement the Integrated Population Registration System for thorough identity verification during account opening and any subsequent changes,” said the regulator.

Additionally, brokers are not permitted to initiate any amendment requests in the Central Depository System (CDS) before verifying the legitimacy of the request.

Dealers are required to thoroughly assess and confirm the accuracy; this adds another layer of security to prevent unauthorized changes.