The noose has tightened on secret Central Depository (CDS) account shareholders who fail to disclose their identity. This is if parliament passes proposed amendments contained in the Finance Bill 2021.
According to proposed amendments to the Central Depositories Act, 2000, anyone opening a Central Depository (CDS) Account to declare whether that person is the beneficial owner of the deposited securities or the legal owner.
A person who contravenes the provisions of this section will face a sentence of a court fine not more than KSh 10 Million or to imprisonment for a term not exceeding ten years or both.
New Rules for opening a CDS Account
The Finance Bill 2021 proposes to amend the Central Depositories Act, 2000, to enhance the regulation of investors in the capital markets and for the opening of an omnibus account by a person investing on behalf of others in the securities market.
The Bill proposes that an authorized nominee holding a CDS Account must be appointed in writing by a beneficial owner or legal owner to open a securities account and transact on behalf of such beneficial owner or legal owner.
The legal owner is the person who holds the titles to securities or assets on behalf of a beneficial owner.
The proposed law allows the opening of an omnibus account in the name of the beneficial or legal owner or owners.
An authorized nominee holds an omnibus account on behalf of two or more beneficial owners or legal owners.
An authorized nominee shall keep and maintain records on beneficial owners, legal owners, securities accounts or omnibus accounts regarding the securities deposited in the securities or omnibus account in the manner prescribed in the CDS rules.
An authorized owner shall, on request, furnish the central depository with such information as may be required on the beneficial owners, legal owners, Securities accounts or omnibus accounts in respect of the securities deposited in the securities or omnibus account.
The Bill also requires disclosure of all purchases and sales of deposited securities and other dealings made through CDS Accounts, including the charges and credits, the identity of the buyer and seller of each of those deposited securities or identity of the persons executing such trades and those benefiting from the transactions.
Secret shareholders with over 10%
Both private and public companies had until January 2021 to provide personal information of investors who own more than 10% stake in the firms through secret accounts.
While firms seeking registration are to fill the beneficial ownership registers ahead of registration, existing firms were given three months to comply.
The new rules require firms to disclose identities of secret shareholders who control more than 10% of the companies to the Attorney-General through the Registrar of Companies.