Advising or Dealing in Securities: Which CMA Licence Applies

Advisory firms that help companies raise money often start out giving advice and end up doing more: introducing investors, negotiating terms, collecting subscriptions. Under Kenya’s Capital Markets Act (Cap. 485A), that shift can move a firm from one licence category into another. An investment adviser, a dealer, a stockbroker and an investment bank are each defined differently, licensed separately and supervised to different standards. This article sets out where the lines fall and what tends to push a firm across them.

The categories in the Act

Section 23(1) of the Act lists the businesses that need a Capital Markets Authority (CMA) licence, including stockbroker, dealer, investment adviser, fund manager and investment bank. It also catches anyone who holds themselves out as carrying on any of those businesses. The definitions in section 2 decide which one applies.

• Investment adviser: a person who, for remuneration, carries on the business of advising others concerning securities, or regularly issues analyses or reports on securities.
• Dealer: a person who carries on the business of buying, selling, dealing, trading, underwriting or retailing securities, other than exchange-traded derivatives.
• Stockbroker: a person who carries on the business of buying or selling securities as an agent for investors in return for a commission.
• Investment bank: a non-deposit-taking institution licensed to advise on offers of securities to the public or a section of the public, on takeovers, mergers, acquisitions and restructurings involving listed or quoted companies, and on privatisations, and to underwrite securities issued to the public and act as stockbroker or dealer.

Where advice ends and dealing begins

The definition of “dealing in securities” is the key to the boundary. It covers making or offering to make an agreement with any person, and inducing or attempting to induce any person to enter or offer to enter an agreement, to acquire, dispose of, subscribe for or underwrite securities. It also covers agreements whose purpose is to secure a profit from the yield of securities or from movements in their price.

The words “inducing or attempting to induce” do most of the work. A firm that analyses a company and tells it how to structure a raise is advising. A firm that approaches investors and persuades them to subscribe is, on the plain wording, at risk of inducing them to enter agreements for securities. The activity, not the label in the engagement letter, decides which side of the line a firm is on.

What pushes a firm towards dealing

No single factor is decisive, but the following tend to move work away from advice and towards dealing or investment banking:

• Soliciting investors. Identifying, approaching and persuading investors to put money into a specific issue.
• Negotiating for a party to the transaction. Agreeing subscription terms on behalf of the issuer or investors, rather than advising the client on what to accept.
• Handling money or securities. Receiving subscription monies or holding share certificates or transfer documents in the course of the deal.
• Underwriting or placing. Committing to take up securities, or placing them with investors.
• Public offers and listed companies. Advising on offers to the public, or on takeovers and restructurings of listed companies, falls within the investment bank definition.

How a firm is paid can also shape how its role is seen. A fee tied to the amount of capital raised looks more like a placement commission than a fee for advice, and invites the question whether the firm is acting as an intermediary. The fee basis is not a legal test in itself, but it is evidence of what the firm was really engaged to do.

Why the category matters

The categories carry very different obligations. An investment adviser applies under regulation 12 of the Capital Markets (Licensing Requirements) (General) Regulations, 2025, with no fixed minimum paid-up capital and professional indemnity cover of at least KES 500,000. An investment bank must meet the capital, governance and staffing requirements described in our guide to investment bank licensing, and stockbrokers and dealers face their own regime, covered in our article on stockbroker licensing.

A firm licensed as an adviser that drifts into dealing is not covered by its licence for that work. Contravening the Act is an offence under section 34(1)(a), and where no specific penalty applies, section 34A provides for fines of up to KES 10 million for a company on a first offence, plus twice any gain made or loss avoided.

Checking your own position

Before signing a mandate, a firm should ask three questions. First, is the instrument a security as defined in section 2 of the Act? The definition is wide but has express exclusions, so this is not automatic. Second, what will the firm actually do: advise the client, or approach and persuade investors? Third, does the transaction involve a public offer or a listed company, which brings in the investment bank category? The answers decide whether an investment adviser licence is enough, whether a heavier licence is needed, or whether the work can be shared with a licensed partner. The individuals who give the advice should also check whether they need ICIFA registration under the Investment and Financial Analysts Act.

Firms setting up a dedicated advisory business in Kenya can follow the steps in our guide to setting up a corporate finance boutique.

Frequently asked questions

This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.