Credit Rating Agency Approval: CMA Requirements in Kenya

Credit rating agencies occupy a distinct position in Kenya’s capital markets framework. Unlike a stockbroker, dealer, fund manager or investment adviser, which must be licensed under section 23(1) of the Capital Markets Act, a credit rating agency falls under section 23(2), which requires approval by the Capital Markets Authority (CMA) rather than a licence in the strict sense. The distinction matters for how the relationship with the regulator is framed, even though the practical compliance burden is comparable. This article explains credit rating agency approval in Kenya as the 2023 Regulations now frame it.

Approval, Not Licensing

Section 23(2) of the Capital Markets Act provides that no person may carry on business as a securities exchange, commodities exchange, derivatives exchange, registered venture capital company, collective investment scheme or credit rating agency unless approved by the Authority. A person approved must comply with the Authority’s requirements and pay an annual fee. The detailed requirements for credit rating agencies are in the Capital Markets (Credit Rating Agencies) Regulations, 2023 (Legal Notice 171 of 2023), which sit alongside the Act and replaced the earlier approach based on CMA guidelines.

Who Is Eligible

Under regulation 5, an entity established in Kenya is eligible to apply if it:

• is a body corporate whose formation documents state that rating securities and issuers of securities is one of its main objectives;
• has a stable financial base with minimum paid-up capital of at least twelve million shillings;
• has adequate infrastructure to provide rating services;
• has professional competence, financial soundness and a reputation for fairness and integrity to the satisfaction of the Authority;
• is not, and has no director who is, involved in proceedings connected with the securities market that could harm investors, and has no conviction for an offence involving moral depravity or an economic offence;
• employs people with adequate professional and relevant experience;
• is a fit and proper entity under section 24A of the Act; and
• has a sample standard agreement with clients, a sample letter of request for rating, and a draft of the information requirements for issuers being rated.

Capital is notably lower than for online forex brokers or money managers, reflecting that a rating agency does not hold client funds or take trading positions.

Foreign Rating Agencies

Regulation 6 provides for recognition of foreign applicants. A foreign applicant must provide, among other things, proof that it is authorised as a credit rating agency by its home regulator, a letter on its licence or approval status from its primary regulator, proof that the regulator is a member of the International Organisation of Securities Commissions (IOSCO) for information sharing and supervision, proof of technical capacity and experience, and a code of conduct reflecting the IOSCO Code on credit rating agencies, with reasons for any deviation. A business plan with the resumes of top management and the management structure is also required.

The 2023 Regulations do not impose a requirement that a local agency be owned by, or contractually tied to, an internationally recognised agency. Anyone relying on older CMA guidance on this point should check it against the current Regulations.

Professional Capacity and Independence

An applicant must show it can perform the rating function, with analysts of relevant economic, financial and research backgrounds. Independence and objectivity are treated as core requirements: the agency should not be associated with any group that has a conflicting interest in rating business, should have a sound rating methodology, and should have internal checks that safeguard objectivity where qualitative judgment plays a role. A credit rating agency approval application is stronger where methodology, rating grades and fee structure are documented clearly in the business plan.

The Authority also expects the applicant to show that its directors and key personnel are fit and proper. In practice that means preparing complete CVs, fit and proper forms and evidence of good conduct for each person, and checking that no director is involved in market-related proceedings that could affect investors. Gaps in this documentation are a common cause of delay in any CMA application and are easy to avoid with early preparation.

Fees

The Second Schedule to the Regulations sets an application fee of KSh 10,000, an approval fee of KSh 200,000, a recognition fee of KSh 200,000 for foreign applicants, and an annual regulatory fee of KSh 200,000.

Disclosure and Confidentiality Obligations

An approved credit rating agency must make prescribed disclosures to the CMA, issuers and the public, including its fees, rating changes and issuer defaults as the Regulations specify (regulation 18). At the same time it must keep information supplied for rating purposes confidential. These obligations pull in different directions, so the agency’s internal policies should treat public disclosure of outcomes and confidentiality of underlying issuer information as two clearly separated policies rather than one general information-handling policy.

How This Fits the Wider CMA Framework

Credit rating agency approval sits alongside registered venture capital companies, collective investment schemes and exchanges as a section 23(2) approval category, distinct from the licensing categories for brokers, dealers and fund managers. See our guide to registered venture capital company approval and our overview of Capital Markets Authority licensing in Kenya.

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.