Heading an Investment Function: Section 20(1A) IFA Act

Since 2020, Kenya’s Investment and Financial Analysts Act (Cap. 542) has imposed a specific requirement on the people who run investment functions. Section 20(1A) says that a Chief Investment Officer, or the head of an investment department or function, in certain firms must be registered as a certified investment and financial analyst and hold both a practising certificate and an annual licence. Boards making senior investment appointments, and the candidates themselves, need to know when the rule applies and how it is enforced.

What section 20 now says

The original Act made it an offence under section 20(1) to practise as a certified investment and financial analyst without registration and a practising certificate or annual licence. The Statute Law (Miscellaneous Amendments) Act, 2020 added three further subsections:

• Section 20(1A): a person may not become a Chief Investment Officer, or head of an investment department or function, in a firm investing public funds, or a firm in the practice of investment and financial analysis, unless registered and holding a practising certificate and an annual licence issued by the Registration Committee.
• Section 20(1B): a person may not perform verification, certification and advice on the investment of funds in a public entity, or such a firm, without the same registration, certificate and licence.
• Section 20(1C): a person may not verify investment returns declared by a firm investing public funds, or a firm in the practice of investment and financial analysis, without them.

Both documents, not either

Section 20(1) is satisfied by a practising certificate or an annual licence. Sections 20(1A) to (1C) use “and”: the person must hold a practising certificate and an annual licence. That is a higher bar. The annual licence under section 24 runs only to 30 June of the year of issue, so a head of investments must renew it every year to stay compliant. Our guide to ICIFA practising certificates and annual licences explains how each is obtained and how each can lapse.

Which firms are covered

The subsections apply to two kinds of firm.

A firm investing public funds. The Act does not define “public funds” or a “firm investing public funds”. The phrase is wide enough to cover bodies that invest money raised from or held for the public, but its precise reach has not, to our knowledge, been settled. A firm that may be on the edge of it should take advice rather than assume it is outside.

A firm in the practice of investment and financial analysis. Section 2 defines a “firm” as a sole proprietorship, partnership or registered company established by members in practice. An advisory business that practises investment and financial analysis within section 21 is the obvious example.

Section 20(1B) also refers to the investment of funds in a “public entity”, which the Act does not define either.

Does the employee exemption help?

Most heads of investment are salaried employees. Section 21(2) says a salaried employee does not practise as an investment and financial analyst merely by doing the work as an employee. But sections 20(1A) to (1C) are not framed in terms of practising. They attach to holding a role or performing a function. The better reading is that the employee exemption, which qualifies the meaning of practice, does not remove these role-based requirements. Our article on the salaried employee exemption sets out where that exemption stops.

How the requirement is enforced

Section 20(2) makes it an offence, punishable by a fine of up to KES 500,000, imprisonment of up to two years, or both, to contravene subsection (1). It does not mention subsections (1A), (1B) or (1C). On a strict reading, breach of the new subsections does not carry that criminal penalty, and the Act does not set out a separate one.

That does not make the requirement optional. An appointment made in breach of a statutory prohibition is still exposed: a sector regulator may take it into account when assessing whether key personnel are fit and proper, and counterparties and auditors may ask for evidence of compliance. The safest course is to treat the requirement as binding and to plan appointments around it.

Practical points for boards and candidates

• Before appointing a Chief Investment Officer or head of investments, check the ICIFA register kept under section 18, which can be inspected at reasonable hours.
• Ask for evidence of both a current practising certificate and a current annual licence, not one of them.
• Diary the 30 June renewal of the annual licence each year.
• Record the check, and copies of the certificate and licence, in the board papers for the appointment, so the decision can be shown to have been made on verified information.
• Plan for interim cover. If the post-holder leaves, the person acting in the role is also heading the function.
• Where a group shares one head of investments across several entities, check the position for each entity that invests public funds or practises investment and financial analysis.

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.