The Suitability of Kenya’s Criminal Law on the Derivatives Market

Abstract

The expansion and development of Kenya’s financial markets have led to the diversification of services and products in the capital markets. These measures aimed at expanding and developing the financial markets are in tandem with the Kenyan government’s aspirations to catalyze Kenya into a middle-income country by the year 2030. These development aspirations are embodied under the Vision 2030 development blueprint. The development of the financial markets in Kenya has, in the last one decade, seen the development of a legal and institutional framework on a derivatives exchange to complement the existing over-the-counter (OTC) derivatives market. Derivatives are unique financial securities as their trading is subject to their underlying assets as compared to debt and equity securities, such as bonds and shares respectively, whose trading depends on the reputation or standing of the issuer. Investors use derivatives as instruments for hedging risks, arbitrage or speculation. With the derivatives exchange in Kenya still at its nascent stages, there is the need to evaluate and analyse the supporting legal framework to include inter alia, the impact of the legal regime on combating financial crimes on the overall derivatives market. Kenya has put in place an elaborate legal and institutional framework to combat crimes at all levels of the economy, including in the derivatives market. However, in some instances, the law, enforcement and compensation frameworks on combating financial crimes are not in tandem with the developmental objectives of the derivatives market in Kenya. This study evaluates the existence of laws aimed at preventing crimes in the derivatives markets and appraises their suitability in the development of the derivatives market in Kenya