TUESDAY: 5 April 2022. Morning paper.

Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.


1.          Highlight four functions of law in the society.                                                                                                                  (4 marks)

2.          Explain four ways through which the principal-agent relationship could be established in an organisation.   (4 marks)

3.          Regulation is essential for the proper functioning of the insurance industry.

In relation to the above statement:

State three roles of the Insurance Regulatory Authority (IRA) in your country.                                               (3 marks)

Outline five registration requirements of other insurance service providers as detailed in Section 150 of the Insurance Cap 487 of the laws of Kenya.                                                                                                     (5 marks)

4.          State four functions of the legal department of the Assets Recovery Agency.                                                                  (4 marks)

(Total: 20 marks)



1.          Describe three sources of funds for the Nairobi Securities Exchange (NSE) Derivatives Investor Protection Fund. (6 marks)

2.          Outline four principles that could be observed by foreign exchange dealers in managing foreign exchange business. (4 marks)

3.           With reference to credit rating agencies:

Define the term “credit rating”.                                                                                                                                                           (1 mark)

Highlight one objective of credit rating.                                (1 mark)

4.         The Directors of Bee Honey Ltd., registered as stockbrokers have been discovered to have engaged in

embezzlement, fraud and other misconduct that is not in the interest of its clients or in the public interest by the Capital Markets Authority.

Due to these matters, the Authority has instructed its investigator to conduct investigations into the matter. The investigator, has reason to believe that Mark Bundi, an employee of Bee Honey Ltd., has in possession documents that contain information relevant to the investigation.


Discuss four obligations that Mark Bundi has in relation to the on-going investigations.                                                 (8 marks)

(Total: 20 marks)



1.          Explain the following terminologies that relate to the Central Depository and Settlement Corporation (CDSC) operation:

Securities Lending and Borrowing (SLB).                                                                                                        (2 marks)

Screen-based model of implementing SLB.                                                                                                       (2 marks)

2.         Highlight three circumstances that may cause the Capital Markets Authority to exercise its emergency powers against a Central Depository.                                                                                                                                             (3 marks)

3.         State the five details that an applicant issuer must publish in an announcement after the securities exchange has approved an application for listing in your country.                                                                                                           (5 marks)

4.          Explain the meaning of the following sub-segments as approved by the Capital Markets Authority:

Growth Enterprise Market Segment (GEMS).                                                                                                   (2 marks)

Restricted Growth Enterprise Market Sub-segment (RGEMS).                                                                        (2 marks)

Fixed Income Securities Market Segment (FISMS).                                                                                         (2 marks)

Un-restricted Fixed Income Market Sub-segment (UFISMS).                                                                          (2 marks)

(Total: 20 marks)



1.           Describe five contents that might be contained in the annual financial statements of a market intermediary. (10 marks)

2.           Discuss three participants in the Collective Investment Scheme (CIS).                                                                              (6 marks)

3.           In relation to corporate governance and market intermediaries, explain the term “fiduciary duty”. (2 marks)

Highlight two examples of fiduciary relationships in the financial markets.                                                       (2 marks)

(Total: 20 marks)



1.           A market intermediary shall promptly and accurately account for clients’ funds.

Discuss three rules that apply to the above statement.                                                                                                        (6 marks)

2.         Discuss the three objectives of the financial reporting centre.                                                                                             (6 marks)

3.         Distinguish between “money laundering” and “terrorist financing”.                                                                  (4 marks)

State four sources of terrorist financing.                                                                                                            (4 marks)

(Total: 20 marks)



1.         Evaluate three objectives of regulation of financial markets.                                                                                               (6 marks)

2.         In relation to the Central Depository and Settlement Corporation (CDSC) or equivalent in your country:

State the composition of the Business Conduct Committee, a committee of the Board.                                     (2 marks)

Highlight the four functions of the Business Conduct Committee.                                                                     (4 marks)

3.           Analyse four ways in which the Competition Authority of Kenya carries out preliminary review upon receipt of an application for mergers and acquisition.                                                                                                                             (8 marks)

(Total: 20 marks)



1.           Discuss two shareholders‘ responsibilities.                                                                                                                        (4 marks)

2.           Explain the term “politically exposed persons”.                                                                                                                 (3 marks)

3.           In relation to foreign investment regulation, highlight what the regulation stipulates on:

Register of shareholders.                                                                                                                                    (2 marks)

Share reservation percentage.                                (1 mark)

Declaration of investor status.                                                                                                                            (2 marks)

4.         A market intermediary shall not withdraw money deposited in a clients’ bank account.

Discuss four exceptions to this rule.                                                                                                                                  (8 marks)

(Total: 20 marks)

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