Kenya’s Capital Markets Authority (CMA) has imposed enforcement sanctions against global audit firm Ernst & Young LLP (EY) over its role as the Reporting Accountant during the Uchumi Supermarkets Limited (USL) Rights Issue carried out in 2014. The decision follows years of legal battles, regulatory reviews and a formal Notice to Show Cause issued to the firm.
In a statement released on Wednesday, the Capital Markets Authority Kenya announced that it had finalised enforcement action after determining that EY failed to meet expected professional standards during the rights issue process.
The regulator said the audit firm bore responsibility for what it described as shortcomings in the review and reporting of financial information presented to investors at the time.
As part of the sanctions, the Authority imposed a financial penalty of KSh 10 million on EY and directed the firm to implement corrective measures aimed at strengthening audit quality and professional conduct.
According to the CMA, the penalty stems from findings made by an Ad Hoc Committee appointed to examine allegations around the audit firm’s work on USL’s financial statements.
The CMA further instructed EY to ensure that any employees involved in the preparation of financial statements for issuers listed on the Nairobi Securities Exchange undergo mandatory remedial training for the next three years.
The training will be conducted by the Institute of Certified Public Accountants of Kenya (ICPAK) and is aimed at preventing lapses in auditing standards for companies raising funds from the capital markets.
The regulator also recommended that ICPAK take disciplinary action against the individual EY auditors who signed off on USL’s financial statements for the 2012–2014 period.
Among the auditors identified were Mr. Michael Kimani, Mr. Joseph Cheborbor and other professionals whose work formed the basis of investor disclosures during the rights issue.
According to the Capital Markets Authority Kenya, the concerns raised involved inconsistencies in the representation of Uchumi’s financial position, including disclosures on profitability and asset valuations. CMA said the alleged deficiencies in audit procedures contributed to information gaps that may have misled investors participating in the rights issue.
The determination marks the culmination of a regulatory process that began in August 2016, when the Authority issued a Notice to Show Cause to EY. The firm subsequently filed a High Court petition in September 2016, seeking conservatory orders to halt CMA’s enforcement process.
The High Court initially issued orders stopping the proceedings until the matter was heard, but later dismissed EY’s petition and upheld the Authority’s mandate.
EY appealed the ruling at the Court of Appeal, which also dismissed the case in February 2022, clearing the way for CMA to resume enforcement action.
With the appellate decision in its favour, the regulator reinstated the proceedings, eventually arriving at the sanctions announced this week.
The Authority noted that it had previously taken enforcement actions against former members of USL’s board and senior management, many of whom were implicated in governance shortcomings and financial reporting discrepancies that contributed to the retailer’s long-running collapse.
Regulators said the enforcement action underscores ongoing efforts to strengthen financial market integrity and enhance investor protection in Kenya.
“The Capital Markets Authority Kenya will continue its commitment to ensuring that professionals serving listed companies adhere to the highest standards of accountability and transparency,” the statement said.
The Uchumi Rights Issue, which aimed to shore up the supermarket’s financial stability, raised millions from investors.
However, the company’s subsequent collapse and delisting raised questions over corporate disclosures, governance failures and the role of external auditors in safeguarding investor interests.
CMA’s directive requiring remedial training, combined with the financial penalty and the push for disciplinary review by ICPAK, signals a tougher regulatory stance designed to deter lax auditing practices.
The Authority emphasised that the sanctions were not merely punitive but a step toward rebuilding trust between regulators, issuers and investors.
Strengthening oversight of audit firms is increasingly viewed as essential, with several African markets tightening controls to prevent corporate scandals.
The case also highlights the growing scrutiny placed on capital market professionals in Kenya, particularly in high-stakes transactions involving major issuers.
With increased investor activity and reforms to modernise capital markets infrastructure, regulators have been under pressure to ensure that past failures are not repeated.
As the Authority concluded its statement: “CMA remains committed to upholding transparency, protecting investors and maintaining the integrity of Kenya’s capital markets.”
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