OPINION: Investors should seek regulated financial products to avoid scams

By Amos Mzenge

We have seen in recent news, a series of frauds that have left many in tears after deceptive schemes made away with hundreds of millions of shillings from unsuspecting investors.

From Ponzi schemes to deceptive investments, many investors were lured into scams by flashy promises and misleading information. These frauds often exploit gaps in oversight and regulation; taking advantage of enthusiastic but uninformed investors.  

For instance, there was a case of a fraudulent investment scheme that promised astronomical returns with minimal risk. Many people, drawn by the allure of quick wealth, invested their savings only for the management to vanish into thin air. These scams are not isolated incidents; they highlight a systemic issue where unregulated investment opportunities leave investors vulnerable to deceit.

All these incidents underscore a crucial lesson: investors must thoroughly scrutinize an investment’s regulatory background before committing their money. Clearly, a strong regulatory framework is not just a bureaucratic necessity—it's a fundamental safeguard for protecting our financial future. 

Effective regulations ensure that investment activities in Kenya are conducted transparently, ethically, and in a way that protects investors' interests. They provide the necessary structure and guidelines, which often include measures to safeguard investors from excessive risk.

Unlike unregulated investments where individuals can flee with funds, structured and regulated investments are cushioned through the involvement of multiple parties. This arrangement significantly reduces the risk of fraud and mismanagement.

For instance, money market funds involve a network of roles—trustees, custodians, fund managers, administrators, and auditors—each crucial for maintaining the integrity, security, and efficiency of investments. These roles ensure that assets are managed responsibly, transactions are processed accurately, and regulatory standards are upheld.

Trustees oversee the proper management of funds, ensuring adherence to legal and contractual obligations. Custodians safeguard assets, preventing theft or loss, and ensuring accurate settlement of transactions.

Fund managers use their expertise to make prudent investment decisions, while administrators handle the operational aspects of fund management. Auditors provide an independent review, verifying that all activities and financial statements are accurate and compliant with regulations.

The involvement of these parties ensures that assets are managed responsibly, transactions are processed accurately, and regulatory standards are met. This multi-layered approach provides investors with a high level of protection and confidence in the stability and reliability of their investments.

In addition, there are limits on how much money can be invested in high-risk ventures or requirements for independent audits to help ensure that investments are managed prudently.

Besides that, well-designed regulations include mechanisms for investors to seek redress if something goes wrong. Regulation does not guarantee that everything will always go as planned but in case it does, investors can seek possible solutions from the regulator. This means that if investors fall victim to fraud, there are legal avenues for recovering their losses or holding wrongdoers accountable.

Finally, while this article serves as a wake-up call for investors to be more vigilant, it also urges authorities to tighten regulations and take a more proactive stance in combating scams, rather than merely reacting to public outcry. Widespread fraud not only harms individual investors but it can also undermine overall economic stability.

Knowing that there are rules and oversight can make people feel more confident in their investments. This trust is vital for a healthy and functional financial market. On the contrary, when investors lose confidence, it affects market dynamics and can have broader economic repercussions. Strong regulations help maintain stability by ensuring fair practices and trust in the financial system.