PHILLIMON MHLANGA

THE International Organisation of Securities Commission (IOSCO) has dealt the Securities and Exchange Commission of Zimbabwe(SECZ) a serious blow by rejecting its revised application to be admitted as a member, due to serious deficiencies in its Securities Act.

The Securities Act was promulgated in 2004, and does not conform to the IOSCO requirements. SECZ has been struggling in the past six years to become a member of IOSCO, an association of organisations that regulate the world’s securities and futures markets because of deficiencies in its securitiesnAct.

IOSCO members are typically primary securities regulators in a national jurisdiction. Zimbabwe’s first application was made in 2013 and was rejected in 2015 due to numerous deficiencies. SECZ was advised to amend its laws. It came up with the Securities and Exchange Bill early this year.

The draft was submitted to IOSCO together with a new application for
admission. But Business Times can report that SECZ’s bill has been rejected again, according to well-placed capital market sources. “It is understood that there have been serious problems with our securities law, which is not in line with the best internationalpractices,” the source said.

“Just for an example, in the event of a breach, the current law doesn’t allow us to deal with companies that are not registered with us, which is a serious
deficiency.” SECZ chief executive officer, Tafadzwa Chinamo, had not
responded to Business Times enquiry on the matter by the time of going
to print.

However, Chinamo and SECZ chairman Livingstone Gwata said in the recent capital market regulator’s report published this month, that SECZ was finding it difficult to conform with IOSCO requirements.

“Following the IOSCO preliminary assessment of SECZ draft legislation, the Commission came up with a draft Securities Amendment Bill addressing deficiencies noted by IOSCO,” Chinamo said. “SECZ applied to become a
signatory to the IOSCO within the framework of its application for ordinary membership.

The application of SECZ was rejected.The decision-making group of IOSCO found that SECZ lacks legal authority to conform to MOU requirements. Pursuant to that, SECZ had to adjust and modify its laws in order to conform to IOSCO standards and came up with the Securities and Exchange
Amendment Bill.

In December 2018, the Commission held a stakeholder engagement workshops in Harare and Bulawayo to discuss the proposed SECZ Act amendments.” Chinamo said repatriation of stock market proceeds by
foreign investors continued to be problematic, resulting in average
foreign participation remaining depressed.

What remains, according to Chinamo, is largely comprised of recycled funds, echoing similar sentiments by the Zimbabwe Stock Exchange chief executive officer, Justin Bgoni, who told Business Times a fortnight ago that the number of foreign investors has plunged to 17% from a peak of 60% in 2015.

Gwata concurred with Chinamo. “The amendments were overdue and have delayed the admission of SECZ into IOSCO membership,” Gwata said.
Zimbabwe’s capital market still has limited and outdated legislation for SECZ to effectively execute its mandate in line with best practice, according to Chinamo.

He added that the local market remained more expensive compared to regional peers in terms of total trading costs. Analysts said reducing trading costs would improve the competitiveness of the market, hence the need of legislation aligned to best practice.

At issuer level, SECZ said it was still battling limited information disclosure and weak corporate governance standards by some listed companies. This works against Zimbabwe as international capital tends to flow towards good governed investment destinations.

Adequate, equitable and timely disclosure of material information is critical for informed decision making, investor protection, market integrity and growth. According to SECZ, a number of Zimbabwe companies are still running on outdated, unsustainable business models and obsolete equipment, yet the operating environment has changed.

This means local industry is bound to remain uncompetitive given capital flows towards profitable investment destinations. The situation is worsened by shareholder apathy, resulting in the voice of the minority still not being
heard because the market still lacks active shareholder participation.

Investors have the right to question decisions made by company
management and bring them to task on issues that matter. One finds that
strategic decisions by management are not probed for openness and
transparency. In recent times, however, British tycoon Nicholas van Hongstraten who has investments spread across all sectors in Zimbabwe has been known to be more intrusive and probing management decisions.

But even him has been quiet in recent months. This means most shareholders get to know their company problems at the point of liquidation. The new rules and interpretations were expected to boost investor protection by applying consistent principles to investing advisers and brokers or dealers, providing clear disclosures, exercising due care and
addressing conflicts of interest.

The proposed legal framework, will enhance the quality and transparency of investor relationships with investment advisors and brokers or dealers. It is being revamped as part of efforts to have a competitive and more attractive capital market in Zimbabwe.

The securities rules currently in use are in conflict with the International IOSCO requirements. It has serious deficiencies, which has rendered the laws not compliant with international best practice.

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