Respected Businessman Lawrence Sikutwa of LSA Associates has warned that the proposed amendments to the Securities Act will cause chaos in the insurance industry.
Cabinet at its 24th sitting on On Friday, October 14th approved a number of Bills for introduction in Parliament including the Securities (Amendment) Bill No. 23 of 2022.
But Mr. Sikutwa in his recent submission to the parliamentary committee said the Securities (Amendment) Bill (the Bill) in its current form has several disadvantages.
He cited the fact that the Bill seeks to give the regulator wide ranging powers without any effort to hold the regulator responsible and accountable with regard to how those powers will be exercised.
“This must be corrected because the existing law does not specify how the Commission should exercise its powers, this will leave room for abuse by the regulator, who is able to act individually without the consensus of the entire Commission and yet pass off such decisions as having been made by the Commission,” he said.
Mr Sikutwa who has interests in Madison Group of Companies said the amendments to the Securities Act No.41 of 2016 should have included a provision that any powers vested in the Securities and Exchange Commission should be exercised by the Board and not Management adding that Management team should only implement decisions of the Board.
“In the past 6 years that the existing law has been in operation, there are well documented cases of the SEC abusing its authority in the exercise of its powers as in the case of the take-over of MAMCo, as well as SEC favoring some capital market operators over others,” he said.
“Therefore, any amendment to the existing law should have addressed the issue of SEC lacking accountability in the performance of its statutory duty of regulating the capital market in Zambia. The other major disadvantage of the Bill in its current form is that the SEC seeks to usurp the regulatory powers given to other regulatory institutions such as the Patents and Companies Regulatory Authority (PACRA) and the Zambia Institute of Chartered Accountants (ZiCA),” Mr Sikutwa said.
“Such a scenario is a recipe for chaos and should not be allowed to subsist. Of note, there is a cross-cutting theme in the proposed amendments which point to an utter disrespect of the proprietary nature of a company and its shares,” he noted.
“Suffice to mention that there are already reported cases at MAMCO and PANEX where capital market operators were deprived of their assets without consideration or compensation as a result of actions attributable to the SEC.”
He added, “the proposed amendments to the Securities Act, in the various instances cited in our written submissions, propose to confer wide and unfettered powers on the Securities and Exchange Commission to take possession i.e take-over the running of capital market operators for indeterminate periods of time without setting out clear circumstances for when such powers should be exercised.”
“In our view, such an amendment creates a curious presumption that the regulator is better equipped to manage business entities than the owners of the entities themselves.”
He said the above scenario brings into light another source of concern that is the clear conflicts between the Securities (Amendment) Bill with long established principles of corporate law which establish the existence of a clear distinction between a company and its shareholders.
“The Securities (Amendment) Bill completely ignores the rationale for this distinction and thereby exposes the shareholders of a listed company to numerous disadvantages which should ordinarily not attach to shareholders of a company, such as audits by the Securities and Exchange Commission.”
He added, “We have also observed with great concern that the amendments in the Bill have introduced a number of terminologies without defining those terms, thereby leaving gaps which will invariably lead to conflict between the regulator and the regulated.”
“For instance, elementary issues such as the meaning of capital adequacy have evaded clarification by the sponsor of the A thorough reading of the Bill reveals an additional source of concern for capital market operators. It gives the reader an impression of an ongoing warfare between the regulator and regulated entities, which is far from true.”
He said, “Ideally, the Securities and Exchange Commission is supposed to work with capital market operators to grow and guarantee a fair and efficient financial market while protecting investors. In our written submissions, we have highlighted various provisions which seem to place greater emphasis on shutting down capital market operators, as opposed to encouraging greater participation in the capital market by local
enterprises.”
“Indeed, the overriding theme of the Bill is to intimidate, cajole and discourage local citizens from driving innovation in the capital market. Accordingly, we urge this Honorable Committee to carefully appreciate our submissions in the context of the ultimate goal of providing good and proper regulation in the capital market.”
“Honorable Chair, to provide that a regulator can encourage investors to petition for the winding up of capital market operators does not give the impression that the Securities Exchange Commission will be overly concerned with growing the financial services sector. The proposed amendment is not progressive and can be subject to abuse by the employees of the Commission who may have private issues to sort out with regulated entities.”
“More to this point, there are too many provisions in the Bill which will invariably lead to the creation of a monster regulator with sweeping and unfettered powers which are contrary to any plans the Government may have of boosting investor confidence in the Zambian capital market,” he said.
“Indeed, some amendments can lead to corruption arising in the Commission. The existing law as well as the proposed amendments contained in the Bill do not provide for accountability of members of the Capital Markets Tribunal.”
He has since proposed that members of the Capital Markets Tribunal should be subjected to the mandate of the Judicial Complaints Commission just like other judicial officers.
“Section 23 of the Bill provides for a blanket immunity of members of the Commission’s Board, Management and staff for things done outside the law. This provision is intended to promote impunity to do illegalities without consequences on the part of the regulator, and should not be allowed.”
He said the regulator must correctly interpret the law and apply the law correctly without introducing personal opinions.
“Another aspect which has caused us great concern is the gross lack of stakeholder engagement in the preparation of this draft Bill. In our view, this only serves to amplify our belief that the Securities Exchange Commission believes that Capital market operators are its enemies to be tackled vigorously. Be that as it may, it is the duty of the regulator to consult with capital market operators on proposed new legislation.”
“The regulator does not hold the monopoly of wisdom on matters affecting the capital market, there must be room for the governed and other stakeholders to give input on the laws that govern them.”
Mr Sikutwa said legislation applicable to the financial services sector such as the Banking and Financial Services Act, the Insurance Act, and the Pensions Regulation Act do not contain the kind of draconian provisions that are sought to amend the Securities Act.
He said the Bank of Zambia and the Pensions and Insurance Authority are both supervising and regulating the banking and insurance industries respectively, firmly and fairly and as a result these industries are registering consistent growth.
“In light of all the circumstances, we submit that the current amendments to the Securities Act are unsafe and are unsuitable to the current state of the Zambian capital market which requires a certain measure of protection for capital market operators from the regulator, rather than to provide for the heavy-handed approach which is being championed in the Securities (Amendment) Bill No 23 of 2022.”
