Effects of conflict of interest among financial sector regulators
Published On November 24, 2021 » 2831 Views» By Times Reporter » Business, Columns
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CONFLICT of interest is certainly one of the major vices hampering the development of Zambia’s regulatory institutions including financial and capital markets.
As alluded to in last week’s article, credible evidence has emerged in the recent past days to suggest the existence of significant conflict of interest among regulatory institutions particularly the financial sector.
Of course, this is nothing to write home about!
It’s actually heart-rending!
These happenings underscore the need for Government to build robust regulatory institutions in Zambia, if ever its much talked about economic reconstruction, and growth will have to be realised.
From the onset, it should be clearly noted that conflict of interest is a grave scourge that could have devastating effects on a country’s industry and its entire economy.
This is exactly what’s been happening in the country’s regulatory institutions in the last few years.
Think of it, evidence suggests that the financial sector in Zambia could be under capture by few elite cliques.
The purpose of this discourse is to look at the effects of this scourge on the Zambian economy.
In last week’s article, this platform noted that a corporate leader in one of Zambia’s financial market regulatory institutions incorporated a layered company in addition to another shell company.
He did this to conceal the real identity of his underlying company.
Following on, this officer plays a role of licensing companies that should be allowed to operate on Zambia’s financial markets.
According to Patents and Companies Registration Agency (PACRA) documents, this officer’s company has essentially been competing with companies that he regulates, besides issuing or revoking operational licenses.
Additionally, according to documents of complaint filed at the regulator’s tribunal, this corporate leader has been making it extremely difficult for this large company to operate on the financial market despite the company meeting all the requirements stipulated by the law.
Ten days ago, two large financial companies filed an additional suit alleging that a regulatory institution in Zambia had breached a statutory provision in the regulatory Act.
The regulator is also in breach of fiduciary duty to the Zambian public.
These institutions further alleged that the regulator had exhibited conflict of interest in discharging its duties.
According to business intelligence information availed to me, this regulator had two years ago suspended the Chief Executive Officer (CEO) of a large scale financial institution.
However, in the recent past this named regulatory institution wants this CEO of this large scale financial institution that it suspended two years ago to come back from his suspension to sign the audited financial statements of this financial company that it regulates!
This is despite the matter being before a competent tribunal!
That’s contradictory, isn’t it?
On the other hand, the named large company has also petitioned the sector regulator tribunal over conflict of interest incidence regarding the appointment of the named officer in this regulatory institution.
According to these petitioners they are contending that this officer became a senior officer of this regulatory institution in a way that undermines the credibility of the national financial sector.
In a petition dated 5 November 2021, the petitioners further allege that a few years ago, the Zambian Government appointed a certain corporate leader, while he was heading a named private owned company to head the board of a named regulatory institution.
This leader in turn appointed his biological brother to head this national regulatory institution!
The key here is that the elder brother, working in a financial institution code named A, whilst simultaneously being board chair of the regulatory institution, appointed the younger brother as an officer of a regulatory institution.
In the meantime, the elder brother in his position in company A is a competitor against an aggrieved company B, which the younger brother is alleged to be pushing out of business!
The young brother then suspended this company’s CEO and two years later U-turns to reinstate this CEO to ‘rubber stamp’ the audited financial statements.
Following on, the young brother is alleged to have been agitating to revoke the license of this company despite it investing an additional K70 million to make it more liquid.
That sounds like a ‘mafia rule’ in a democratic country, doesn’t it?
This also suggests Zambia’s financial sector could be controlled by connections among few elites and people who are highly placed within government circles.
Could you imagine the effect of the closed door happenings of the country’s financial sector!
On the other hand, in the financial industry, it is a compulsory requirement by ethics and law for an officer that is operating in this industry to declare all the relationships, ownership and any beneficial interest in advance, to all the parties involved, that may result in conflict of interest, before undertaking any job or role in this industry.
What are the effects of the above quagmire on the Zambian economy?
The above conflict of interest particularly in the financial sector hampers Foreign Direct Investment (FDI) and long term capital growth in the economy.
This is because it becomes a significant market risk which translates into the Zambian government having to pay say higher interest rates (premium) for Euro bonds for market inefficiencies caused by conflict of interest alluded to.
As earlier alluded to it creates a barrier of entry for innovative products and relevant top talent in the economy.
Think of it, an operator in the financial sector has to pay say K6, 000 to sit for statutory examinations plus K5, 000 licensing fees.
According to one market player, these fees are higher than even those in developed countries like the United States (US).
This could be because parliament may approve these fees on recommendation from few elite individuals.
Imagine the effects- Zambia only has 100 licensed brokers or agents on the capital market.
This inevitably gives a ratio of one financial advisor to 130,000 people!
The new dawn government should set its eyes on creating employment opportunities by creating policies that benefit each and every ordinary Zambian and not just a few elite individuals.
The Government should also get to the bottom of the conflict of interest scenarios in regulatory institutions and restore professionalism and the rule of law.
When all is said and done, it’s imperative on President Hakainde Hichilema’s new dawn Government to do things differently in Zambia’s financial regulatory sector if the country has to make any meaningful economic reconstruction, growth and development.
For comments e-mail: ntumbograndy@yahoo.com Mobile +260977403113 +260955403113
The author is the Managing Consultant at G. N Grant Business Consultant, a Chartered Certified Accountant (ACCA), a Master of Business Administration (MBA) holder, with a Specialism in Strategic Planning, and a candidate for the Herriot Watt University (Scotland) Doctor of Business Administration (DBA)

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