Averting conflict of interest among industry regulators
Published On November 10, 2021 » 1338 Views» By Times Reporter » Business, Columns
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CONFLICT of interest is increasingly becoming a topical issue in modern day global business and one of the ‘silent killers’ of financial markets and their underlying national economies.
This issue too, poses one of the greatest threats to various professions including; the legal, accounting, banking and financial services, medical, engineering, teaching, and all other professions.
The sole purpose of this article series is to highlight real instances of growing incidences of conflict of interest in businesses, particularly, in the financial industry and its regulatory environment, and the economy at large.
The series will further discuss the effects of this scourge on businesses, the economy and the development of professionalism in Zambia and beyond.
Following on the discourse will explore practical mechanisms of curtailing conflict of interest.
Hopefully, the discourse will contribute to inspiring the levels of professionalism in Zambia’s financial markets.
What is conflict of interest?
Conflict of interest is a situation that arises when “a public official has a personal or private or other interest which prevents the officer from performing his or her official duties in an objective, fair and impartial manner.
In the context of the relationship between a financial institution, its clients and other stakeholders, conflict of interest, results in an abrogation of the fiduciary duties owed by the financial institution to the client.
Remarkably, a fiduciary relationship is a special category of legal relationship where one party agrees to act in the sole interests of the other party to the exclusion of their own interests.
This is where the key issues lie!
In the recent past, I stumbled into the closed door happenings in one of the financial industry regulators in Zambia.
The documentation and conversations emanating from these conversations reveal evidence of a growing and actual conflict of interest in Zambia’s financial markets.
According to evidence that I came across and examined, a number of people including a corporate leader in one of Zambia’s financial market regulatory institutions incorporated a layered company.
Additionally, these people incorporated another shell company to offer financial services products including bonds and derivatives.
What is a shell and layered company?
A layered company is a company which when you check on the files for the real owners, you will not find the officer’s name anywhere on the files.
In this case, I was further privileged to check the Patents and companies Registration Agency (PACRA)
When I examined other records at PACRA, they clearly reveal the above glaring evidence of conflict of interest!
This officer owns a financial services company dealing in similar products to those of the companies that he has been regulating.
Further corporate leader in one of the regulatory institutions plays a role of licensing companies that should be allowed to operate on Zambia’s financial markets.
In the recent years there has been a protracted battle between a named company and financial industry regulators.
In one of these instances a named company four years ago incorporated a financial services company dealing in bonds and derivatives.
This company was one of the most innovative products; bonds and derivatives
According to documents of complaint filed by one of the companies against the regulators, one of the corporate leaders revoked an operating license from one of the companies.
According to media reports, after being in operation for about three years the company had its operational license revoked.
A reliable source intimated to me that this corporate leader made it extremely difficult for this company to operate on the financial market despite the company meeting all the requirements stipulated by the law.
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 ownership and any beneficial interest in advance, to all the parties involved, before undertaking any job or role in this industry.
It’s interesting to note that like in the above case study, in several cases, many dependent stakeholders are unaware of the conflicts of interest that underlie their loss and they may discover the real cause, too late.
In other cases, clients and other stakeholders may even never come to learn of what even hit them!
The dependent stakeholders’ loss can affect not only their well-being but the fortunes of the entire Zambian economy.
Think of it, the company in the case study has a multi-million dollar brilliant idea which when fully grown could turn around the fortunes of Zambia’s financial industry and the entire economy.
Alas, this company and probably, many others have been suffocated to death by alleged cunning acts of conflict of interest by few individual professionals.
It’s important too, to note that financial services companies are prone to conflict of interest, due to the high likelihood of overlapping interests among directors and employees, and their associates.
Without proper management, these conflicts can expose companies to reputational harm and criminal sanctions such as fines and debarments.
As in the above case study, conflict of interest may result in reputational and financial damage when a third party litigates or makes public comments about a conflict of interest.
In case of financial regulators, this can lead to negative consequences on the public perceptions, leading to reduced confidence reduced local and foreign investments in the financial sector, increased incidence of criminal activities and so forth.
Why should anybody Care About Conflicts of Interest?
Other than problems of moral hazard and ethics, conflicts of interest can substantially reduce the quality of information in a nation’s financial markets, and thereby increasing asymmetric information problems.
In turn, the asymmetric information prevents a country’s financial markets from channelling funds into the most productive investment opportunities.
This further causes financial markets and the national economy to become less efficient.
Just think of it, a company that has unequalled technology and proprietary know how being sent to its undeserving death!
This is akin to a company that is able to reduce Zambia’s poverty levels by say 30 percent being replaced by a company that can only eliminate poverty by 0.0001 percent!
That’s unthinkable, isn’t it?
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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