Zimbabwe’s New Banking Amendment Act: fresh blood in bank boards, stricter liability, and tighter controls
The Parliament of Zimbabwe passed the new Banking Amendment Act, aiming to improve corporate governance in banking institutions, impose controls on bank holding companies, and protect the public from bank failures. The Act introduces several notable features that deviate from common governance frameworks.
New Provisions for Bank Board Members
One of the provisions attracting attention is the disqualification of directors from reappointment after serving a banking institution for ten years, unless they have a cooling-off period of at least five years. This contrasts with typical governance frameworks, which usually limit directors to a certain number of terms and require annual assessments of independence. The authorities believe this will:
- Ensure independence
- Introduce fresh blood into the boards of financial institutions
Another surprising disqualification applies to directors holding directorships in:
- More than four other Zimbabwean companies, for all types of companies
- More than three other Zimbabwean companies, for executive roles
Additionally, the Act prohibits individuals holding:
- 5% or more of the shares in a banking company or bank holding company, from becoming principal officers
Stricter Disqualifications and Liabilities
The Act also strengthens the enforcement arm by imposing civil and criminal liabilities for disregard of prudential standards, legal requirements, and corporate governance rules. Although the exact nature of the liability will be similar to reckless trading liability, precedents from reckless trading cases can offer some guidance.
Mandatory Disclosures and Inspections
Apart from stricter disqualifications and liabilities, the Act places mandatory disclosure requirements on every director, including the revelation of their:
- Assets
- Business activities
- Financial interests
- Spouses’ assets, business activities, and financial interests
This information must be disclosed to the financial institution’s CEO and is open for inspection by bank supervision authorities. The legislation also designates assets acquired using loans in conflict with insider loan rules as “tainted property.”
New Requirements for Significant Interests and Approval Processes
The definition of “significant interest” has been reduced from 10% to 5%, and the acquisition of a significant interest necessitates approval from the Registrar of Banking Institutions. The Act also forbids the use of nominee shareholders, except in a few exempted cases, and imposes requirements to register bank controlling companies, all subject to approval by the Registrar of Banks.
Background: The Need for Enhanced Regulatory Framework
The new provisions come in response to multiple bank failures in Zimbabwe between 2004 and the present day. The enhanced regulatory framework reflects the demands to safeguard the public interest and ensure the stability of the country’s financial system.