The Parliament of Zimbabwe recently promulgated a Banking Amendment Act to enhance corporate governance of banking institutions, impose controls on bank holding companies, enhance protection of the public from bank failures and establish mechanisms for dealing with distressed banking institutions.

Most of the provisions are standard provisions one expects to find in any bank supervision and surveillance legislative framework. Focus on prudential standards, sound corporate behaviour, senior management accountability, control of conflicts of interest, risk management, composition of the board with focus on the majority and chairpersons of the boards and committees being independent non-executive directors, are all issues familiar to those who have studied banking legislation.  Features which will attract an observer include:

  • Disqualification from ​reappointment where a director will have served a banking institution for a
    period of 10 years unless he or she will have enjoyed a cooling period of at least 5 years. This is a slight departure from common governance frameworks which impose ten limitations and require annual assessments of independence to be conducted thereafter. The authorities argue that the mischief is not just lack of independence. They want to introduce fresh blood into boards of financial institutions.

  •  Disqualification from appointment as a non-executive director where the director is a director of
    more than four other companies in Zimbabwe. The disqualification applies to all companies including dormant companies and companies incorporated merely to hold real estate or specified assets.

  • Disqualification from​reappointment where an executive director is a director of more than three
    other companies in Zimbabwe.

  • Disqualification from appointment as a principal officer of any officer holding 5% or more of the shares
    of a banking company or a bank holding company.

  • Imposition of civil and​criminal liability for disregard of prudential standards and legal requirements
    and corporate governance. It may be said, however, that liability in this regard will be very similar or the same as liability for reckless trading. Certainly, case law on reckless trading should provide guidance when interpreting the limits of liability in this regard.

  • Imposition of an obligation on​every director to make full disclosure of the extent of his assets, business
    activities and financial interests. Furthermore, there is an obligation to
    disclose the full extent of one’s spouse’s assets, business activities and
    financial interests. This information is disclosed to the Chief Executive Officer
    of the financial institution and must be made available for inspection by bank
    supervision authorities.

  • Imposition of the character of​“tainted property” of assets acquired using loans obtained in contravention of rules against insider loans.
  • Reduction of the definition of​significant interest from 10% to 5%. Acquisition of a significant interest
    requires the approval of the Registrar of Banking Institutions.
  • Prohibition of use of nominee shareholders except in a few exempted cases.
  • Imposition of a requirement to register bank controlling companies which require to be approved by the Registrar of Banks.
  • Prohibition of the formation of special purpose vehicles without the approval of the Registrar of Banks.
  • Imposition of forfeiture of dividends and disentitlement to fees in circumstances where the restrictions on
    shareholding are contravened or disqualifications from being a director are contravened. The forfeiture of dividends will need to be realigned to the constitution.

The enhanced regulatory framework was influenced by a need to protect the public and the
stability of Zimbabwe’s financial system after not less than eight commercial
banks failed between 2004 and today.