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NBFIRA Not Powerful Enough – Study

INNOCENT SELATLHWA
NBFIRA Not Powerful Enough – Study
The Botswana Institute for Development Policy Analysis (BIDPA) has through its researchers called for a review of laws and regulations to adequately address the issue of ordinary shareholders’ rights.

This was after a study they conducted found that there is an opportunity for expropriation and breach of corporate governance standards by listed companies in Botswana. The study titled ‘Ordinary Shareholders’ Rights Protection in Botswana’ dated March 2020 was conducted by Kelesego Mmolainyane, a research fellow at BIDPA and Ratang Sedimo, who is an attaché.

The Choppies Group was used as the case study following its suspension from the Botswana Stock Exchange (BSE). According to the study, the retail giant failed to comply with corporate governance standards. “Delisting statute within the BSE Listing Requirements states that if a company has been suspended and does not rectify its transgression to comply within six months of suspension, then the Listings and Trading sub-committee can take action to de-list the firm.

To date, more than six months after suspension, it is not clear why Choppies has not been delisted from BSE nor its suspension lifted. Furthermore, the rights of the minority shareholders were not legally protected when the CEO was reinstated by the majority shareholders,” they wrote.

They further state that the losses incurred by ordinary shareholders are therefore taken simply to be part of the inherent risks of stock market investing, even though they are a result of broken ‘rules of the game’ – weak adherence to corporate governance standards by Choppies managers.

The researchers also recommend that there is a need to ensure that non-compliance to requirements is punished

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without delay to avoid loss of wealth to shareholders.  They also call for Non-Banking Financial Institutions Regulatory Authority (NBFIRA) with sufficient resources to effectively and efficiently regulate the securities.

The duo concluded that ordinary shareholders’ rights protection involves the use of institutions, legal and regulatory frameworks. “The protection of ordinary shareholders’ rights builds trust and ensures that there is increased participation of different stakeholders in the stock market. This increased participation brings vibrancy to the stock market by improving liquidity. Furthermore, protecting shareholders is usually a function of information disclosure; ensuring that firm managers disclose as much information as is needed for shareholders to make the best decisions concerning their investment,” they wrote.

The researchers found that existing laws in Botswana, both the Securities Act and the Companies Act of Botswana, are important legal instruments towards the protection of shareholders’ rights. However, they say from engagements with industry experts and regulators themselves, it is apparent that the two legal instruments could be amended to add clauses that specifically and explicitly spell out and ensure the protection of ordinary shareholders.

They found that, unlike the NBFIRA, which has a broader mandate of regulating all non-banking financial institutions, the Securities and Exchanges Commission’s role is to be a primary regulator of the securities market.  Moreover, they say the Financial Services Commission of Mauritius and the Financial Sector Conduct Authority of South Africa are independent regulatory authorities.



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