New changes give CMA powers to remove unfit company CEOs
Ms Josephine Okui Ossiya, the CMA chief executive officer, speaks at a past event. CMA now has powers to remove a chief executive of a regulated company who may be deemed unfit to run an entity. Photo / File
What you need to know:
- Whereas some stakeholders say that the new powers will create yes men and yes women in the capital markets space, CMA says they will be key in maintaining investor confidence
A series of changes to market regulations governing capital markets seek to empower Capital Markets Authority with a tighter grip on market players, including the power to remove chief executive officers of supervised entities that fail to meet expectations and stronger scrutiny over securities offered to the general public.
The changes were unveiled to industry players and other stakeholders last month.
Powers related to the removal of chief executive officers deemed unfit for their roles mirror provisions contained in the Financial Institutions Act of 2004, as amended- a fundamental pillar of banking legislation in Uganda.
The Financial Institutions Act allows Bank of Uganda to remove chief executive officers of licensed financial institutions that fall short of its fit and proper test, bear questionable qualifications, or are suspected of involvement in financial fraud, among others.
This provision has mainly affected foreign chief executive officers previously deployed in Uganda’s banking sector, observers say.
Other changes include a requirement for succession plans tied to chief executive officers and board chairpersons of licensed entities - a move intended to minimise the uncertainty and drama that surrounds the delayed replacement of top leaders in regulated entities.
New licensing fees
A close look at new licensing fees shows licence application fees for stockbrokers have been set at Shs750, 000 ($204), while annual fees are fixed at Shs2m ($544.9). Licence application fees for dealers have been set at Shs750,000 ($204), while annual fees have been fixed at Shs1m ($272).
Licence application fees for investment advisors have been set at Shs250,000 ($68.5), while annual fees have been fixed at Shs1m ($272).
Fund management license application fees have been set at Shs750,000 ($204), while annual fees have been fixed at Shs3.7m ($1,008).
Operation of a securities exchange without Capital Markets Authority (CMA) approval will attract a fine of 200 currency points equivalent to Shs4 million ($1,089) and two years in jail.
“The ability of CMA to remove chief executive officers of licensed entities represents a cue picked from Bank of Uganda, which tends to influence other financial regulators in this market, including the Insurance Regulatory Authority.
The current CMA leadership is also strict and demanding of market players compared to the previous regime.
“This could explain why the regulator is willing to compel all industry players to participate in joint initiatives, though some may be unwilling,” said John Were, a senior relationship manager at the Uganda Securities Exchange (USE).
A senior manager at BIK Capital Limited, who requested anonymity, citing sensitivity of the subject matter, said this scenario is likely to reduce chief executive officers in the capital markets industry to mere yes men and yes women on the job “because of fear instilled by the regulator”.
“Giving CMA powers to remove chief executive officers of licensed entities seems draconian to me. Companies have fairly sufficient means of checking their chief executive officers within their constitutions, which can be activated if need be. But what do you do if CMA has a personal grudge against a certain chief executive officer in this industry later on?” he wondered.
However, Mr Dickson Sembuya, CMA director for research and market development, said the power to remove a chief executive officer of a supervised entity will enable the regulator to protect investor confidence in capital markets through the removal of individuals who may not be fit for their roles.
“For example, if a chief executive officer of securities exchange is engaged in a fraud scandal, that would ultimately affect investor confidence negatively, such power would allow us remove them from their position for the sake of maintaining investor confidence in our market,” he said.
The regulations also provide for civil penalties on issuers who may have incurred monetary fines of at least 150 currency points per day of continuous default, along with other enforcement actions for non-compliance.
CMA has also provided for a revised market regulation that also caters for commodities contracts, a financial component critical for operationalisation of the warehouse receipt system and commodities exchanges.
