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Farirai Machivenyika Senior Reporter
Treasury should come up with more comprehensive legislation to ensure banks and other financial institutions compensate people who lose their savings and investments due to poor corporate governance by some of the institutions, Murehwa West legislator Farai Jere said in the National Assembly last week.
He moved a motion citing legislative deficiencies in the Deposit Protection Corporation Act that was enacted to protect depositors in the event of bank closures.
While the main damage was done before the present Act was in force and the spate of bank closures in the first decade of the century led to current legislation, he still believes there is room for improvement, especially that compensation should be in the same currency as the deposits.
The schemes under the Act also have limits on what can be paid out, which helps those with small deposits, but can short-change those with larger deposits.
In his recommendations, Hon Jere called on the Ministry of Finance, Economic Development and Investment Promotion to “come up with comprehensive legislation which will redress challenges that have not been adequately solved by financial reforms that were put in place from 2013 to date.
“Put in place measures compelling financial institutions to start compensating clients who lost savings and investments owing to poor corporate governance issues in the banking sector by March 31 2024; and propose amendments to the Deposit Protection Corporation Act.
“Depositors should be fully compensated in the currency in which they deposited their money.”
At the turn of the century the banking and financial services sector experienced upheavals that resulted in some of the institutions being shut down by authorities, mainly attributed to poor corporate governance, resulting in depositors and investors losing their money.
“It is important to establish a separate banking institution insolvency regime which resonates well with the characterisation of banking institutions as special entities in the theory of finance and financial intermediation,” Hon Jere said.
Resolution of banking issues required that the matters be dealt with speed and finality, to curtail adverse repercussions on economic activity and bring urgent relief to the banking public and creditors, whose deposits would have been locked in the banking institution upon closure.
In 2012 Parliament enacted the Deposit Protection Corporation Act to, among other matters, provide for the management, functions and powers; and to establish a Deposit Protection Fund for the compensation of depositors in the event of financial institutions becoming insolvent; and to provide for the administration and application of the fund and to amend the Banking Act.
Honourable Jere however, said despite these reforms, more still needed to be done to restore the confidence of the depositors and investors.
Cabinet approved amendments to the Depositors Protection Act in 2020 with the proposals now at the Attorney General’s Office.
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