REGULATION AND

SUPERVISION OF
SECURITIES MARKETS

PRESENTED BY:
Lawyer Eshun

GSE COURSE 401

1
 COURSE CONTENT

1. An Overview of Securities
Regulation
2. The Structure of the Regulatory
System in Ghana
3. The Ghana Stock Exchange as Self-
Regulatory Organization
4. Regulation of Collective Investment
Schemes

2
 CHAPTER 1

AN OVERVIEW OF
SECURITIES REGULATION

3
 Legal Definition of a Security

Definition of Security Investment that signifies

evidence of debt or ownership of company or other
assets e.g. shares, debentures, stocks, bonds,
options and futures
In Ghana a security is defined strictly under Section
142 of the Securities Industry Act (PNDCL 333),
1993 as amended by the Securities Industry
(Amendment) Act, 200 (Act 590), as:
a) Shares or debentures within the meaning of the
Companies Act 1963 (Act 179);
b) Bonds or other loan instruments of Ghana
Government or any other country;
c) Bonds or other loan instruments of a corporation
established under an enactment for the time
being in force;
d) Rights or interests (whether described as units or
otherwise) under any unit trust;
e) Such other instruments as the Minister may by 4
notice in the Gazette prescribe.
THE RATIONALE FOR REGULATION
Securities regulation is driven by the need to:
1. Protect investors from insider abuse
and fraud
2. Promote financial disclosure
3. Prevent fraud and abuse
4. Enforce fiduciary responsibilities of
financial institutions
5. Promote safety and soundness of
financial institutions
6. Increase competition
7. Develop the capital market
5
 1. Investor Protection

Laws exist to restrict managers from buying

and selling securities using information which
only they, by virtue of their position, have
access to. See section 128 of P.N.D.C.L 333
External auditors verify the financial
information provided by firms
The basic tenet of public securities regulation
is investor protection.
Need to protect investors should be balanced
with the need for capital formation. Regulation
should be no more necessary to protect
reasonable people from being made fools.

6
 Investor Protection (Contd)
Elements of Investor Protection (Financial
Services and Markets Act, 2000,U.K):
1. A system of full and timely disclosure of all
material information
2. Registration of participants (Issuers,
underwriters, distributors, Investment
Advisory firms, etc)
3. Capital Requirements (e.g. One Billion
Cedis Requirement for Investment
Advisors)
4. Segregation of customer account from
firms account
5. Guarantee funds or bonding should be
established to protect against employee
error, malfeasance, or payment failure).
See section 99 of P.N.D.C.L. 333 as
amended 7
 Elements of Investor Protection (Contd)

A system of competitive/negotiated broker

commission should be adopted
Internal system to monitor compliance with
regulations
Low cost and flexible system for filing complaints and
arbitration should be available to clients. See section
8(c)(1) of P.N.D.C.L. 333 as amended
An industry code of conduct (See Compliance
Manual for Broker-Dealers, Investment Advisers
& Representatives dated January 2008) should
ensure that:
Brokers understand the financial needs of clients
and recommend suitable investment for them
Brokers disclose potential conflict of interest
Brokers invest client fund according to client
needs
Brokers buy for clients at best possible price
Brokers give priority to client accounts during
trades 8
 2. Promotion of Financial
Disclosure
Ensures equal access to
information by all market
participants
To enable the investing public to
make an informed investment
decision, financial information
must be:
Reliable
Accurate
Timely
9
 3. Prevent Abuse and Fraud

Laws exist to prevent abuse and fraud in order to

maintain confidence in the financial system since
participating in the financial system involves money
Market Manipulation-Ernst & Ernst v Hochelder-
Manipulation connotes intentional or wilful conduct
designed to deceive or defraud investors by controlling
or artificially affecting the price of securities
For example fraud in connection with the purchase or
sale of security in breach of fiduciary duty by secretly
converting for personal use information that has been
entrusted to that person. See sections 122 to 130 of
P.N.D.C.L .333 as amended

10
 4. Promote Safety and Soundness

Regulators establish criteria for

supervision to avoid failure of
financial institutions, since a failure
of one firm could cause a run on the
others.
Regulation for safety and soundness
of financial institutions is called
prudential regulations.
Prudential regulations allay:
1. financial panics, which disrupt
economic activities
2. Loss of wealth of market participants,
resulting from failure of financial 11
5. Enforce Fiduciary Responsibilities of
Financial Institutions
A fiduciary is a person who occupies a position of such power and
confidence with regard to the property of another that the law
requires him to act solely in the interest of the person who he
represents.
Fiduciary duties under common law are usually threefold.
These include
a. A duty to avoid conflict of interest
b. A duty to avoid secret profits
c. A duty to always act in the best interest of your principal

Examples of fiduciaries include Agents, Trustees, Investment

Advisors, etc
Financial institutions are in fiduciary relationship with their clients,
as a result of investment decisions they make on their behalf.

12
Fiduciary Responsibilities of Financial
Institutions (contd)
A fiduciary must NOT:
Make secret profit at the expense of
his client
Compete with his client without his
consent
Act unfairly towards his client
Making a full disclosure of all facts
when dealing with him>
Delegate performance of his fiduciary
duties to a third person without the
clients consent.
A fiduciary MUST:
Make full disclosure of all facts when13
6. Development of the Capital Market
Optimal level of regulation may
bolster investor demand for
securities and hence result in
development of the capital market

14
 7. Increase Competition
Provides quality service at lower
prices

15
Regulation Of Market Institutions

Market institutions include:

1. Securities Issuers
2. Organized Exchanges and Over-
the-Counter Markets
3. Institutional Investors

16
REGULATION OF MARKET INSTITUTIONS (contd)

Securities Issuers
Regulated to ensure compliance with
guidelines, registration, and disclosure
requirements
E.g. (1) Securities issuers are required to
prepare prospectus (2) Listed companies are
required to prepare quarterly financial
statements
See Section 9(j) of P.N.D.C.L. 333 as
amended and Sections 265 to 291 of the
Companies Act, 1963 (Act 179) as
amended.
17
REGULATION OF MARKET INSTITUTIONS (contd)

Organized Exchanges and Over-

the-Counter Markets
Organized exchanges (e.g. GSE) have
physical location, organized on not-for-
profit basis, trade securities following a set
of rules and procedures
Over-the-Counter (OTC) markets do not
have single location, but comprise a
network of brokerage firms. OTCs may also
be organized formally as electronic
securities exchanges, e.g. the NASDAQ
(National Association of Securities Dealers
Automated Quotations) in the United 18
REGULATION OF MARKET INSTITUTIONS (contd)

Institutional Investors
Require attention in national
securities laws
May play multiple roles such as
securities issuer as in mutual fund,
underwrite issues, purchase or invest
in an offering, offer investment
advice, or manage fund on behalf of
clients, etc.
Some institutional investors act only
as passive investors, and only
19
assume substantial equity positions
 REGULATORY AGENCIES

Role and Power

Market Regulation
Self-Regulatory Organizations (SROs)

20
 REGULATORY AGENCIES (contd)

Role and Power

Regulator must be an independent agency

with qualified staff
Regulator must have sufficient inspection,
monitoring, and regulatory powers
Must have the ability to issue opinions, and
exercise quasi-legislative and quasi-judiciary
powers
Functions of securities commissions
normally include overseeing the registration
of securities, public offerings, and exchange
listings 21
 REGULATORY AGENCIES (contd)

Market Regulation
Involves supervision of the operations of
the securities markets and professionals
within the markets.
Extends to registration of securities
(both listed and OTC), registration of
broker/dealers, and setting of capital
requirements for securities firms,
exchanges, and clearing companies, and
depositories. See section 9(c) of
P.N.D.C.L. 333 as amended.
22
 REGULATORY AGENCIES (contd)

Self-Regulatory Organizations (SROs)

SROs generally provide first level capital
market regulation
SROs are not-for-profit organizations such as
exchanges (GSE) and professional societies
of broker/dealers, securities analysts, RPBs
etc (GSIA)
Regulatory authorities empower SROs to
create rules, and monitor and enforce
industry practices among membership
Typically, regulators hold professionals to a
legal standard of conduct, but SROs go
beyond that to hold members to ethical and
moral standard of conduct
Functions usually delegated by regulator to
SROs include the following: 23
 REGULATORY AGENCIES (contd)

Establishment of information and prudential

requirements for offering or listing of
securities
Authorize prohibit, or suspend trading of
publicly offered securities
Monitor issuers to authenticate and ensure
compliance with information requirements
Ensure the transparency and legitimacy of
trading
Establish industry eligibility and
membership requirements
Establish standards for financial record
keeping for members
Exercise disciplinary powers
Establishment of trade conventions for
24
instruments, clearing and settlement
 ADVANTAGES OF SROs
Advantages
The preference of self regulation to
governmental regulation by a statutory
agency explains its advantages.
Flexibility
Cost
Preserve autonomy and independence
of investment sector
Expertise of regulators

25
 DISADVANTAGES OF SROs
Lack of direct accountability.
SROs may arrogate more powers to
themselves than intended by
Parliament.
Customers could easily be exploited
by the professionals in the market
without being aware (unsophisticated
investors).
Complex institutional structures
26
 CHAPTER 2

THE STRUCTURE OF THE

REGULATORY SYSTEM IN
GHANA

27
THE STRUCTURE OF THE REGULATORY SYSTEM IN
GHANA

Some Statutory regulatory bodies in Ghana

Bank of Ghana set up by the Bank of Ghana Act, 2002 (Act 612) as amended
Securities and Exchange Commission set up by the Securities Industry Act, 1993 (P.N.D.C.L. 333)
as amended
Registrar-General of Companies under the Companies Act, 1963 (Act 179) as variously amended
National Insurance Commission set up by the Insurance Act, 2006 (Act 724) as amended
National Communications Authority set up under the National Communications Authority Act,
2008 (Act 769)
Public Utilities and Regulatory Commission set up under the Public Utilities and Regulatory
Commission Act, 1997 (Act 538)
Postal and Courier Services Regulatory Commission set up under the Postal and Courier Services
Regulatory Commission Act, 2003 (Act 649)

In Ghana regulation is aimed at simultaneously

maximizing investor protection and enhancing
intermediation role by financial institutions

Two layers of regulation in Ghana are reflected

in responsibilities of GSE as an SRO and SEC as
the statutory regulator. It may be described as 28
IMPORTANT LAWS FOR THE SECURITIES MARKETS

1. Securities Industry Act, 1993 (PNDCL 333)

2. Securities Industry (Amendment) Act, 2000 (Act 590)
3. Securities and Exchange Regulations (L.I. 1728)
4. Unit Trusts and Mutual Funds Regulation, 2001 (LI 1625)
5. Code on Takeovers and Mergers dated January 2008
6. Compliance Manual for Broker-Dealers, Investment
Advisers and Representatives dated January 2008
7. The Ghana Stock Exchange Rulebook dated December
2006
8. The Companies Act, 1963 (Act 179) as variously amended
9. The Banking Act, 2004 (Act 273)as amended by the
Banking (Amendment Act) 2007
10. The Financial Institutions (Non-Banking) Law, 1993
(PNDCL 328)

29
 THE COMPANIES CODE
Types of Companies
Act 179 defines a company as a body
corporate formed and registered under the
Code or an existing company. See
section 2 and the first Schedule of
Act 179 as amended
Under the Companies Code, only public
companies can invite the public to
subscribe to its securities. See section
265 of Act 179
Under Sections 9(3) of Act 179, a
private company is defined as a company
which by its Regulations does the
following: 30
Restricts the rights to transfer its shares,
 Companies Code
Prohibits the company from making any
invitation to the public to acquire any shares or
debentures of the company ; and
Prohibits the company from making any
invitation to the public to deposit money for
fixed periods or payable at call, whether or not
bearing interest.
Act 179 provides that any other company
shall be a public company. In other words,
a public company is a company that in its
regulations has no restriction on the right
to transfer its shares, has no upper limit on
the number of its shareholders or
debenture holders and is not restricted in
making invitations to the public. 31
 Issues of Securities
Control of Public Issues
First of all, only public companies may make
invitations to the public subject to rigorous
regulatory procedures.
Meaning of invitation to the Public: -
See section 266(1) For the purposes of this
Code, an invitation shall be deemed to be
made to the public if an offer or invitation to
make the offer is,
a.published, advertised or disseminated in
Ghana by newspaper, broadcasting,
cinematograph, or any other means
whatsoever, 32
 Issues of Securities
b.made to or circulated among any persons
whether selected as members of
debenture holders of the company
concerned as clients of the person making
or circulating the invitation or in any other
manner,
c made to any one or more persons upon
the terms that the person to whom it is
made may renounce or assign the benefit
thereof or of any shares or debentures to
be obtained thereunder in favour of any
other person, 33
 Issues of Securities
d.made to any one or more persons to
acquire any shares or debentures dealt in
upon any stock exchange or in respect of
which the invitation states that application
has been or will be made for permission to
deal in those shares or debentures upon
any stock exchange.

34
 Issues of Securities
Provided That
nothing herein contained shall be taken as
requiring any invitation to be treated as made to
the public if it can properly be regarded in all
the circumstances as being a domestic concern
of the persons making and receiving it;

an invitation made by or on behalf of a private

company exclusively to its existing shareholders
and debenture holders, not being greater in
number than 50 and its existing employees shall
not be deemed to be an invitation to the public
unless it is of the type referred to in paragraph
(c) or (d) of this subsection.
35
 Consequences of breach

Any person who breaches this provision is liable to a fine or a term of

imprisonment or to both, see Section 265(3) of Act 179 as
amended and,
any person who acquires or disposes of shares as a result of any
invitation to the public shall be entitled to rescind the transaction
and/or recover compensation for any loss sustained by him. See
Section 265(4) of Act 179 as amended
Where, in accordance with subsection (4), a person claims to rescind
a transaction that person shall do so with reasonable promptitude
and is not entitled to rescind a transaction with the company or to
recover compensation from it unless that person takes steps to
rescind before the commencement of the winding up of the
company, but the fact that it is too late to rescind shall not prejudice
the right of that person to recover compensation from a person other
than the company. See Section 265(5) of Act 179 as amended

36
 Public Issues

Under the Companies Code, public companies that wish to

issue bonds, ordinary and preference shares must do so by
way of a prospectus, which must be registered with the
Registrar of Companies. See section 275(1) of Act 179
as amended. Under the SIL, prospectuses issued with an
invitation to the public must also be submitted to the SEC
for examination and approval and must include the
information specified in Regulation 51(1) and Schedule
5 of the Regulations L.I. 1728.
A prospectus is a document which provides key
information about the issuer and describes a new security,
including terms and conditions of the issue, information on
the issue and the use to which the funds will be put. A
prospectus must include the following information:

37
 Public Issues
General information regarding the issuer name,
address, legal form, authorized businesses, and
names, addresses and occupation of directors and
auditors.
information regarding the issue amount of offer,
purpose of issue, denominations of issue,
minimum amounts, offer period, maturity and
redemption datesetc
information regarding experts and advisers to the
issue.
financial information regarding the issuer existing
indebtedness, audited financial statements

38
 Public Issues
prospects and risk factors affecting issuer
- economic factors affecting the issuer or
the project to be financed with the issue,
principal risk factors of the issuer or
project to be financed with proceeds of the
issue.
Additional information material
contracts for the 2 years preceding the
issue, any litigation or legal proceedings
likely to affect the issuers financial
position, tax implication on interests,
capital gains and transfer of securities, 39
 Corporate Governance
Mechanisms
Corporate governance is the system by which
companies are directed and controlled. It covers
topics such as:

How power is divided between the board and the

shareholders
The accountability of the board to the members
The rules and procedures for making decisions.

40
 HISTORY IN THE UK AND NEED FOR
CORPORATE GOVERNANCE

A little bit of the History of Corporate Governance in the UK and the need
for Corporate Governance

During the late 1980s a number of large UK public companies failed,

some of them as a result of large-scale fraud by their directors.

These failures reduced public confidence in financial reporting and

auditing. Many people believed that company directors regarded
accounting standards as a set of rules to be circumvented and creative
accounting was implicated in several company liquidations:

Directors were pressurizing auditors to accept the use of creative

accounting schemes. As the auditors often received extra remuneration
from the company for consultancy work, disagreement with the directors
in the audit process could result in the loss of this additional income.
This situation often compromised the auditors independence.

41
 Board of Directors
Role of Board Under section 179 of Act 179,
directors are defined as those persons who are appointed
to direct and administer the business of the company.
Election of Directors Normally directors are chosen at
an annual general meeting because of their background,
experience or specialised knowledge in the particular
field of activity. In any case the Act disqualifies the
following persons:
a minor below the age of 21
A lunatic
A bankrupt
A person who has been convicted on indictment of an
offence involving fraud or dishonesty or has been guilty
of any criminal offence in relation to any body corporate.
An undischarged bankrupt. See section 182 0f Act 179

42
 Board of Directors
Duties and Responsibilities of the Board
Normally the duties and responsibilities accepted
and performed by the Board include the following:
To formulate policies for the company aimed at
improving the companys profit performance and
ensuring fulfilment of the companys plan;
To be loyal to the company which duty includes
disclosing to the company any personal interests
in the transaction contemplated by the company.
Not to usurp company opportunities for their own
interests or act in a manner that is contrary to the
best interest of the company;
Not to engage in business that competes with the
company;
43
 Board of Directors
Not to accept compensation for effecting
decision-making by the companys
governing bodies;
Perform their official duties in good faith
and in the best interest of the company;
and
Be responsible to the company for any
damage they may have caused the
company as a result of their failure to
perform, or negligence in performing the
functions required of them by law.
44
 Shareholders
Rights of Shareholders
As part of the principles of good practice
of corporate governance, the Companies
Code gives shareholder the following
rights in regard to his investment in a
company.
The right to participate in the companies
profits by way of dividends;
The right to attend general meetings of
the company and to speak and vote on
any resolution before the meeting.
45
 Shareholders
The right to sell shares;
Right to buy additionally issued shares
(in the case of a rights issue);
Right to participate in the distribution of
the companys property in the event of
its liquidation
Right to appoint and remove directors.
Right to inspect the register of members.
Requisition resolutions
46
 Shareholders
Duties of shareholders
Apart from paying the full price of shares
issued to him/her in accordance with
deadlines in allotment instrument,
shareholders are required to do the
following:
Participate in shareholder meetings
Not to act against the interest of the
company;
Not to disclose certain confidential
information of the company; and
To act in accordance with the companys 47
 Corporate Governance
Employees
Audit control and reporting
Books and records

48
 THE SECURITIES INDUSTRY LAW (SIL) & SECURITIES
AND EXCHANGE COMMISSION REGULATIONS LI 1728
(SEC REGULATIONS)

Broad objective of SIL are to

Regulate securities market institutions,
and
Prevent inequitable and unfair practices
in the securities markets
SEC is the primary agency
responsible for administering the SIL

49
 FUNCTIONS OF SEC

1. Advise the Minister of Finance on all

matters relating to the securities
industry
2. Maintain surveillance over activities of
the securities market
3. Register, license, authorize or regulate
stock exchanges, investment advisors,
unit trusts and mutual fund schemes,
securities dealers and their agents ,
and to control their activities with a
view to maintaining proper standards
of conduct and acceptable practices
4. Formulate principles for the guidance
of the industry
5. Monitor the solvency of license holders 50
 FUNCTIONS OF SEC (contd)

6. Protect integrity of the securities market

against abuses
7. Minimize conflict of interest
8. Review, approve, and regulate takeovers,
mergers, acquisitions, and all forms of
business combinations
9. Create the necessary environment for the
growth and development of the capital
market
10. Assume responsibilities under the section
279 of Companies Act 1963 (Act 179).
See section 9 of SIL 51
 3.To achieve the object the Commission shall
(a) advise the Minister on matters relating to the securities industry;
(b) maintain surveillance over activities in securities to ensure orderly, fair
and equitable dealings in securities;
(c) register, license, authorise or regulate, in accordance with this Act or the
Regulations,
(i) securities exchanges,
(ii) commodities and futures exchanges,
(iii) securities depositories,
(iv) clearing and settlement institutions,
credit rating agencies,
(vi) fund managers,
(vii) investment advisers,
(viii) unit trusts,
(ix) mutual funds,

52
 (x) hedge funds,
(xi) private equity funds,
(xii) venture capital funds,
(xiii) nominees,
(xiv) underwriters,
(xv) issuing houses,
(xvi) registrars,
(xvii) custodians,
(xviii)trustees,
(xix) primary dealers,
(xx) broker-dealers, and
(xxi) the agents of the persons specified in subparagraphs (i) to (xx);
to control and supervise their activities with a view to maintaining
proper standards or conduct and acceptable practices in the securities
business;

53
 (d) formulate principles for the guidance of the industry;
(e) monitor the solvency of licence holders and take
measures to protect the interest of customers where the
solvency of a licence holder is in doubt;
(f) protect the integrity of the securities market against
any abuses arising from dealing in securities including
insider trading;
(g) adopt measures to minimise and resolve any conflict
of interest that may arise for market operators;
(h) review, approve and regulate takeovers, mergers,
acquisitions and all forms of business combinations in
accordance with any law or code of practice requiring it to
do so;

54
 (i) create the necessary atmosphere for the orderly
growth and development of the capital market;
(j)perform the functions referred to in section 279 of the
Companies Act 1963 (Act 179);
(k) examine and approve invitations to the public made
by issuers other than the government;
(l)authorise and regulate the issuing of securities in
Ghana by foreign issuers;
(m) perform other functions specified under this Act; and
(n) undertake activities that are necessary or expedient
for giving full effect to the provisions of this Act.

55
 ENFORCEMENT OF THE LAW
The SEC Regulations were passed in 2003
The regulations apply to: stock exchanges, investment advisers,
dealers, including broker-dealers, trustees, share transfer agents,
custodians, and central securities depositories, providers of securities
clearing and settlement services, underwriters, issuing houses, dealers,
investment representatives, issuers of securities to the public
SEC has rules as to:

1. Qualification of directors and other executive officers

2. Licenses, capital requirements and fees
3. Financial and compliance requirements (e.g.
Requirement to appoint a suitably qualified person as a
compliance officer, and requirement to maintain
complaints register)
4. Appeals to the commission from rejection of application
membership, application to list or delist securities
5. Forms and content of advertisement to the public
6. Financial disclosures by issuers of securities
56
ENFORCEMENT OF THE LAW (contd)
SEC is empowered to require agencies under
its regulatory authority to produce records, as
well as investigative and disciplinary powers:

SEC uses the following methods to enforce the

law:
1. Withdrawal of approval for a stock exchange
2. Prohibition of trading in a particular security
3. Approval of changes to the rules of a stock
exchange or amend the rules of the exchange
4. Expulsion of a member of the exchange
5. Compelling observance or enforcement of the
rules of an exchange by court order
6. Issuance of directives to a stock exchange in
respect of the manner in which a stock exchange
carries on its business
7. Imposing penalties, which may consist of a fine,
revocation of license, or suspension
57
 STANDARD OF CONDUCT
SIL establishes the following basic standard of conduct to
ensure that securities dealers discharge their responsibilities
as fiduciaries:
1. Contract notes issued by dealers must
provide some minimal information, and
disclose whether or not he is acting as an
agent or principal
2. Disclosure of interest in securities
recommended to clients
3. Advisors must have reasonable basis for
recommendations to persons who rely on
their advice
4. Prohibition of unsecured credit for dealers
employees for the purpose of purchasing
securities
5. Dealers cannot engage in front running
58
6. Customers monies collected should be
 TRADING OFFENCES
SIL specifically prohibits the following trading offences:

1. False trading and rigging transactions

2. Stock market manipulation
3. Dealing in Securities by Insiders
4. Other illegal practices including:
a) False or misleading information
b) Fraudulently misleading others to deal
in securities
c) Employment of manipulative and
deceptive devices
Corporate offenders are subjected to a fine
not exceeding Five Million Cedis. Individual
offenders are subject to a fine not exceeding
Five Million Cedis or to a term of
59
imprisonment not exceeding three years
 THE ADMINISTRATIVE HEARING
COMMITTEE (AHC)
The SIL (Amendment) Act, 2000
established an Administrative Hearing
Committee to examine and determine
complaints arising out of the SIL
The AHC is composed of the Chairman of
the Commission, and four other
members of the commission elected by
the members
Decisions of the AHC are subject to
approval by the Commission
A person dissatisfied with a decision of
the AHC confirmed by the Commission 60
 OTHER RELEVANT LEGISLATION BANKING
LEGISLATION

Bank of Ghana plays a major role in the

securities industry as a regulator of banks
and the money market as well as a fiscal
agent for the government of Ghana
The Bank of Ghana serves as a fiscal agent
of Ghana Government pursuant to the Bank
of Ghana Act 1963, and has the responsibility
to issue treasury bills, notes, and bonds on
behalf of the Government.
BoG establishes procedures to maintain
orderly market in treasury instruments (bills,
notes, and bonds)
The Banking Act 2004 authorizes BoG to
licence banks, and also vests regulatory
authority in the central bank over banks
operating in Ghana. 61
The Financial Institutions (Non-Banking) Law,
 OTHER RELEVANT LEGISLATION
BANKING LEGISLATION (contd)
The Financial Institutions (Non-
Banking) Law, 1993 (PNDCL 328)
vests further regulatory authority in
the central bank to supervise the
following nine categories of non-bank
financial institutions (NBFIs).
1. Discount Houses
2. Finance Houses
3. Acceptance Houses
4. Building Societies
5. Leasing companies
6. Hire Purchase companies
7. Savings and Loans
8. Credit Unions
9. Mortgage financing companies 62
 ACCESS BY NON-RESIDENTS AND
FOREIGNERS
BoG has given exchange control permission
for all external resident portfolio investors
including foreigners to buy, hold, and sell
listed securities subject to the following:
1. An external resident portfolio investor can
be any individual or corporate body which is
not resident in Ghana
2. An external resident portfolio investor can
have a holding in one listed security up to
the percentages stated below:
Individuals (other than externally resident
Ghanaians) 10%
Institutional investors 10%
Total holdings of all external residents in63
 ACCESS BY NON-RESIDENTS AND
FOREIGNERS (contd)
3. The following persons can invest in listed
securities without any limit
4. Ghanaians (whether in Ghana or outside
Ghana
5. Foreigners resident in Ghana
6. In relation to investments by external
residents in listed securities, the following
shall qualify for full and free foreign
exchange remitability
Original capital and principal amounts
Any capital gains
Dividends or interest payments 64
 OTHER LEGISLATION
Note the NATIONAL PENSIONS ACT,
2008 (ACT 766)
The objectives:
Provision of pension benefits to ensure
retirement income security.

65
 CHAPTER 3

THE GSE AS AN SRO

66
CHAPTER 3

THE GSE AS AN SRO

As an SRO, GSE:
Draws up rules governing member firms
business conduct
Sets qualification standards for securities
industry professionals
Examine members for their financial and
operational condition and compliance with
rules
Investigates alleged violations of the
securities laws and discipline violators
Monitors trading
SEC oversees by:
Examining GSE for compliance with their
regulatory responsibilities
Reviewing and approving GSE rules, 67
 RATIONALE FOR SELF-REGULATION

1. Knowledge: Security industry professionals

have better knowledge of their industry
firsthand.
2. Motivation: GSE members would not want to
conduct their affairs in a manner that will
make the public lose confidence in them.
3. Economy: GSE is privately financed and
managed with a budget financed by its
members and issuers
4. Public Control: GSEs authority derives from
the SIL and can be withdrawn by legislation.
Thus efficiency of GSE is fully protected by
public control. 68
 REGULATION OF MEMBERSHIP AND
TRANSACTIONS

The following two laws reflect the self-

regulatory responsibility of the Ghana
Stock Exchange:
1. Stock Exchange (Ghana Stock
Exchange) Listing Regulations, 1990
L.I. 1509.
2. Stock Exchange (Ghana Stock
Exchange) Membership regulations,
1991, L.I. 1510.
69
 GSE MEMBERSHIP REQUIREMENTS
There are two categories of members of GSE:

1. Associate Members: - individuals, corporate

bodies or professional associations, which in
the opinion of the Council of the Exchange,
are law abiding, identify themselves with the
objectives of the Exchange, and desire to
contribute to the attainment of the
objectives.

2. Licensed Dealing Members (LDMs): -

companies incorporated under the
Companies Code 1963, (Act 179), and
partnerships incorporated under the
Incorporated Private Partnership Act (Act 70
 ESTABLISHING AND LICENSING A STOCK
BROKERAGE
The legal requirements for establishment of a
stockbrokerage firm in Ghana and licensing
by the Exchange are as follows:

1) The brokerage must be a company or

partnership firm duly incorporated in Ghana.
Under
Ghana Law, there must be at least two
directors or partners.
2) Directors or partners of that company should
have recognized academic or professional
qualifications or experience in banking, law,
accountancy, economics, business
administration, secretarial practice, dealing
in securities, or any other qualification that
the Council of the Exchange may consider
acceptable
3) The directors or partners must, in the opinion 71
 ESTABLISHING AND LICENSING A STOCK
BROKERAGE (contd)

5) The brokerage must have a minimum stated

capital of GHC100,000,000 (One hundred
million cedis), or such an amount that the
Council shall from time to time determine.
Brokerage should promptly inform council if
its liquid funds or fixed capital fall below the
minimum.
6) Admission of LDMs is by auction. LDMs
seats on the exchange will be auctioned to
the highest bidders everything else being
equal. Council shall determine the time
intervals for auctions. Also, auctions shall be
conducted after the Council meeting
specified in regulation 6(1) of LI 1510, and
before publication of LDMs names as per 72
regulation 6(3) thereof.
 BEFORE AN LDM COMMENCES BUSINESS

Further requirements that an LDM should fulfill

in relation to prospective office premises
before commencing business are as follows:

1. Existence of sufficient lease or other

occupancy agreement.
2. Approval by relevant municipal or other
authority
3. Adequacy of business premises, staff
operating area, customers facilities
4. Display of corporate name and other
statutory requirements
5. Security of premises including adequacy of
extinguishers, documents safe, etc. 73
 BEFORE AN LDM COMMENCES BUSINESS (contd)

Further requirements that an LDM should fulfill in

relation to prospective office premises before
commencing business are as follows:

7. Corporate plan and policies approved by the

Board
8. Accounting procedures manual and
establishment of statutory books
9. Availability of appropriate system, software,
etc.
10. Adequacy of staffing including key officer(s)
and manager(s).
11. Availability of appropriate system, software,
etc
12. Capital subscribed and received 74
 CONTINUING CONDITIONS AND OBLIGATIONS OF AN
LDM INCORPORATED AS A COMPANY
The LDM shall not change its regulations
without the approval of the GSE
It shall not go into voluntary liquidation
without giving the GSE at least 30 days notice
No director shall resign without the prior
approval of the GSE
It shall all times have at least two directors,
though a sole surviving director may carry on
business for four (4) weeks
None of the directors may, without the prior
approval of the GSE, engage in any other
business other than that of a stockbroker or
dealing in securities , but may hold shares or
be a non-executive director of a company.
File with the GSE a copy of the Annual
Returns required by the Company Code.
75
Maintain a minimum capital of GHC10,000,000
 CONTINUING CONDITIONS AND OBLIGATIONS OF AN
LDM INCORPORATED AS A PARTNERSHIP
The partnership shall at all times have not
less than two partners, and shall promptly
inform the GSE of the death of a partner or if
any of its partners shall cease to be a partner.
However, with the approval of the GSE a sole
partner shall continue to do business for 4
weeks
Partnership agreements and subsequent
changes to it must be approved by GSE
Voluntary dissolution and a partners
resignation requires at least 30 days notice to
the GSE
None of the partners may without the
approval of the GSE engage in any other
business other than that of a stockbroker or76
securities dealer but may hold shares or be a
 MAINTENANCE OF RECORDS

Records of business and affairs shall be

maintained in sufficient detail
Accounts should be drawn up annually at
intervals of not more than 54 weeks
Accounts should be audited by an auditor
appointed with the approval of the GSE
The auditor should give a report to the GSE
A separate account should be opened into
which all clients monies less commissions
should be deposited.

77
 CODE OF CONDUCT FOR LDMs

An LDM is deemed to be guilty of

misconduct ro unprofessional conduct, if he
violates any of its provisions.
In dealing with clients, the main elements of
the Code of Conduct are that an LDM shall:
Maintain high standards of integrity, promptitude,
and secrecy in all dealings with clients
Ensure that clients interest are paramount and
protected at all times
In dealing with another LDM, and LDM shall
not indulge in dishonourable or disgraceful
or disorderly or improper conduct or wilfully
obstruct the business of the Exchange
78
 AUTHORISED DEALING OFFICERS

An LDM shall be represented by an

Authorized Dealing Officer (ADO) who alone
will be given access by GSE to the floor of
the Exchange.
An LDM shall appoint an ADO with the prior
approval of GSE
Once an ADO is expelled or suspended by
GSE, no LDM can employ him/her
An ADO shall have a record of high integrity
and standard of business conduct, as
indicated from investigation and observation
of his and past employers
The GSE shall consider an ADOs potential
ability to perform satisfactorily during a 79
period of specific training in the duties of an
 AUTHORISED DEALING OFFICERS (contd)

An ADO must be at least 21 years , and

must have passed or been exempted from
such qualifying examinations as may be
conducted by the GSE
An LDM shall be liable for all transactions
executed on the GSE by its representative
ADO, until such time that the LDM notifies
the GSE of the termination of the ADOs
appointment(vicarious liability)
An ADO shall be full time employee of the
LDM, and shall have no other business
without the prior approval of the GSE
80
 CLASSIFICATION OF LISTINGS

1. Official Lists: First, Second, and Third

Official Lists of the Exchange subject to
some requirements that can be modified
by the Council of the Exchange.

81
 METHODS OF BRINGING SECURITIES ON TO THE
EXCHANGE
1. A Prospectus Issue: Offer by a company of
its own security to the public
2. An Offer For Sale: Offer of securities already
in issue to the public by an issuing house or
brokerage firm that has already subscribed
to the issue.
3. A Placing: Privately dealing in securities by a
broker or its client through the market
4. An Introduction: Where no marketing is
required since security is already widely held
5. A Rights Offer:
6. Vendor Consideration Issue: Issue of
securities in consideration for assets of a
business 82
 LISTING CRITERIA LEGAL STATUS OF CAPITAL
ISSUERS

1. Government of Ghana
2. Any of the following forms of
companies formed under the
Companies Code, 1963 (Act 179):
1. Public limited liability company
2. State Owned Enterprises (SOEs)
ready for privatization through
public flotation of securities
3. Unit Trusts or Mutual Funds
4. Other public corporate bodies
recognized under any law of Ghana 83
 SECURITIES THAT CAN BE LISTED

1. Shares issued by companies

2. Debt instruments: Bonds issued
by companies, municipal
authorities, or Government

84
 MINIMUM LISTING REQUIREMENTS

1. All Securities:
1. Issuer must have applied to the
GSE
2. Application must be sponsored by a
Licensed Dealing Member (LDM)
3. There must be a prospectus or
other document approved by the
Exchange
4. Securities should have been fully
paid for
5. Securities should be freely
transferable 85
 MINIMUM LISTING REQUIREMENTS (contd)

1. All Corporate Securities must satisfy

the following in addition to the
requirements that apply to all
securities:
1. Published account for the preceding 5 years
for First List, 3 years for Second List, and 1
year (may be waived) for Third List.
2. Reasonable corporate profit over prior
statutory period or strong potential to be
profitable
3. Continuity and competence of issuers
managers
4. Satisfactory character and integrity of
Board and Management
5. Ready and willing to discharge all
continuing listing obligations relating to 86
 MINIMUM LISTING REQUIREMENTS (contd)

1. All Corporate Securities continued: Specific case

of Shares. At the time of final approval for listing
company must satisfy the following:

First Second Third

List List List
Minimum Stated Capital 100M 50M 20M
Minimum Public Share 30M 15M 5M
Offer
Min Public Float as % of 25% 25% 25%
Issued Shares 87
 MINIMUM LISTING REQUIREMENTS (contd)

1. Corporate Debt Only: In addition to the

requirements for all securities, listing of
corporate debt must satisfy the following:
1. Minimum amount of issue - 200M for 1st
and 2nd Lists, 20M for 3rd List
2. Minimum number of holders of the
security 100 holders for 1st and 2nd
Lists, 50 holders for 3rd List.
3. Securities must be created and issued
pursuant to a Trust Deed
4. Trustee must be a bank, life insurance
company or any other company
authorized by the laws of Ghana
88
 MINIMUM LISTING REQUIREMENTS (contd)

1. Corporate Debt Only: In addition to the

requirements for all securities, listing of
corporate debt must satisfy the following:
1. Minimum amount of issue - 200M for 1st
and 2nd Lists, 20M for 3rd List
2. Minimum number of holders of the
security 100 holders for 1st and 2nd
Lists, 50 holders for 3rd List.
3. Securities must be created and issued
pursuant to a Trust Deed
4. Trustee must be a bank, life insurance
company or any other company
authorized by the laws of Ghana
89
 MINIMUM LISTING REQUIREMENTS (contd)

1. Other Key Considerations:

. Steps to be taken to list
. Timing and duration of the listing process
. Pricing of the security
. Marketing and distribution
. Cost of listing

90
 STEPS INVOLVED IN AN INITIAL PUBLIC OFFER
(IPO)

1. Company applies for listing and appoints

an LDM to sponsor its application
2. Company submits its regulation to the
Council for approval
3. Company files original listing application
and supporting papers with the Exchange
4. Council approves listing application
5. Company files final copy of prospectus
(vetted by GSE) with SEC and GSE.
6. Company issues prospectus to the public
7. Company anounces basis of allotment of
shares
8. Company issue shares pursuant to the
allotment
9. Shares admitted to 1st, 2nd, or 3rd List, as
the case may be
10. Shares starts trading seven days
91
after
 RULES ON TAKEOVERS AND MERGERS

A public announcement of takeover must be made

by the offeror company and the offeree company
when:

1. Any person in his own name or in the name of any

other person acquires, whether by a series of
transaction over a period of time or otherwise,
acquires securities, which when aggregated with
securities already held or acquired by that person
shall carry 30% or more of the total relatives,
nominees control or manage the company, or;

2. Any person secures the control of management of

a company, by acquiring or agreeing to acquire
irrespective of the percentage of the voting
capital, the securities of the directors or other
members of the company, who by virtue of their
holdings together with the holdings of their
relatives, control or manage the company.
92
3. Reasons for Acqisition:To growin size and
 RULES ON TAKEOVERS AND MERGERS (contd)

The offeror company shall, either before or

immediately after communicating its offer to the
offeree company, make an offer to the remaining
members of the offeree company to purchase their
shares at a price not lower than the average of the
highest weekly prices during the immediately
preceding 26 weeks from the public announcement
of the takeover offer or the negotiated price,
whichever is higher. The price shall be paid by cash
only.
Under GSE rules any of the following may give rise
to a takeover bid:
The purchase of shares which has the effect of
bringing the purchasers aggregate holding to 30%
or more of the issued shares.
The securing of control or management of a
company by acquiring or agreeing to acquire the
securities of those who control or manage the
company
The announcement of a firm intention through the
exchange to make an offer for a listed93
company
A takeover bid may have cash/share alternatives
 SURVEILLANCE OF LDMs

Surveillance of LDMs focus on both their practices

and financial and operating soundness
LDMs are required to submit quarterly statements
of financial conditions, known as Financial
Questionnaire and Report, which sets out the
following:
Assets
Liabilities and Capital
Net free capital
Compliance with minimum capital requirements
Firms whose net capital falls below the required
level are not permitted to continue in business

94
 DISCLOSURE POLICY OF THE GSE

Listed companies must:

make all information necessary for informed

investing available to the public
Take reasonable care that all investors enjoy
equal access to such information.
Immediately disclose all material information in
a manner designed to achieve fullest public
dissemination
Act to avoid a destabilizing market - a market
characterized by unwarranted price and volume
movements
Communicate fairly and clearly to clarify
rumored price-sensitive information
Refrain from unwarranted promotional
disclosure public announcements95that are not
 PROHIBITION OF INSIDER TRADING

The GSE Listing Regulation reinforces the

prohibition of insider trading by the SIL
What is insider trading-refers to the unlawful
trading in securities by persons while in possession
of material non-public information that is
important to investor making a decision whether to
buy or sell a security.
Scope: encompasses traditional insiders (officers
and directors) and tippees (persons to whom
insiders communicate non-public information
To be liable the tippee should know or should have
reason to know of the breach. If this condition is
met trading by the tippee will be subject to both
tipper and tippee liability.

96
 FIDELITY FUND

Both the SIL and GSE Regulations require that GSE

establishes a Fidelity Fund of not less than 5
Million for the purpose of compensating investors
who suffer losses in their brokerage dealings with
an LDM, and where the LDM is unable to meet
obligations arising out of the stockbrokerage
business.

97
 TAXATION

Capital Gains: -Capital gains realized on

sale of shares has been tax-exempt since
1990.
Interest Income:
Corporate bodies pay a withholding tax
of 10% on treasury instruments
(Treasury Bills, Notes, and Bonds, and
Bank of Ghana Bills)
Individuals are exempted
Dividends: Attract 10% withholding tax for
both corporate bodies and individuals
Corporate tax for listed companies
98
 INTERNATIONAL REGULATION
Need to establish compatible standards and
procedures has arisen out of increasing cross
border trading in securities
Securities Regulators have gone global:
International Organization of Securities Commissions
(IOSCO) headquartered in Montreal, Canada, acts as
an umbrella organization for securities regulators in
several countries.
IOSCO addresses matters of concern to securities
regulators throughout the world.
In the area of enforcing regulatory requirements,
IOSCO has assisted in developing a bilateral
cooperative agreements for the exchange of
regulatory information and for cooperation in the
investigation and prosecuting of wrongdoers
Stock Exchanges have also gone global:
Worlds principal exchanges are joined in the
Federation International des Bourses des Valeurs
(FIBV), or the International Federation99of Stock
Exchanges
 CHAPTER 4

REGULATION OF
COLLECTIVE INVESTMENT
SCHEMES

100
 COLLECTIVE INVESTMENT SCHEMES

Collective Investment Schemes:-

means of pooling the funds of several
investors into one portfolio, with
each participant in the scheme
owning a proportion of the
investment.
In Ghana, collective investment
schemes are set up as unit trust or
mutual funds
101
 UNIT TRUSTS

An investment fund established under a

trust deed made between a fund
management company, and the Trustee.
Trustee acts as legal owner of the funds
investment on behalf of the unit holders
Unit holders are entitled to attend and vote
at meetings on matters that affect the fund
The trust deed is the primary legal
document which constitutes the trusts
The trust deed sets out the rights and
obligations of the management company,
the trustee, and the unit holders
The trust deed usually delegate the day-to-
day management of the fund to the 102
 MUTUAL FUNDS
A mutual fund is a company that pools money
from shareholders and invest in a portfolio of
securities
An investor buys shares in the mutual fund
A management company selects and manages the
securities on behalf of the shareholders
Shareholders of the mutual fund are represented
by a board of directors, who have oversight
responsibilities for the fund business affairs.
Mutual funds are required by law to protect their
portfolio of securities by placing them with
custodian
A mutual fund may be open-end or close-end.
An open-end fund continuously issue new shares
and give liquidity to the shareholders by standing
ready to buy them back at net asset value
A close-end mutual fund issues a fixed number of
shares, and give liquidity to the investors by
listing the shares on an exchange
103
 REGULATION OF COLLECTIVE
INVESTMENT SCHEMES
1. Securities Industry Law, PNDCL
333, 1993
2. Securities Industry (Amendment)
Act, 2000, Act 590
3. Unit Trusts and Mutual Fund
Regulations, 2001, L.I. 1695
The SIL mandates SEC to regulate unit trusts and mutual
funds. But the detailed regulatory requirements have been
provided in the Unit Trust and Mutual Fund Regulations,
2001, L.I. 1695
104
 LEGAL PROVISIONS FOR UNIT TRUST

Establishment of Unit Trusts

Prospective managers of a unit trust can
establish a unit trust
A unit trust shall have a trustee
Manager and trustee shall be independent of
each other
A unit trust is constituted by a trust deed
between the manager and the trustee
Prior to 2000, Part IV of the SIL provided for the
regulation of unit trusts and mutual funds
The trustee takes into custody the property of
the unit trust and holds it in trust for the
investors.
Responsibilities of Manager
To manage the assets of the unit trust on a day-
to-day basis and select investments to be made
on behalf of the trust in the best interest of the
unit holders.
Act in accordance with the trust deed and
comply with investment objectives and policy105
under the directions given by the trustee.
 LEGAL PROVISIONS FOR MUTUAL FUNDS

Establishment of Mutual Funds

Directors applying for a license shall appoint a
manager and a custodian.
The manager shall be a limited liability
company and independent of the mutual fund
company
The custodian shall be independent of the
mutual fund company and be a bank an
insurance company or any other financial
institution approved by the SEC.
The directors of a mutual fund determine the
investment and general policies of the company
and direct the manager accordingly
The custodian of a mutual fund takes into its
custody the property of the mutual fund.
Duties of the Manager
Manage the assets of the mutual fund on a day-
to-day basis and select investments to be
106
owned by the fund.
 CAPITAL REQUIREMENTS AND MINIMUM
SUSCRIPTIONS

Capital Requirements
A manager of a unit trust or mutual
fund must at the date of application
have a minimum issued and paid up
capital of 1 billion.
Every trustee of a unit trust and every
custodian of a mutual fund shall at the
date of application have a minimum
issued and paid up capital of 5
billion.

Minimum Subscription 107

 SCHEME PARTICULARS

A mutual fund or unit trust can only be

marketed with a document containing the
particulars of the scheme.
A document that contains scheme particulars
shall be submitted to the Commission for
approval prior to dissemination to the public.
Operators of schemes are liable for losses
suffered by investors as a result of untrue or
misleading statements or the omission of
particulars required by Regulation.
An advertisement issued in connection with a
scheme must have been approved by the
trustee of the unit trust in writing or the board
of directors by a duly passed resolution, prior
to dissemination.
The manager of a unit trust and the board of
directors of a mutual fund shall publish or
cause to be published in such manner as may
be approved by the Commission, the issue and
redemption prices of interests in the scheme 108on
 PRICING, VALUATION, AND DEALING
The issues of units and shares may be subject
to a prospective investor purchasing interests
of a minimum number and value.
A scheme can charge only a preliminary charge
or exit fee but not both.
Any charges or fees shall be disclosed to
investors prior to investment.
The preliminary charge may not exceed 7% of
the issue price of an interest.
An exit fee may not exceed 5% of the
liquidation price of an interest.
The offer and redemption prices of a scheme
shall be calculated on the basis of the net asset
value of the scheme divided by the number of
interests outstanding.
Maximum of five (5) working days is required
for redemption of interest in a scheme. Where
impossible, SEC should be notified
liquidity amounting to at least 5% of the assets
of the scheme is required.
An investor is entitled to transfer interest in a109
scheme by executing a legally accepted
 RESTRICTION ON INVESTMENTS
Except with the prior approval of the SEC, the
manager cannot:

a) Invest in commodities, futures or options;

b) Invest more than 10% of the net asset value of
the fund in any type of real estate other than
securities of real estate companies or
companies that have engaged in real estate
investment activities;
c) Invest more than 25% of the net asset value of
the scheme in securities issued by a single
issuer;
d) Invest more than 10% of the net asset value of
the scheme in any particular class of securities
issued by a single issuer;
e) Invest more than 10% of the net asset value of
the scheme in other collective investment
schemes;
f) Invest more than 15% of the total net asset
value of the scheme in securities not listed or
quoted on an organized stock exchange;
110
g) Purchase securities on margin;
 RESTRICTION ON INVESTMENTS (contd))

h) Make any investment that will result in the

manager, trustee or scheme gaining
management control of a company in which the
investment has been made;
i) Make short sales or maintain a short position;
j) Acquire securities which are unpaid or partly
unpaid for;
k) Apply any of the assets of the scheme in the
acquisition of any investment which is likely to
involve the scheme in any liability, contingent
or otherwise;
l) Enter into underwriting or sub-underwriting
contracts in relation to the subscription or
purchase of any investment;
m) Invest in any securities of a class in a company
or other body if any officer or collectively
officers of the manager of the scheme own
more than 5% of the total nominal amount of
the securities of that class issued by the 111
 DISTRIBUTIONS

The income of a scheme may, with the

written prior approval of the trustee of a
unit trust or board of directors of a
mutual fund, be distributed after
deductions for remuneration of the
manager, trustee or custodian and other
eligible expenses.

Distributions of net income shall be for

periods not exceeding 12 months.

112
 REPORTS TO INVESTORS
The manager of a unit trust and the board of
directors of a mutual fund shall prepare a half
yearly and annual investors report to include:

A statement of the performance of the investments

of the scheme;
A statement of assets and liabilities
An income distribution account where a distribution
is made;
In particular, annual reports shall include the
following additional information;
i. a portfolio statement,
ii. a statement of movement in net assets,
iii. a comparative table,
iv. notes to the accounts,
v. a copy of the auditors report,

. In the case of a unit trust, a report from the trustee

and a mutual fund company, a report from the
custodian.

. Half-year report distributed within two months and113

 RULES CONCERNING THE MANAGER AND
MANAGEMENT OF A SCHEME
Manager must have at least three
directors, and majority of the directors
must have at least four years experience
in finance, accounting, or economics
CEO of the manager must have at least
first university degree in business,
economics, or finance or equivalent, and
four years business experience or non-
related degree with at least five years
business experience
The manager of a scheme shall ensure
that every scheme it operates is managed
by a designated investment officer.
Every director and employee concerned
with the day-to-day management and
administration of the business of the
scheme holds a valid investment advisors
or investment representatives license. 114
 RULES CONCERNING THE MANAGER AND
MANAGEMENT OF A SCHEME (contd)

The manager of a scheme shall establish,

maintain and enforce procedures that
will:
a) Ensure that only persons of good repute are
responsible for the day-to-day management of
the scheme,
b) Enable the manager to supervise the activities
of its employees in order to ensure compliance
with the Law and Regulations.
c) Ensure that employees exercise due diligence
and care in the performance of their duties and
act honestly in matters concerning the scheme,
d) Ensure that the interests of the scheme take
priority over the interests of the manager or
employees in any matter concerning the
management of the scheme,
e) Ensure that the manager or person concerned
with the management of the scheme does not
take advantage of information acquired in the
115
course of employment for personal gain or
 RULES CONCERNING THE MANAGER AND
MANAGEMENT OF A SCHEME (contd)

Dealings between manager, trustee, and Board of

Directors of a mutual fund and the scheme
otherwise than in accordance with the trading
procedures of the GSE are restricted.
Transactions between the scheme and the
manager or any person associated with the
manager or by or on behalf of the a scheme in
which the manager has an interest should only be
executed with the prior written consent of the
trustee in the case of a unit trust or the board of
directors in the case of a mutual fund.
Manager must maintain a complaint register and
investigate all complaints in an expeditious
manner
Persons engaged in the business of the scheme
have a duty to observe strict secrecy respect of
matters concerning the scheme, unless required
to reveal confidential matters in performance of
his duties or to comply with the provisions of a law
or by: 116
Board of Directors of the trustee, manager,
 TAXATION OF UNIT TRUSTS AND MUTUAL FUNDS

Do not pay taxes on their income.

Viewed as conduits that simply flow dividends and
capital gains to their interests holders
Distributions to interest holders are also tax free

Section 10 of the Internal Revenue Act, 2000 (Act

592) treats the following as exempt from income
tax:
the interest, dividend, or any other income earned by
an approved unit trust scheme or mutual fund
any other income payable under an approved unit
trust scheme or mutual fund to a holder or member
of that scheme.

Note that under this provision, income is tax free

both at the level of the unit trust/mutual fund and
in the hand of investors
117
 LONG-TERM SAVINGS PLANS BILL

Currently, all collective investment schemes

(mutual fund, unit trusts, provident funds, etc) in
the country are private collective investment
schemes.
All such schemes lack strict withdrawal regimes
withdrawals are allowed at short intervals.
Thus, these schemes generally fail to provide
retirement coverage and support.
Further, long-term savings plans are subjected to
diverse regulations
Moreover, SSNIT pension scheme which has strict
withdrawal regime has failed to provide adequate
financial support for retirement
Long-term Savings Scheme Act, 2004, Act 679,
was enacted to provide uniform regulation to long-
term savings plans to be established under the
Act.
The objective of the Long-term Savings Act, 2004,
Act 679, is to provide a tax-incentive based
voluntary long-term savings plans that would
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provide for any one or more of the following:
 LONG-TERM SAVINGS PLANS BILL (contd)

Plan Objectives:

1) Retirement Savings
2) Savings for home ownership and educational
needs
3) Savings for an all purpose plan
4) Lump-sum payment on account of physical or
mental disability
5) Lump-sum payment to dependants in the event of
death, or a contributor to a plan.

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 LONG-TERM SAVINGS PLANS BILL (contd)

Key Elements of Act 679:

1) Administration of Act 679

2) Rules for operation of plans
3) Allowed plan contributions
4) Rules for withdrawals
5) Tax treatment of Plans
6) Rules for management of Plan Funds by
Fund Managers
7) Offences
8) Dispute resolution procedures

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LONG-TERM SAVINGS PLANS BILL (contd)

1. Administration

1) A Long-term savings Scheme Agency has been

established to administer and operate the
Scheme. Duties of the agency include:
1) Formulating and pursuing policies to achieve the
object of the Scheme
2) Taking measures to protect the interest of
contributors where the Solvency of the Fund
Managers is in doubt.
3) Promoting and educating the public on the Scheme

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 LONG-TERM SAVINGS PLANS BILL (contd)

2. Rules for operation of plans

A plan fund is defined as consisting of

contributions by a person into a fund managed by
a Funds Manager on terms, conditions, and rules
agreed upon between the Funds Manager and the
Contributor, for one or more of the purposes
specified in the Act

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 LONG-TERM SAVINGS PLANS BILL (contd)

3. Allowed plan contributions

A person may contribute to a plan on his/her own

behalf or on behalf of a named beneficiary. An
employer may also contribute to a plan on behalf
of an employee

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 LONG-TERM SAVINGS PLANS BILL (contd)

4. Rules for withdrawals

Group Personal Retirement Plan or Individual

Retirement Plan: 10 years from date of first
contribution

All Purpose Plan: - 8 years from date of first

contribution

Home Ownership/Educational Savings Plan: - Five

years from date of first contribution

Withdrawals can be made at any time following

certification by a medical board that the
contributor is incapable of any normal gainful
employment by virture of a permanent physical or
mental disability; or at any time by a beneficiary124
of the estate of a deceased contributor
 LONG-TERM SAVINGS PLANS BILL (contd)

5. Tax treatment of plans

Group Personal Retirement

Plan/Individual Retirement Plan:- 17.5% of
contributors monthly income
Educational Savings/Home Ownership
Plan:- 15% of contributors monthly
income
All Purpose Plan:- 10% of contributors
monthly income
Investment income including capital
gains, earned from the investment of the
Plan funds
Withdrawal of all or part of a
contributors funds after the stipulated 125
 LONG-TERM SAVINGS PLANS BILL (contd)
6. Rules for the management of Plan funds

Qualification of Fund Manager: Licensed by SEC as

an investment adviser, body corporate, a wholly
owned subsidiary of an insurance company, a
bank, or a non-bank financial institution, and must
have obtained approval from the agency to
manage plan funds under this Act
Duties of Fund Managers:
Manage Plan Funds in accordance with stated
objectives
Make investments not prohibited by the Agency
Make investments on an arms length basis
Ensure the solvency of the Plan Funds at all
times and ensure that enough funds are
available for withdrawals as and when required
Maintain adequate systems of internal controls
Submit each records and reports to the Agency
as the Agency may require
A Fund Manager must appoint a Trustee for 126
every Plan Fund it establishes. The Trustee
 LONG-TERM SAVINGS PLANS BILL (contd)

7. Offences

Fund Managers or Trustees of a Plan who

commit offences under this Act are liable
on summary conviction to a fine not less
than 2000 penalty units or to a term of
imprisonment not less than 10 years or
both

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 LONG-TERM SAVINGS PLANS BILL (contd)

8. Dispute Resolution Procedures

Dispute between contributors and

Funds Managers or between a
Trustee and a Funds Manager shall
first be submitted to the Agency

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