regulation of financial system

7/28/2019 Regulation of Financial System

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UNIVERSITY OF ZIMBABWE

R095812A

Is the financial and the supervisory, regulatory system in in Zimbabwe

still appropriate?

BY

TALENT GOSHO

A

FINANCE & BANKING STUDENT

AT

UNIVERSITY OF ZIMBABWE


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Table Contents

Titles Pages

1.0 Introduction ........................... .......................... .......................... ......................... ......................... 3

1.1Backround ...................................................................................................................................... 4

1.2 Terminology used in the paper ................................................................................................... 7

1.3 Research Objectives ................................................................................................................... 8

1.4 Research Questions.................................................................................................................... 8

1.5 Hypothesis Statement ................................................................................................................ 8

2.0 Literature Review ........................ ......................... .......................... ......................... ..................... 9

2.1Theoretical Framework ................................................................................................................... 9

2.2 Empirical Literature ..................................................................................................................... 10

3.0 Methodology ......................... .......................... .......................... ......................... ....................... 12

3.1 Zimbabwe Financial Regulation Overview .......................... ......................... .......................... . 12

3.1 Role of the RBZ in financial regulation ...................................................................................... 13

3.1.1 Prudential regulation ............................................................................................................ 13

3.1.2 Depositor Protection ............................................................................................................. 13

3.2 Role of the SECZ in financial regulation ........................................................................................ 13

3.3 Role of IPEC in financial regulation ............................................................................................... 14

3.4 The Institutional Approach ........................................................................................................... 14

3.5 Merits and Demerits of the Institutional Approach to Zimbabwe Financial System ....................... 15

3.6 Taxonomy of the Regulatory Frameworks from which Zimbabwe might choose one .................... 16

4.0 Conclusion and Recommendations .......................... ........................... ......................... .............. 18

5.0References ...................................................................................................................................... 19


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1.0 Introduction

The structure and operation of the financial system have undergone marked changes in the

past couple of decades encouraged by dramatic improvements in technology, rapid product

innovation, and on-going global financial integration, competition in financial services, and

policy, regulatory and trade reforms. These developments have led to a dynamic, and

sophisticated global financial services arena and fostered economic growth; at the same time

however, problems of confidence and trust have beset the financial system with some severe

consequences as demonstrated by the recent crises. Given the on-going questions about the

effectiveness and efficiency of financial regulation and its use as a potential instrument for

reform, governments have continued to assess and reassess the policy and regulatory

framework for the financial system, with a view to ensuring public confidence in the system and

its safety and soundness, but also retain its flexibility and innovative character (OECD 2010).

Therefore, the purpose of this paper is to evaluate whether the financial and the supervisory,

regulatory system in Zimbabwe is still appropriate. An evaluation of all the possible regulatory

models to be adopted by the Zimbabwe financial system regulatory authorities shall be done so

as to allow for plausible recommendations at the end. This shall precede the analysis of the

current financial regulatory framework that is in place in Zimbabwe while analysing pitfalls and

the relevance of which.


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1.1Backround

The structure and operation of the financial system have undergone marked changes in the

past couple of decades encouraged by dramatic improvements in technology, rapid product

innovation, and on-going global financial integration, competition in financial services, and

policy, regulatory and trade reforms. These developments have led to a dynamic, and

sophisticated global financial services arena and fostered economic growth; at the same time

however, problems of confidence and trust have beset the financial system with some severe

consequences as demonstrated by the recent crises. Given the on-going questions about the

effectiveness and efficiency of financial regulation and its use as a potential instrument for

reform, governments have continued to assess and reassess the policy and regulatory

framework for the financial system, with a view to ensuring public confidence in the system and

its safety and soundness, but also retain its flexibility and innovative character (OECD 2010).

The rapid change in the financial system which was driven by changes in the type of products

offered, the complexity of the financial system and a myriad of financial crises has brought with

it confusion as to what regulatory framework to follow. This dilemma, however has been

exacerbated by an increase it the number of regulatory models that regulatory agencies are

expected to adopt.

The taxonomy of the regulatory model has ranged from less complicated ones to extremely

complicated ones. On the more complicated side, the financial system may be regulated

according to the institutions and the functions performed by the firms. Each and every

component of the financial system offering different financial products from the other one will

have its own regulator. This is like a silo in which like are matched with the like. The less

complicated regulatory framework however encompasses the grouping of all the financial

institutions under one regulator. The integrated model unifies the whole financial system under

the same regulator. The reason for this is advocated to be the growing affinity of the products

being offered by the financial institutions whether bank or non-banking institution. Given the

pitfalls of the integrated and unified models, some less complicated models have been adopted


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notably, the Twin Peak which eliminates the caveats of the integrated model. In this instance,

prudential requirements and supervisions and the product offering are governed differently.

Whether to choose what model is still a debatable issue in the financial fraternity. The growing

globalisation, increase in number of the emerging economies like the BRICS, the financial crisis

like the 2007-2009 global financial crisis, and differences in the strength of the financial systems

have paved way for asymmetric level of the playing field. Under this backdrop, there is need to

synchronise the regulatory framework to match the economic system in which it is situated.

This means those different regulatory frameworks are now ubiquitous in different economies.

Some have gone for the silo (Institutional) approach (Zimbabwe, China), some for the functional

model (France, Italy Spain), some for the integrated approaches (Germany), some have taken

the twin peaks (South Africa, Australia, Netherlands), some are still indifferent on what model

to adopt (USA, although its believed to be functional and institutional to some extent).Whether

this is sustainable or unsustainable; it still remain a hypothesis statement which is subject to

validation.

A financial system is made up of the banking institutions, the capital markets, and the non-

banking financial institutions like the insurance firms. Anciently, these institutions used to offer

different product and there was a sharp dichotomy in the products offered by these institution.

However, growing product innovation, and expansion of holding firms mania, one cannot

dichotomise the products offered by these institutions. On the part of the stock exchanges, the

need for demutualisation has attracted debate across the financial divide raising concern that

there is need to shift the operation of the stock exchange into forprofit firm rather than being

self-regulatory organisation owned as a club by monopolistic dealers and brokerage firms.

The Zimbabwe regulatory framework is a typical of a fragment regulatory mode best describe

as the institutional regulatory framework. However for one to write of the regulatory

framework as a flaw, he must be strong enough to support himself because other developed

countries like the USA and emerging economies like China are using the same siloed regulatory

framework successfully. Of course, this author would agree that the silo framework is far

behind the back of time given the complexity of the financial system and the growing


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interconnectedness that the financial system is undergoing. Nevertheless, the Zimbabwe Stock

Exchange (ZSE) is regulated by the Securities exchange Commission (SECZ); the insurance firms

are regulated by the Insurance and Pensions Commission (IPEC) while the banking institutions

are under the Reserve bank of Zimbabwe.

The benefits and the drawbacks of the silo approach to the Zimbabwes financial system are not

subtle and elusive but rather unblemished, agile, and evident .This because no reasonable

financial analyst would say the institutional approach is superfluous a regulatory framework in

the Zimbabwes financial system, and the same analyst who would be found supporting the

instructional framework would be risking an egg on the face given the caveats brought about by

the silo approach. This is the reason why the tenacity of this paper is to determine whether the

current financial and the supervisory, regulatory system in Zimbabwe are still appropriate.

The paper constitutes four sections of which Section One shall be the Introduction, Section

Two shall be the Literature Review, the Methodology and Validation of the Hypothesis

Statement will be on Section Three, while Conclusion and Recommendations will be on

Section Four, the paper shall be closed by the references.


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1.2 Terminology used in the paper

a. Regulatory Models-These are groups of agencies and a set of measures that areencompassed in in the legislation or government policy of which their primary role is

to constrain, mould or control the behaviour of financial institutions operation

within a national economy. These may vary from country to country and from

economy to economy

b. Prudential and Supervisory Methods-These are preventive methods and measuresthat are aimed at controlling the level of risk taken by banking institutions so as to

reduce the risk of financial failure.

c. Protective Measures-This is the protection offered to the financial institutionscustomers or the financial institutions themselves in the event of bank failures and

can be applied at a firm or industry base to achieve the goal of safety.

d. Institutional or Silo Model-The Institutional or Silos Approach is a legal-entity-drivenapproach. The firms legal status determines which regulator is tasked with

overseeing its activity both from a prudential and business conduct perspective. In

other words, this approach follows the boundaries of the financial system in

different sectors and each sector is supervised by a different agency. Examples:

China, Mexico and Hong Kong

e. Integrated Model- under the Integrated or Unified Approach, there is a singleuniversal regulator that conducts both safety and soundness oversight and conduct-

of-business regulation for all the sectors of the financial services business. Example:

Germany

f. Twin Peak Model- The Twin Peaks Approach is a form of regulation based onobjective and refers to a separation of regulatory functions between two regulators:

one that performs the safety and soundness supervision function and the other thatfocuses on conduct-of-business regulation. Examples: Australia and Netherlands

g. Functional Model- the Functional Approach is one in which supervisory oversight isdetermined by the business that is being transacted by the entity, without regard to


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its legal status. Each type of business may have its own functional regulator.

Examples: France, Italy and Spain

1.3 Research Objectives

The main objectives of this paper are:

1) To assess whether the regulatory framework in Zimbabwe is still appropriate2) To recommend the a suitable regulatory framework for the Zimbabwes financial system

1.4 Research Questions

The main questions that this paper is intending to answer are as follows:

1) What is the current regulatory framework in Zimbabwe?2) How has the current framework achieved its intended objectives?3) Is there any need for a new regulatory framework that can replace the current one?4) What is the suitable financial regulatory framework for Zimbabwe?

1.5 Hypothesis Statement

The financial regulatory in Zimbabwe is not appropriate since there are better models to be

adopted besides the silo approach. Therefore this paper shall test this statement of status quo.


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1.0 Literature ReviewThe issue of the appropriateness of a particular regulatory framework to be adopted by the

economies is still debatable give the differences in the level of the playing filed. Hoards of

theories were put in place in a bid to come up with a common solution as what is the best way

of regulating the financial system. Even Zimbabwes financial system is still the doldrums ofwhat mode shall be called the best one. Below is some of the theoretical views visa Vis financial

systems regulation both from the empirical perspective and from the theoretical framework.

2.1Theoretical Framework

Diamond and Rajan (1983), advocated that the regulation and supervision of banks are the key

elements of the financial safety net as banks are usually found at the epicentre of the financial

crisis. In this case the writers say the primary justification for financial regulation by authorities

is to prevent systemic risk and avoid financial crisis, protect depositors interest and reduce

asymmetric information between depositors and banks.

Diamond and Rajan views were direct contradictions of the views given by Sinkey (1981), who

believed that regulation is counterproductive in achieving goals of efficient allocation of

resources. Sinkey (1981) also added that the free market mechanism including self-regulation

by experts and professional ethics will always produce an outcome closer to the Pareto

optimality. Whether these views by Sinkey were valid Currie (2000) threw in the criticism for

the assumptions saying that the theories were developed during pre-regulation and were

applied only to tightly controlled functions in the economy. Currie (2000) added that the theory

did not consider how unregulated markets can increase systemic risk that can lead to financial

crisis like the 2009 global financial crisis.

Surely the financial system is ever-changing hence the regulatory framework should be as such

cope up with the changes in the systems conditions. Kane (1981) came up with the innovative

theory which describe regulation as a dynamic game of actions and responses on which either a

regulator or regulatee may make a move at any time. Kane added that regulatees make more

moves than regulators. This was later supported by Martin (2000) who describes Baumol (1982)

theory of contestable markets as a nexus to the changes in the financial systems conditions and

the free entry and exit in the market. All these situations best describe the need for a proper

financial regulatory framework.

However, the paramount issue is what regulatory framework should be adopted by a particular

economy. Fieby (2001) says that it is important to bear in mind that while financial institutions

benefit from an appropriate regulatory regime, there is not much evidence that the existence

of a regulatory jurisdiction makes institutions stronger and less prone to shocks. This means

that there is no unique theoretical model to the regulation and supervision of the financial


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system. The existence of different types of models of the financial systems regulation makes

the ideal choice a difficulty exercise. Therefor and ideal structure of financial regulation

depends on the structure and development in the financial system

Currie (2003) came up with the taxonomy of regulatory models. According to this classification,

the regulatory models would be split into protective measures and institutional and functions

of the firm. To put it clearly, Llewellyn (2006) came up with the basic issues on institutional

structure of financial regulation and supervision. In this case, regulators would choose from

four types of models that exist; that are the functional model, the institutional model, the

integrated model and the twin peak model.

However, literature has it that there is no single mode that is universal to all the financial

system. Thus differences in the level of that playing field are a major cause of the differences in

the regulatory frameworks adopted by economies.

2.2 Empirical Literature

The financial system in Zimbabwe a typical of an institutional regulatory model. Regulatory

requirements are applied according to the business conducted by the institutions hence

banking institutions have their own regulator, the insurance firms have their own regulator and

the capital markets have their own regulator (Mhlanga 2008).

The Reserve bank of Zimbabwe according to the Banking Act (Chapter 24:20) is responsible for

the regulation of the banking institutions. Section 45(article1) of the Banking Act stipulates the

responsibility of the RBZ as to continuously monitoring and supervising banking institutions

and associates of banking institutions to ensure that they comply with this Act..Article 2 ofthe same section stipulates that TheReserve Banks function of monitoring and supervising

banking institutions and other companies. The RBZ is however responsible for supervision of

the banking institutions whether on the prudential side or on the conduct of business. Section 8

of the banking act stipulates the requirements of the bank when starting up and this being

married to the Basel II pillar 1 on bank capital requirements would go a long way in ensuring

prudential efficacy.

The Insurance and the Pension Commission (IPEC) was formed under the Insurance and

Pensions Act (Chapter 24:21).Part IV and section 33 of the IPEC act 24:21 stipulates how the

commission regulates insurance firms and pension funds. The Insurance Act (Chapter 24:07) is a

major regulatory tool used by IPEC when regulating insurance firms which offers general

provisions governing the carrying on of insurance business by registered insurers( Part 4 of the

Insurance Act (24:07)). The pension Fund Act 24:09 is also used by IPEC in regulating Pension

Funds.


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Now the Zimbabwe Stock Exchange is regulated by the SECZ according to the Securities Act

24:25. Section 100 of Part XII of the Securities act gives the responsibiltyof the SECZ in

regulating the ZSE. Before it was repealed the ZSE was governed by the ZSE act chapter 24:18

which was repealed in 2004 since there is now moving towards demutualisation of the ZSE.

However, whether the institutional model used in Zimbabwe financial system is adequate, this

paper stands to answer that question hence the author is will try to validate whether the silo

approach is still applicable in the Zimbabwe financial system.


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2.0 MethodologyThis section will look at the overview ofthe Zimbabwes financial regulatory model, its pros and

cons. At the end of this section other possible regulatory model are to be evaluated so as to see

which model is applicable in the Zimbabwes financial system.

2.1 Zimbabwe Financial Regulation OverviewThe financial system regulation framework is one of the institutional one. In this case the firms

legal status determines which regulator is tasked with overseeing its activity both from a

prudential and business conduct perspective. In other words, this approach follows the

boundaries of the financial system in different sectors and each sector is supervised by a

different agency (Rajendaran 2008). This can clearly be highlighted through the use of the

model as below:

Figure1: The Zimbabwes Financial System Regulatory Model

The Zimbabwe Financial System

IPEC (IPEC ACT 24:21)

Acts Used:

Insurance Act(24:07)

Pension andProvident Fund

Act 24:09

RBZ (RBZ Act 22:15)

Acts used in regulation:

Banking Act (24:20) Money Lending and

Interest Rates Act

(14:14)

Asset ManagementAct (22:26)

SECZ (Securities Act 24:25)

Acts Used:

Securities Act(24:25)

Firm Regulated:

Insurance Firms Pension Funds Insurance

Brokers

CSD

Firms Regulated:

Banks Asset Management

Firms

Micro FinancialInstitutions

Firm Regulated:

ZSE Brokerage Firms Security Dealers


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The above model shows the institutional financial regulation framework for the Zimbabwes

financial system.

3.1 Role of the RBZ in financial regulation

While it is universally agreed that the central bank has a major responsibility for maintaining

systemic stability, the definition and legal authority for this is often blurred.(Llewelyn 2006)

The above statement is somewhat true in the sense that the RBZ is responsible for too many

duties that are inform of monetary policy RBZ act (22:15),bank regulation according to banking

act 24:20, regulation of MFI and asset management firms. Below are some of the regulatory

roles of the RBZ:

3.1.1 Prudential regulation

Section 45 of the Banking Act 24:20 give the RBZ responsibility for the regulation of the

financial institutions (banks). In this case the RBZ stipulates the prudential requirements for

banks so that risk is reduced in the financial system. The RBZ through the Banking Licensing

Supervision and Surveillance is responsible for issuing licenses to banks and also it can

cancel the license when necessary for example the Interfin bank and the Royal ban saga.

This is done according to section 8 of Part V of the banking act 24:20 which stipulates the

requirements of the bank when registering. Section 17 stipulates the requirements for the

conduct of the banking business. In this entire instance, the RBZ will be ensuring that

systemic risk is averted through ensuring sound operation by banking institutions.

3.1.2 Depositor Protection

Section 67 of the banking act stipulates the formation of a Deposit Protection Board thatwill be responsible for the running of the Deposit Protection Scheme (Part XII) of the

banking act. The scheme will be regulated by the RBZ and its main purpose is to fund

distressed banks in the event of a crisis. The fund is there to protect the depositors funds so

as to avid bank runs and instil confidence in the financial system. The RBZ through it lender

of last resort function (section 6 of the RBZ act 22:15) shall also ensure stability in the

financial system so as to protect depositors funds.

3.2 Role of the SECZ in financial regulation

The SECZ is responsible for the regulation of the ZSE and the participants at the ZSE and these

include the security dealers and the security brokers. Firms regulated by SECZ are show on the

diagram below: Figure 2: Players at the Securities Exchange

Securities Markets Players

CSD Transfer SecretariesInvestment

advisors

Asset Managers Custodial Companies Securities Exchange

Depository

Participants


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The above diagram shows that various firms that are regulated by the SECZ whose

responsibility is to ensure the proper functioning of the securities markets through the

formulation and implementation of policies

3.3 Role of IPEC in financial regulation

The Insurance and Pensions Commission (IPEC), is a body governing the operations of insurance

and pensions industry in Zimbabwe. Its vision is to be a highly efficient and effective regulator

of the insurance and pensions industry, in view of the significant role it plays in the

development of a safe, stable and progressive financial system. IPEC mission is to regulate and

supervise insurance companies and pension funds to protect the rights, benefits and other

interests of policy holders including pension scheme members so as to inspire public confidence

(www.ipec.coz.zw)

Major players under IPEC are: Pension funds

Insurance companies Brokers Multiple agents Fund Administrators (Other than Life Companies) Loss Assessors

IPEC performs the following functions:

Register, regulate and monitor insurance industry players Register, regulate and monitor pension industry players Monitor and ensure compliance of above to set standards as per the relevant Acts. To provide information to the public as well as, encourage and promote investment in

insurance, pension and provident funds.

To advise the Minister on matters relating to insurance, pensions and provident funds. To perform any other functions permissible in the Act.

Extracted from ipec website (www.ipec.cow.zw)

The abovementioned is the institutional regulatory model so used in the Zimbabwe financial

system. However, it is important to describe the institutional model so that that it becomes

understandable as to what it is all about, it merits and demerits especially to the Zimbabwefinancial system.

3.4 The Institutional Approach

The Institutional Approach is one of the classical forms of financial regulatory oversight.
http://www.ipec.coz.zw/http://www.ipec.coz.zw/http://www.ipec.coz.zw/http://www.ipec.cow.zw/http://www.ipec.cow.zw/http://www.ipec.cow.zw/http://www.ipec.cow.zw/http://www.ipec.coz.zw/


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It is a legal-entity-driven approach. The firms legal status (for example, an entity registered as a

bank, a broker-dealer, or an insurance company) essentially determines which regulator is

tasked with overseeing its activity both from a safety and soundness and a business conduct

perspective. This legal status also determines the scope of the entitys permissible business

activities, although generally there has been a tendency for the regulators to reinterpret andexpand the scope of permissible activities, and therefore the scope of activities under their

jurisdiction, when requested to do so by the firms. Thus, over time, entities with different legal

status have been permitted to engage in the same or comparable activity and be subject to

disparate regulation by different regulators.

3.5 Merits and Demerits of the Institutional Approach to Zimbabwe Financial System

Below are the advantages and disadvantages of the silo approach to the Zimbabwe Financial

System (ZFS)

Table 1: Merits and Demerits of the Silo ApproachMerits of the silo Approach Demerits of the Silo Approach

Above all other considerations, institutional

structure may have an impact on the overall

effectiveness of regulation and supervision

because of the expertise, experience and culture

that develops within particular regulatory

agencies and the approaches they adopt

Regulatory overlap and underlap- It is not clear

who is responsible for the regulation of brokers

that lie both under the IPEC and SECZ. Moreover,

asset management firms are under the RBZ

jurisdiction but they also trade at the ZSE hence

they have to be regulated by both the SECZ and

the RBZ. This will stifle development and stability

in the Financial System

Closely related to effectiveness is the question

of the clarity of responsibility for particular

aspects or objectives of regulation. This in turn

raises the

question of inter-agency rivalry and disputes

Duplication of positions- there is certainly waste of

resources as several boards to lead different

regulatory boards have to be financed; that is , the

IPEC , SECZ, and the RBZ boards all needing finance

from a cash strapped economy, hey.

- There is potential for regulatory arbitrage as firm

may migrate to the less strict regulatory sections

of the financial system from the strict ones. This

makes the financial system vulnerable to

unscrupulous deals and speculative behaviour

causing instabilities.

- Silo model poses lack of co-ordination between

regulatory agencies since each man is for himself

and there tend to unnecessary competition

between the regulators which causes unnecessary

conflicts between them.

- Consequently there will be lack of transparency

amongst the regulators making the whole financial


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system precarious.

- There is growing product innovation and bank

holding firms which left the silo approach

superfluous since it does not accommodate

similarities in products offered by different

institutions in different legal jurisdictions.

3.6 Taxonomy of the Regulatory Frameworks from which Zimbabwe might choose

one

Below are some of the regulator models are possible of being adopted and that are being ued

by different economies worldwide. The merits and demerits of which can be analysed in the

tables below:

Table 2: showing the taxonomy of the financial regulation models

Functional Model Integrated(Unified )Model Twin Peak Model

Description:

Under the Functional

Approach, supervisory

oversight is determined by

the business that is being

transacted by the entity,

without regard to its legal

status. Each type of business

may have its own functional

regulator (Llewelyn 2006).

Under the Integrated

Approach, there is a single

universal regulator that

conducts both safety and

soundness oversight and

conduct-of-business

regulation for all the sectors

of the financial services

business (Llewelyn 2006).

The Twin Peaks Approach is

based on the principle of

regulation by objective and

refers to a separation of

regulatory functions between

two regulators: one that

performs the safety and

soundness supervision

function and the other that

focuses on conduct-of-

business regulation. Under

this approach, there is also

generally a split between

wholesale and retail activity

and oversight of retail activity

by the conduct-of- business

regulator. This is also viewed

by some as supervision by

objective (Llewelyn 2006).Advantages

Specific functions are

effectively regulated

reducing dangers of

overlooking some products.

Advantages

Integrated model favour

economies of scale since

there cost reduction due to

having one regulatory agency

It is likely that an optimal staff

Advantages

Encompasses all the

advantages of the integrated

approach while eliminating its

pitfalls.

The two agencies have


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deployment within a unified

agency would be easier to

achieve than with a specialist

and fragmented

institutional structure

It is likely to be the case thatan optimal staff deployment

within a unified agency would

be easier to achieve than with

a specialist and fragmented

institutional structure

dedicated objectives and clear

mandates to which they are

exclusively committed.

Accountability is clear

because the objectives and

mandates of the agencies areclearly defined.

Reputation and

contamination risks are likely

to be lower.

If conflicts arise between the

two areas, these are more

likely to be settled externally

and with publicity.

There is less concentration of

power than in the unifiedmodel.

There is no danger that one or

the other areas of regulation

and supervision will come to

dominate. It is sometimes

alleged that a unified agency

might in practice give priority

to prudential regulation and

supervision

Disadvantages

Products that are not clearly

libelled will be left without a

regulator ,for example some

credit derivatives

There is room for regulatory

arbitrage

Disadvantages

The model assumes that the

financial institutions are now

similar in operations which is

not really true as there is still

some differences that would

deny the blanket application

of regulation.

Firms core business is still as it

was below; hence an

insurance firm is still offering

insurance product which willrender the model

inappropriate

Disadvantages

There is concentration of

power on one regulator. If the

regulator makes a mistake,

then the whole financial

system will be in conundrums

paradoxes and enigmas.


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3.0Conclusion and RecommendationsTherefore, the purpose of this paper was to evaluate whether the financial and the supervisory,

regulatory system in Zimbabwe is still appropriate and the hypothesis statement proclaimed

that the regulatory framework is superfluous.

Now given the above analysis of the institutional model of Table 1, the merits of the model

were clearly outweigh by the demerits which is a clear proclamation of the superfluity of the

silo model. However in the theoretical literature, Fieby (2001) postulated that it is important to

bear in mind that while financial institutions benefit from an appropriate regulatory regime,

there is not much evidence that the existence of a regulatory jurisdiction makes institutions

stronger and less prone to shocks. This means that there is no unique theoretical model to the

regulation and supervision of the financial system. The existence of different types of models of

the financial systems regulation makes the ideal choice a difficulty exercise. Therefor and ideal

structure of financial regulation depends on the structure and development in the financial

system.

This author, however is of the view that regulatory model in Zimbabwe is superfluous given the

real life performances where there is poor coordination between the regulators themselves,

the growth in the integration of the financial products as well as the cost associated with the

structure of the model.

Therefore, the writer would recommend a twin peak model of financial regulation so as to bring

the whole financial system together and cut the cost associated with the institutional model. A

single Financial Services Board will be established which will oversee the operation of the

prudential and supervision regulators as well as those of the conduct of business.

The RBZ will be part of the prudential regulation board and it will now concerned with ensuring

financial stability in the economy while performing its LOLR function. This will also give the

central bank space to conduct its monetary policy function without any problem.

Overall the purpose of this paper was to test if the regulatory framework in Zimbabwe is still

appropriate. It was concluded that the framework is disadvantageous and inappropriate hence

it was recommended that a twin peak model be adopted o eliminate the caveats of the silo

model as well as to ensure a stable financial system and economic growth.


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5.0 References

1. Currie,(2007), Towards General Theory of Financial Regulation, Predicting, Measuringand Preventing Financial Crisis. School of Finance and Economics ,Sydney Australia.

2. Fleckener (2006), Stock Exchanges in Self-regulation Crossroads, Fordham Law Review3. Kane, (1981),Extracting Non transparent Safety Net Subsidies by Strategically Expandingand Contracting Financial Institutions Balance Sheet, Boston College.4. Llewelyn ,(2006), Institutional Structure of Financial Regulation and Supervsion-The

Basic Issues,Loughborough University.

5. Martin,(2000), Conflicts of Interest in Self-Regulation. Can Demutualised ExchangesManage them,World Bnk wp.

6. OECD,(2010),Policy Framework for Effective and Efficient Regulation. General guidanceand High-level Checklist, Guan

7. Banking Act 24:208.

RBZ Act 22:15

9. IPEC Act 24:2110.Insurance Act 24:0711.Pensions and Provident Fund Act 24:0912.Securities Act 24:2513.Moneylending and Rates of Interest Act [Chapter 14:14]14.Asset Management Act 24:26

regulation of financial system

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