This country-specific Q&A provides an overview of Banking & Finance laws and regulations applicable in Zambia.
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
In Zambia, the central bank is the Bank of Zambia (the “Central Bank”) established by the Con-stitution of the Republic of Zambia as read with the Bank of Zambia Act No. 5 of 2022, to regulate and supervise financial service providers through a combination of off-site surveillance and peri-odic on-site inspections.
The supervisory process comprises the following key stages:
(a) Licensing Stage
The supervision departments evaluate licence applications for banks and non-bank fi-nancial institutions and makes recommendations to the Registrar of Banks and Financial Institutions, through the appropriate supervisory structures.
(b) Off-site Surveillance
The supervision departments conduct continuous off-site surveillance and analysis of the financial service providers’ financial performance and condition. The information used in this process is prescribed for submission by the financial service providers at pre-deter-mined frequency.
(c) On-site Examinations
The supervision departments conduct on-site examinations of financial service providers to assess their financial performance and condition; review the adequacy of their corpo-rate governance structures and their internal risk management processes; and their gen-eral compliance with the laws and regulations.
(d) Formulation and Review of laws and Regulations
The supervision departments coordinate all matters relating to the drafting and/or review of the regulatory framework under which all the licensed financial service providers are supervised.
(e) Manage liquidations
The supervision departments are responsible for managing financial institutions under liquidation to ensure that resolution of the failed financial institutions is conducted in an orderly manner.
Which type of activities trigger the requirement of a banking licence?
The requirement of a banking license is triggered by the provision of “banking business” which are defined as to include the following activities;
receiving deposits, including chequeing and current account deposits, and the use of the deposits, either in whole or in part, for the account and at the risk of the person carrying on the business to make loans, advances or investments;
providing financial services including (a) commercial or consumer financing services; (b) brokering; (c) factoring, with or without recourse; (d) finance leasing; (e) financing of com-mercial transactions, including forfeiting; (f) issue and administration of credit cards, debit cards, traveller’s cheques or banker’s drafts; (g) issue of guarantees, performance bonds or letters of credit, excluding those issued by insurance companies; (h) lending on the security of, or dealing in, mortgages or any interest in real property; (i) payment of cheques or other demand orders drawn or issued by customers and payable from depo-sits held by the payer; (j) purchase and sale of foreign exchange; (k) issue of debentures and money market instruments; (l) the acceptance of deposits; (m) issue of building society and mutual society shares, with characteristics similar or identical to deposits; (n) venture capital funding; (o) micro-financing; (p) development financing; and (q) any other service that the Central Bank may designate; and
any custom, practice or activity, prescribed in rules issued by the Central Bank, as ban-king business.
For the avoidance of doubt, banking services in Zambia do not include the underwriting, marketing or administration of contracts of insurance or reinsurance.
Does your regulatory regime know different licenses for different banking services?
In Zambia, different licenses are not required to carry out different banking services outlined in our response to question 2 above. Further, the Banking and Financial Services Act No. 10 of 2017 (the “Banking Act”) in Zambia is clear that unless conditions to the banking licence stipu-lates otherwise, a registered bank in Zambia is authorized to engage in the following activities in addition to banking business:
grant loans and extend credit, whether unsecured or on the security of property of any kind;
deal as a principal or an agent in the currency of Zambia and, subject to the rules and regulatory statements, made in accordance with the Banking Act, in the currency of any other country, foreign exchange transactions, gold, silver, platinum, bullion or coins;
provide money transfer or transmission services from a customer’s account;
issue and administer payment, credit, or debit cards and, in cooperation with other pre-scribed service providers, the operation of payment, credit card and debit card systems;
act as a trustee, executor, or administrator of an estate or in any fiduciary capacity for any person;
act as a financial agent for any person;
provide safekeeping and custodial services for financial assets and securities;
provide merchant banking services, including the arrangement and underwriting of shares, trade financing, corporate financing and provision of financial advice;
deal as a principal or agent for its customers in financial derivatives; and
provide branchless banking services.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
No. To deal in, arrange deals in, advise on, or manage securities (‘securities business’) in or from within Zambia, a bank is required to be licensed with the Securities Exchanges Commission in accordance with the provisions of the Securities Act No 41 of 2016 (the “Securities Act”).
Is there a “sandbox” or “license light” for specific activities?
There is not a “sandbox” or “license light” in respect of banking activities in Zambia. However, the Central Bank recently introduced the Guidelines for Regulatory Sandbox to provide framework to allow small scale, live testing of payment system innovations in a controlled environment operating under special time-bound exceptions under the Central Bank’s supervision.
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
There is currently no moratorium in place on the issuance or custody of cryptocurrencies under the relevant legislation governing the issue and custody of cryptocurrencies. There is currently no legal framework relating to the regulation of cryptocurrency in Zambia. However, it is important to note that cryptocurrencies are not legal tender in Zambia and as such, any activities involving the buying, trading, and usage of cryptocurrency is at owner’s risk as the same is not supervised nor regulated by the Central Bank.
Do crypto assets qualify as deposits and, if so, are they covered by deposit insurance and/or segregation of funds?
Please refer to our response to question 6 above.
If crypto assets are held by the licensed entity, what are the related capital requirements (risk weights, etc.)?
Please refer to our response to question 6 above.
What is the general application process for bank licenses and what is the average timing?
The general application process for a bank licence is prescribed under the Banking Act. Any per-son wishing to engage in/undertake a banking business in Zambia is required to complete and submit the following to the relevant office of the Central Bank: (a) an application in the prescribed form (Form BF1); (b) Directors Questionnaires; and (c) Vital Statistics Forms.
The application is to be accompanied by the following documents and information:
articles of association or other constitutive documents;
physical and postal addresses of the principal administrative office;
permanent residential addresses of the applicant’s directors, chief executive officer, ma-nagers;
name and permanent residential address of every subscriber for any class or series of shares issued by the applicant;
addresses of each branch proposed to be opened by the applicant and, in the case of a mobile office, the area proposed to be served;
full particulars of the business it proposes to conduct;
amount of the applicant’s capital;
names of the applicant’s associates and affiliates; and
prescribed application fees.
The Central Bank has 120 days within which to revert from the date of receipt of the full application require-ments and information.
Is mere cross-border activity permissible? If yes, what are the requirements?
No person may carry on banking activity from within Zambia without a licence from the Central Bank. Where a regulated activity is carried on a pure cross-border basis, i.e., not from within Zambia, there is no require-ment for that entity to hold a licence from the Central Bank. The Banking Act is silent on what constitutes carrying on a banking business from within Zambia. However, in practice the position is that carrying on a business in Zambia would normally suggest a certain level of permanent residence or continuity of active participation and interaction with Zambian nationals on the basis of which authorities may assume direct jurisdiction over the entity concerned.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
The Banking Act restricts the ability to apply for a banking licence to companies incorporated under the provisions of the Companies Act No. 10 of 2017 (the Companies Act) in Zambia.
What are the organizational requirements for banks, including with respect to corporate governance?
The Central Bank has promulgated and issued directives to provide broad framework of funda-mental corporate governance principles that must be complied with by directors and managers of all licensed banks operating in Zambia (the Directives). The Directives focus on accepted best practices for effective organization-wide corporate governance and risk management which the Central Bank expects its licensees to adopt. Below is a summary of the Directives:
Corporate governance in terms of banks involves the process and structure defining the divi-sion of power and established mechanisms for acheiving accountability between the board of directors, senior management, and shareholders, while protecting the interests of depositors and other stakeholders.
Shareholders are to ensure that the board is held accountable and responsible for the efficient and effective operations of the bank and shall have a duty to change the composition of the board if it does not perform according to expections or in accordance with the mandate of the bank.
The Board of directors have an overall responsibility for the bank including approving and overseeing the implementation of its strategic objectives, risk strategy, governance framework and corporate values, culture, as well as providing oversight to senior management.
The senior management is responsible for conducting the banks business affairs in an effec-tive, responsible and ethical manner that is consistent with the principles and direction estab-lished by the board through its strategic plan.
Do any restrictions on remuneration policies apply?
The Directives provide that the compensation of directors, executives and staff should be transparent, fair and reasonable and should not encourage risky behaviour. Notably, every bank is required to have a clear policy on compensation which seeks to ensure the effective governance of the bank’s remuneration system and align it with prudent risk taking. The compensatory policy must be disclosed in the annual report.
However, the Banking Act provides that a bank or financial institution shall not directly or indirectly grant or permit to be outstanding to a senior officer or other employee of the bank or financial institution, unsecured advances that on aggregate exceed the respective annual remunerations of the senior officer or other employee, except with the prior written approval of the Bank and on such terms and conditions as the Bank may prescribe.
Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
No. Zambia is still operating under the Basel II framework that was introduced by the Central Bank on 15 June 2007.
Are there any requirements with respect to the leverage ratio?
Yes. The Banking Act requires banks and financial service providers to maintain common equity tier one to total on and off-balance sheet assets at a ratio prescribed by the Central Bank.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
Banks operating in Zambia are required to maintain adequate and appropriate forms of liquidity as prescribed by the Central Bank from time to time.
We are not aware of the implementation of Base III liquidity requirements in Zambia, including LCR and NSFR.
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
The Banking Act places an obligation on banks to publish their financial statements. The board of directors of banks operating in Zambia are required to keep proper books of accounts and to provide audited annual financial statements. The audited financial statements must be sent to each shareholder of the bank at least twenty-one (21) days before the annual general meeting of the bank.
The Banking Act also provides for interim reporting, as banks are required to publish, in a news-paper of general circulation in Zambia, the quarterly financial statements and audited financial statements of the bank. Accordingly, there is a requirement for bank interim reporting every three (3) calendar months.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
The Banking Act provides for consolidated supervision, particularly where the Central Bank considers it necessary for the safety and soundness of the financial service provider, safety of depositors, or to determine whether the Banking Act is being complied with, the Central Bank shall require, in writing, an affiliate, associate, holding or subsidiary company, or a person that controls the financial service provider, to provide the Central Bank or its appointed agent such information or documents as may be necessary, including the financial statements and other financial records of that affiliate, associate, holding or subsidiary company or person in control, within the period specified in the notice.
The Banking Act further provides that the Central Bank may appoint a competent person to undertake an examination of the operations and affairs of an affiliate, associate, holding or sub-sidiary company of a financial service provider or any person that controls a financial service provider, in order to determine whether the operations and affairs of the affiliate, associate, hol-ding or subsidiary company or the person in control are detrimental to the safety and soundness of the financial service provider.
A person who fails, refuses,omits or neglects to provide the requested infromation and referred to in paragraphs 3.3 and 3.4above, commits an offence and is liable, upon conviction, for each day during which the contravention continues, to a fine not exceeding two hundred thousand penalty units or to imprisonment for a term not exceeding two years, or to both.
Further, a significant shareholder or director who is non compliant with paragraphs 3.3 and 3.4 above or is party to the failure, refusal, omission or neglection to provide the requested infor-mantion, ceases to be a fit and proper person and shall not be or remain a significant shareholder or director in the financial service provider.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
A person cannot acquire a beneficial interest in the voting shares of a bank or enter into any voting arrangement that would enable that person or another person to control more than twenty- five percent of the total votes that could be cast at a meeting of the bank without the prior authorization of the Central Bank. However, where a bank is publicly traded, the only re-quirement is for a bank to notify the Central Bank when it becomes aware that a person has become a significant shareholder in the bank i.e., the person holds more than 10% share capital of the company.
Also, it is important to note that a beneficial owner who wishes to own shares in the capital of or acquire or maintain control in more than one bank ought to obtain written approval from the Central Bank.
Further, where a beneficial owner wishes to transfer any shares or any form of ownership of the bank that constitutes a significant shareholding to another person, the beneficial owner will be required to obtain written approval from the Central Bank.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Yes, the Banking Act imposes conditions for eligibility of owners of banks. It provides that the Central Bank may prescribe fit and proper requirements for one to be eligible as a bank owner. To be an eligible owner one needs to satisfy the following:
good and strong moral principles, personal integrity and reputation;
competency and capability; and
Are there specific restrictions on foreign shareholdings in banks?
No. We are not aware of any current restrictions on foreign shareholding of banks in Zambia.
Is there a special regime for domestic and/or globally systemically important banks?
No. All banks in Zambia operate under the same banking regime established by the Banking Act, save to mention that foreign banks have higher capital requirements as compared to local banks.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
Sanctions that the Central Bank can order include fines, suspension or revocation of a license, imprisonment or issuing directives, guidelines or orders to ensure compliance with the Banking Act. These depend on the nature of the offense committed under the Banking Act.
What is the resolution regime for banks?
The Banking Act does not provide a resolution regime for banks that are facing failure.
However, the Banking Act provides that banks can be liquidated or wound up either voluntarily or compulsorily pursuant to the provisions of the Companies Act. Where the bank intends to voluntarily wind up, the bank is required to obtain prior approval from the Central Bank. In other instances, the Central Bank may order the winding up of a bank and give such notice to the shareholders of the bank.
Additionally, it is worth mentioning that when a bank is undercapitalized, the Central Bank shall take the following actions:
Order the bank to submit within thirty (30) days of the order, a capital restoration plan to restore the bank to the provided capital adequacy;
Require that the bank increases the capital to prescribed levels within ninety (90) days of submitting the capital restoration plan; and
Prohibit the bank from awarding any bonuses or increments in the salary, emoluments and other benefits to directors and senior officers.
Furthermore, the Central Bank may also appoint a person suitably qualified to advise and assist a bank in designing and implementing a capital restoration plan. The appointed person is obligated to report to the Central Bank on the progress being made on the capital restoration plan at intervals as may be directed by the Central Bank.
How are client’s assets and cash deposits protected?
Client’s assets and cash deposits are protected through the implementation and monitoring of the capital adequacy requirements that are imposed on a bank by the Central Bank in accord-ance with the Banking Act and the Basel II framework.
It is also worth noting that in the event that a bank is wound up, the client’s deposits and assets are given primary consideration after the expenses of the winding up proceedings are paid, thereby protecting clients’ assets and deposits.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered? Does it apply in situations of a mere liquidity crisis (breach of LCR etc.)?
We are not aware of a bail-in tool in Zambia.
Is there a requirement for banks to hold gone concern capital (“TLAC”)? Does the regime differentiate between different types of banks?
We are not aware of a requirement to hold TLAC. However, banks are required to maintain a statutory reserve ration which represents a proportion of deposit liabilities that commercial banks are required to keep as a cash deposit with the Central Bank.
The Zambia banking regime does not differentiate between types of banks. However, note that the banking regime in Zambia is made up of commercial banks, and a development bank.
In your view, what are the recent trends in bank regulation in your jurisdiction?
There has been an increase in the development and use of Financial Technologies (‘FinTech”) and an increase in the number of FinTech companies operating and facilitating payments in Zam-bia. Fintech companies use technology to facilitate payments on mobile handsets or electronic devices. This has led to an increase in mobile money transactions that had an adverse effect on the banking sector. However, banks and mobile money operators have increased their coopera-tion and customers are now able to transfer funds between the banks and mobile money opera-tors. Therefore, regulation on fintech is expected to develop over time as there are no specific guidelines to regulate it.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
The current macroeconomic policies restrict bank liquidity which has the effect of reducing the general supply of money in the market.
Money laundering has been one of the prevailing threats to the financial sector in Zambia.. In 2021, the Drug Enforcement Commission reported that the Anti Money Laundering Unit inves-tigated 219 money laundering cases involving over one billion Zambian Kwacha (ZMW1,000,000,000), over Fifty-four million United States Dollars (US$ 54,000,000) and over Twenty-three thousand Euros (€ 23,000). Of these offences 116 cases which is 53%,came from the public and private sectors.
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