Zambia’s Securities and Exchange Commission (SEC) has taken enforcement action against Standard Chartered Bank for mis-selling Chinese property bond to a local client, according to Reuters. The UK-based bank, which is currently seeking to divest its wealth and retail banking operations in Zambia, allegedly breached Zambian securities regulations by failing to disclose critical information about the Chinese property bond and by employing contractual clauses that improperly transferred risk to the client.
In March 2022, Standard Chartered sold bonds issued by Sino-Ocean, a state-backed Chinese property developer, to a Zambian wealth client. These bonds defaulted just over a year later, rendering them nearly worthless. The SEC’s investigation concluded that the bank did not provide “material information” about the bonds’ risks to the client, a violation of regulatory standards.
The SEC also found that Standard Chartered used “exclusionary” contract clauses that placed all responsibility for the investment’s risks onto the client. This practice contravenes Zambian securities regulations designed to protect investors from unfair risk allocation by financial institutions.
In a statement to Reuters, Standard Chartered acknowledged the SEC’s decision but indicated plans to appeal. “We respect the outcome of the Securities Exchange Commission in Zambia, however, in accordance with appropriate local procedures we will respectfully be exercising our right to appeal.” the bank stated. The SEC has 30 days to respond to the appeal, during which the enforcement action is suspended.
While the SEC can impose fines or issue reprimands, it lacks the authority to mandate customer compensation for mis-selling. The specific penalties Standard Chartered may face have not been disclosed.
Standard Chartered, which has operated in Zambia for nearly 120 years, announced in November its intention to sell its wealth and retail banking businesses in Zambia, Botswana, and Uganda. This move is part of a broader strategy to reduce its presence in Africa, having exited markets in Tanzania, Angola, Cameroon, The Gambia, and Sierra Leone in recent years.
The SEC’s action underscores the importance of transparency and adherence to regulatory standards in financial transactions. Investors are advised to conduct thorough due diligence and seek comprehensive information when engaging in complex financial products, especially those linked to volatile sectors.
The enforcement action against Standard Chartered highlights the critical role of regulatory bodies in maintaining market integrity and protecting investors. As the bank proceeds with its appeal, the case serves as a reminder of the stringent compliance requirements in the financial industry.
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