According to the International Monetary Fund's 2003 Financial System Stability Assessment, the Tanzanian capital market is very small, in part due to a lack of a financial sector infrastructure with a functioning legal, judicial and information disclosure framework. While the Capital Markets and Securities Authority is responsible for the implementation of the regulatory framework governing the capital market, due to the early stage of market development, its principle role is to motivate investment and educate about investor rights, as opposed to making policy and setting standards. The World Bank's 2003 Financial Sector Assessment recommends that the Tanzanian government amend the Companies Law, improve cooperation between financial institutions, increase transparency in the debt market, address the risks and oversight of securities and settlement systems, and establish a financial crisis management program. A 2006 World Bank project appraisal document indicates that the Tanzanian government has designed an Action Plan for Second Generation Financial Sector Reforms (SGFSR) using the recommendations of the joint 2003 World Bank/IMF Financial Sector Assessment Program.

General Overview

According to the International Monetary Fund's (IMF) 2003 Financial System Stability Assessment (FSSA), the financial system is very small and activity is concentrated in banking. While the Capital Markets and Securities Authority (CMSA) is responsible for the implementation of the regulatory framework governing the capital market, due to the early stage of market development, its principle role is to motivate investment and educate about investor rights, as opposed to making policy and setting standards. The assessment recommends that that Tanzania build the financial sector infrastructure, with regard to the legal and judicial framework and disclosure requirements, to support financial sector reforms.

The 2003 World Bank Financial Sector Assessment (FSA) reports that "there are clear indicators that the foundations of a sustainable advance are being laid" (p. 1) in the strengthening of the financial system. There has been macroeconomic stabilization, opening the market to financial services providers, and the liberalization of domestic financial intermediation. The FSA's recommendations for Tanzania, that related to the securities market were (1) amending the Companies Law to provide better protection to shareholders; (2) clarifying company accounts in accordance with international accounting, auditing and corporate governance standards; (3) facilitating cooperation between financial institutions for capacity building and improving the financial infrastructure, enhance transparency in debt market operations; (4) addressing the risk gaps in the payment and securities settlement systems and clarify the oversight role of the Bank of Tanzania (BOT); and (5) establishing a financial system crisis prevention and management plan and limit the role of the Deposit Insurance Fund (DIF) to that of a pay box. The CMSA website reports that the Capital Markets and Securities Act of 1994 is under review in order to account for capital market developments and bring it in line with IOSCO principles to be accepted as a signatory to the IOSCO Multilateral Memorandum of Understanding.

The 2006 World Bank "Project Appraisal Document On A Proposed Credit In The Amount Of SDR 10.3 Million (US$15 Million Equivalent) To The United Republic Of Tanzania For A Financial Sector Support Project," indicates that the Tanzanian government has designed an Action Plan for Second Generation Financial Sector Reforms (SGFSR) using the recommendations of the joint World Bank/IMF Financial Sector Assessment Program (FSAP). The project identifies several areas for reform, including the developing financial markets. "This component will focus in promoting vibrant primary and secondary markets supported by appropriate and secure settlements system and robust oversight" (p. 2). To do so, the authorities plan to upgrade the CMSA's regulatory and supervisory capacity, develop a secondary money market and government securities markets, introduce a corporate and municipal bond markets framework, promote sound corporate governance practices, and increase public awareness of financial markets.

Tanzania, Kenya, and Uganda are preparing to integrate their capital markets to create a regional East African Capital Market. However, the 2005 World Bank FSAP points out that, to do so, the weaknesses and inefficiencies of the domestic markets must be addressed. The first step would be to improve enforcement of market regulations, modernize market infrastructures, and fortify market intermediaries. The World Bank assessment commends the effort as it would facilitate flows of capital; but reinforces the importance of a strong institutional capacity and the need for common institutional structures. In March 2006, the World Bank and the Financial Sector Reform and Strengthening (FIRST) Initiative approved the 'Capital Markets and Securities Authority Development of Operational Strategy and Implementation Plan,' as mentioned on the FIRST Initiative website. The project aims to strengthen regulation and supervision of the capital markets in Tanzania by strengthening the CMSA and making it more sustainable.

The CMSA was established in 1994 in accordance with the Capital Markets and Securities Act, and is charged with the regulation and supervision of the capital markets. According to its website, the CMSA is responsible for (1) conducting securities surveillance and ensuring orderly, fair and equitable dealings, (2) registering, licensing, and regulating stock exchanges, investment advisers, securities dealers, and brokers, (3) supervising market players to ensure professionalism, (4) establishing the securities market principles, (5) setting minimum capital requirements, (6) monitoring the financial stability of license holders and protecting customers from risk, (7) prohibiting and preventing insider trading, and (8) regulating takeovers, mergers, and all other acquisitions.

The CMSA website reports that there are a number of laws in progress. The Capital Markets and Securities Act of 1994 is under review in order to account for capital market developments and bring it in line with IOSCO principles to be accepted as a signatory to the IOSCO Multilateral Memorandum of Understanding (MMoU), which is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. There is a bill that will introduce a legal framework for the establishment, operation and regulation of Central Depositories. Also, there are the Capital Markets and Securities (Substantial Acquisitions, Takeovers and Mergers) Regulations, Capital Markets and Securities (Custodian of Securities) Regulations, Regulations on Anti-Money Laundering, and Legislation on Pyramid Schemes.

According to the Bank of Tanzania website there are a limited number of public companies. While there are many private companies, they are restricted in their ability to transfer shares. The only securities in the market are government debt instruments. Tanzania is working on developing a secondary market for government securities. The only collective investment schemes are pension and provident funds and there are no unit trusts. The Dar es salaam Stock Exchange (DSE) is a self-regulatory organization (SRO) which is supervised by the CMSA. According to the 2003 IMF report, it is responsible for supervising trading on its market which includes ensuring member compliance with its rules and regulations. The DSE website reports that it shares the responsibilities for market surveillance with the CMSA, in order to prevent market manipulation. While the CMSA is responsible for on-line and off-site surveillance, the DSE is responsible for on-line and on-site surveillance, and has the authority to suspend offers and bids. To protect investors, the DSE established the Fidelity Fund Account for investor compensation. Also, the DSE runs educational campaigns about the DSE and investing and trading in the DSE.

According to the World Bank's 2003 FSA, although the number of equity listing is increasing, the operation and regulation of the DSE "still represent a drain on scarce public funds and are likely to do so for some time" (p. 5). The majority of listed companies are foreign or government owned. Only a small share of the market was free floating. The DSE opened for trading in 1998, and according to Emerging-Markets.org (2007), 8 companies are listed, as well as treasury and corporate bonds. However, some of the companies are parastatal as the result of privatization initiatives. Market capitalization grew from TShs 665 at the end of 2003 to TShs 2325 at the end of 2005. According to the "Tanzania Capital Markets Report" published by Emerging-Market.org, the CEOs of the CMSA and DSE, Fratern Mboya and Jonathan Njau, respectively, attribute the limited listings to the fact that companies fear the tax repercussions for the DSE's transparency requirements and the flotation cost. As a result, the government has offered tax incentives for listing, and demonstrated that the cost of going public is less than 4 percent. Njau commented that the DSE will focus on attracting bond listings because they are more appealing than equities, as they are more secure. The CMSA is an ordinary member of the International Organization of Securities Commissions (IOSCO).

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

The CMSA was established in 1994 in accordance with the Capital Markets and Securities Act, and is charged with the regulation and supervision of the capital markets. According to its website, the CMSA is responsible for (1) conducting securities surveillance and ensuring orderly, fair and equitable dealings, (2) registering, licensing, and regulating stock exchanges, investment advisers, securities dealers, and brokers, (3) supervising market players to ensure professionalism, (4) establishing the securities market principles, (5) setting minimum capital requirements, (6) monitoring the financial stability of license holders and protecting customers from risk, (7) prohibiting and preventing insider trading, and (8) regulating takeovers, mergers, and all other acquisitions. However, the publicly available information does not address Tanzania's compliance with this principle.

The DSE is a self-regulatory organization (SRO) which is supervised by the CMSA. It is responsible for supervising trading on its market which includes ensuring member compliance with its rules and regulations. The DSE website reports that it shares the responsibilities for market surveillance with the CMSA, in order to prevent market manipulation. While the CMSA is responsible for on-line and off-site surveillance, the DSE is responsible for on-line and on-site surveillance, and has the authority to suspend offers and bids. To protect investors, the DSE established the Fidelity Fund Account for investor compensation. Also, the DSE runs educational campaigns about the DSE and investing and trading in the DSE.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

The publicly available information does not address Tanzania's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

The publicly available information does not address Tanzania's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

II

The publicly available information does not address Tanzania's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

The publicly available information does not address Tanzania's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

The 2003 IMF report states that the DSE is a self-regulatory organization (SRO) which is supervised by the CMSA. It is responsible for supervising trading on its market which includes ensuring member compliance with its rules and regulations. However, the publicly available information does not address Tanzania's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

According to the 2003 IMF FSSA, the CMSA established a regular broker surveillance program which includes conducting on-site inspection, monitoring licensed brokers' compliance with regulations, and "takes action for cause" (p. 23). The DSE website reports that it shares the responsibilities for market surveillance with the CMSA, in order to prevent market manipulation. While the CMSA is responsible for on-line and off-site surveillance, the DSE is responsible for on-line and on-site surveillance, and has the authority to suspend offers and bids. However, the publicly available information does not address Tanzania's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

See Principle 8.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

See Principle 8.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

ID

The CMSA website reports that there is legislation in the process of implementation. The Capital Markets and Securities Act of 1994 is under review in order to bring it in line with IOSCO principles. The legislation is also intended to allow Tanzania to become a signatory to the IOSCO Multilateral Memorandum of Understanding (MMoU). The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

ID

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

ID

See Principle 11.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

As reported in the Mkono & Co. 2005 report, the Capital Markets and Securities Act Guidelines on Corporate Governance Practices require the disclosure of information on companies' performance through regular annual reports. Furthermore, shareholders are entitled to "receive information on voting rules and procedures, to participate and vote at the general shareholders meeting, place items on the agenda, and ask questions or seek clarification on the company's performance." According to a 2005 World Bank Report on the Observance of Standards and Codes (ROSC) on Accounting and Auditing, Tanzania adopted the International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS), and the International Standards on Auditing (ISA) in 2004. However, the National Board of Accountants and Auditors (NBAA) is unable to function effectively as a regulator and professional accountancy body. Hence the World Bank insists on establishing an independent oversight body. However, the publicly available information does not address Tanzania's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

As noted in the 2005 Mkono & Co. report, shareholders' rights are provided under the 2002 Companies Act, including the power to vote at general meetings, and approve decisions made at the director level. Minority shareholders' rights are also protected under the 2002 Companies Act, including the "right to apply to court to prosecute, defend or bring an action in the name of and on behalf of the company or any of its subsidiaries", according to Van Winkelhof, writing in 2006. Also, according to Mkono & Co., listed companies are required to ensure equitable treatment of shareholders, including minority shareholders. Minority shareholders' rights are also protected under the 2002 Companies Act, including the "right to apply to court to prosecute, defend or bring an action in the name of and on behalf of the company or any of its subsidiaries", according to Van Winkelhof. However, the available sources do not directly address Tanzania's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

NC

The legal framework for accounting and auditing requirements in Tanzania is largely based on the Companies Act of 2002 which according to PricewaterhouseCoopers finally came into effect in March 2006. The 2002 Act repealed the Companies Ordinance 212 of 1932. Prior to the enactment of the Companies Act, in 2005 an assessment of the accounting and auditing environment was conducted by the World Bank in Tanzania. Though the Companies Act had not been implemented during this assessment, the report did make observations on the likely benefits and flaws of the new legislation and noted that "although the new Companies Act (2002) provides modernized requirements for financial reporting by all private and public companies in Tanzania, there are shortcomings..." (p. 4). One of the flaws as pointed out by the World Bank was that the provisions in Companies Act on the qualifications of the auditor were not in line with the Auditors and Accountants Act. The 2002 Companies Act specifies filing requirements for audited financial statements of public and private companies and also empowers the minister of finance to apply to court for revision or audit of financial statements he deems unsatisfactory. The World Bank assessment noted that "the financial information contained in the prospectus of a company seeking listing has to comply with IFRS/IAS and be audited in accordance with ISA" (p. 5). The World Bank pointed out that including suspension from trading, there were adequate legal sanctions available for the CSMA. Neither the CMSA nor the DSE specify requirements for auditors of listed companies. Additionally, the World Bank observed that legal requirements were not in line with the national accounting standards either. The report added, "legislation governing companies, listed entities, insurance companies, parastatals, and executive agencies do not explicitly provide clear backing for accounting standards set by the NBAA" (p. 12).

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

The publicly available information does not address Tanzania's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

The publicly available information does not address Tanzania's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

The publicly available information does not address Tanzania's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

The publicly available information does not address Tanzania's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

The CMSA website reports that it is responsible for registering, licensing, and regulating stock exchanges, investment advisers, securities dealers, and brokers. However, the publicly available information does not address Tanzania's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

The CMSA website reports that one of its responsibilities is to set minimum capital requirements. However, the publicly available information does not address Tanzania's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

The publicly available information does not address Tanzania's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

The publicly available information does not address Tanzania's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

According to the 2003 IMF FSSA, the DSE is responsible for the supervision of trading on its market. This includes ensuring the compliance of licensed brokers and dealers with trading, depository, and clearing and settlement regulations. However, the publicly available information does not address Tanzania's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

The publicly available information does not address Tanzania's compliance with this principle.

27. Regulation should promote transparency of trading.

II

The publicly available information does not address Tanzania's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

The DSE website reports that it shares the responsibilities for market surveillance with the CMSA, in order to prevent market manipulation. While the CMSA is responsible for on-line and off-site surveillance, the DSE is responsible for on-line and on-site surveillance, and has the authority to suspend offers and bids. Also, the CMSA website indicates that it is responsible for prohibiting insider trading.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

The IMF's 2003 FSSA recommends that the BOT issue a Board-approved policy position regarding its oversight of payment and securities settlement systems, and its role in preserving the financial stability of the financial system, early distress detection, and liquidity problems. However, the publicly available information does not address Tanzania's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

EN

The 2003 IMF FSSA reports that the BoT is in charge of the oversight of the Tanzania payments and securities settlement systems, and has been given specific powers for the oversight. It introduced the National Payment Systems (NPS) oversight team to improve coordination among the departments of the BoT. The CMSA also has authority over securities settlement systems. The FSSA recommends that the BoT issue a Board-approved policy position regarding its oversight of payment and securities settlement systems, and it role in preserving the financial stability of the financial system, early distress detection, and liquidity problems. Also, the responsibilities of the BoT and the CMSA pertaining to securities settlement systems should be streamlined. The World Bank's 2003 FSA recommends that the oversight role of the BoT be clarified. The CMSA website reports that there is a bill that will introduce a legal framework for the establishment, operation and regulation of Central Depositories.