According to the International Monetary Fund's (IMF) 2002 Financial System Stability Assessment (FSSA), securities markets in Tunisia have experienced significant growth but still play a very small role in the financial system compared to the banking sector, and consequently do not pose systemic risks. The legal framework governing the financial markets has been modernized and its objectives follow the International Organization of Securities Commission's (IOSCO) principles. However, there is poor enforcement of laws and regulations, which the assessment team fears may diminish public confidence in the market's transparency and integrity. The IMF report also points out that most companies are deterred from listing by the high cost of transparency and the desire to maintain full control of the company. A 2006 IMF FSSA Update indicates that Tunisia has since implemented structural reforms in order to improve the transparency and accountability of the financial system, strengthen the regulatory framework, and encourage more market intermediaries. However, although many of the recommendations of the 2002 IMF FSSA have been implemented or partially implemented, there has not been much growth in the stock market or the number of listings. The IMF's 2007 Article IV Consultation with Tunisia reports that the government has adopted a strategy to strengthen the legal framework based on the recommendations of the 2002 Financial Sector Assessment Program (FSAP) and its 2006 Update.

General Overview

According to the International Monetary Fund's (IMF) 2002 Financial System Stability Assessment (FSSA), securities markets in Tunisia have experienced significant growth. Nonetheless, they still play a very small role in the financial system compared to the banking sector, and consequently do not pose systemic risks. The legal framework governing the financial markets has been modernized and its objectives follow the International Organization of Securities Commission's (IOSCO) principles. In general, legislation "resembles mainstream continental European law" (p 22), and incorporates "modern concepts and practices" (p. 22). However there is poor enforcement of laws and regulations, which the assessment team fears may diminish public confidence in the market's transparency and integrity. The report also points out that most companies are deterred from listing by the high cost of transparency and the desire to maintain full control of the company.

In 2006, the IMF and World Bank carried out a follow-up to the 2002 assessment. The 2006 IMF FSSA Update indicates that Tunisia has implemented structural reforms since the 2002 assessment that aim to improve the transparency and accountability of the financial system, strengthen the regulatory framework, and encourage more market intermediaries. However, although many of the IMF's 2002 recommendations have been fully or partly implemented, there has not been much growth in the stock market or in the number of listings. The 2006 Update notes that even though the difference between disclosure and certification requirements for listed and unlisted companies have been reduced, few family-owned enterprises are electing to be listed. On the other hand, mutual funds, particularly venture capital funds, and the secondary markets, such as the bond market, have expanded. The U.S. Department of Commerce's (DoC) 2007 Doing Business Guide reports that the financial system in Tunisia remains underdeveloped, which inhibits the mobilization and allocation of investment capital.

The 2002 IMF FSSA indicates that the 1994 Law and the Code on Commercial Companies of 2000 were important developments in legislation. The 1994 Law modernized and expanded the scope of securities market regulation. It established the financial markets regulator -- the Financial Market Commission (Conseil du Marche Financier, CMF) -- and privatized the stock exchange. It also instituted a securities and depository clearing agency. The Code on Commercial Companies of 2000 focused on transparency, collegiality, manager accountability, and expanded shareholders' rights. In addition, new accounting and auditing standards that follow international practices have been implemented.

The CMF is autonomous and independently funded. The responsibilities of the CMF, as noted in the 2002 IMF FSSA, include supervising market participants, the stock exchange, the clearing and settlement house, market intermediaries, and collective investment schemes (CISs). It may also issue regulations on securities market supervision, subject to the approval of the Minister of Finance. The Tunisian stock exchange (Bourse des Valeurs Mobilieres de Tunis, BVMT), the clearing and settlement house (Societe Tunisienne Interprofessionnelle pour la Compensation et le Depot de Valeurs Mobilieres, STICODEVAM), and the Association of Market Intermediaries (AIB) are self-regulatory organizations (SROs) but hold limited responsibility. The BVMT is in charge of issuing listing requirements, which are subject to approval by the CMF. However, because the BVMT is partially owned by market intermediaries, its sanctioning ability is diminished. STICODEVAM has established technical procedures that must be followed by market intermediaries and includes all brokers and banks as members.

The 2006 IMF FSSA Update restates the main recommendations for securities regulation and supervision from the 2002 FSAP and notes the progress made by the Tunisian authorities in implementing the recommendations. Consolidated accounts for industrial, commercial, and financial groups have been established. There has been some improvement to the enforcement of securities regulation, and more severe sanctions have been introduced. Also, the recommendation for the establishment of "Chinese walls between various activities of managers" (p. 20) in CISs has been partially implemented. The 2006 World Bank Financial Sector Assessment (FSA) includes additional recommendations from the 2002 FSAP and notes Tunisia's compliance progress. The CMF has increased its sanctioning powers and has improved its transparency by publishing its financial statements in its annual reports. Also, in accordance with the 2002 IMF recommendation for the government to develop the primary and secondary markets, a new law on repos was implemented in 2004 and a master repurchase agreement was drawn up. Liquidity of issues was improved. Finally a yield curve on recent emissions was established. However, the 2006 FSSA Update considers it important that the yield curve be publicly disclosed to increase price transparency. Further recommendations included in the 2006 IMF FSSA Update include establishing information sharing agreements with foreign and domestic regulators, tightening equity investment regulations, and further strengthening enforcement.

According to the World Bank's 2005 Proposal for a Fourth Economic Competitiveness Development Policy Loan, the loan will be directed towards a program to improve the private investment climate in Tunisia, enhance competition, improve transparency and corporate governance, support banking sector improvements, and strengthen the regulatory and supervisory frameworks of the securities markets. The proposal notes that the securities markets' development has been hindered by the corporate ownership structure dominated by family-owned businesses. In addition, poor corporate governance, disclosure requirements, and low accountability of managers and directors compromise the integrity of the securities markets. Overall poor enforcement of regulations are detrimental to investor confidence. The loan is intended to support improvements in implementation and enforcement within the regulatory and supervisory frameworks, including the promoting the securities market, increasing the regulator's authority and enforcement tools, and improving confidence in the market. In addition, it would be used to increase the depth of the markets, improve public debt management, develop new investment products, and enhance the transparency of transactions and the quality and availability of financial information. According to the 2008 World Bank pres release, "Tunisia: Fourth Economic Competitiveness Development Policy Program," the project was approved on January 1, 2008. It has not yet been implemented.

The African Development Bank's (ADB) 2006 report on Tunisia indicates that capital markets account for 7 percent of the economy. The BVMT was first established in 1969 and then privatized in 1994. There were 48 companies listed on the BVMT in 2006, and market capitalization was US$4,224 million, with stocks from banks accounting for more than 55 percent of total capitalization. The 2006 IMF FSSA points out that market capitalization has not increased in years. The BVMT is measured by two indices which the ADB 2006 report identifies as the BVMT Index and the Tunindex. The Tunisian authorities aim to increase the capital markets share of the financial system to 20 percent by 2009 and add an additional 52 companies. Bonds and equities are listed on BVMT government securities -- including treasury bonds, treasury bills, and zero-coupon treasury bonds -- make up more than 90 percent of the bonds issued, but there are incentives in place to encourage corporate securities. The secondary market is very small, only consisting of TND 40 million in trades in 2006.

The IOSCO multilateral memorandum of understanding (MMoU) 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. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMoU will be invited to become signatories to Annex B of the IOSCO MMoU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories. The IOSCO website lists the CMF as a signatory to Annex B and an ordinary member of IOSCO.

The Principles

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

EN

According to the 2002 IMF FSSA, the CMF "has a clear mandate" (p. 36) to protect investors' savings in securities and financial products, and any other public issues. The responsibilities of the CMF include supervising market participants, the stock exchange, the clearing and settlement house, market intermediaries and CIS.

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

II

The 2002 IMF FSSA reports that the CMF is independent and is independently funded. However, it notes that the ministry of finance may remove members by decree in a discretionary manner. The assessment does not further address Tunisia'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.

EN

The regulator has the power to issue regulations subject to approval by the Minister of Finance and issue licenses to or revoke or suspend market intermediaries' licenses. The 2002 IMF FSSA indicates that the CMF has the authority but lacks the capacity to carry out its responsibilities. According to the assessment, the CMF should ensure compliance with standards of fairness by introducing a procedures manual. The 2006 World Bank FSA reports that the CMF has increased its sanctioning powers in line with the FSAP recommendation. However, the 2006 IMF FSSA Update recommends that the CMF further strengthen its enforcement.

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

II

There is insufficient publicly available information addressing Tunisia's compliance with this principle.

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

II

The 2002 IMF FSSA reports that the regulator's staff is governed by professional secrecy rules, but does not further address Tunisia'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.

EN

The BVMT, STICODEVAM, and AIB are SROs but hold limited responsibility. The BVMT is in charge of issuing listing requirements (subject to approval by the CMF) and disciplining shareholders to a limited extent. However, because the BVMT is partially owned by market intermediaries, its sanctioning ability is diminished. STICODEVAM has established technical procedures that must be followed by market intermediaries, and includes all brokers and banks as members. The 2002 FSSA suggests that the AIB's role could be expanded because its in-depth knowledge of market practices might promote good ethical conduct.

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

The 2006 IMF report states that BVMT and STICODEVAM are under the ongoing supervision of the CMF. The IMF assessment does not further address Tunisia's compliance with this principle, however.

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

EN

According to the 2002 IMF FSSA, the CMF is authorized to carry out both regular inspections and spontaneous inspections in suspect cases. In addition, the CMF may carry out on-site inspections of any legal or individual entity. The CMF's electronic surveillance system detects irregularities in market prices to indicate potential market manipulation or insider trading.

9. The regulator should have comprehensive enforcement powers.

II

According to the 2002 IMF FSSA, while the CMF has broad enforcement powers and disciplinary powers, including the imposition of fines, there is flexibility and a general lack of severity in enforcement that could decrease investor confidence in the market's integrity and transparency. The IMF suggested that a disciplinary department could be created to help improve this. The 2006 IMF FSSA Update indicates that the recommendation to improve enforcement and increase the severity of sanctions has been partially implemented, but does not further address Tunisia's compliance with this principle.

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.

EN

The 2002 IMF FSSA reports that there is a certain degree of flexibility and lack of severity in enforcement that could decrease investor confidence in the market's integrity and transparency. It suggested that a disciplinary department could be created to help improve this. The 2006 IMF FSSA Update indicates that the recommendation to improve enforcement and increase the severity of sanctions has been partially implemented.

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

ID

The 2002 IMF FSSA finds that informal domestic cooperation occurs between the CMF, MoF, BCT, and the judicial authorities; and the CMF can cooperate with international authorities. The report adds that the CMF should establish formal information-sharing agreements, subject to confidentiality. The 2006 IMF FSSA Update reiterated the need to establish information-sharing agreements with foreign and domestic regulators

The IOSCO MMoU is based on the thirty 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. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMoU will be invited to become signatories to Annex B of the IOSCO MMoU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories. The IOSCO website lists the CMF as a signatory to Annex B and an ordinary member of IOSCO.

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

In its 2002 FSSA on Securities Regulation, the IMF noted that legislation in Tunisia regarding the provision of public information on listed companies and the protection of shareholders' rights was "sound and clear" (p. 36). According to a subsequent IMF FSSA Update in 2006, new legislation requires companies that exceed a certain size to establish audit committees. In addition, the 2006 World Bank FSA mentions that the 2005 law on financial security improves the coherence of transparency and information requirements for all companies, listed and unlisted. This encourages transparency in all enterprises and reduces listing disincentives. According to the 2007 U.S. DoC Doing Business report, regulatory and accounting systems have improved over the past few years, in line with international standards, and Tunisian firms listed on the Tunis Stock Exchange are "required to publish semiannual corporate reports audited by a certified public accountant."

According to the World Bank's 2004 Report on the Observance of Standards and Codes on Accounting and Auditing, the Law on Commercial Companies requires that "joint-stock companies prepare, publish, and file consolidated financial statements prepared in conformity with applicable accounting standards beginning 2001" (p. 3). Furthermore, the Law on Credit Institutions requires credit entities to provide timely information to shareholders, and prepare their financial statements in line with Tunisian Accounting Standards (TAS). The World Bank report notes that these accounting standards differ significantly from the International Financial Reporting Standards (IFRS). Neither assessment directly addresses Tunisia's compliance with this principle.

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

II

The 2002 IMF FSSA notes that legislation in Tunisia regarding the provision of public information on listed companies, and the protection of shareholders' rights is "sound and clear" (p. 36). The IMF report recommends enhancing the CMF's capacity to protect shareholders' rights through further regulation and improved staff training. However, the assessment does not further address Tunisia's compliance with this principle.

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

EN

As explained in the 2004 World Bank report, listed companies must prepare financial statements in accordance with TASs and submit copies to the CMF. However, the report noted that TASs are "seriously flawed and are not adapted to modern securities market transparency requirements" (p. 11). The CMF is responsible for ensuring the implementation of accounting standards. Joint stock companies raising funds from the public, which are governed by the Law on Financial Markets, are required to file audited financial statements with the CMF and the BVMT. However, the World Bank notes that "the legislation does not include any specific mechanism to further strengthen requirements concerning audits in companies raising funds from the public, including listed companies" (p. 6). Additional auditing-related legal requirements have also been laid out for credit institutions, insurance undertakings, undertakings for collective investment, and other companies raising funds from the public. However, the report observes that the CMF needs to improve its monitoring and enforcement arrangements with regard to financial reporting. The 2006 World Bank FSA indicates that, in accordance with the 2002 FSAP recommendation, a 2003 decree by the Ministry of Finance established norms for the preparation of annual accounts on a consolidated basis. Also, according to the 2007 U.S. DoC Doing Business report, regulatory and accounting systems have improved over the past few years, in line with international standards, and Tunisian firms listed on the Tunis Stock Exchange are "required to publish semiannual corporate reports audited by a certified public accountant."

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 2002 IMF FSSA reports that new legislation has been enacted for the operation of CISs and the creation of open-end, closed-end, and capital investment companies, as well as common investment funds. It requires that a detailed prospectus be submitted to and approved by the CMF and that financial statements be published. However, the assessment does not further address Tunisia'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 2002 IMF FSSA recommends that the "erection of Chinese walls between the various activities need to be established" (p. 37). The 2006 IMF FSSA Update indicates that recommendation to set up Chinese walls has been partially implemented. However, the assessment does not further address Tunisia'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

There are regulations governing the frequency of reporting asset valuation but not o the valuation methods, according to the 2002 IMF FSSA. However, accounting standards were approved in 1999 and are "gradually being established" (p. 37). These should largely correct this problem. However, the assessment does not further address Tunisia'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

See Principle 19.

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

EN

The 2002 IMF FSSA notes that the CMF is responsible for licensing market intermediaries, based on the advice of the AIB. Licensing requirements are clear and specific, including minimum capital requirements.

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

II

There are initial capital requirements but no ongoing capital requirement; and the 2002 IMF FSSA suggests that the regulations be amended to include them. However, the assessment does not further address Tunisia'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.

EN

According to the 2002 IMF FSSA, the standards for ethical and internal control are in line with IOSCO's Principles. The CMF has initiated educational programs for market intermediaries to emphasize the importance of implementation.

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 2002 IMF FSSA reports that there is a Market Guarantee Fund to ensure that transactions negotiated among market intermediaries are successfully concluded. The IMF recommends that a Customer Guarantee Fund be established to protect customers from noncommercial risks. However, the assessment does not further address Tunisia'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 2002 IMF report, the BVMT manages the secondary debt market and equity market based on "sound and clearly defined" (p. 37) regulations and is subject to CMF supervision. The BVMT's rules for trading the delivery of securities and cash payments are "appropriate and effective" ( p. 37). However, the assessment does not further address Tunisia'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 CMF carries out ongoing supervision of the BVMT and STICODEVAM and approves the General Securities Exchange Regulations and trading floor regulations, as reported in the 2002 IMF FSSA. However, the assessment does not further address Tunisia's compliance with this principle.

27. Regulation should promote transparency of trading.

II

According to the 2002 IMF FSSA, Tunisia's regulatory framework requires the disclosure of complete, accurate, and reliable information for public offerings. The BVMT utilizes an electronic quotation system. The 2006 World Bank FSA indicates that a yield curve was established in 2005 based on recent emissions. However, it recommends that the yield curve be publicly disclosed to further price transparency. However, the assessment does not further address Tunisia's compliance with this principle.

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

EN

The 2002 IMF FSSA reports that there is sufficient detection of unfair practices but notes that sanctions need strengthening.

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

EN

The existing prudential rules are effective in managing large exposures but, according to the 2002 IMF FSSA, they will need to be updated with further financial system liberalization and the introduction of new market instruments.

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 2002 IMF FSSA indicates that the securities clearing and settlement system is strong. STICODEVAM is the central depository and clearing and settlement house.