The extension of capital standards to asset management companies: Is this appropriate and holistic for these regulating entities in Zimbabwe?

Abstract

The purpose of the research was to investigate the extension of capital standards to asset management companies (AMCs) and whether capital regulation is appropriate and holistic for regulating these entities in Zimbabwe. The main objective of the study was to consider the use of capital in regulating AMCs whilst also highlighting additional regulatory measures that can be employed to buttress capital requirements, taking cognizance of the peculiarities inherent in the operations of AMCs.

In the past decade, regulatory and supervisory authorities have increasingly become more attentive to operational risk inherent in the operations of financial institutions. The most prominent regulatory stance adopted, thus far, has been to require AMCs to adhere to regulatory minimum capital requirements. The question arises if capital regulation suffices in mitigating operational and other significant risks inherent in the operations of AMCs and what additional measures, in light of evolving asset management regulation, can be employed to augment and buttress current regulatory measures in use.

Questionnaires were distributed to the target population to ascertain their perceptions on the extension of capital standards to asset management companies. The findings suggest that there are no other regulatory capital requirements, apart from regulatory minimum capital requirements, in the asset management sub-sector in Zimbabwe. In addition, there is limited knowledge by market participants on the alternatives to capital regulation.

It is recommended that the regulatory and supervisory agency responsible for the asset management sub-sector,come up with a capital regulation regime that is risk-based and well suited to the peculiarities of the sub-sector; ensures that asset managers are educated and conscientised on the non-capital regulatory mechanisms that can be employed, as well as, ensuring that these measures are prescribed at law and enforced in Zimbabwe. By so doing, establishing a comprehensive and holistic regulatory framework for the asset management sub-sector.