By Marc Jones and Chris Mfula
LONDON (Reuters) – Zambia's Securities and Exchange Commission (SEC) has sanctioned Standard Chartered for mis-selling Chinese property company bonds to one of the bank's local wealth clients at the height of the Asian country's real estate crisis, according to a source.
The source familiar with the matter told Reuters the UK-headquartered bank, which is currently looking to sell its wealth banking and retail businesses in Zambia, faces “enforcement action” for two SEC violations following a month-long investigation.
The first was that it failed to disclose “relevant information” about the bonds it sold in March 2022. Those bonds, issued by state-backed Chinese developer Sino-Ocean, defaulted just over a year later and are now, like many in the sector, almost worthless.
In addition, the SEC found that Standard Chartered also used “exceptional” contract clauses, which meant that the client was responsible for the risks, which contravenes Zambian securities rules.
In a statement to Reuters, Standard Chartered said: “We respect the outcome of the Securities Exchange Commission in Zambia, however, in accordance with appropriate local procedures we will exercise our right of appeal respectfully.”
“We are fully aware of this issue, and we are reviewing the details necessary to clarify the situation. Our priority at the Bank is to ensure compliance with regulatory standards across all our markets.”
The SEC, which began its investigation into the case in April, said it was unable to comment on the matter when asked by Reuters. Under Zambia's Securities Act, Standard Chartered now has 30 days to lodge its appeal.
Zambia's SEC has the power to fine, or publicly or privately “reprimand or censure” lenders, although it cannot formally order them to compensate customers for mis-selling.
Reuters was unable to establish what penalty the regulator plans to impose on Standard Chartered.
The lender announced in November that it plans to sell its Zambian assets and retail banking businesses alongside those in nearby Botswana and Uganda.
It has operated in Zambia for almost 120 years making it the oldest bank in the country.
It is currently reducing its overall footprint in Africa, however, having sold its Tanzania business and subsidiaries in Angola, Cameroon, The Gambia, and Sierra Leone in the past few years.
(Additional reporting by Chris Mfula in Lusaka. Editing by Elisa Martinuzzi and Mark Potter)