I – BASICS OF FINANCIAL SECTOR REGULATION

This article provides a brief introduction of the main statutes and actors involved in regulation of the financial sector in Mozambique and is the first in a series (of articles) which look to shed light on the asset management and private equity sectors in the country from a legal perspective.

1.1. Overview of the financial sector

After turbulent beginnings and a brief stint with a State monopoly system following the country’s independence in 1975, the Mozambican financial sector has undergone significant reforms to align it with the international financial order. Mozambique is a part of the multilateral agreements which underpin the international financial system (IMF, WTO/GATT) and its 2004 Constitution is now beholden to principles of private economic initiative.

Activities which are usually associated with the financial sector, typically liquidity transformation, maturity transformation and credit transformation are thus now provided by private actors and subject to market forces and competition (provided legal and regulatory principles are complied with).

The Mozambican financial sector is currently heavily dominated by commercial banks, with a mostly foreign (South African and Portuguese) shareholder base. Also relevant for extending credit to populations in peri-urban and rural areas are microfinance institutions and credit cooperatives (not to mention, informal, non-regulated lending activities, which are still frequent in many areas of the country).

As of September 2022, there are 20 banks, nine micro banks, three electronic currency institutions, eight credit cooperatives, one leasing company, one investment company, 24 bureaux de change, 12 brokers, one private equity company (GCI – Sociedade de Capital de Risco, S.A.), one purchasing group company, one credit cards manager, four savings and loan organizations, 426 microcredit operators and three locally based foreign credit institutions. Currently there are no (securities or real estate) fund management companies authorized in Mozambique.

Financial intermediation activities, still relatively underdeveloped, have historically been provided by the largest commercial banks which have obtained omnibus licenses from the Bank of Mozambique (i.e. besides the activities of lending and deposit taking).

The insurance market in its turn, is also maturing, but has grown vigorously in terms of amounts underwritten and revenues for the market operators (according to data produced by the insurance market regulator), which currently mostly operate in the non-life sector. There are currently 19 insurance companies, three micro-insurance companies, one reinsurance company, and seven pension fund management companies.

1.2. Institutional setup

The main State actors which legislate and regulate the Mozambican financial sector are the following:

  • The Government;
  • The Bank of Mozambique (“BM”);
  • The Insurance Supervision Institute (“ISSM”).

The Government has legislative and regulatory competences under the Constitution and, on its own initiative or through a legislative authorization from Parliament, is able to enact rules concerning the regulatory framework of the financial sector.

The BM is the Mozambican central bank and is the entity responsible for banking supervision and which serves as the regulatory authority for financial institutions operating in the country. Its activity is subject to the rules under its organic statute, set out by Law no. 1/92, of 3 January.

The central bank is also the primary responsible for conducting the country’s monetary policy and within its remit has issued multiple regulations aiming to implement policies targeting issues relating to foreign exchange reserves, inflation, and currency devaluation. It is incumbent as the banker of the Mozambican State, as advisor to the Government in financial matters, counsel and manager of monetary and exchange policies and of foreign exchange reserves. It also acts as intermediary in international monetary relations.

The current banking system in Mozambique is underpinned by a “single supervisor” institutional model of supervision. Unlike in other countries such as the United Kingdom (where the Bank of England and the Financial Conduct Authority oversee prudential and behavioural matters for financial institutions, respectively), it is the BM itself that issues both prudential and conduct standards for the institutions it oversees. The BM also has the prerogative to issue rules and regulations pertaining to own funds and to structural liquidity and sustainability of banking entities and financial companies.

In all matters not expressly reserved to the Ministry in charge of the area of finance, the supervision, regulation and promotion of the securities markets, including asset and fund management (this encompasses, notably, securities, real estate and private equity funds), in Mozambique is within the competence of the BM.

In the insurance market, the supervisory function in Mozambique falls on to the Mozambique Insurance Supervision Institute (Instituto de Supervisão de Seguros de Moçambique), which has the duty to regulate and supervise insurance companies and other entities that are authorized to pursue insurance-related activities, such as insurance mediation, reinsurance, and management of complementary pension funds.

1.3. Legal architecture of the Mozambican financial system

1.3.1. Banking system

The Mozambican Constitution, as mentioned, provides explicitly for the possibility of private economic activity and competition, albeit subject to State supervision.

International cooperation and principles also play a major role on the architecture of financial sector legislation. In particular, Mozambique has implemented the Basel Core Principles of Banking Supervision and this reflects in the options adopted for regulatory capital and liquidity requirements, risk management, supervision and market discipline (including the establishment of resolution mechanisms).

Mozambique’s financial sector is still in flux with the recent approval of a new legal framework governing credit institutions and financial companies, through Law no. 20/2020, of 31 December, revoking the previous regime of Law no. 15/99, of 1 November. This statute establishes the general rules for the incorporation and exercise of activities of credit institutions and financial companies.

The now defunct Law no. 15/99 used to be regulated by Decree no. 56/2004, of 25 December, which sets out procedures and standards applicable to the authorization of credit institutions and financial companies as well as particular rules applicable to such entities. Although Law no. 15/99 was revoked, Decree no. 56/2004 is still in force until a regulation of Law no. 20/2020 is approved.

Other key statutes for the financial system include Law no. 11/2022, of July 7, concerning the prevention and combat of money laundering and of the financing of terrorism and proliferation of weapons of mass destruction (which to some extent follow Financial Action Task Force (FATF) recommendations) and the decree which establishes a deposit guarantee mechanism, which has been established for the protection of depositors in commercial banks (as per Decree no. 49/2010, of November 11).

In its capacity as regulator and supervisor of the Mozambican financial system, the BM has issued, from time to time, several regulations designed to address the specific needs of the Mozambican banking sector, such as:

  • changes to the minimum capital requirements, which are set out by BM Notice no. 7/GBM/2017;
  • changes to the rules relating to own funds of credit institutions subject to the BM’s supervision, as set out by BM Notice no. 8/GBM/2017;
  • rules on the ratios and prudential limits of credit institutions, as set out by BM Notices no. 9/GBM/2017, 5/GBM/2018 and 7/GBM/2019; and
  • the introduction of a formula to be used to identify credit institutions of systemic or quasi-systemic relevance, as set out by Notice no. 10/GBM/2018.

1.3.2. Insurance

The insurance market is governed principally by the following statutes:

  • Decree no. 53/2019, of June 13, which approves the Organization and Operating Standards of the Insurance Supervision Institute of Mozambique;
  • Decree no. 30/2011, of 11 August, which approves the Regulation on the Conditions of Access and Exercise of Insurance Activity and the Respective Mediation; and
  • Decree-Law no. 1/2010, of 31 December - Approves the Insurance Legal Regime.

The ISSM also has powers to issue regulations concerning its competencies and has used them to handle matters of prudential and behavioural supervision of the insurance and pension fund markets.

1.3.3. Capital markets and asset management

The first steps towards the regulation of the capital markets in Mozambique were taken with the Establishment Committee of the Mozambican Stock Exchange in 1997 (Comissão Instaladora da Bolsa de Valores de Moçambique), which culminated in the approval of various legal instruments, in particular the Securities Market Regulation (approved by Decree no. 48/98, of 22 September), which has been revoked by current the Securities Market Code, approved by Decree-Law no. 4/2009 of 24 July, currently in force.

On 9 September 1999, Decree no. 54/99 was approved, establishing the legal regime of the investment funds, which represented an important advance in the scope of the capital markets, as vehicles for channelling investment by economic agents.

This diploma was amended by Decree no. 36/2005, of 29 August, which introduced specific amendments regarding the listing of the participation units on the Mozambican Stock Exchange.

The BM has also recently enacted Notice no. 6/GBM/2019, where it sets out the ratios and prudential limits of the investment funds, by defining a set of rules that should regulate the composition of the respective portfolios.

Private equity fund management, in turn, is regulated by Decree no. 56/99, of 8 September, a diploma which outlines the main legal prerequisites for authorizing and managing such funds.

In what concerns investment companies (such as brokers), the BM has issued Notice no. 3/GBM/2021 which established the competent regulatory framework.

Lastly, recently a crowdfunding lending platform has recently been launched; however, no legal and regulatory framework to crowdfunding activities has so far been established in Mozambique.