At a time of unprecedented movement to greater corporate transparency internationally, South Africa has a small but momentous choice to make: accept a legal interpretation that has in effect blacked out the ownership records of listed companies, or listen to those who argue that this is a misinterpretation and contrary to the spirit of openness infusing our legal and constitutional architecture.
It all started several months ago when Strate, a company owned by the JSE and banks, told vendors — the likes of McGregor BFA and Ince, which supply investors, analysts, journalists and others with market data — that it would no longer feed them the share register details of listed companies.
Strate, the central securities depository licensed by the government, is the keeper of all electronic share registers of JSE-listed companies. It based its decision primarily on an interpretation of a clause in the new Financial Markets Act that prohibits the disclosure of “confidential information” on pain of a R1-million fine, five years in jail, or both.
The vendors appealed, arguing that shareholder information is available in comparable jurisdictions and that Strate was misinterpreting the Act.
But when the Act came into force last month, Strate flicked the switch and the data feed on screens across the country went blank.
Seemingly technical and mired in legalistic detail, this issue nonetheless has broader consequences for access to information.
Limiting access to shareholder data would have dire consequences for corporate transparency in South Africa.
The JSE is a hub for investment in the extractive, financial, industrial and service sectors across Africa. Transparency of investments builds both investor and public confidence.
Blacking out information of who owns whom in the corporate world has deprived investors, analysts, firms performing due-diligence studies, journalists and many others of their only practical means to access such data, and harms South Africa and the JSE’s credibility as an investment destination.
The controversies raging internationally regarding the use of opacity mechanisms and offshore havens to hide beneficial ownership, often for corrupt purposes, and to avoid taxes are evidence of this.
Partly in response to such controversies, a number of transparency initiatives are under way in the developed and developing world. South Africa and the JSE can ill afford to swim against the tide.
But the law is the law, where technicalities matter. So what are the details?
Section 73 of the Act reads that “no market infrastructure … may … disclose to any person any confidential information obtained in the performance of functions under this Act”.
Confidential information is defined as “personal information that belongs to a person and is not generally available to or known by others”.
On the face of it, Strate’s caution may be understandable. But, to bolster their argument, the data vendors obtained an opinion last week from senior counsel Gilbert Marcus, a top authority in the field, assisted by Iain Currie.
The two advocates’ written opinion neatly rips the carpet from under Strate’s cautious interpretation, starting with the simple insight that it is completely at odds with the stated objects of the Act, which include “to ensure that the South African financial markets are fair, efficient and transparent” and “to increase confidence in the South African financial markets by … requiring that securities services be provided in a fair, efficient and transparent manner”.
They also argue that the confidentiality injunction relates to “professional secrecy”: for example, in relation to information obtained in the course of regulatory investigations, but not with respect to information obtained during Strate’s everyday functions.
Moreover, they assert that, in any event, shareholder data is defined as public information under the provisions of the Companies Act. The latter allows any individual the right to inspect a share register of any company, listed or not.
As such, shareholder data cannot fall within the Financial Markets Act’s definition of “confidential information”. (Although the Companies Act establishes an unfettered right to access share registers, companies are often reluctant to comply, meaning the Companies Act procedure is no practical alternative to disclosure by Strate.)
To settle the matter one way or another, Strate has turned to the Financial Services Board, which has the power to issue guidelines on how to interpret and comply with the Act. The ball is now in the board’s court.
Armed with Marcus’s and Currie’s opinion, which has been passed on to it, hopefully the board will confirm South Africa’s place among the growing league of nations that recognise that corporate power is best checked by public accountability and transparency.
Vinayak Bhardwaj is the advocacy co-ordinator and Stefaans Brümmer is a managing partner of the M&G Centre for Investigative Journalism
The M&G Centre for Investigative Journalism, a non-profit initiative to develop investigative journalism in the public interest, produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.