The ECMA & SROs: Shaping Ethiopia's Financial Landscape

The Ethiopian Capital Market Authority (ECMA) has established a regulatory framework that allows for the delegation of certain powers and duties to Self-Regulatory Organizations (SROs). This delegation is in line with the provisions of Article 16 and 23 of the Capital Market Proclamation No. 1248/2021. The ECMA specifies the conditions for delegation, including the function or power delegated to the SRO, the extent of disciplinary powers delegated, the terms and conditions upon which the power or function has been delegated, and the manner in which a self-regulatory organization shall submit a periodical report to the Authority in respect of the exercise of a delegated power or function.

The ECMA may delegate any of its powers and duties to an SRO, including the development and issuance of rules and guidelines to govern the behavior and activities of its members and issuers of securities, specification of minimum operating requirements for its members, enforcement of its rules and initiation of disciplinary proceedings against members, imposition of sanctions on defaulting members, carrying out off-site supervision as well as routine and special on-site examinations on its members, review of the financial and non-financial records of its members, conduct of market surveillance and investigations, and procedures for fair dispute resolution between members or a member and an investor.

The ECMA ensures that the SROs have the financial capacity and administrative resources necessary to carry out their functions, including dealing with a breach of the law or of any other applicable guidelines. The Authority considers the operational and other risks to which the SRO is exposed, the amount and composition of the SRO's capital, the amount and composition of the SRO's other financial resources, and the applicable rules and practices of the applicant.

The governance structure of an SRO is also crucial. The Board of Directors, or its equivalent, of an SRO should consist of a mix of Independent Directors and industry professionals. The Independent Directors should make up at least one-third of the Board of Directors, and the Chairman of the Board of an SRO should be an independent person.

In the next part, we will delve deeper into the specific roles and responsibilities of the SROs, the fit and proper requirements for Self-Regulatory Organizations and their personnel, and the consequences of non-compliance with the delegated powers and duties.

• Market Supervision: One of the crucial roles of an SRO is to conduct market supervision within its domain. This includes overseeing the activities of its members, ensuring compliance with the rules and regulations set forth by the ECMA, and promptly addressing any market misconduct or violations. The SRO acts as the frontline regulator, monitoring transactions, and reporting suspicious activities to the ECMA.

• Rule making and Standard Setting: The ECMA delegates the authority to make and enforce specific rules to SROs. These rules aim to govern the conduct of market participants, maintain market integrity, and protect investors' interests. The SRO is responsible for setting standards and codes of conduct that its members must adhere to, fostering fair and ethical practices in the market.

• Licensing and Registration: SROs play a crucial role in the licensing and registration of their members. They are responsible for conducting due diligence on potential members, assessing their suitability to operate in the market, and granting licenses to those who meet the prescribed criteria. Additionally, the SROs maintain a register of their members and ensure timely renewal of licenses.

• Dispute Resolution: SROs act as mediators in resolving disputes among their members and between members and their clients. They establish a fair and impartial dispute resolution mechanism to address grievances and conflicts that may arise within the market. This fosters investor confidence and ensures a more efficient resolution of issues.

• Market Surveillance and Enforcement: SROs perform market surveillance to detect any potential market abuse or manipulation. They have the authority to conduct investigations and, if necessary, take enforcement actions against members who violate the established rules and regulations. This may include imposing fines, sanctions, or other disciplinary measures.

• Education and Training: SROs are responsible for providing education and training programs to their members. These programs aim to enhance the knowledge and skills of market participants, keeping them updated with the latest market developments, regulatory changes, and best practices. Well-informed members contribute to a more resilient and informed market.

• Information Sharing: SROs act as intermediaries between the market participants and the ECMA. They are responsible for collecting and sharing relevant market information with the regulatory authority. This helps the ECMA in formulating effective policies and regulations and allows for a more coordinated approach to market supervision.

Self-Regulatory Organizations (SROs) play a vital role in ensuring the integrity and stability of the capital market in Ethiopia. By delegating specific powers and duties to SROs, the Ethiopia Capital Market Authority aims to create a robust and well-regulated financial market ecosystem. The delegation of authority to SROs allows for a more efficient and decentralized regulatory approach, where market participants are actively involved in maintaining market integrity.

As the financial market evolves and faces new challenges, SROs continue to adapt and enhance their regulatory mechanisms. Their commitment to investor protection, market fairness, and transparency makes them an indispensable part of the Ethiopian capital market landscape. By effectively discharging their powers and duties, SROs contribute to the growth and development of the financial market, instilling trust and confidence among investors and stakeholders alike.