The Landscape of Self-Regulatory Organizations (SROs) in Ethiopia: Roles and Responsibilities

Self-Regulatory Organizations (SROs) play a pivotal role in the financial ecosystem of any country. In Ethiopia, the landscape of SROs is governed by the Ethiopia Capital Market Authority (ECMA), which sets the rules and guidelines for their establishment, operation, and regulation. This article delves into the obligations of SROs in Ethiopia, drawing insights from the Recognition of Self-Regulatory Organizations Directives draft for public consultation.

The ECMA is the primary regulatory body that oversees the operation of SROs in Ethiopia. It is empowered to delegate some of its functions to an SRO, regulate and sanction an SRO and/or its personnel, and withdraw the recognition and license of an SRO. The ECMA ensures that SROs operate within the framework of the Capital Market Proclamation No.1248/2021.

No entity can operate as an SRO in Ethiopia without being duly recognized by the ECMA. The recognition process involves a thorough examination of the applicant's financial capacity, administrative resources, governance structure, and compliance with the ECMA's rules and guidelines. The ECMA also assesses the applicant's ability to reduce systemic risk, promote market integrity, and prioritize investor protection.

SROs in Ethiopia are obligated to admit only licensed Capital Market Service Providers (CMSPs) as members and have a fair and transparent procedure for admitting members. They are required to prioritize investor protection in their activities, promote market integrity, reduce systemic risk, and strive for the development of the capital market ecosystem, including conducting training and awareness programs.

The ECMA may delegate some of its powers and duties to an SRO. These may include developing and issuing rules and guidelines to govern the behavior and activities of its members, enforcing its rules, initiating disciplinary proceedings against members, conducting market surveillance and investigations, and having procedures for fair dispute resolution between members or a member and an investor.

The second part of the obligations of Self-Regulatory Organizations (SROs) in Ethiopia focuses on the independence of SROs and their obligations. SROs are required to establish policies and procedures to maintain a separation between their regulatory functions and their commercial activities. This includes maintaining separate staff for both functions. Funds received from regulatory fines and fees should be used for regulatory purposes only, and every SRO should have a policy on the utilization of fines.

The Authority can delegate any of its powers and duties to an SRO in line with the provisions of the Proclamation. When delegating any of its powers and duties, the Authority specifies the conditions for delegation, including the function or power delegated to the SRO, the extent of disciplinary powers delegated and the scope of sanctions that may be imposed, the terms and conditions upon which the power or function has been delegated and may be exercised, and the persons authorized to exercise the delegation on behalf of the self-regulatory organization.

An entity can only be recognized as an SRO if it satisfies and continues to satisfy the Authority that the organization has the financial capacity and administrative resources necessary to carry out its functions as an SRO, including dealing with a breach of the law or of any other applicable guidelines.

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 (1/3) of the Board of Directors, or its equivalent. The Chairman of the Board of a SRO should be an independent person.

Every Self-Regulatory Organization (SRO) must ensure that the individuals responsible for managing and overseeing its governance and administrative affairs possess the necessary skills and experience. The SRO should consider the requirements of the Competency Framework for Capital Market Service Providers when appointing Senior Personnel. No person should be appointed as a Senior Personnel without prior written notification to the Authority, in accordance with the provisions of the Proclamation.

While the document outlines the procedure for appealing sanctions, the specific details of this procedure are not provided in this extracted content. These details are likely to be outlined later in the document.

The directives for the recognition of Self-Regulatory Organizations in Ethiopia place a strong emphasis on the competence and independence of the personnel involved in these organizations. This is to ensure that these organizations can effectively carry out their functions and contribute to the development of the capital market ecosystem in Ethiopia.