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Directive on Recognition and Supervision of Self-Regulatory Organizations (Directive No.1031/2024)

Ethiopian Capital Markets Authority1031/2024

Summary

This directive outlines the procedures and requirements for the recognition and supervision of Self-Regulatory Organizations (SROs) in the Ethiopian Capital Market. It details the application process, recognition requirements, general obligations, powers, and responsibilities of SROs, as well as administrative measures and penalties for non-compliance. The directive aims to ensure SROs contribute to market development, investor protection, and fair competition.

Who's affected

Entities seeking to operate as Self-Regulatory Organizations (SROs) in the Ethiopian Capital Market, including existing or prospective Securities Exchanges and Securities Depository and Clearing Companies functioning as SROs.

Action required

Entities intending to operate as SROs must apply for recognition from the Ethiopian Capital Market Authority by submitting all required documentation and meeting specific criteria.

Key points

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  • Establishes a framework for recognizing and supervising SROs.
  • Defines the application and recognition process for SROs.
  • Outlines the general obligations, powers, and responsibilities of SROs.
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    • Specifies requirements for SRO governance, personnel, and financial capacity.
    • Details reporting obligations and supervision mechanisms by the Authority.
    • Prescribes administrative measures and penalties for non-compliance, including withdrawal of recognition.
    • Provides for an appeal process to the Capital Market Administrative Tribunal.

Requirements

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  • Entities must obtain recognition from the Authority to operate as an SRO.
  • Applications for recognition require specific forms and procedures, including submission in English or Amharic.
  • Applicants must meet specific recognition requirements, including evidence of fee payment, formation documents, details of functions, rules and policies (including AML/CFT), organizational profile, organogram, undertakings, financial statements, senior personnel details, police clearance certificates, evidence of financial and administrative capacity, and technology resources.
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    • Senior Personnel and Chief Compliance Officer must meet fit and proper criteria.
    • SROs must maintain independence and appropriate governance structures.
    • SROs must admit only licensed Capital Market Service Providers as members.
    • SROs must prioritize investor protection, market integrity, and systemic risk reduction.
    • SROs must develop and issue rules (subject to Authority approval) and enforce them.
    • SROs must conduct supervision, examinations, and investigations of their members.
    • SROs must have adequate financial resources, administrative capacity, and personnel with sufficient skills and experience.
    • SROs must maintain proper internal control procedures, risk management systems, and compliance systems.
    • SROs must maintain records for ten years and report to the Authority quarterly and annually.
    • SROs must notify the Authority of material changes, including changes in membership composition, senior personnel, board directors, and office locations.
    • SROs must appoint a Chief Compliance Officer and ensure the position is not vacant for more than one business day.
    • SROs may establish a Client Compensation Fund, subject to Authority approval.

Rights and permissions

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  • Applicants have the right to be heard before a decision to reject their application.
  • SROs have the power to develop and issue rules to govern members and issuers (subject to Authority approval).
  • SROs have the power to enforce their rules and conduct disciplinary proceedings.
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    • SROs have the power to conduct off-site supervision and on-site examinations of their members.
    • SROs have the power to review financial and non-financial records of their members.
    • SROs have the power to conduct market surveillance and investigations.
    • SROs have procedures for dispute resolution.
    • SROs may establish a Client Compensation Fund.
    • SROs dissatisfied with the Authority's decision may appeal to the Capital Market Administrative Tribunal.

Restrictions

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  • No entity shall operate as an SRO without recognition from the Authority.
  • Applications for recognition may be terminated if not processed for sixty days without notification.
  • Funds received from regulatory fines and fees shall be used for regulatory purposes only.
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    • SROs must comply with applicable ownership restrictions and governance requirements.
    • SROs must admit only licensed Capital Market Service Providers as members.
    • Senior Personnel and employees must obtain Police Clearance Certificates before appointment or employment.
    • The position of Chief Compliance Officer cannot be vacant for more than one business day.
    • SROs must notify the Authority of material changes.
    • SROs must report violations and suspected prohibited trading practices within twenty-four hours.
    • The Authority has the power to impose sanctions for misconduct on SROs and their personnel.

Penalties

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  • Fines
  • Public or private warning or reprimand
  • Public or private notice of censure
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    • Withdrawal of recognition of the SRO
    • Removal of affected Board Directors, Senior Personnel, or employees
    • Blacklisting of Senior Personnel or other employees
    • Suspension of a provision of the memorandum and articles of association or rules of an SRO
    • Requirement for an SRO to amend its rules
    • Requirement for an SRO to implement or enforce its memorandum and articles of association or its rules
    • Requirement for payment of administrative fees

Objectives

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  • To establish procedures for the recognition and supervision of Self-Regulatory Organizations (SROs).
  • To ensure SROs contribute to the development and enforcement of market standards.
  • To foster fair competition and reduce regulatory burdens on the Ethiopian Capital Market Authority.
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    • To prioritize investor protection and promote market integrity.
    • To ensure SROs have adequate capacity, governance, and compliance systems.

Organizations

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  • Ethiopian Capital Market Authority
  • Ministry of Justice
  • Capital Market Administrative Tribunal

Legal references

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  • Capital Market Proclamation No. 1248/2021 (specifically Part Three and Article 108(2))
  • Article 22(2) of the Proclamation
  • Article 24(1) of the Proclamation
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    • Article 29 of the Proclamation
    • Article 56 of the Proclamation
    • Article 107 of the Proclamation
    • Part Seven of the Proclamation
    • AML/CFT legislation in Ethiopia
    • Accounting and Auditing Board of Ethiopia
Original sourcehttps://justice.gov.et/en/directives/directive-on-recognition-and-supervision-of-self-regulatory-organizations-directive-no-1031-2024/
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