sro – Ethiopian Capital Market Authority (ECMA)

PREAMBLE

Article . Preamble

Whereas a Self-Regulatory Organization (SRO) plays a valuable role in developing and enforcing standards of conducts for market participants, fostering fair competition, and reducing regulatory burdens on the Ethiopian Capital Market Authority; Whereas the Capital Market Proclamation empowers the Ethiopian Capital Market Authority to institute procedures to recognize and delegate certain powers and duties to an SRO through a directive; and Now, Therefore, the Authority hereby issues the following Recognition of Self-Regulatory Organizations Directive in accordance with Part Three and Article 108(2) of the Proclamation.📋Copy Citation

PART ONE - GENERAL PROVISIONS

Article 1. Short Title

This Directive may be cited as the “Recognition and Supervision of Self-Regulatory Organizations Directive No. xxxx/2024.”📋Copy Citation

Article 2. Definitions

In this Directive, unless the context otherwise requires:📋Copy Citation

1)“Authority” means the Ethiopian Capital Market Authority established under the Proclamation.📋Copy Citation

2)“Chief Compliance Officer” means an officer responsible for monitoring and ensuring compliance of the SRO with the Proclamation, this Directive, the SROs’ internal rules and procedures as well as other relevant legislations.📋Copy Citation

3)“Financial Year” means the period of twelve months beginning from the 1st day of July every year.📋Copy Citation

4)“Independent Director” means a member of the Board of Directors who satisfies the definition of an Independent Person as provided in this Directive.📋Copy Citation

5)“Independent Person” means an individual who has no Material Relationship with the SRO or any affiliate of the SRO, any member of the SRO or any affiliate of such member, or any issuer of securities that are listed, traded or cleared on the SRO or a facility of the SRO.📋Copy Citation

6)“Material Relationship” means a relationship, whether compensatory, familial, or otherwise, that reasonably could affect the independent judgment or decision-making of an Independent Person.📋Copy Citation

7)“Person” means any natural or juridical person.📋Copy Citation

8)“Proclamation” means the Capital Market Proclamation No. 1248/2021.📋Copy Citation

9)In this Directive, any expression in the masculine gender includes the feminine.📋Copy Citation

10)Any term used in this Directive shall have the meaning assigned to it in the Proclamation.📋Copy Citation

Article 3. Scope of Application

This Directive shall apply to:📋Copy Citation

1)an entity regulated by the Authority which is recognized as an SRO as per the Proclamation and this Directive; and📋Copy Citation

2)a Securities Exchange and a Securities Depository and Clearing Company as it relates to its function as an SRO.📋Copy Citation

PART TWO - APPLICATION FOR RECOGNITION

Article 4. Prohibition

Without prejudice to Article 22(2) of the Proclamation, no entity shall operate as an SRO in the Ethiopian Capital Market without recognition from the Authority as an SRO.📋Copy Citation

Article 5. Application Procedure

1)An application for recognition shall be made following the forms and procedures prepared by the Authority.📋Copy Citation

2)All applications and accompanying documents shall be filed with the Authority in the English or Amharic languages. If any information or document to be filed with the application is in any other language, it shall be accompanied by an authenticated translated version to English or Amharic.📋Copy Citation

3)Notwithstanding payment of the prescribed application fees and compliance with some registration requirements, an application for recognition may be terminated by the Authority where the applicant fails or neglects to continue with the processing of the application for a period of sixty (60) days without due notification to and approval of the Authority.📋Copy Citation

Article 6. Specific Recognition Requirements

1)In addition to the requirements in Article 22 (4) of the Proclamation, an application for recognition shall be accompanied by the following:📋Copy Citation
(a) Evidence of payment of the fees prescribed by the Authority;📋Copy Citation
(b) A copy of the formation documents for the applicant issued by a relevant government organ;📋Copy Citation
(c) Applicable incorporation documents showing the board directors, members and capital of the applicant as of the date of filing the application;📋Copy Citation
(d) Details of the functions and powers that the entity is seeking to exercise upon recognition;📋Copy Citation
(e) Existing or proposed rules, policies and such other document governing the conduct of members of the SRO, including Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) procedures in compliance with the applicable AML/CFT legislation in Ethiopia and general international requirements, as may be in effect from time to time;📋Copy Citation
(f) Organizational profile of the applicant;📋Copy Citation
(g) Organogram of the applicant clearly delineating the reporting lines;📋Copy Citation
(h) Undertaking by the applicant and its Senior Personnel as at the date of filing the application, on behalf of its members to comply with the Code of Conduct for Capital Market Service Providers, their Employees, and Persons with Significant Influence and the Capital Market Proclamation and other laws issued under the Proclamation;📋Copy Citation
(i) Where the applicant has operated for a period of twelve (12) months or more as of the date of filing the application, an Audited Financial Statement for the financial year immediately preceding the date of filing the application and an unaudited Financial Statement for the remaining months;📋Copy Citation
(j) Where the applicant has operated for a period of less than twelve (12) months, but the fiscal year has ended, an Audited Financial Statement for such period;📋Copy Citation
(k) Where the applicant has operated for a period of less than twelve (12) months, but the fiscal year has not ended, an unaudited Financial Statement for such period, except that, the applicant shall provide the Authority with an audited statement within three months of the end of the fiscal year;📋Copy Citation
(l) Details of Senior Personnel who meet the fit and proper criteria for their role and function as specified by the Authority in this Directive;📋Copy Citation
(m) Police Clearance Certificate, as required under Article 17 of this Directive;📋Copy Citation
(n) Evidence of financial resource and administrative capacity necessary to carry out its functions as an SRO;📋Copy Citation
(o) Evidence of technology resource and internal control, and risk management procedures necessary to carry out its functions as an SRO;📋Copy Citation
(p) Address of the applicant’s registered office and proposed Head Office (if different from its registered office) and any other office the applicant intends to operate from; and📋Copy Citation
(q) Any other information related to the functions of an SRO as provided for in this Directive and the Proclamation that may be required by the Authority.📋Copy Citation

2)All questions on the application form shall be answered truthfully and correctly.📋Copy Citation

3)As part of the application process, at least three (3) of the applicant’s Senior Personnel, including the Chief Compliance Officer, shall be required to undergo an interview session with representatives of the Authority.📋Copy Citation

4)Where necessary, other Senior Personnel and members of the SRO may also be required to undergo an interview session with representatives of the Authority.📋Copy Citation

5)An application for recognition is considered filed when the applicant submits all necessary documents to the Authority.📋Copy Citation

Article 7. Fees

Every applicant for recognition shall pay such fees as may be determined by the Authority’s fee directive.📋Copy Citation

Article 8. Approval of a Recognition Application

Upon meeting the requirements outlined in Articles 6 and 7 of this Directive, the Authority shall:📋Copy Citation

1)declare the applicant to be a recognized SRO by communicating its decision, in writing, to the applicant; and📋Copy Citation

2)notify the public that it has recognized an entity as an SRO by publications in a widely circulated newspaper in Ethiopia.📋Copy Citation

Article 9. Refusal of an application for Recognition

1)The Authority may reject an application or refuse to recognize an entity as an SRO where the Authority establishes that the applicant:📋Copy Citation
(a) has rules and policies that are inconsistent with the Proclamation or other laws issued under the Proclamation;📋Copy Citation
(b) has failed to demonstrate that it has adequate capacity and competent personnel to carry out its functions;📋Copy Citation
(c) has given false or misleading information;📋Copy Citation
(d) during the application for recognition, has omitted a material fact or failed to mention any other information that should be submitted to the Authority;📋Copy Citation
(e) has failed to meet the fit and proper criteria, financial capacity and administrative resource requirements, internal organization and risk management, and other regulatory and supervisory requirements for recognition determined by the Authority; or📋Copy Citation
(f) has violated any provision of this Directive or any other relevant legislation.📋Copy Citation

2)Every applicant shall be given an opportunity to be heard by the Authority before a decision to reject an application for recognition as an SRO.📋Copy Citation

Article 10. Timeline for Processing an Application

1)The Authority shall communicate its decision to the applicant, in writing, within fifteen📋Copy Citation (15)days, upon receiving a complete application as specified under Article 6 of this Directive.📋Copy Citation

2)Where the Authority decides to recognize the applicant as an SRO, it shall instruct the applicant to pay the applicable recognition fee.📋Copy Citation

PART THREE - GENERAL OBLIGATIONS AND RESPONSIBILITIES

Article 11. Independence and Governance of Self-Regulatory Organizations

1)SROs shall, where applicable, establish and maintain policies and procedures to maintain a separation between their regulatory functions and their commercial activities including maintaining separate staff for both functions.📋Copy Citation

2)Funds received from regulatory fines and fees shall be used for regulatory purposes only, and every SRO shall have a policy on the utilization of such funds in its Rules established under Article 24(1) of the Proclamation.📋Copy Citation

3)SROs shall ensure compliance with the applicable ownership restrictions and governance requirements as may be specified in the Proclamation, this directive and other relevant legislations.📋Copy Citation

Article 12. Obligations of Self-Regulatory Organizations

An SRO must:📋Copy Citation

1)Admit only licensed Capital Market Service Providers as members;📋Copy Citation

2)Have a fair and transparent procedure for admitting members;📋Copy Citation

3)Prioritize investor protection in its activities;📋Copy Citation

4)Promote market integrity;📋Copy Citation

5)Promote the reduction of systemic risk; and📋Copy Citation

6)Strive for developing the capital market ecosystem, including training and awareness programs.📋Copy Citation

Article 13. Power and Duties of a Self-Regulatory Organization

1)Subject to the approval of the Authority, every SRO shall have the power to develop and issue rules as per Article 24(1) of the Proclamation to govern the behavior and activities of its members and Issuers of securities, where applicable;📋Copy Citation

2)Every SRO shall have the powers to carry out the following functions:📋Copy Citation
(a) Specify minimum operating requirements for its members;📋Copy Citation
(b) Enforce its rules and conduct disciplinary proceedings against members based on such rules;📋Copy Citation
(c) Conduct off-site supervision as well as routine and special on-site examinations on its members;📋Copy Citation
(d) Review the financial and non-financial records of its members;📋Copy Citation
(e) Conduct market surveillance and investigations;📋Copy Citation
(f) Have procedures for dispute resolution between members or a member and an investor; and📋Copy Citation
(g) Any other duties that may be delegated by the Authority.📋Copy Citation

Article 14. Financial Resources and Administrative Capacity of a Self-Regulatory Organization

1)An entity shall only be recognized as an SRO where it demonstrates to the Authority that it has the financial resources and administrative capacity necessary to carry out its functions as an SRO.📋Copy Citation

2)In determining whether an applicant has the financial resources and administrative capacity sufficient for the proper performance of its functions, the Authority shall consider:📋Copy Citation
(a) the operational and other risks to which the SRO is exposed;📋Copy Citation
(b) the amount and composition of the SRO's capital;📋Copy Citation
(c) the amount and composition of the SRO’s other financial resources including insurance policies and guarantees, where appropriate; and📋Copy Citation
(d) the rules and practices of the applicant.📋Copy Citation

Article 15. Personnel of a Self-Regulatory Organization

1)Every SRO shall ensure that persons assigned with the responsibility of managing and overseeing its governance and administrative affairs shall have sufficient skills and experience in that regard.📋Copy Citation

2)Every SRO shall comply with the requirements of the Competency Framework for Capital Market Service Providers in the appointment of a Senior Personnel.📋Copy Citation

Article 16. Governance Structure of a Self-Regulatory Organization

1)The Board of Directors of an SRO shall consist of Independent Directors and industry professionals.📋Copy Citation

2)The Independent Directors shall make up at least one-third (1/3) of the Board of Directors.📋Copy Citation

Article 17. Fit and Proper Requirements for Self-Regulatory Organizations and their Personnel

1)In determining whether an SRO and its personnel are fit and proper, the Authority shall take into consideration their compliance with the criteria for fit and proper stipulated under Article 56 of the Proclamation.📋Copy Citation

2)All SROs shall obtain a Police Clearance Certificate of good conduct, issued by the applicable regulatory authority, for each of its Senior Personnel and other employees as may be prescribed or required by the Authority from time to time.📋Copy Citation

3)The Police Clearance Certificate referenced in Sub-Article 2 of this Article shall be obtained prior to appointing or employing the applicable individuals.📋Copy Citation

4)An SRO and its Senior Personnel shall be deemed to have fulfilled the fit and proper criteria if they:📋Copy Citation
(a) Proves to the Authority a minimum level of competency, skills and experience to fulfill the SRO’s function as outlined in its application;📋Copy Citation
(b) Have not been convicted of any offence relating to fraud, theft, dishonesty, financial misconduct or market abuse;📋Copy Citation
(c) Have not been adjudged guilty of misconduct relating to activities in the financial sector by any relevant administrative authority;📋Copy Citation
(d) Have not been declared bankrupt;📋Copy Citation
(e) Have not been placed under liquidation;📋Copy Citation
(f) Have never been disqualified or expelled from membership of any professional association, organization, or any trade association, or had a license revoked for cause;📋Copy Citation
(g) Have not been expelled from any Securities Exchange or Over-the-Counter Trading Market; and📋Copy Citation
(h) Have not been found to be incapacitated on grounds of mental or physical illness.📋Copy Citation

Article 18. Chief Compliance Officer

1)Every SRO shall, subject to providing the Authority with prior written notification, appoint a Chief Compliance Officer who shall be responsible for monitoring and ensuring compliance with the Proclamation, Directives issued by the Authority, as well as other applicable laws and regulations.📋Copy Citation

2)The Chief Compliance Officer shall immediately and independently report to the Authority any violation of, or non-compliance with, the Proclamation, this Directive or any other relevant law, policies, or regulations, observed by him.📋Copy Citation

3)The Chief Compliance Officer shall be responsible for organizing annual training for staff members on compliance-related issues and undertake such additional functions as may be required by the Authority.📋Copy Citation

4)Every SRO shall give a prior written notification to the Authority before the redeployment or dismissal of a Chief Compliance Officer.📋Copy Citation

5)Under no circumstances shall the position of a Chief Compliance Officer be vacant for more than one (1) business day; and📋Copy Citation

6)An SRO shall establish a Chief Compliance Officer succession plan by internally identifying employees who can act in that capacity immediately when the position becomes vacant.📋Copy Citation

Article 19. Material Changes

1)An SRO shall give a prior written notification to the Authority of any material changes as per Articles 24 and 27 of the Proclamation.📋Copy Citation

2)The change of its membership composition shall be effective where the Authority does not express its objection within fifteen (15) days after receipt of the notification.📋Copy Citation

3)Notwithstanding the provisions of Sub-Article (2) of this Article, a change in the membership composition arising from a disciplinary action shall be made as per Article of this Directive.📋Copy Citation

4)The appointment or change of a Senior Personnel, Chief Compliance Officer, or a Board Director by an SRO shall be as per Article 27 of the Proclamation.📋Copy Citation

5)The removal of a Senior Personnel by an SRO shall be as per Article 28 of the Proclamation.📋Copy Citation

6)An SRO shall notify the Authority:📋Copy Citation
(a) not later than five (5) days prior to the effective date of resignation of a Senior Personnel or Board Director, or within ten (10) days of receipt of a notice of resignation from the Senior Personnel or Board Director, whichever occurs first; and📋Copy Citation
(b) not later than five (5) days after becoming aware of the death of a Senior Personnel or a Board Director.📋Copy Citation

Article 20. Offices of a Self-Regulatory Organization

1)Every SRO shall give a prior written notification to the Authority before:📋Copy Citation
(a) Change its head office;📋Copy Citation
(b) Establishing a new branch office; and📋Copy Citation
(c) Closing or changing any of its branch offices.📋Copy Citation

2)The change or closure of an office shall be effective where:📋Copy Citation
(a) The Authority does not express its objection within fifteen (15) days after receipt of the notification; and📋Copy Citation
(b) The SRO gives its Members and the public a minimum of fifteen (15) days’ notice of its intention to close or change its office. Notifications shall be made via the electronic mail addresses of members, publication on the website of the SRO, and publication in two (2) widely circulated digital or paper newspapers, one (1) in Amharic and one (1) in English.📋Copy Citation

Article 21. Maintenance of Records

1)An SRO shall:📋Copy Citation
(a) keep and maintain books, records, and detailed and accurate accounts that reflect transactions or transfers of ownership of related assets of the SRO, in accordance with accounting standards set out by Accounting and Auditing Board of Ethiopia or any relevant Authority in Ethiopia;📋Copy Citation
(b) maintain proper, complete, accurate and secure records of its Members; and📋Copy Citation
(c) provide the Authority with information regarding how and where the books of account, records and documents are kept.📋Copy Citation

2)Members’ records may be kept in a combination of printed, electronic or voice recorded format.📋Copy Citation

3)SROs are required to take precautions necessary to ensure that member records are not lost or destroyed and that sufficient backup of records is available outside the principal place of business.📋Copy Citation

4)An SRO shall keep its records for ten (10) years from the day of preparation or receipt thereof and make them available for review by the Authority.📋Copy Citation

Article 22. Reporting Obligations

1)An SRO, its Senior Personnel or its other employees shall report to the Authority any:📋Copy Citation
(a) Violation of the Proclamation and this Directive within twenty-four (24) hours of becoming aware of such violation, and intended remedy thereto; and📋Copy Citation
(b) Suspected prohibited trading practices to the Authority within twenty-four (24) hours of becoming aware of or suspicion of the occurrence of such activity.📋Copy Citation

2)Every SRO shall submit, in the format prescribed by the Authority:📋Copy Citation
(a) Quarterly reports of its inspection and examination activities, surveillance activities, disciplinary actions against members, and dispute resolution activities within thirty (30) days after the end of the quarter;📋Copy Citation
(b) Annual reports as per Article 29 of the Proclamation; and📋Copy Citation
(c) Any other reports that may be required by the Authority related to the functions of an SRO as provided for in the Proclamation or this Directive.📋Copy Citation

Article 23. Systems and Controls

1)An SRO shall have proper and adequate internal control procedures, risk management systems, and compliance systems to detect, prevent, and correct violations of applicable laws and regulations.📋Copy Citation

2)An SRO that uses or relies on any technological tool, system, or application for carrying out its operations and activities shall ensure that:📋Copy Citation
(a) Data privacy laws and requirements are considered and complied with in the development or implementation of such technological tool, system, or application;📋Copy Citation
(b) Its digital channels have interfaces that are user-centric with the user experience prioritized; and📋Copy Citation
(c) Vulnerability assessment and penetration tests are conducted on a semi-annual basis.📋Copy Citation

Article 24. Supervision and Inspection by the Authority

1)The Authority shall conduct off-site supervision as well as routine and special on-site inspections, with or without prior notice on SROs, with unfettered access to all necessary books, information, and records.📋Copy Citation

2)To carry out its off-site supervision or on-site examinations, the Authority may use, in addition to its staff, auditors, and law enforcement agents and other authorities as appropriate.📋Copy Citation

Article 25. Cooperation in Connection with Inspections or Investigations

1)SROs and their personnel shall cooperate fully with all inspections or investigations conducted by the Authority and respond promptly to inquiries made by the Authority.📋Copy Citation

2)The Authority reserves the right to request any and such information as the Authority may require for the purpose of the inspection or investigation.📋Copy Citation

Article 26. Client Compensation Fund

1)An SRO may establish a Client Compensation Fund, subject to the approval of the Authority.📋Copy Citation

2)An SRO that establishes a Client Compensation Fund shall ensure that it is always adequately funded.📋Copy Citation

3)The Client Compensation Fund shall have funding and utilization procedures approved by the Authority and disclosed to members of the SRO and the public.📋Copy Citation

4)The Client Compensation Fund shall be utilized to compensate a claimant where the SRO determines eligibility under the applicable provisions of the Fund.📋Copy Citation

5)Final decisions of the SRO on a Client Compensation Fund may be appealed to the Authority.📋Copy Citation

PART FOUR - ADMINISTRATIVE MEASURES

Article 27. Penalties and Others

1)As per Article 107 of the Proclamation, the Authority has the powers to impose any or a combination of the following sanctions for misconduct on an SRO, its Board Directors, Senior Personnel, and other employees:📋Copy Citation
(a) Impose a fine;📋Copy Citation
(b) Issue a public or private warning or reprimand;📋Copy Citation
(c) Issue a public or private notice of censure;📋Copy Citation
(d) Withdraw the recognition of the SRO;📋Copy Citation
(e) Remove affected Board Directors, Senior Personnel or employees;📋Copy Citation
(f) Blacklist Senior Personnel or other employees;📋Copy Citation
(g) Suspend a provision of the memorandum and articles of association or rules of an SRO for a period specified in the notice from the Authority;📋Copy Citation
(h) Require an SRO to amend its rules;📋Copy Citation
(i) Require an SRO to implement or enforce its memorandum and articles of association or its rules; and📋Copy Citation
(j) Require the payment of administrative fees.📋Copy Citation

2)Before taking any action under Sub-Article (1) of this Article, the Authority shall give the SRO, its member(s), Board Directors, or Senior Personnel, as may be applicable, an opportunity to be heard.📋Copy Citation

Article 28. Withdrawal of Recognition

1)The Authority may withdraw a recognition of an SRO where:📋Copy Citation
(a) The SRO has failed to commence operations within one (1) year from the date the notice of recognition was published pursuant to the provisions of Article 8 of this Directive;📋Copy Citation
(b) The Authority determines that the SRO is not properly performing or is able to perform the functions or duties under the Proclamation or other laws issued under the Proclamation;📋Copy Citation
(c) The Authority determines that -📋Copy Citation

(c) (i) The SRO has failed to comply with any provisions of this Directive or the Proclamation;📋Copy Citation

(c) (ii) The SRO is declared bankrupt; or📋Copy Citation

(c) (iii) The SRO has ceased operations.📋Copy Citation
(d) On its own accord, the SRO requests the Authority to cease operating as an SRO.📋Copy Citation

2)The Authority shall publish the final decision to withdraw recognition of an SRO in a widely circulated newspaper in Ethiopia.📋Copy Citation

Article 29. Appeal Procedures

An SRO that is not satisfied with the decision of the Authority may appeal to the Capital Market Administrative Tribunal in line with provisions of Part Seven of the Proclamation.📋Copy Citation

PART FIVE - MISCELLANEOUS PROVISIONS

Article 30. Inapplicable laws

No directive or customary practice, inconsistent with this Directive, shall have effect with respect to matters governed by this Directive.📋Copy Citation

Article 31. Effective Date

This Directive shall come into force on the date of its registration with the Ministry of Justice and its uploading on the official website of the Authority.📋Copy Citation

Legal Documents

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