Requirements for Entering Ethiopias Capital Market

The Ethiopian Capital Market Authority (ECMA) has outlined a comprehensive and stringent set of requirements for entities seeking to operate within Ethiopia's capital market. These requirements are designed to ensure a robust, transparent, and secure financial ecosystem. Below is a detailed and dense overview of these requirements.

Capital Requirements

• For Brokers:?Entities must have a minimum capital of 6 million birr.
• For Digital Platforms:?Entities must have a minimum capital of 1 million birr.

Corporate Structure and Governance

• Business License: Entities must be registered as Private Limited Companies (PLC) or share companies.

Board of Directors and Representatives:

• Board Directors:?At least 3 board directors are required.
• Appointed Representatives:?More than 2 appointed representatives, typically chief compliance officers, must be approved. These representatives must meet strict criteria including:
• Educational and Job Experience: Adequate qualifications and relevant experience.
• Background Check: No criminal offenses or losses ruled by courts.
• Certification: Passing a test prepared by the capital market authorities.

Documentation and Policies

• Operational Manual: A detailed guide on the company’s operational procedures.
• Internal Control and Risk Management: Comprehensive policies to manage and mitigate risks.
• Dispute Settlement and Conflict of Interest Resolution:?Clear frameworks to handle conflicts and disputes effectively.
• Disaster Recovery and Business Continuity:?Procedures to ensure continuity of operations during and after a disaster.
• Data Privacy Policy:?Policies to protect customer data and ensure privacy.
• Cybersecurity Policies:?Measures to safeguard digital systems and data against cyber threats.
• Data Storage and Retrieval Policy: Guidelines on how data is securely stored and retrieved.
• Terms & Policies for Users:?Clear and transparent terms and policies for platform users.

Financial and Compliance Requirements

• Insurance: Bank statements must show that 20% of the capital is insured to safeguard against potential losses.
• Fees: Payment of various fees, including:
• Application fees.
• Licensing fees.
• Exam fees for appointed representatives.
• Self-Evaluation Forms: Entities must complete self-evaluation forms to assess their capability to provide the proposed services.

Legal and Compliance

• Appointed Representatives: Must be approved by the ECMA. These individuals are responsible for ensuring compliance with regulatory standards and must meet stringent criteria, including passing a certification exam.
• Code of Conduct: A written document outlining ethical guidelines and business practices for the board of directors.
• Business Plan: A comprehensive plan detailing the company’s business model, strategy, and objectives.
• VAT/TIN Number Certificate:?Proof of tax registration and compliance.

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Specific Requirements for Stock Brokers, Stock Dealers, and Digital Brokers

Trading Licenses

• Must be obtained from the Ethiopian Securities Exchange (ESX) and approved by ECMA. ?

Digital Brokers

• Cannot operate independently; must partner with a licensed broker approved by ECMA and ESX.
• Partnership agreements must be in writing, verified by government offices, and include:

1. Obligations and rights of each party.
2. Termination mechanisms.
3. Customer account management protocols.
4. Commission splits and other financial arrangements.
5. Must have at least 3 appointed representatives, a chief compliance officer, CEO, and CFO.
6. Must adhere to Know Your Customer (KYC) requirements as per ECMA regulations.
7. Liable for any illegal customer activities conducted through their platforms, with potential legal implications.

Money Handling

• Brokers and dealers are allowed to handle and manage money.
• Digital brokers, however, are not permitted to handle or manage money directly.

Operating Guidelines

• Customer Interest:?Brokers and dealers must act in the best interests of their customers, even when given unlimited rights. They must prioritize customer needs related to dividends, growth rates, and capital appreciation.

Exit Strategy

• Must transfer customer accounts to another broker or dealer upon exiting the business.
• Provide written notice to customers about the transfer.
• Notify the Capital Market Authority in writing, explaining the reasons for exiting.
• Submit a detailed plan to the Capital Market Authority on how customer accounts will be transferred and managed during the transition.