Understanding the ECMA's Toolbox: Enforcement and Administrative Measures

This article dives into the consequences of non-compliance for investment banks operating in Ethiopia's capital market. Understanding these administrative measures and voluntary exit procedures is crucial for ensuring a smooth and compliant operation.

Enforcement Powers of the Ethiopian Capital Markets Authority (ECMA):

The ECMA possesses a range of tools to address misconduct by investment banks, their Appointed Representatives, and employees. These measures can be imposed individually or combined depending on the severity of the offense. Some of the potential consequences include:

• Public or private warnings
• Revocation or suspension of the Services License
• Dismissal or suspension of Senior Executive Officers and Board Directors
• Blacklisting of employees and Appointed Representatives
• Fines
• Restitution and/or compensation orders
• Administrative charges
• Other sanctions deemed necessary by the ECMA

The ECMA exercises these powers in accordance with the Capital Markets Proclamation and Schedule Three of the Capital Market Service Providers Licensing and Supervision Directive Number 980/2024. Additionally, applicable penalties and fines are subject to regular review by the Authority.

Suspension of Services License:

The ECMA can suspend a Services License, but only after granting the investment bank a fair hearing. This suspension can occur if the bank has:

• Breached provisions of the Directive as outlined in Schedule Three
• Been found guilty of violating financial or capital market laws by a competent court

The ECMA can then publish the details of the violation and suspend the license. The suspended bank will receive written notification from the ECMA outlining the reasons for the suspension and the necessary steps to rectify the situation. Reasons for suspension can include:

• Failure to fulfill obligations under the Proclamation, regulations, or ECMA directives
• Non-payment of fines imposed by the ECMA, Capital Market Tribunal, or a court
• Delay in providing requested information to the ECMA
• Non-compliance with license conditions or restrictions
• Inactivity for over twelve months after receiving or renewing the license
• Failure to implement precautionary measures to prevent employee misconduct

Responsibilities During Suspension:

A suspended investment bank must:

• Notify all clients via email or approved channels within two business days
• Inform clients on how to transfer accounts to another licensed provider
• Comply with ECMA directives regarding records, documents, and securities
• Provide a list of all clients, trading/operational bank account statements, and any other information requested by the ECMA within five business days

The ECMA, upon receiving this information, can:

• Direct the transfer of accounts to other licensed providers at the client's request
• Appoint someone to oversee the suspended bank's affairs in the public interest
• Prohibit the suspended bank from engaging in any capital market activity related to the suspended license, with the possibility of extending this to other activities

The suspended bank:

• Must continue fulfilling post-licensing obligations
• Needs to submit quarterly reports on its current state of affairs

?Revocation of Services License:

The ECMA can revoke a Services License under specific circumstances outlined in the Proclamation. Generally, this occurs when a bank voluntarily ceases licensed activities for more than eighteen months within two financial years. Upon revocation, the bank must:

• Immediately cease all capital market activities
• Comply with ECMA directives regarding the transfer of records, documents, and securities

Before revoking a license, the ECMA will notify the bank and allow them to submit a written objection within thirty business days. If the objection is not considered reasonable or not submitted within the timeframe, the license will be revoked. The revocation decision will be published in a widely circulated Ethiopian newspaper, with the effective date being the publication date or another specified date.

Liability of Appointed Representatives:

Investment banks are responsible for all actions taken by their Appointed Representatives and employees conducted in the bank's name. However, there are situations where individual Appointed Representatives can face liability, including suspension or revocation of their licenses. This can occur if they:

• Are declared a defaulter by a securities exchange and not re-admitted within six months
• Are no longer considered "fit and proper" by the ECMA
• Become bankrupt
• Are convicted of a crime involving moral turpitude
• Fail to comply with relevant rules and bylaws of their Self-Regulatory Organization
• Refuse to cooperate with the ECMA during investigations
• Fail to pay penalties imposed by the ECMA
• Demonstrate "willful blindness" regarding misconduct
• Engage in insider trading, fraudulent practices, or unfair trade practices
• Violate provisions for which financial penalties apply
• Fail to comply with ECMA directives, circulars, or guidelines for Appointed Representatives
• Commit other serious violations as determined by the ECMA

Appealing Sanctions:

Investment banks can appeal decisions made by the ECMA to the Capital Market Administrative Tribunal in accordance with the Proclamation.

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