Regulators to Allow Banks to Guard Foreign Investors' Assets Without Subsidiaries

The Ethiopian Capital Market Authority and the National Bank of Ethiopia are considering a framework that would allow commercial banks to act as custodians for foreign portfolio investors without setting up separate subsidiaries. Under this framework, banks would hold investors' securities in ring-fenced and in-house departments. This move is being considered despite a 2024 directive from the Central Bank that bars banks from directly operating as capital market service providers, including custodians.

The proposed framework is being referred to as a temporary exemption from the National Bank of Ethiopia directive, but the legal basis for this exemption has not been specified. Assefa Sumoro, a senior adviser at the Ethiopian Capital Market Authority, and Gemechu Waktola, group CEO of i-Capital Africa, were among those who spoke on the matter. Dawit Keno, president of Hijra Bank, was also present.

The Central Bank's investment directive, issued in 2024, prohibits banks from directly operating as capital market service providers, including custodians. However, the proposed framework would allow banks to hold investors' securities in separate departments, potentially paving the way for increased foreign investment in Ethiopia's capital market.

The move is seen as an effort to attract more foreign investment to Ethiopia's capital market. The country's capital market is still in its early stages of development, and regulators are working to create an environment that is conducive to investment. Allowing banks to act as custodians for foreign investors could help to increase confidence in the market and attract more investors.

The framework being considered by regulators would require banks to set up separate departments to hold investors' securities, which would be ring-fenced from the banks' other operations. This would help to ensure that investors' assets are protected and that banks are not exposed to undue risk.

The proposed framework is part of a broader effort to develop Ethiopia's capital market. The Ethiopian Capital Market Authority and the National Bank of Ethiopia are working to create a more favorable investment environment, and this move is seen as a key part of that effort.

The consideration of this framework comes as Ethiopia prepares for its national election. The country's capital market is expected to play a key role in the country's economic development, and regulators are working to ensure that it is attractive to investors.

Key points

• Banks would hold investors' securities in ring-fenced and in-house departments.
• The proposed framework is being referred to as a temporary exemption from the National Bank of Ethiopia directive.
• The move is seen as an effort to attract more foreign investment to Ethiopia's capital market.