The Ethiopian Capital Market Authority (ECMA) has introduced a draft directive aimed at boosting investor confidence and strengthening oversight within the country’s emerging capital market. The new guideline focuses on improving transparency and regulatory standards for Collective Investment Schemes (CIS), including Money Market Funds, Mutual Funds, and Real Estate Investment Funds.
As part of a broader effort to foster capital market development, the directive sets clear rules governing fund operations and mandates detailed disclosure requirements designed to protect investors and promote market integrity. It applies to any entity seeking to establish or operate investment schemes in Ethiopia or provide securities representing units in such schemes.
Under the directive, investment schemes must be registered as joint stock companies, private limited companies, limited partnerships, or investment companies recognized by ECMA. The guideline defines a scheme as any securities-based fundraising operation involving the management of assets to enable participation or profit-sharing among investors.
A key feature of the policy is its emphasis on comprehensive information disclosure. Public funds offering units to investors are required to prepare a general promotional document approved by ECMA. This document must provide clear, accurate details on the fund’s investment policy, capital structure, issued securities, dividend distribution policies, and methods for determining distributable profits.
To ensure ongoing transparency, the directive mandates regular disclosure of financial results, performance metrics, risks, and other material information necessary for informed investment decisions. Funds are required to submit mandatory annual and semi-annual reports detailing portfolio composition, asset valuations, net asset value changes, and updates on exposure to risks including concentration, foreign exchange, and liquidity risks.
The regulation also addresses potential conflicts of interest, obliging fund operators to act honestly, fairly, and in the best interests of unit holders. Operators must implement clear policies to manage conflicts, especially concerning related-party transactions.
By imposing higher standards of accountability and transparency on pooled investment schemes, ECMA aims to attract a wider pool of investors, stimulate financial innovation, and underpin Ethiopia’s economic growth with a robust and well-regulated capital market.
