Brook Taye (PhD), the director general of the newly established Ethiopian Capital Market Authority (ECMA), has issued a stern warning to commercial banks involved in the "securities brokerage business" without a proper license. In a letter dispatched last week, he told bank executives to halt such activities unless they adhere to a new regulatory framework, signalling a posture of tightening financial regulations to safeguard the public.

The federal crackdown targets commercial banks selling shares on behalf of companies without the requisite prospectus approved by the Authority. The enforcement action comes as banks face liquidity crunches, making the sale of shares an increasingly appealing method of attracting long-term deposits. The Director's warning proved his government's resolve to impose legal consequences on those banks that continue as vehicles for share transactions without authorisation.

Solomon Bekele, a senior advisor at the Authority, believes prospectuses are vital in ensuring transparency and accountability in public share sales, stressing their importance in the regulatory framework.

According to the officials, the regulatory body's latest mandate that a vetted prospectus accompany all public share offerings is part of a broader push to fortify the financial sector's infrastructure and ensure compliance with an updated commercial code. They defend the regulation for aiming to boost transparency and accountability by compelling companies to comprehensively disclose their financial condition, business operations, and potential risks to investors.

"Their intention doesn't matter," Estifanos Melkamu, a senior legal advisor at the Authority, told Fortune. "Our focus is on ensuring proper licensing and investor protection."

He disclosed that some companies have exploited banks' extensive networks to sidestep formal registration processes and sell shares directly to the public. The Authority has also mandated that all advertisements for the sale of public shares receive prior approval, centralising the oversight of capital market activities. Brook disclosed that the Authority has prohibited advertisements with unapproved share sales to the public to illustrate the changing tides of the financial sector.

"Failure to comply could result in legal consequences," Solomon said.

The impact of these regulations is already being felt across the financial sector.

Deloitte, one of the four biggest international audit firms, became the first recipient of a capital market service provider license under the new regime. Another 14 types of licenses are under review for qualified applicants, pending approval.

For nearly the past three decades, commercial banks have facilitated public share offerings, enabling share companies to capitalise on the banks' nationwide branch access. This relationship helped companies raise capital efficiently and provided banks with a significant boost in deposits. However, with the Authority now requiring a securities broker license for such activities — a license that demands a minimum capital of six million Birr — commercial banks will be forced to reevaluate their strategies.