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Requirements for Securities Robo Advisers in Ethiopian Capital Market

Introduction

The Ethiopian Securities Exchange's launch heralds a new era for digital advisory services. This guide outlines the requirements and regulations for becoming a Securities Robo Adviser in Ethiopia, emphasizing the importance of technology and security in this innovative field.

A securities robo adviser is an online platform that provides automated, algorithm-driven financial planning services with little to no human supervision. Users input their financial goals and risk preferences, and the robo adviser uses this information to create and manage a diversified investment portfolio of securities such as stocks and bonds. These platforms often leverage advanced technologies like artificial intelligence and machine learning to offer personalized investment strategies, continuous portfolio monitoring, and automatic rebalancing, making professional investment management accessible and affordable for a broad range of investors.

Eligibility Criteria for Securities Robo Adviser License

Eligibility for a Securities Robo Adviser License requires:

  • Entities Only: Share companies, private limited companies, general partnerships, limited partnerships, or limited liability partnerships must meet these conditions:
    • Hold a valid commercial registration or investment permit.
    • Possess technological capabilities to provide digital advisory services and demonstrate their viability based on international standards.
    • Have relevant educational qualifications demonstrating an understanding of the algorithms underpinning digital advisory services.

Additional Requirements

Before certification, applicants must provide evidence of a vulnerability assessment and penetration test conducted by an independent assessor or relevant government authority, ensuring their systems' security and reliability.

Specific Provisions

Securities Robo Advisers must:

  • Continuously ensure they have the technological support to provide digital investment advisory services.
  • Ensure that their algorithms' outcomes align with the communicated investment strategies and risk profiles of their clients.

Authorized and Prohibited Activities for Securities Robo Adviser

Securities Robo Advisers are authorized to:

  • Provide investment advice, including the preparation of Capital Market analyses.
  • Issue reports and analyses on investments.
  • Offer other services as defined by the regulatory Authority.

They are prohibited from:

  • Engaging in the maintenance or management of investors' funds.

Advertisement Restrictions on Securities Robo Adviser

Securities Robo Advisers must follow strict advertising guidelines:

  • Advertisements must not be misleading or contain untrue statements.
  • Testimonials and references to past profitable recommendations are restricted.
  • Any representation of graphs, charts, or formulas must include prominent disclosures about their limitations.
  • Advertisements must clearly state the risks and obligations associated with their digital advisory services.

Appointed Representatives for Securities Robo Adviser

Entities licensed as Securities Robo Advisers must appoint both a Research Officer and a Chief Digital Officer, ensuring technological and research expertise in their operations.

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