Rwanda’s capital market regulatory framework is being revamped. The Capital Market Authority (CMA) has released a draft law regulating capital market business (the “New Capital Market Business Bill”) for public comment. ALSO READ: Rwanda moves to regulate virtual assets with new draft law This extensive revision endeavors to modernise and strengthen Rwanda’s capital market regulatory framework by repealing the current 2011 law regulating capital market in the country, as amended to date (the “Capital Market Business Act”). This overhaul is expected to pave the way for stronger market integrity, innovation, and investor protection. ALSO READ: CMA Rwanda, CISI relaunch strategic partnership to strengthen capital market standards Why the revision? The revision of the Capital Market Business Act purposes to adapt Rwanda’s financial sector to emerging global standards and technological advancements. The Bill focuses on overseeing the operation and regulation of capital market activities and the capital market industry in Rwanda, encompassing the offer, issuance, listing, trading of capital market instruments and securities, as well as activities related to takeover, mergers, and acquisition. ALSO READ: How capital markets can drive long-term investment in Rwanda The Bill introduces several novel provisions, showing a preemptive effort to advance innovation and broaden the scope of Rwanda’s capital market. Regulatory sandbox framework A substantial innovation is the formal creation of a regulatory sandbox framework. This framework allows for a sandbox to manage issues, issuers, programmes, kinds of securities, and methods of issuing, listing, or trading in securities. It also covers capital market activity, exchanges, and even derivative markets. ALSO READ: The Central Bank regulatory sandbox: A risk-appropriate response for Fintech start-ups in Rwanda The CMA can set up this framework through regulations or directives to support the development and testing of new securities and capital market investment products, including Collective Investment Schemes (CIS). ALSO READ: Capital Market Authority introduces new corporate governance rules, incorporates ESG components While CMA Sandbox Guidelines were already in place since 2023 for capital markets in Rwanda, the Bill embeds this concept firmly within the overarching capital market legislation. It must be emphasized that this sandbox creates a controlled environment for fintech innovators to test their products and services, ensuring they are viable and safe before being launched into the broader market. Integration of fintech and digitalisation The Bill unequivocally acknowledges and provides for the use of digital and electronic means in capital market activities. Capital market activity now includes using digital or electronic means for the giving of investment instructions, or to effect a transaction. Likewise, documents like information memorandum and prospectus can be issued by means of electronic media or through any other method of communication, or other modality. The CMA can also extend disclosure and recording obligations to any person or entity that publishes, circulates, or makes available opinions, advice, forecasts, or reports in electronic form, including through streaming service. Formal recognition of Islamic securities and exchanges The Bill introduces specific provisions for Islamic securities and exchanges, structured in accordance with Islamic principles for finance. It grants the CMA the power to publish regulations and issue directives for exchanges and the trading of Islamic securities, including those that qualify as CIS, with paramount consideration for investor protection and market transparency. Introduction of Community Benefit Companies (CBCs) The Bill defines a Community Benefit Company (CBC) as an entity with primary social objectives whose surpluses are re-invested, for that purpose, in the business or in the community rather than being driven by the need to maximize profit for its shareholders or owners. It also mentions CBCs in the context of prospectus variations or exemptions. Approval of foreign credit rating agencies The Bill categorically allows a company with its head office outside Rwanda to apply to the CMA to be approved to operate as a foreign Credit Rating Agency, subject to CMA regulations, prescribed fees, and other Rwandan laws. Proposed changes vs existing framework The Bill marks a major departure from the foundational Capital Market Business Act, replacing it with a more cohesive and adaptable legal framework. It broadens the scope and definitions of capital market activities and the capital market industry, moving beyond the Capital Market Business Act’s list of regulated persons. A key focus is on strengthening market integrity through more detailed provisions on prohibited practices. While the Capital Market Business Act addressed offenses like misleading statements and insider dealing, the Bill provides granular definitions for offenses like market manipulation and insider trading. It also introduces specific requirements for practices like market sounding during takeovers, and outlines criteria for accepted market practices that are exempt from manipulation prohibitions, subject to approval and review by the CMA. The Bill appears to be a well-considered and extensive legal framework, incorporating modern financial concepts and best practices from established markets like USA. It conforms with all existing Rwandan capital market laws and regulations. However, it directly excludes from its scope leveraged foreign exchange trading, which is governed by its own separate regulations. The CMA urges all stakeholders including investors, financial institutions, technology innovators, legal professionals, and companies operating or looking to operate in Rwanda’s capital market to carefully review the Bill and actively participate in the public comment process. The author is a corporate and legal services lead at Andersen, a tax, legal, and business advisory firm in Rwanda.
