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26 November 2015
London
Reporter Stephanie Palmer

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NeMa: Regulatory terrain difficult for foreign investors

Regulators in Africa should be more engaged with banks and custodians, and also with their western counterparts, said Habib Motani, a partner at Clifford Chance.

When considering whether African countries need to catch up with regulations in Europe, Motani said: “I think maybe it is too late.”

European Union member states have already gone ahead with global custody regulation, and affected African institutions have to manage those rules.

However, Motani suggested that African regulators are approaching the rules from a “first-hand level”, focusing on investor protection and not on the needs of custodians.

He addressed delegates at the NeMa Africa 2015 conference in London, asking them if they were “getting any support from your regulators … in contributing to those rules?”

With no answer from the room, he took the silence as an “emphatic no”.

With many African jurisdictions in the process of drawing up regulation, Motani said that, if there isn’t a discussion when the rules are in preparation stages, then it could make things harder in the future.

“There is some value in people trying to keep an eye on what’s happening,” he said.

European regulations, however, inevitably affect foreign investors in African markets. Motani took the UCITS V directive as an example, which imposes strict rules on depositories with regards to insolvency, rules that are pushed down the line.

Motani said: “It’s not just a question of rules relating to segregation of assets or record keeping and so on. Insolvency law is at the heart of what is required.”

Insolvency issues, he said, are not only about what happens on an account, but about what happens to that cash in the event of insolvency, and the procedures vary between countries, and changes can be difficult to deal with.

“Making changes to insolvency law is something that can often take years,” he said.

Custodians must look at the way rules in their markets sit alongside those rules imposed on foreign investors. In the worst-case scenario, this could mean not being able to trade at all, as firms may not be comfortable that African custodians meet the required asset-segregation requirements.

Equally, however, the UCITS V rules are implemented by individual jurisdiction regulators, and if customer are driven by slightly different rules, then those custodians working with them will have to adhere to the highest common factors.

“That’s the only way we can deal with all the people we want to deal with,” said Motani. “The last thing you want, once you’ve started building, is to have to tinker.”

He advised delegates to communicate with their regulators, to highlight the needs of foreign investors in to Africa, and to “pay attention to regulators in other jurisdictions.”

He suggested that regulators are currently not very engaged with the banks or custodians, and encouraged industry players to raise these issues, and even to bring investors to their countries to experience the market and meet the local regulators.

Motani concluded that information and awareness are the main issues, that the current situation could be bad for investor appetite and that “it’s a question of getting your skates on”.

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