The Regulation of Related Party Transactions in the Ethiopian Financial Sector: With Special Focus on Banks
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Date
2013-02
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Addis Ababa University
Abstract
The main purpose of the research paper is to examine whether or not the regulation of
related party transaction in the financial sector in general has got due attention and
whether the regulation of related party transactions in the Ethiopian financial sector was
adequate or not in particular. In this regard, it can be said that though we may get many
researches and literatures dealing with corporate governance issues, there are relatively a
few researches and literatures which deal with the regulation of related party transactions.
Even, the available materials provide with the related pm1y transactions in the nonfinancial
sector in general. However, the regulation of related pm1y transactions in the
financial sector is different from non-financial sector. Even if related party transaction
has a great effect on a company, financial sector and the economy of a given country, the
attention given to it was relatively little. Companies and countries began to regulate
related party transactions after the occurrences of several financial company collapses
thought to be mainly affected by abusive related pm1y transactions.
Besides, the discussion in the regulation of related party trmlsactions in the Ethiopian
financial sector comes to the conclusion that its regulation is not given proper attention
and is not adequate in general. For example, the important legal regulation instruments in
the regulation of related party transactions in the financial sector such as the requirements
of di sclosure and approval of related party transactions m'e not available in Ethiopia.
Besides, the concepts of materiality and immateriality of related pm·ty transactions and
their distinction is not provided in the existing Ethiopian laws. Even if an attempt is made
to define related parties from the context of commercial banks, there is no definition for
related party transactions. In addition, the available relevant law in Ethiopia is simply
concerned with the limitation of lomls of commercial banks to their related parties.
Hence, other types of related pm1y transactions are not regulated well in the existing
Ethiopian laws. On the other hand, the remedies and sanctions in case of violations of
regulations of and abusive related party transactions are not provided in Ethiopia.
Pm·ticularly, the application of class action and/or derivative suits to the claims of abusive
related party transactions in the Ethiopian finmlcial sector is not provided clearly.Finally, it should be remembered that great effOtts we re exelted to indicate the concerns,
gaps and problems in relation to the regulation of related party transactions in the
financial sector in general and in the financial sector in Ethiopia in particular and finally
come up with some possible solution s.
Key words: related party, related paliy transactions , abusive re lated party transactions,
arms length basis, disclosure and appro val