On 3 June, 2025, Law no 016/2025 of 2 June 2025 governing the Central Securities Depository, qualified financial contracts, financial collateral arrangements, and close-out netting agreements (the "New Law") was gazetted, repealing and replacing Law n° 26/2010 of 28 May 2010 on the holding and circulation of securities. The New Law addresses the longstanding gaps and loopholes in the existing laws that previously restricted the enforceability of financial contracts and arrangements within Rwanda, such as derivatives, repos, buy/sell-backs, and title transfer collateral arrangements, concluded under the standardized contractual frameworks developed by the International Swaps and Derivatives Association ("ISDA") and the International Capital Market Association ("ICMA").
Some of the main issues that were viewed as constituting hurdles to the enforceability of financial contracts and related arrangements included the lack of clear rules for close-out netting and the ability to enforce collateral without going through courts or other public authorities. Netting clauses (a standard feature in derivatives and repo agreements) were vulnerable to challenge through clawbacks under the existing insolvency law. Also, enforcing collateral normally requires intervention by courts or the Registrar General (of security interests) to appoint a receiver, which could cause delays during enforcement. These limitations made the previous legal framework ill-suited for these types of transactions and likely discouraged both domestic financial innovation and cross-border market participation.
The New Law attempts to bridge the foregoing gaps by giving statutory effect to close-out netting, a contractual process by which parties to a financial contract terminate obligations and consolidate them into a single net payment upon default, insolvency or other specified events. Under this law, netting clauses remain enforceable even after the commencement of insolvency proceedings or the appointment of a liquidator or administrator. This legal certainty is crucial for financial institutions, which rely on the ability to net exposures across multiple transactions in order to manage risk and reduce capital requirements. It also aligns Rwanda's legal framework with the ISDA Model Netting Act, which is regarded as the international benchmark in this field.
The New Law further introduces financial collateral arrangements. It recognises a broad range of eligible collateral, including cash, securities, letters of credit, guarantees, and other Capital Market Authority ("CMA")-approved assets, and allows their creation and enforceability outside the general legal regime for creation and realisation of security interests. This entails that secured creditors under the New Law can now realise collateral immediately upon default without first seeking judicial authorisation or going through the Registrar General. The inclusion of title transfer collateral arrangements, where the legal ownership of collateral temporarily transfers to the secured party, is particularly significant. These arrangements are essential to the functioning of repurchase agreements and margin calls in derivative trading. By recognising them under the New Law, Rwanda opens the door to more sophisticated financial products and risk management options within its financial market sector.
Equally important, unlike the previous close-out netting regime, which applied only to banks, the New Law applies to a wider range of qualified institutions, including insurers, pension funds, collective investment schemes, fund managers, clearing systems, and certain foreign entities. This inclusive approach reflects the diverse makeup of modern financial markets and ensures that protections are not narrowly confined to a select group of institutions. The definition of "qualified financial contracts" is similarly expansive in that it includes derivatives, repos, securities lending, forwards, swaps, options, and other instruments, which are common in more developed financial centres. In practical terms, this suggests that a far wider range of transactions will benefit from enforceable netting and other legal protections under the New Law. Banks can now hedge exposures more effectively, and institutional investors, such as pension funds and insurers, can engage in secured lending with greater confidence.
Looking ahead, one may reasonably anticipate that the key challenge will likely not be in the text of the New Law, but in its effective operationalisation. Legal reform of this nature must be matched by adequate investment in capacity-building, clear regulatory guidance, and sustained market education. Regulatory authorities, the Rwanda Stock Exchange ("RSE"), judges, and market participants (including advisors) will need to develop technical proficiency in these financial transactions and related concepts and apply them consistently and in line with relevant international standards. Courts will play an important role in building market confidence through sound interpretation of the law and informed jurisprudence. Practical lessons may be drawn from the experience of mature jurisdictions like the UK, Singapore, and South Africa, where similar frameworks have long been tested.
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