Uganda’s banking industry has warned that a proposed law to regulate foreign influence could undermine investor confidence, restrict access to capital and slow economic growth.
In a letter to the Attorney General, the Uganda Bankers Association (UBA) said the draft Protection of Sovereignty Bill 2026 risks creating uncertainty in the investment climate at a time when the country is seeking to accelerate expansion.
The association cautioned that the legislation could have a “chilling effect” on foreign direct investment, weakening confidence in the financial system and complicating efforts to attract funding for development.
Uganda is pursuing ambitious economic targets under its ATMS strategy, which aims to significantly scale up gross domestic product. Bankers say achieving this goal depends heavily on mobilising international capital to support private sector credit growth.
“The bill’s restrictive provisions on foreign funding could jeopardize access to the very capital needed to fund this growth,” the UBA said.
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Broad definitions, low thresholds
At the centre of the industry’s concerns are provisions that broadly define an “agent of a foreigner” as any individual or entity financed or supervised by foreign interests.
According to the UBA, such a definition could extend to foreign-owned banks, correspondent banking relationships and international development finance institutions — effectively sweeping much of the formal financial system under the law’s scope.
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The association also flagged Clause 22 of the bill, which would require prior ministerial approval for any foreign funding exceeding 400 million Ugandan shillings (about US$107,000) within a 12-month period.
Bankers argue that the threshold is “extremely low,” noting that most routine banking transactions — including capital injections and large commercial loans — exceed that level.
They warned that funds received without approval could be subject to forfeiture, creating what they described as an “existential risk” for banks that may inadvertently fall foul of the rules.
Regulatory overlap concerns
The UBA further cautioned that the bill could create a parallel regulatory framework that overlaps with the authority of the Bank of Uganda, the country’s primary financial regulator.
By granting oversight powers to the interior ministry, the legislation risks undermining the central bank’s operational independence, the association said.
The draft law would also impose significant compliance obligations on financial institutions, including verifying approvals for transactions linked to foreign entities and submitting monthly reports to the government.
In addition, provisions requiring detailed public disclosure of foreign funding sources could raise confidentiality concerns within the sector.
Criminal liability fears
Another major point of contention is a clause that criminalises actions deemed to “weaken or damage the economic system.”
The UBA said the wording is vague and could expose analysts, auditors or bank employees to prosecution for publishing assessments on sovereign risk, currency pressures or fiscal policy.
Under the proposed legislation, such offences could carry penalties of up to 20 years in prison.
Industry players warn that this could discourage transparent reporting and analysis, which are critical for functioning financial markets.
Calls for revisions
To mitigate the risks, the UBA has urged lawmakers to amend the bill by excluding financial institutions licensed by the central bank and the capital markets regulator from the definition of “foreign agents.”
It also called for a higher threshold for foreign funding approvals or blanket exemptions for routine, regulated banking activities.
Bankers further recommended that the legislation explicitly affirm the primacy of the central bank’s authority over the sector.
“International banks may become more cautious about maintaining relationships if they fear being classified as agents,” the UBA said, warning that this could further strain correspondent banking ties and increase the cost of cross-border transactions.
Legislative process underway
The Protection of Sovereignty Bill is still in the early stages of the legislative process.
It was first introduced in parliament in April 2025 by David Muhoozi, and is currently under review by a joint parliamentary committee.
The Parliament of Uganda has invited public submissions on the bill, with a deadline set for April 24, 2026.
Some lawmakers have already raised procedural concerns, arguing that the legislation is being rushed without sufficient scrutiny.
Analysts say the outcome of the debate will be closely watched by investors, as Uganda seeks to balance national sovereignty considerations with the need to maintain an open and predictable business environment.
