Bankers push back on Sovereignty Bill, cite risks to credit and investment

Uganda’s banking industry has raised a red flag over the draft Sovereignty Bill 2026, warning that several of its provisions could unintentionally weaken the very financial system needed to drive the country’s long-term growth strategy.

In a formal submission dated April 13 to the Attorney General, the Uganda Bankers Association (UBA) argues that the Bill—while aimed at safeguarding national sovereignty—risks constraining capital flows, complicating regulation, and discouraging investment at a critical moment for the economy.

At the heart of the bankers’ concern is a perceived policy contradiction. The industry says it has already aligned itself with government ambitions under the ATMS strategy, designed to accelerate Uganda toward tenfold GDP growth, by mobilising more capital and expanding private sector credit. Yet, in its current form, the Bill could restrict precisely those financial inflows.

A broad definition with far-reaching consequences

One of the most contentious elements is the Bill’s sweeping definition of an “agent of a foreigner.” UBA notes that the definition is so broad it could capture a wide range of normal banking activities.

Foreign-owned banks, correspondent banking relationships, and even the routing of development finance through local institutions could all fall within this classification. In practical terms, this means institutions central to Uganda’s integration into global finance could be subjected to additional scrutiny and controls designed for non-financial actors.

The risk here is structural: modern banking systems depend heavily on cross-border linkages. By categorising these relationships under a security lens, the Bill could blur the line between financial intermediation and political activity.

Foreign funding limits clash with banking realities

Clause 22—restricting foreign funding above roughly UGX 400 million without ministerial approval, emerges as a major flashpoint. The threshold, bankers argue, is far below the scale of typical financial transactions.

Routine instruments such as syndicated loans, shareholder capital injections, or credit lines from institutions like the International Finance Corporation and the African Development Bank would all require prior approval.

This introduces not just bureaucracy, but uncertainty. Financial markets operate on speed and predictability; delays in approval processes could deter lenders and investors or increase the cost of capital. More critically, the provision requiring forfeiture of funds obtained without approval introduces a level of risk that banks describe as “existential.”

Parallel oversight and regulatory fragmentation

The Bill also proposes a new oversight role for the Ministry of Internal Affairs in areas already regulated by financial authorities. This creates potential overlap with institutions such as the Bank of Uganda and the Financial Intelligence Authority.

Banks warn that duplicating compliance requirements—particularly around anti-money laundering (AML) and source-of-funds verification—could lead to conflicting obligations. For example, supervised institutions would need to verify ministerial approvals before processing certain transactions, while also meeting existing AML standards.

The result could be a fragmented regulatory environment, where financial institutions answer to multiple authorities with overlapping mandates. In global finance, such fragmentation is often associated with higher compliance costs and reduced investor confidence.

Data exposure and operational strain

Another layer of concern lies in the Bill’s reporting and disclosure requirements. Monthly reporting to the Minister on cross-border transfers, coupled with public access to funding declarations, raises questions about data privacy and banking secrecy.

For an industry built on confidentiality and trust, these provisions could erode client confidence—particularly among corporate and international clients who expect strict data protection standards.

Operationally, the added due diligence requirements could slow down transactions, especially remittances and diaspora transfers, which are a key source of foreign exchange for Uganda.

Legal uncertainty and market communication risks

Beyond compliance, the Bill introduces broader legal ambiguity. The “economic sabotage” clause criminalises actions or publications that could “damage the economic system,” but without clear thresholds.

Banks argue this could affect routine activities such as publishing economic analyses, communicating risks to investors, or even internal whistleblowing. In global markets, transparent communication is essential for investor confidence; any perceived restriction could make Uganda a less predictable investment destination.

Policy advocacy under pressure

The Bill also brings into question the role of industry associations and financial sector dialogue. Provisions regulating entities that “influence government policy” could affect organisations like UBA itself, particularly where foreign funding is involved.

This could limit engagement with international partners such as the International Monetary Fund and World Bank programmes, which often involve policy collaboration and technical assistance.

Investment climate at a crossroads

Taken together, the banking industry’s assessment points to a broader economic risk: a potential chilling effect on foreign direct investment and external financing.

Uganda’s banking sector is currently under pressure to raise capital in line with international standards and to support a growing private sector. Foreign investment, correspondent banking relationships, and development finance all play a central role in this ecosystem.

By tightening controls without clear exemptions for regulated financial institutions, the Bill could inadvertently isolate Uganda’s financial system from global markets.

The industry’s recommendations

Rather than opposing the Bill outright, UBA proposes targeted adjustments. These include exempting licensed financial institutions from the “agent of a foreigner” classification, affirming the primacy of the central bank’s regulatory authority, and aligning new requirements with existing AML frameworks.

The association also calls for higher thresholds—or blanket exemptions—for routine banking transactions, arguing that regulation should reflect the scale and nature of financial operations.

Balancing sovereignty and growth

The debate around the Sovereignty Bill highlights a familiar policy tension: how to safeguard national interests without constraining economic openness.

For Uganda, the stakes are particularly high. With ambitions of rapid economic expansion, the country’s ability to attract and efficiently deploy capital will be decisive.

The bankers’ warning suggests that, unless carefully calibrated, the Bill could tilt that balance, prioritising control at the expense of growth.