As a crucial component of the economy, the capital market has a great role to play in its development. And this is what the Director General of the Securities and Exchange Commission (SEC) is presently doing to make the capital market the driver of Nigeria’s economy; BENJAMIN UMUTEME writes.
On July 6th 2020, when Lamido Yuguda assumed office as the Director General of the Security and Exchange Commission (SEC), analysts saw it as another opportunity to take the Commission to the next level considering the work, its former head; Mary Uduk did during her tenure as acting Director General.
The Nigerian capital market with its great potential for growth has however, not been performing to its potentials.
Meanwhile, coming at a time when the entire world was in lock down from the dreaded Covid-19 pandemic, it was obvious that the SEC DG had his work cut out for him.
In his address at his unveiling, Yuguda noted that with its potential for development and growth, the sky was the starting point for the Commission and Nigeria both in the interim and post pandemic period.
“Many of the plan’s initiatives have been successfully implemented while many others are work in progress in line with its objectives,” he said.
“Therefore, the continued implementation of the plan will be one of the major focus of the incoming management, while we also seek possible ways of strengthening it for enhanced impact.
“We would equally work towards improved market regulation, surveillance and general development.
“Together we must set our sights on achieving those milestones that are capable of making the capital market a powerful engine of growth for the Nigerian economy.”
Capital Market Master Plan as reform pivot
Determined to position the capital market as the driver of the economy, the SEC Director General promptly went to work on the Capital Market Master Plan (2015-2025). The objective of the Master Plan is to map out strategies for the improvement of the Nigerian capital market in key areas such as investor protection and education, professionalism, and product innovation, and for the expansion of the capital market’s role in the economy.
The SEC DG, not wanting to jettison the plans set out with his management team successfully reviewed the CCMP to realign the initiatives/deliverables to prevailing market conditions and keep the document relevant in the dynamic capital market due to issues related to Fintech, sustainability and regional integration.
Over the years, there have been legacy issues around unclaimed dividends. It is a known fact that Identity Management is a crucial driver in improving market participation and solving unclaimed dividends and related problems.
To put a rest to the matter, the management also inaugurated a market-wide Identity Management Committee with a mandate to harmonize the various databases of investors in the Nigerian capital market, facilitate data accuracy in the market, mitigate fraud, improve KYC requirements and manage AML/CFT risks, among others. The report of the committee is expected to resolve issues that have hindered the growth of the market, hampered investor confidence, and matters that serve as barriers to entry for potential investors, amongst other benefits.
Market activities
On primary market activities, the Yuguda-led executive management of the SEC has also in the past two years approved 41 new equities issues valued at N656.9 billion, 37 bonds valued at N776.2 billion, 28 applications for shelf programmes valued at N2.5 trillion and 21 Exchange Traded Derivatives Contracts. This is even as it processed 6 Schemes of Merger, 7 Acquisitions, 21 Corporate Restructurings, and 3 Takeovers during the period. It also ensured that over N11 billion of untraceable shareholders’ funds from Schemes of Arrangement in the custody of Registrars were transferred to the National Investor Protection Fund (NIPF).
As part of the process of improving time to market of transactions and fast tracking the review process, the Commission conducted training for issuing houses to help improve the quality of applications submitted.
Similarly, the Commission also recorded a landmark achievement on the first electronic offering with a combined feature of book building to Qualified Institutions and use of the price discovered from the book-build for sales to Retail Investors. It also granted approval for the first 21 derivatives contracts which had 7 and 14 different contracts from both the NGX and FMDQ Exchanges respectively in the past two years.
On Collective Investment Scheme (CIS), the Yuguda-led management has also, following the completion of series of monitoring and evaluation processes, commenced implementation of 100 per cent custody requirement in the CIS sector to protect investors. As a result, all clients’ assets currently managed under discretionary and non-discretionary mandates are to be held under independent custodial agreements in custodial banks.
The Commission has also recorded remarkable milestones in its secondary market activities in the past years with the successful demutualization of the Nigerian Exchange Limited (NGX) which investment analysts see as a milestone in the development of the Nigerian capital market.
Corporate governance
Research has revealed that corporate governance issues are at the heart of why corporations fail. And in order to permanently lay the issues to rest, SEC under the leadership of Yuguda released guidelines on the Implementation of Sections 60-63 of the Investments and Securities Act (ISA), 2007 and in order to strengthen the disclosure regime in capital market, the Commission in a circular dated January 19, 2022 provided public companies a fast track option for filing Audited Financial Statements.
In addition, the Commission also developed the SEC Corporate Governance Guidelines (SCGG) to address corporate governance issues not considered in the NCCG, and released same in October 2020. As part of its efforts to harmonise the reporting timeline of the SEC Corporate Governance Guideline (SCGG) with that of the National Code of Corporate Governance (NCCG), it also in year 2021 exposed to the public for comments an amendment to Rules 42(2).
The Commission has also as part of its regulatory interventions to amicably resolve disputes between the board and shareholders of listed companies resolved the disputes between Alhaji Muneer Alade Bankole (the Chief Executive Officer) and Sheikh Abdulmohsen A. Al-Thunayan (Chairman of the Board) of Medview Airlines, resolved those between major shareholders of Ikeja Hotels Plc and returned the company to profitability and also reached a settlement with Oando Plc in 2021 after concluding investigation of Corporate Governance allegations leveled against the company.
Collaborations
In order to build its capacity to regulate the fledging FinTech space, the Commission’s management collaborated with the University of Cambridge’s Centre for Alternative Finance, UK for the training of select employees on a certified course on Fintech & Regulatory Innovation, to enhance the Commission’s capacity in regulating Fintech. Also, it collaborated with the World Bank to commission a Fintech Scoping project and held collaborative engagements with 15 International and local Fintech stakeholders to guide the Commission on its Fintech policies. The Regulatory Incubation Guidelines to operationalize provisional regulation for aspiring Fintech firms were released within the period.
In furtherance of its market regulation roles, the management of the Commission was able to ascertain the quantum of unclaimed dividends of publicly traded companies that fall within the categories eligible to be borrowed by the Federal Government. This amounted to N56,584,795,648.71 and $8,153,118.41 respectively. In addition, it also facilitated the transfer into the SEC/CNB NIPF Account of N2.3 billion in excess of return monies and N11.4 billion in Schemes consideration money, both of which had previously been held in the custody of the Registrars.
Money laundering/ terrorism financing
On the controversial issue of Anti-Money Laundering/Combating the Financing Of Terrorism (AML/CFT), following the GIABA Mutual Evaluation of Nigeria, the Yuguda-led executive management made concerted efforts in the capital market to meet both the GIABA Mutual Evaluation Report(MER) Follow-Up Process and the FATF International Cooperation Review Group (ICRG) requirements in order to avoid Nigeria being placed on the FATF public grey list at the Plenary when the grace period expires in October, 2022.
For example, as a result of the MER findings that Nigeria had several important deficiencies in its AML/CFT/CPF system in relation to Technical Compliance, and that its effectiveness controls were insufficient to mitigate its high ML/TF/PF risks, the Commission championed the amendments of Rules and Regulations of the Virtual Asset Service providers; the sector specific regulations to repeal the 2013 SEC AML/CFT Regulations and enactment of the 2022 AML/CFT Regulations; the SEC AML/CFT RBS Framework.
These new rules and amendments were done in order to address Nigeria’s MER deficiencies and broaden the scope of preventive measures available to VASPs.
Ponzi scheme
In furtherance of its regulatory mandate, the Commission conducted investigations into complaints by investors and out of the 250 complaints brought forward into the period, 182 were resolved. Also, out of the 58 complaints in relation to Ponzi schemes received, 45 were resolved. The Commission was able to recover 10,659,168 units of various companies’ shares as well as the sum of N1,384,255,526.73 recovered for investors during the period under review.
During the period, the Commission also sealed up the premises of 4 illegal operators and initiated the prosecution of their promoters just as 7 companies are currently facing criminal prosecution.
The Commission has also remained relentless in development of appropriate regulatory framework to guide operations and activities in the capital market. For instance, it issued New Rules on Robo-Advisory Services to guide the regulatory requirements and expectations for providing automated advisory services in the market and released the Rules on Trade Repositories during the period under review.
The good work Yuguda is doing at the SEC has not gone unnoticed, thus earning him the leadership of the West African Securities Regulators Association (WASRA). Under his leadership, rules for the integrated West African Capital Market were developed and reviewed.
Similarly, the Commission participated in two meetings of the Africa/Middle East Regional Committee of IOSCO (AMERC). The AMERC is one of four regional committees constituted by IOSCO to focus on regional issues relating to securities regulation in the Africa/Middle-East region.
The Commission’s Director General is a member of the IOSCO Board, representing the Africa/Middle East Regional Committee of IOSCO (AMERC) on the Board. In the years under review, the Commission participated in five Board meetings held virtually and contributed effectively in arriving at the various decisions made at the board.
As Yuguda continues to soldier on in spite of the post Covid-19 challenges both globally and on the home front, economic watchers say, Nigeria’s capital market would be better placed to compete with its peers globally.
