SEC Submits N2.36 Trillion Into Custody

According to the Securities and Exchange Commission, approximately N2.36 trillion in discretionary and non-discretionary funds are under custody following changes in Nigeria Collective Investment Schemes regulations.

In December of last year, the commission made changes due to issues raised by participants in the capital market's Collective Investment Scheme sector.

The SEC disclosed the latest modifications to its regulations through a notice posted on its website titled 'Exposure Of New And Sundry Amendments To The Rules And Regulations Of The Commission.'

At the press conference following the first-quarter Capital Market Committee meeting on Friday, SEC Chief Economist Dr. Okey Umeano updated the audience on the proposed guidelines, stating that funds in the discretionary and non-discretionary windows had been placed under custody to improve investor protection.

Umeano said, 

"On the CIS efforts we have made. We asked that all CIS funds be put in custody. Before that update we did to the rules, only the ones we called Collective Investment Schemes were put in custody. The funds that were in discretionary and non-discretionary products were not in custody. To further protect investors in that part of the market, we asked that all the funds be put in custody.

"And we followed up with an inspection to ensure compliance. We are pleased to report that today, at the end of the first quarter, we had N2.14tn in CIS funds and N2.36tn in discretionary and non-discretionary funds, and all in custody."

Shedding more light, the immediate past Director-General of the SEC, Lamido Yuguda, noted at the meeting that it was standard practice that assets management and custody are separated, but that arrangement only applied to the public CIS, not the bilateral arrangements.

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With the new rules, all funds were mandated to the custodians.

The former SEC DG said, "Usually, in fund management, you have two important activities: one is the application of the fund manager's skills to obtain good investment returns for their customers, and you have the actual custody of the securities that have been purchased through these investment management processes.

"So, typically, when you have one entity doing both, you are at risk should that entity collapse. When you segregate the safe custody of the asset from the investment management function, you find that it is a much better process as you have given persons who have a specialty in a function to undertake that function. The world over, these functions are separated.

"What happened in our market was that we separated these functions for the public CIS products, that is, the listed CIS products on the exchange, but for the discretionary investment portfolios funds, where fund managers manage funds for their clients on a bilateral discretionary basis, they were not custodied, unless an asset manager chooses to do that because of good practice."

In the public CIS or bilateral arena, Yuguda stated that the SEC has mandated that all investment management activities be under custody.

He also said that investment management needs to be done differently, with a properly licensed custodian handling custody.

"The object of this is to improve trust, to ensure that investors assets are protected and also to give the market a boost," he stated.

Smartasset.com states that the broker can make individual trades in the investor's portfolio without requesting permission in a discretionary investment account, also called a managed account.

It further stated that, in contrast to a non-discretionary account, where the investor must approve every move made on the account, they have the freedom to purchase or sell assets independently. 

Back Story

President Bola Tinubu announced late Friday that Emomotimi Agama, the managing director of the Nigerian Capital Market Institute, would be appointed to the commission's new board. Yuguda was removed from the group.

According to a statement released by Ajuri Ngelale, Special Advisor to the President (Media & Publicity), Mairiga Katuka will serve as the new SEC board chair.

Other committee members include Mr. Lekan Belo, a non-executive commissioner, and Garba Kurfia, a stockbroker and managing director of APT Securities. Bola Ajomale, an executive commissioner of operations, Frana Chukwuogor, an executive commissioner of legal and enforcement, and Mrs. Samiya Hassan Usman, an executive commissioner of corporate services, are also members.

The statement partly read, "The President anticipates that all members of the Board of this critical commission will bring to bear their wealth of experience and competence in advancing the commission's core mandate of developing and regulating a capital market that is dynamic, fair, transparent, and efficient, to bolster investor confidence and contribute immeasurably to the nation's economic development."