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Business News of Thursday, 12 January 2023


SEC begins full enforcement of independent custody for mutual funds

Lamido Yuguda Lamido Yuguda

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) has commenced full enforcement of a regulatory framework that mandates mutual funds’ managers to hold clients’ investment assets under independent custody.

Director General, Securities and Exchange Commission (SEC), Mr Lamido Yuguda said the full enforcement of the custody requirement on all mutual funds was part of efforts to enhance investors’ protection and boost confidence in the market.

He added that after a thorough review of the status of privately managed funds, the commission mandated that Rule 95 should also apply to all discretionary and non-discretionary portfolios and products to ensure the protection of investors’ funds in the fund management space.

According to him, the commission has also successfully carried out a comprehensive on-site inspection exercise on the 95 registered fund managers to ensure that both the public and private funds registered by the commission are being operated in line with the relevant rules and regulations.

Under the rules, clients’ fund for collective investment should be held in safe and secure custody or electronically administered.

“The Nominee Company shall have no authority to demand for board membership of companies or to exercise any voting rights attached to shares registered in the nominee company’s name unless instructed to do so by its clients.

“No person or entity shall operate any product that pools investors’ monies, including discretionary or non-discretionary portfolios/funds except such person or entity is registered as a fund/portfolio manager.

“No fund and portfolio manager shall advertise, market or attract investors to the existence of any product, discretionary or non-discretionary other than registered collective investment schemes.

“Every fund or portfolio manager shall submit quarterly returns and annual reports in respect of all products, discretionary or non-discretionary portfolios/funds, in a form as determined by the Commission,” according to SEC’s statement.

Infringement of the rule by fund managers will attract penalties of not less than N500,000, additional N10,000 daily and risk of suspension among others.

Capital market operators had commended SEC on the directive that clients’ funds for mutual trust should be domiciled with the custodian of the asset for optimal safety.

Market operators lauded the commission for the rule, describing it as a necessary step to check abuse of clients’ funds and ensure accountability for both parties.

Market operators said protection of investors’ funds begins from averting commingling as the funds and investments will be held by a custodian and not by the fund manager.

They noted that the capital market thrives in investor trust and such clear separation of clients’ assets from that of the fund managers enthrones transparency.

A custodial service refers to when a corporate entity or individual, known as custodian, holds a property or asset on behalf of a client. Specifically, a custodian is a financial institution that holds clients’ securities for safekeeping in order to minimize the risk of theft or loss. Securities such as share certificates, bonds, stocks and treasury bills are some of the assets a custodian holds for clients. Custody services are available to a wide portfolio of clients, including unit trust schemes, pension funds, corporate clients, high networth individuals, financial institutions, foreign, local and individual investors, insurance funds, fund managers, brokers, and dealers.