SEC Mulls Full Digitalisation to Resolve Challenges of Unclaimed Dividends, Others

Ndubuisi Francis

In a major move that may finally resolve the lingering issue of unclaimed dividends in the capital market, the Securities and Exchange Commission (SEC) has proposed that all registrars, central securities depositories and clearing houses would now be required to digitalise their operations, as a regulatory requirement rather than an optional service provision.

This was contained in new guidelines on minimum operating standards for Information Technology for capital market operators (CMOs)

The guidelines also stipulate that all central securities depositories and clearing houses shall have databases integrated with application programming interface (API) that registrars and brokers can feed from as approved by the SEC while all registrars, central securities depositories and clearing houses are required to have websites and web applications that allow investors to securely create and manage their profiles online, make enquiries and receive customer support using chat-bots or other interactive programmes from web browsers.

Also, custodians and trustees are required to have websites and web applications that allow their clients to securely create and manage their accounts online, make enquiries and receive customer support using chat-bots or other interactive programmes from their web browsers.

According to SEC, the proposed guidelines were designed to enable investors in the capital market do virtually everything they needed to do on their internet-enabled appliances and at their convenience.

SEC stated that the new regulatory framework undergoing review seeks to mandate compulsory adoption of information and communication technology (ICT), particularly web-based applications and devices, for virtually all capital market transactions.

SEC noted that the purpose of the new framework, “is to establish a threshold of operational efficiency in the Nigerian capital market through the effective adoption of information technology in driving business operations and ensuring the security, confidentiality, integrity and reliability of information systems.”

 SEC added that given the increased dependence of financial services and related business operations on technology, there was an urgent need to put in place rules that define the minimum operating standards for the use of information technology by all operators in the capital market.

“This will help operators harness the huge operational benefits derivable from the adoption of technology and also manage the attendant cybersecurity threats and other risks that accompany the use of technology. It would also positively impact on the effectiveness and efficiency of the Commission to monitor and regulate all capital market operators in the market,” it stated.

The provisions of the document apply to all categories of CMOs unless in sections where reference is otherwise made to specific CMO categories. 

The purpose of the guidelines was to establish a threshold of operational efficiency in the Nigerian capital market through the effective adoption of information technology in driving business operations and ensuring the security, confidentiality, integrity and reliability of information systems.

A draft copy indicates that the new framework, upon final approval, would apply to all capital market operations, with particular emphasis on investor-facing functions such as securities trading, fund management, share registration and clearing and custodial services, among others.

The new rules mandate all capital market operators to have well-secured and functional website as well as functional electronic mailing system, either hosted privately or using a cloud service provider, with domain name owned and registered by the capital market operator.

Once the rules come into effect, the use of free email providers and private emails like Yahoomail, Gmail and Hotmail, among others, shall become unacceptable for official transactions.

Under the proposed framework, stockbrokers would be, “required to have websites and web applications that allow investors to securely create and manage their equities accounts online, make enquiries and receive customer support using chat-bots or other interactive programmes from web browsers.”

 As the largest and main trade group, digitisation of stockbroking operations is expected to improve accessibility to the market for retail investors and to drive market penetration and inclusion.

 The guidelines added: “All CMOs are required to have a functional website, websites shall contain correct, up-to-date, and relevant information, websites shall not display errors or system messages revealing information about the underlying configuration of web applications, websites shall use the HTTPS (not merely HTTP) network protocol and other measures to ensure secured interoperability.”