Yuguda: Capital Market Must Government Actualise Economic Reforms

The Director General, Securities & Exchange Commission, Mr. Lamido Yuguda reiterated the Commission’s readiness to help the federal government in its current economic reforms, expressing optimism that rigorous reforms will rejuvenate the nation’s economy. Kayode Tokede brings extracts from the virtual second Post-Capital Market Committee (CMC) media briefing held recently.

What is the CMC proposition on the President Bola Tinubu-led government?

We had a round table discussion and have gathered valuable inputs from market participants which would be put together for the new administration, underscoring the commitment to reposition the capital market as a driver of economic growth in line with the vision of the new government. We know the road ahead is undeniably challenging and the capital market must step forward in whatever way to lend its helping hand to the current economic reforms, adding that the market must make sacrifices to help drive the economic transformation that will change our nation’s fortunes for the better.

It is a fact that there are prevailing challenges arising from demanding macroeconomic conditions, constrained consumer spending, and rising operational costs. Despite these challenges, there remains a shared sense of optimism that ongoing rigorous reforms will rejuvenate the nation’s economy. I therefore pledge the resolute support of the Capital Market to the Federal Government in navigating these challenges for the country’s brighter future.

There are ongoing reforms in the capital market and the economy is also undergoing reforms too, in specific terms what are those reforms being considered by the commission and capital market stakeholders especially now that the NGX has created a board for Dollar listing?

My speech raised a number of reforms that have been taking place, you yourself mentioned the issue of Tech Board from the NGX. We have reforms on custody on Collective Investment Schemes, reforms in derivatives trading, and reforms taking place in the commodity exchange space. We really have a lot of reforms taking place. We have reforms taking place in-house to make the regulator more efficient, IT friendly, so that the capital market can really embrace technology as we move forward. We have a number of new initiatives on crowdfunding, Robo Advisors. These are all areas where significant activity is actually taking place to reposition the capital market to really fund the nation’s quest for development.

What is your opinion on dollar denominated bonds listed on the NGX and what is the current value of unclaimed dividends figure in the capital market?

On dollar-denominated bonds listed on the NGX, I don’t see any problem with dollar denominated bonds. I mean, any bond should be an obligation that really is backed by the ability of the obligator to repay the bonds. Once the bond has that attribute, then it doesn’t really matter on the currency or denomination of that bond. Of course, that bond could be a corporate bond, could be a sovereign bond, could be an agency bond but what matters really is the person or entity that has borrowed the money through that bond able to meet the repayment requirements, both of interests and principal as they fall due. So once they are there, it is good investment for people who wish to participate in that kind of bond.

Talking about strengthening the Capital market. There are insinuations from the market that SEC has not been doing much to push the ISB, how true is this?

The ISB has passed by the National Assembly, and was actually submitted for Presidential assent but at the point of discussion between stakeholders that needed to then look at the bill as passes by National Assembly, there were observations that were raised, and the resolution of those observations did not really benefit from the tight timeframe under which the last administration worked; which was sometime in early May. Before it could be resolved, the time for the administration had expired and it was passed back to the National Assembly. However, it has passed the second reading and it is now before the National Assembly, house of representatives’ committee. Everything that needed to be corrected and amended were done. The Commission is actively pursuing the ISB. The ISB is reflective of the modern capital market. It has robust provisions for commodities exchanges, which were not in the 2007 act. Whilst we have this new legislation, the Capital Market will basically have a much newer impetus because of the very novel provisions and the strengthening of the existing provisions in the bill. The Bill aims to align regulations with the modern dynamics of the market and it is hoped that if passed into law, it will enable optimal contribution of the capital market to national development.

SEC has launched the Revised Capital Market Master Plan, what are the achievements and challenges you are facing in terms of meeting your targets in 2023?

On the revised Capital Market plan, achievements and challenges. It is important for me to say that the Revised Master plan is actually a ten-year plan. It’s a plan from 2015 to 2025 and what we did last year was to have a mid-term review of the plan so that we can align the plan with the revised capital market expectations, with new economic development so that, as we move towards the end of the plan period, the plan is actually very consistent with realities on ground. I think the CMMP has achieved a lot and in 2023, we continue to see these achievements.

We continue to see the issue of dividends, commodities exchanges, we have mentioned the issue of really strengthening the internal capacity of the Commission as a regulator to really discharge its mandate. We have mentioned the issue of non-interest capital market which is a very important area for development which we have not exploited very well. There are concerted efforts in the Capital Market and the rest of the financial sector to actually explore that area. We have mentioned the pension, the form C (VI) or a lot of Sukuk issuances by the government. We have seen the fifth on recently, and all issue oversubscribed and we have also looked at the development with CIS Inspector where we have strengthened custody requirements, we have strengthened one regulation that the capital market regulators in this sector will continue to offer products that are very suitable to investors and we can reduce substantially, the impact of non-regulated products or Ponzi scheme. Over-all, our achievements have been very good.

Challenges are quite many; Firstly, issue of technology: We have ensured that the technology environment within the Commission is strengthened. The launching of an ongoing technology project is set to happen in the beginning of 2024. A challenging macro-economic environment like; High inflation, unstable exchange rate. The future is really great for our country,

However, we need to harness the capital market to fund critical investments in infrastructure, as these kind of investments will stand the test of time and prepare Nigeria for her explosive population in years to come. Today, we have a population of 200million+, however, we are likely to have a much higher population in the next 30 years. This demography consists of young people who do not have good jobs and education. These investments will help tackle these challenges. Our youths will begin to take part in Education and skills acquisition in order to create a better life in the country. This is our goal, and the capital market will play its part in this developmental process or match.

What are the actions taken to get Nigeria out of financial grey-list? Kindly update us on the action and let us know the way forward.

The grey listing of Nigeria is a thing of concern to the capital market but the Financial Action Task Force (FATF) does not only focus on the capital market but the entire economy before it makes its assessment. The financial sector is one but they look into other things. In the capital market, we have worked with all relevant government agencies that are involved in this government; the National Assembly, the judiciary, the regulatory agencies; like NFIV, CBN, CAC and every one that is involved in FATF discussion. In the capital market, we have our parts to play,  which is to ensure that our operators in the capital market operate with a very clear risk aware approach, so as they know the kind of people they open accounts for i.e. (KYC) “Know Your Customer: No illegal transaction: Anti-money laundering: Counter financing (CF): Proliferation of small arms and Sanction screening.

We have new set of circulars in the financial market. We have organized trainings for capital market operators. The capital market has been making efforts to getting Nigeria de-listed. We have been working with all relevant government agencies, we have attended all relevant meetings and reviews. We are excited with the results on the capital market, and we are charging them to do much more so that we can have a very clean slate at the next review.    Other efforts already made by the capital market include the SEC having amended its Anti Money Laundering and Countering the Financing of Terrorism Financing (AML/CFT/CPF) Regulation 2022 in line with the findings from the National Residual Risk Assessment (NRRA) exercise. New frameworks on the implementation of Targeted Financial Sanctions (TFS), Risk-based Supervision and guidance on Politically Exposed Persons (PEPs) were developed for the market. Meanwhile, a sector-specific entity risk assessment framework is being finalized.

We still have issues of unclaimed dividends recurring severally across the companies. What is the SEC doing to stem the tide?

Unclaimed dividend has become a serious problem in our country because we have issues with identity management within the capital market, we have issues with multiple subscriptions where people were using different names to subscribe to share offerings. We had a situation where not much of the information was actually captured on each individual’s subscriber and then we have a lot of individuals that change their names when we were still using the paper dividend warrant system.

So we had legacy issues that have really aggravated issues of unclaimed dividends. These issues that we have been trying to resolve with the introduction of the electronic dividend payment. The electronic dividend portal has actually now been under some kind of reform. Both the committee on the electronic dividend mandate as well as NIBSS have been working to really get this portal perform much better and more user friendly so that we can substantially increase the investor experience in terms of uploading their details and to also get this issues of unclaimed dividends significantly reduced. I note your reference to MTN. MTN is a much newer stock than the other and should probably not have had a lot of unclaimed dividends on it. we also have looked at that and we are now tightening our KYC requirements so that by the time you buy shares in the capital market, all the information that is required to be captured from you will be captured so that this unclaimed dividend will be a thing of the past in our market. But the truth of the matter, one of the major issues which keeps the figure of unclaimed dividend high is having the owners, the final beneficiaries of these monies have access to them.

At our meeting for example, we discussed that, as much as efforts are being made by the regulator and other capital market operators ensuring that the spate and volume of unclaimed dividends is reduced by transmitting them to the beneficial owners. We keep putting a lot of efforts and activities toward making sure that investors on their own come forward to, one rightly claiming their shares, two update their information, including bank account and other KYC details which not only will help us reduce the volume of unclaimed dividends, two to ensure that future benefits which is not only limited to unclaimed dividends, bonuses, and every other thing gets equally transmitted and three that everyone in the capital market is rightly and adequately accounted for so that our data is more robust and it will aid our planning.

What is SEC’s position on FBN holdings Directors tussle that happened recently, and what are we likely to see from SEC so that it will not move across to the other listed companies on the exchange.

This is something the commission has been looking to resolve.

What is the Commission doing on Assets Stripping?

The Commission’s key responsibility is the protection of investors. This flows through our thinking. It can be referred to as the DNA of the Commission. Any time a transaction comes before the Commission for approval, especially a transaction that involves monetary shareholders’ interests, we rigorously examine it for fairness. I have severally spoken to my colleagues about these kinds of transactions that we will not tolerate a situation where minority shareholders are actually disenfranchised by majority shareholders, especially in a case of de-listing. I insist that the prize at which the deal is consummated must be revealed to be fair.

During the CMC Meeting were there updates by the Technical Committees?

Yes, as part of its accomplishments, the Technical Committee of the Commodities Trading Ecosystem disclosed that a two-day workshop was conducted in Lagos by the Commission and Federal Ministry of Mines and Solid Minerals Development (FMMSD), which was well attended by the Association of Issuing Houses of Nigeria (AIHN), Fund Managers Association of Nigeria (FMAN), and Commodities Exchanges. The event explored capital market funding options for the solid minerals sector. It brought together 57 mineral companies, government officials, and capital market operators. The workshop provided insights into funding opportunities, requirements for mineral companies, the role of commodity exchanges, sector challenges, and government initiatives for improvement of the mineral sector. The E-dividend Mandate Committee provided update on the project to enhance the e-Dividend portal, in collaboration with the Institute of Capital Market Registrars (ICMR) and the Nigerian Interbank Settlement System (NIBSS).

The Financial Literacy Technical Committee revealed plans to organize a Regional Investor Awareness conference in Kwara State scheduled for October, 2023 specifically targeting tertiary institutions within the state. Additionally, the Committee informed members about plans for a pilot test of the Capital Market Studies (CMS) project by the Nigerian Educational Research and Development (NERDC).

The Non-Interest Capital Market Products (NICMP) Technical Committee shared significant updates on what had occurred since the last meeting, including noteworthy developments such as the release of a revised framework by PENCOM for establishing the Pension Industry Non-Interest Advisory Committee (PINAC). The Advisory Committee will ensure the rigorous adherence of investments within the Non-Interest Pension Fund (Fund VI) to Shariah principles. The Technical committees’ discussions also covered strategic plans to enhance awareness about Fund VI and establish interactions with various entities to facilitate the creation of Shariah-compliant instruments for the commodities market. Additionally, the Committee highlighted the need for collaboration with the DMO for the development of short-term Sukuk securities. With a strong emphasis on cooperation, the Committee underscored the pivotal role of joint efforts among Pension Operators (PENoP), PENCOM, and other stakeholders to elevate awareness and encourage active participation in the Non-Interest Pension Fund VI.

Any updates from the registered exchanges?

DG: The registered Exchanges present at the meeting informed members that Nigeria outperformed global indices on gains in the All Share Index and market capitalization. This exceptional performance could be attributed to several factors, such as; the appealing dividend yields offered by certain stocks, the recovery of corporate earnings, and a notable improvement in sentiments among domestic retail investors. Also, all indicators reflecting investors’ involvement – including volume, value, and the number of transactions – had demonstrated consistent month-on-month increases throughout the first half of 2023. The meeting also underscored the Capital Market Committee’s dedication to propelling Nigeria’s economic growth, fostering collaboration, and embracing innovation to build a thriving future for Nigeria. It once again offered the capital market as a viable source of infrastructure financing for development.

Did the meeting discuss the issue of Ponzi schemes?

Yes, we discussed the issue of Ponzi schemes and members were notified on the need to counter unauthorized financial entities, unregistered products and cyber threats. Market players were urged to prioritize cybersecurity measures to safeguard sensitive financial data and transactions. Members were reminded about a series of circulars issued by the Commission aimed at protecting investors from the activities of unregistered schemes. Specifically, the chairman reiterated the Commission’s warning to the public regarding the activities of Binance, Luno, PaxFul, Coinbase, and other unregistered platforms, as investing in crypto-assets carries a high level of risk and may result in total loss of investments. Members were also informed that SEC had conducted extensive outreach, sensitization and training programs for Capital Market participants on new obligations, in collaboration with development partners and other stakeholders. This is aimed at ensuring compliance and protecting the market from abuse by criminals.