The Director-General of the Securities and Exchange Commission (SEC), Mr Lamido Yuguda, in this interview x-rays some issues bordering on the capital market such as unclaimed dividends and efforts to get Nigeria out of the grey list. Excerpt:
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?
We have reforms on custody on Collective Investment Schemes, reforms in derivatives trading, and reforms taking place in the commodity exchange space.
We have a lot of reforms taking place. We have reforms taking place in-house to make the regulator more efficient, and IT-friendly so that the capital market can embrace technology as we move forward.
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We have a number of new initiatives on crowdfunding and Robo Advisors. These are all areas where significant activity is taking place to reposition the capital market to fund the nation’s quest for development.
What is your opinion on dollar-denominated bonds listed on the NGX and what is the current 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 is backed by the ability of the obligator to repay the bonds. Once the bond has that attribute, then it doesn’t 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 is the person or entity that has borrowed the money through that bond able to meet the repayment requirements, both interests and principal as they fall due. So once they are there, it is a good investment for people who wish to participate in that kind of bond.
SEC recently launched the revised capital market master plan; what are the challenges you are facing in terms of meeting your targets in 2023?
I need to say that the Revised Master plan is 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 very consistent with realities on the 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 and commodity exchanges. We have mentioned the issue of really strengthening the internal capacity of the commission as a regulator to discharge its mandate.
We have mentioned the issue of non-interest capital market which is a very important area for development that we have not exploited very well. There are concerted efforts in the capital market and the rest of the financial sector to explore that area.
We have mentioned the pension, the form C (VI) and a lot of Sukuk issuances by the government. We have seen the fifth one recently, and all issues are oversubscribed. We have also looked at the development with the 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.
Overall, our achievements have been very good. Challenges are quite many. Firstly, the 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 at the beginning of 2024; a challenging macro-economic environment with high inflation, and unstable exchange rate. The future is great for our country.
However, we need to harness the capital market to fund critical investments in infrastructure, as this kind of investment will stand the test of time and prepare Nigeria for its explosive population in years to come. Today, we have a population of 200 million+, and 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.
What is the update on the actions taken to get Nigeria out of the financial grey list?
The greylisting 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, and CAC, and everyone that is involved in FATF discussion.
In the capital market, we have our part to play, which is to ensure that our operators in the capital market operate with a very clear risk-aware approach so that they know the kind of people they open accounts for i.e. “Know Your Customer (KYC). No illegal transaction, anti-money laundering, counter financing (CF), the proliferation of small arms and sanction screening.
We have a new set of circulars in the financial market. We have organised training for capital market operators. The capital market has been making efforts to get Nigeria de-listed. We have been working with all relevant government agencies, and we have attended all relevant meetings and reviews.
We are excited about 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 finalised.
We still have issues of unclaimed dividends recurring severally across the companies. What is the SEC doing to stem the tide?
Unclaimed dividends have become a serious problem in our country because we have issues with identity management within the capital market, and 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 captured on each individual’s subscriber and then we had a lot of individuals that changed their names when we were still using the paper dividend warrant system.
So we had legacy issues that have 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 now been under some kind of reform. Both the committee on the electronic dividend mandate and NIBSS have been working to get this portal to perform much better and be more user-friendly so that we can substantially increase the investor experience in terms of uploading their details and also get these 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 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 that keeps the figure of unclaimed dividends high is having the owners; the final beneficiaries of these monies have access to them.
At our meeting yesterday, for example, we discussed that much effort is being made by the regulator and other capital market operators to ensure that the spate and volume of unclaimed dividends are reduced by transmitting them to the beneficial owners. We keep putting a lot of effort and activities towards making sure that investors on their own come forward to, one rightly claiming their shares, and two update their information, including bank account and other KYC details which not only help us reduce the volume of unclaimed dividends but two, to ensure that future benefits which are 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 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 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.
