The Securities and Exchange Commission (SEC Nigeria), at the weekend released new rules forbidding persons not registered by it as Custodians, from operating as Nominees, or holding securities, such as equities, money market, and fixed income securities, derivatives, among others, on behalf of actual owners.
The Rules published on the Commission’s website, however excludes those engaged in Pension Assets.
Those engaged in such activities are now required to apply to the Commission for registration as a Nominee, even as it explained that the business of Nominees shall be to take title of property, money or securities in trust for and on behalf of clients as Nominee. They shall also represent such clients to hold and deal with such property, money or securities strictly in accordance with any directions given by the respective clients from time to time to the Nominee Company.
The rule also stipulates that a Nominee shall not engage in any business, or activity except those of described above; defining a Nominee as “a company formed by a bank or other financial institution for the purpose of holding securities and other assets and administering them on behalf of the actual owners under the terms of a custodial or nominee agreement.”
A Nominee Company, according to the Rule, shall have minimum of three sponsored Individuals including a compliance officer; and Managing Director of the company; just as it must have necessary infrastructure like vaults for safe custody of title documents, agreements etc. and information technology capability required to effectively discharge its functions.
The new Rule also requires a Nominee Company to abide by the Code of Conduct for capital market operators and their employees as set out in the SEC’s Rules and Regulations.
Also, those registered as Nominees are forbidden from undertaking any business not prescribed in the rules; or investing in securities.
They must however have a robust risk management procedure and mechanism for compliance with Anti Money Laundering/Combating Financing of Terrorism (AML/CFT) regulations of its parent company.
In the case of merger/acquisition, the company is expected to notify clients, who shall reserve the right to appoint another Nominee Company or elect to remain with the new entity.
“Within 24 hours, in the event that its registration is suspended/revoked, notify all its clients including custodians of the suspension/revocation and their obligation to appoint another Nominee Company within 90 days from the effective date of suspension/revocation. Where any client fails to appoint another Nominee, the Commission shall appoint another Nominee to take over custody of the assets.
“In the event of a decision by the Nominee Company to discontinue business, notify the Commission and its clients within 24 hours. The Nominee Company shall notify the clients of their obligation to appoint another Nominee within 90 days from the date of the notice and the Nominee Company shall transfer assets to the appointed Nominee of the clients within five working days, failing which the commission shall appoint a Custodian.
“Comply with the Commission’s Rules on withdrawal of registration before the decision to discontinue business shall be effective. A Nominee Company shall comply with the Commission’s Rules on internal controls; monitoring, review, evaluation and inspection of systems and controls; separate custody account; agreement with the client; preservation of records and disclaimer of liability,” the rule stressed.
The new rule outlines the functions of Nominee Companies to include maintaining accounts of securities of clients, collecting all rights and benefits on behalf of, or accruing to clients in respect of securities held, managing the holding of clients including facilitating sale, purchase, lending and borrowing securities and settlement of investment obligations based on the clients’ mandates as well as ensuring compliance with contractual obligations with clients and custodians.
Other functions include maintaining and reconciling records of the services, maintaining sufficient information and record to identify the beneficial owners of securities held by it, and providing periodic information to clients and custodians (where securities and other assets are transferred to the nominee company by a custodian).
