SEC Set for Risk-Based Capital Framework, Awaits Minister’s Approval

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Minister of Finance, Kemi Adeosun

Goddy Egene

Strong indications emerged on Monday that the Minister of Finance, Mrs. Kemi Adeosun will soon approve the new risk-based supervision(RBS) frame work for capital market operators by the Securities and Exchange Commission (SEC).

The market regulator had disclosed introducing the RBS framework to replace the current minimum capital requirement for operators. Under the class minimum capital requirement, the commission set minimum capital requirements for all capital market functions without giving much consideration to the assets size and inherent risks.
However, after the last recapitalisation exercise for operators, SEC had planned to adopt the RBS capital requirement for operators.

Market sources said the commission was awaiting the approval of the minister to go along with the new framework.
“Barring any unforeseen delay, SEC will get the approval by the minister this week and the necessary steps will be taken by the commission to ensure the introduction and implementation of the risk-based framework,” a market operator who is familiar with the development told THISDAY on Monday.

Under a RBS capital adequacy framework capital market operators get a graduated capital requirement in line with their business level and inherent risks.

The new framework is expected to address the shortcomings in the current minimum capital requirement, which does not consider operators’ risk arising from operations, level of business and market activities.
Also, it will strengthen SEC’s commitment to the enforcement of strong corporate governance and enthronement of robust enterprise risk management in the market.

It is expected that RBS approach will receive wide acceptance in the capital market and beyond because most advanced and emerging capital market regulators adopting this approach.

Currently, minimum capital base for broker and dealer is N300 million. Broker only is N200 million, while dealer only is N100 million. Issuing houses, which facilitate new issues in the primary market, require a capital base of N200 million to operate, while an underwriter needs N200 million to be in the market. Trustees, rating agencies and portfolio and fund managers N300 million, N150 million and N150 million capital respectively.

However, given the globalisation and competition for investments, operators in the Nigerian market will be at disadvantage if the regulator continues with current same requirement rule.
SEC has been entering into pacts with many countries aimed at deepening the Nigerian capital market. The last was with Morroco’s capital market regulator, which the commission believes will encourage cross investments in the respective capital markets.

“It will also engender mutual recognition of regulations related to public offerings and professional certifications to facilitate dual listings and mobility of capital and labor between the two markets.The signing of the MOU was a historic milestone for Nigeria as it is in clear tandem with moves around all regions of the world towards cooperation and market integration. Nigeria had earlier entered into such bilateral agreements with several other jurisdictions such as, Angola, China, Ghana, Kenya, Malaysia, Mauritius, South Africa, Tanzania and Uganda,” SEC DG had said.