Investor Protection: Private Funds to Have Separate Custodians


Goddy Egene

Strong indications have emerged that managers of private funds will be mandated to have separate custodians and trustees as the Securities and Exchange Commission (SEC) moves to strengthen regulations guiding managed funds and protect investors.

THISDAY had last week reported that SEC would be amending the rules guiding managed funds and make them more stringent as part of efforts to protect investors in nation’s capital market.

The amendment and introduction of new rules follows from the outcome of BGL Plc saga that led to the banning of its group managing director, Mr. Albert Okumagba from capital market activities for 20 years.

A market source had last week said: “New rules mandating registration of privately managed funds apart from the conventional collective investment schemes would be introduced to the market. From every indication, the commission is already talking with the Funds Managers Association of Nigeria (FMAN) in that regard.”

THISDAY checks revealed that one of the new rules will includes mandating managers of private funds to ensure that they have separate custody of the funds.

“Years back SEC stipulated that collective investment schemes (CIS), which are funds subscribed to by investors have separate custodians and trustees other than the fund managers. This has assisted in reducing fraudulent practices and help to safeguard investments in CIS. Given the recent experience in the market where investors lost millions of naira in private funds, the commission is to focus its attention on how to ensure safety of their investments,” a source said.

Okumagba and some other officials of BGL Plc, including his deputy, Chibundu Edozie were banned by SEC following the decisions of the commission’s Administration Proceeding Committee (APC) that investigated complaints of investors against Okumagba and his company over failure, refusal and or/neglect to liquidate their investments in both the Guaranteed Consolidated dated Notes and Guaranteed Premium Notes , two investment products run by the company.

According to SEC, the investors had alleged several violations of the Investments and Securities Act 2007, SEC Rules and Regulations as well as the Code of Conduct for Capital Market Operators including, amongst others: Performance of a capital market function without due registration, promoting and marketing products not registered by the Commission, failure/refusal to resolve clients’ complaints, failure to file statutory returns and furnishing the Commission with false and misleading information.

The Commission explained that in a bid to obtain justice for the complainants and grant all parties fair hearing, the matter was presented before the APC which sat on February 6, 2016. During the proceedings testimonies and documentary evidence were tendered by various parties.
SEC said upon conclusion of the proceedings, its APC arrived at a decision, which has been approved by the relevant authority.