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Capital market committees: Stakeholders seek closer monitoring of regulators

By Michael Eboh
The need for effective  supervision of self  regulatory organisations (SRO) and enactment of laws barring officials of regulatory authorities in the capital market from sitting on the Board of public companies have been brought to the fore, as operators in the Nigerian Capital market have tasked the recently constituted committees set up by the Federal Government, for the design of a code of governance for capital market regulators and review of the Investment and Securities Act (ISA) on the need to address these gray areas which is likely to hinder the growth of the capital market.

The operators are of the opinion that the capital market regulatory authorities, if not properly supervised, directed and controlled would put the growth and development of the Nigerian market in jeopardy.

The federal government, last month set up two committees that it saddled with the responsibilities of drafting a code of governance for capital market regulators and review of the ISA.

This, according to the Minister of State for Finance, Mr. Remi Babalola, is parts of efforts to ensure transparency and promote investors’ confidence in the market.
The 10-man committee to design the code of governance for capital market regulators, is being headed by Mr. Fola Adeola, while the 17-man  ISA Review Committee is being headed by Dr. Konyinsola Ajayi.

The federal government noted that the recent collapse witnessed in the Nigerian capital market can be attributed to the ineffectiveness of the regulatory authorities, due to lax supervision of activities in the market.

According to operators, lax supervision of the capital market, is as a result of conflict of interest, as some of the top executives and Board members of some of the regulatory authorities and SROs were found sitting on the Boards of companies they are supposed to regulate.

It should be noted that the Director-General of the Nigerian Stock Exchange (NSE), Professor (Mrs) Ndi Okereke-Onyiuke and the Chairman of SEC, Dr. Udoma Udoma, currently sits on the Board of Transnational Corporation of Nigeria (Transcorp) Plc and UAC Nigeria Plc respectively, among others.
 
In an apparent bid to address this anomaly, the federal government noted that the design of the code of governance for capital market regulators would help improve the operations of the regulators in the market, while the review of the ISA would help align the Act with current realities and international best practices.
Mr. Seye Adetunmbi, Chief Responsibility Officer, Value Investing Nigeria Limited advised that the proposed code and the ISA should be clear on the relationship between quoted companies and officials of SROs, such as the NSE and regulatory authorities, such as SEC.

He said, “The government through the newly constituted committees should use the opportunity to review the ISA to position the market for international standard. Any aspect that heralded indiginisation decree in the ISA, that runs contrary to the principle of international best practices should be revisited.
“Also, there should be a minimum standard requirement in the Memorandum and Articles of Association (MEMART) of the Stock Exchanges, which the Corporate Affairs Commission (CAC) must ensure that it complies with corporate governance clauses before approval.
“Likewise, SEC should be able to query and ensure compliance, ensuring that there is no aberration in the MEMART of Self Regulatory Organisations (SRO) in the capital market, which is capable of working against larger interest of all the stakeholders or which can undermine the oversight regulatory role of SEC.

“The code of conduct should be quite clear on the relationship between the executive leadership of SROs and other market operators and the Board of Directors or the apex Council. Executive of Head of stock exchanges should not serve on the board of companies quoted in such exchanges, likewise the Chief Executives /Executive Directors of dealing firms or capital market operators generally.

“All those clauses in the ISA that were relevant when the market was just evolving should give way for new ones that would better position the market for the current challenges and prepare the market for an international model of a market that has come of age.

“Thus, I charge the committees to look at larger interest and values that will endure, while wishing the members all the best in the discharge of the important national assignment.”

Speaking in the same vein, Mr. David Adonri, Managing Director, Lambeth Trust and Investment Company Limited stated that the introduction of a code of ethics for regulators and review of the ISA will help address the conflict of interest issues brought about by executive of SROs and regulatory authorities sitting on the Board of companies they regulate.

According to him, this and other reasons underscore the justification for making a Code of good governance for Regulators by the Federal Ministry of Finance, adding that the Code should prescribe ethical conducts beyond what is ordinarily provided for in the ISA and adapt  a modified version of Atedo Peterside Code of Corporate governance to suit peculiarities of Regulators.

Adonri further advised the committees on other important and critical aspects to be considered in their report.
He said, “The inauguration of two separate committees recently by the Federal Ministry of Finance to review the Investment and Securities Act 2007 (ISA) for possible amendments and for the drafting of a code of governance for Regulators in the Capital Market is a welcome development.

“Recent events in the global financial system have compelled even advanced economies to undertake major reforms of their financial systems and regulatory policies.

“Considering the circumstances which provoked our own financial crisis wherein weaknesses and lapses in our governance and regulatory mechanisms became apparent, there is compelling justification for reform by the Federal Ministry of Finance.

“The ISA 2007 is the primary law that regulates the Capital Market. It establishes the Securities & Exchange Commission (SEC) as the apex regulatory authority for the Capital Market. It describes generally how securities business should be conducted and prescribes penalties for contravention. It deals with Investors Protection Fund and its application.

“Several sections of ISA deals with procedures for capital raising and borrowing by governments and their agencies from the capital market.

“It establishes the Investment and Securities Tribunal (IST) as a specialized Federal High Court with power to adjudicate on disputes and controversies arising under ISA.

“The ISA prevails over other laws to the extent of their inconsistency, thus placing it on a superior pedestal.
“As provided for by ISA, SEC is under the supervision of the Federal Ministry of Finance and the Minister has power to supersede the Commission, hence its initiation of the current review.

“ISA empowers SEC to make rules and regulations generally for carrying out the principles and objectives of the ISA subject to confirmation by the Minister.


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