IMF Reveals That Only 30% Of SEC Staff Perform Core Functions

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The World bank

The International Monetary Fund (IMF) made a shocking revelation that only 30 per cent of the 630 staff of the Securities and Exchange Commission (SEC) actually perform core regulatory and supervisory functions of the institution.

The fund pointed this out in its assessment of the level of implementation of the International Organisation of Securities Commissions (IOSCO) Principles in Nigeria.

The assessment was conducted from September 4 to 19, 2012 as part of the IMF-World Bank Financial Sector Assessment Programme (FSAP). The last IOSCO assessment in Nigeria was conducted in 2002.

The IMF therefore urged the commission to strengthen its regulatory and supervisory functions by increasing the number of staff members performing these functions for a more efficient regulation of the nation’s capital market.

The report said: “The SEC has 17 departments and staff of over 630 people, of which only 30 percent are currently engaged in the core regulatory and supervisory functions.

“This proportion has increased over the past few years, but the SEC should focus on further increasing it as soon as possible. The coordination in a large organisation such as the SEC is challenging, and the current division of responsibilities between the departments seems to create inefficiencies and overlaps.

“Without sufficient written procedures to serve as guidance and the less than optimal collaboration between the departments, the SEC´s discharge of its functions falls short of expectations, mainly in the areas of inspections, investigations and enforcement.”

The report also pointed out that there were inadequate regulatory requirements and limited on-site supervision of broker-dealers, saying this had  the potential of introducing systemic risks to the Nigerian financial system.

“This was already experienced during the crisis, and partially addressed through the more stringent requirements on margin lending introduced by the Central Bank of Nigeria (CBN) and the SEC.

“Due to the weak financial condition of many broker-dealers and limited on-going monitoring, new risks may arise and remain unaddressed. As in many countries, the securities settlement system is a potential source of contagion.

“The SEC should promptly implement a major overhaul of the capital requirements applied to broker-dealers, by raising their initial capital requirements and requiring them to maintain sufficient risk-based capital on an on-going basis.

“A new, more robust regime would need to include on-going monitoring and reporting requirements, accompanied by robust enforcement.”

IMF also noticed that the  regulatory framework for securities markets in Nigeria has improved markedly since the 2002 FSAP, and particularly in the last five years.

“Since the adoption of the Investments and Securities Act 2007 (ISA) and the first set of rules and regulations of the Nigerian Securities and Exchange Commission (SEC), the regulatory framework has been further strengthened and expanded.

“It now covers more products and market participants, and has addressed the need to improve the quality and timeliness of disclosures and manage the risks inherent in the management of client assets in collective investment schemes,” the report noted.

The IMF adviced SEC to institutionalise an effective legal structure to improve its operations.

The requirements for qualifications of board members, the establishment of fixed terms, the confirmation of nomination and removal by the Senate, and the need of a cause to remove a board member as opposed to the former practice of boards being dissolved by the new executive, will provide a better governance structure said IMF.

The report added that: “SEC is a member of the Financial Services Regulation Coordinating Committee (FSRCC). The FSRCC members have signed a memorandum of understanding (MoU).

“The SEC is also a member of the Financial Reporting Council (FRC) established by the FRC Act 2011. The SEC is a signatory to the IOSCO Multi lateral MoU (MMoU) and as such it is in a position to fully assist foreign securities regulators and share information with them. So far it has been requested to provide assistance in a limited number of cross-border investigations.”

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