Chris Ugwu 
For an efficient and vibrant capital market to be achieved, there is an urgent need for Know Your Customer (KYC) compliance. CHRIS UGWU writes
It is a known fact that some of the factors, which led to loss of confidence in the capital market include loss in value of investment, total loss of investment, sharp practices by market operators, lack of transparency in financial disclosures, ineffective regulation, perception that the market is not fair, cumbersome practices in issuance of dividends, bonuses and rights issue, among others. However, there have been various attempts targeted at restoring the confidence of investors in the market, some of which include continuous financial literacy and investor clinics, technology-driven management of IPOs, e-dividends and bonuses; biometric capture as part of Know Your Customer, (KYC) process to forestall identity theft, online monitoring of individual Central Securities & Clearing System (CSCS) accounts, among others.
A lot of energy has been spent by both the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) in building the foundational aspect of the market in terms of transparency, orderliness, fairness, disclosure and, more importantly, enforcing rules and regulations. SEC is currently leading the capital market in implementng the 10-year Masterplan initiatives, which include recapitalisation exercise to strengthen market institutions, dematerialisation of share certificates which has reached unprecedented level of over 95 per cent with 100 per cent in sight, e-dividend with collaboration from Central Bank of Nigeria (CBN) and NIBSS and collaboration with the National Assembly towards legislations that would boost Nigeria capital market. These fundamental changes, according to analysts, are the needed tonic that will bring about growth and development in the market through the master plan.
This is why the issue of identity management, which has been a problem, not just in the capital market, but in many sectors of the economy, need to be addressed to help aid the achievement of efficient and vibrant capital markets and the general economy. Addressing the issue of identity in the capital market will not only help tame the issue of unclaimed dividend, but, to a large extent, curb identity theft in the local bourse and give more access to credit facilities. SEC recently raised concerns over investors’ Know Your Customer (KYC) information low compliance and reminded capital market operators that the Commission’s directives on the update is still in effect.
Concern over low KYC compliance
The Securities and Exchange Commission (SEC) had expressed worry over low compliance by the capital market operators to update investors’ KYC information. The Director-General of SEC, Mr. Lamido Yuguda, who stated this at a post-Capital Market Committee Meeting press briefing, reminded all CMOs that the Commission’s directive on update of investors’ KYC information was still in effect.
“We have noted that the level of compliance has been low. Despite several engagements, we realised that as at April 8, 2021, there were still 4,012,311 accounts with incomplete KYC information. “This exercise is critical to deepening the participation of retail investors and we direct all CMOs to accord it the highest level of priority,” he said.
Yuguda disclosed that as part of measures to support the development of the commodity ecosystem, the Central Bank of Nigeria (CBN) revalidated its 59.9 per cent holding in the Nigerian Commodities Exchange (NCX) to ensure its appropriate positioning for effectiveness. He noted the action addressed the funding problem plaguing the NCX and several engagements are on-going with relevant authorities to promote trading on the exchange. “The capital market community believes that the repositioning of NCX by CBN would deepen the commodities market.
Thus, the Commission is engaging with CBN to encourage acceptance of warehouse receipts by banks as collateral. “With the formulation of rules on warehousing and collateral management, warehouses will be registered by the Commission and accredited by the respective exchanges. “In addition, the Standards Organisation of Nigeria (SON) will continue to issue standards that Commodities Exchanges can link up with. “Similarly, another landmark in the commodities ecosystem is the commencement of trades by the Lagos Commodities and Futures Exchange (LCFE) on the March 15, 2021 with T+3 settlement. In addition, The LCFE expects to list crude oil instrument along with Gold instruments,” he said. He said that despite the turbulence experienced with the outbreak of the pandemic, the Nigerian capital market stood resilient.
“The capital market community contributed its quota to the fight against COVID-19. I am delighted at the efforts that we made and pledge that we shall not relent in our efforts. “To this end, our next phase of the support in the fight against COVID- 19 will be the establishment of the Strategic Health Impact Fund for Transformation (SHIFT). This is planned to be a N100 billion fund for investment in healthcare assets in Nigeria,” he said. Yuguda reiterated the Commission’s commitment to advance the development and integrity of the Nigerian capital market.
Investor’s data, consent form
In a bid to address challenges associated with identity management in the capital market, the Securities and Exchange Commission (SEC) developed a standardised Investor’s Data and Consent form to be adopted by all capital market operators. Identity theft is the deliberate use of someone else’s identity, usually as a method to gain financial advantage or obtain credit and other benefits in the other person’s name and perhaps to the other person’s disadvantage or loss.
The form will assist CMOs in collecting and updating investors data as well as enable CMOs to obtain consent of investors for implementing capital market initiatives targeted at improving overall experience and participation in the capital market.
A former acting DG of SEC, Ms. Mary Uduk, who disclosed this in Abuja, said identity management had been a problem not just in the capital market but in many sectors of Nigeria’s economy, but assured that SEC was handling it in the capital market. “We are handling it, and that is why we came up with that form.
That form has been exposed and we have asked the capital market operators and other stakeholders to give us their comments on that form. “We want to get as much information as we need from investors to be able to use it in the right way, while also protecting that information,”she said. Uduk expressed the commitment of the Commission to identify investors properly so as to guard against flow of illicit funds into the capital market. She said: “We need to identify our investors; we need to know who is putting money in our market and who is not. That will also help us to take care of money laundering and other vices and people we don’t want in our market.
“That form is out there and we expect every stakeholder to look at it and make comments and other capital market operators so that we can use it to get information from investors and that information would be stored in data base protected under the law and used to ensure that we have unique identifier investors. “For example, years ago, before the global financial crisis, there was lack of good identity management in the market and that made it easy for some people to buy stocks using multiple identities when companies were doing IPOs at that time.
“What has happened now is that we find it difficult to reconcile ownership of these stocks. That is why we have a window open right now for people who got stocks in multiple identities to regularise them.” Uduk, however, warned that SEC would no longer tolerate investors buying stocks in fake names, terming it as illegal. She added that the window of opportunity was still open for such investors to regularise their accounts at no penalty, saying that the identity management would assist in ensuring that it does not happen in the future.
Operators’ view
The Managing Director, Crane Securities Limited, Mr. Mike Eze, while reacting to the development, commended SEC as well as the entire capital market community for the laudable initiative of articulating a long-term strategic development blueprint for Nigeria’s capital market. He said: “This has been long overdue considering the fact that prior approaches to capital market development have not led to the desired progress because efforts were discrete, uncoordinated and oftentimes duplicative.” Eze noted that proper identity management would help the market to take care of money laundering and other vices.
The National Chairman, PSAN, Mr. Mr. Boniface Okezie, in a chat with New Telegraph, also commended the initiative, saying what SEC needed was to create more awareness. He called on SEC and NSE to collaborate with market operators for a better structured public awareness campaign about multiple subscriptions and how to curb unclaimed dividend. Okezie said there was need for a better structured public awareness campaign to be jointly anchored by NSE, SEC and market operators for the education of shareholders and the protection of their interests, especially the small investors.
Last line
To facilitate mobilisation of savings, accelerate capital formation, provide investment avenues and enhance efficient allocation of capital to growth sectors, Nigeria needs and deserves a capital market that is characterised by high level of liquidity, depth, breadth and transparency.