With a signal to Nigeria to strengthen the independence of its capital market regulatory framework, the International Organisation of Securities Commissions (IOSCO) – the global body of capital markets regulators – rounded off its annual conference last week. Capital Market Editor TAOFEEK SALAKO reports that the removal of Nigeria from its long-standing role of chairman of the Africa and Middle East Regional Committee (AMERC) and a member of IOSCO Board put Africa’s second largest capital market in the backseat of decision-making in the comity of global securities regulators
GIVEN its size and contributions to regional and global markets, Nigeria’s role as a leader in the emerging markets and global capital markets has been like a tradition. Nigeria has held the chairmanship and secretariat of the Africa and Middle East Regional Committee (AMERC), one of the four regional committees of the International Organisation of Securities Commissions (IOSCO).
More than 95 per cent of the world’s securities markets are regulated by IOSCO members in more than 115 jurisdictions.
Nigeria, as Africa’s second largest capital market and a major global destination for emerging markets’ funds, was a member of the 34-member IOSCO Board – the governing and standard-setting body of the global securities regulators’ organisation. The country was represented at the highest decision-making point in global securities regulation by successive chief executive officers of the Securities and Exchange Commission (SEC). They include Suleiman Ndanusa, Musa Al-Faki, Arunma Oteh and Mounir Gwarzo.
In 2015, Nigeria led others in the West African sub-region to form the West African Securities Regulatory Authorities (WASRA). The body has the aim to foster a stronger sub-regional integration and cooperation.
The country’s global reputation was built on its active participation in global securities regulation, willingness to cooperate as a signatory to the IOSCO Memorandum of Understanding (MoU), the tech-driven advancement of its capital market and regional influence among others.
But, the hard-earned reputation has come under global scrutiny of lately.
Last week, IOSCO held its 43rd annual conference in Budapest, Hungary. Its focus was on key challenges facing securities regulators. The conference, hosted by Magyar Nemzeti Bank – the Hungarian Central Bank – attracted some 650 securities regulators, industry representatives and other financial market participants from across the world.
One of the highpoints of the conference was the reconstitution of the IOSCO Board. The new board retained 29 of its 34 members, and in what appeared a culmination of a global unravelling that started last month, Nigeria was removed from the new IOSCO Board. Egypt and Kenya were retained and South Africa was co-opted.
The extrication started with the removal of Nigeria as chair of AMERC, a body that consists of more than 35 regulatory organisations in both Africa and the Middle East.
The two-year renewable tenure of Nigeria as AMERC chairmanship, held by the suspended Director-General of SEC, Mr. Mounir Gwarzo, ended early last month.
Without a substantive chief executive for the Nigerian apex capital market regulator, AMERC reciprocated the long-standing contributions of Nigeria by electing the then SEC Acting Director-General Abdul Zubair as chairman.
However, a day after Zubair’s election was announced, he was removed by Finance Minister Mrs. Kemi Adeosun. Although Adeosun named Ms. Mary Uduk as his replacement, the global body ended Nigeria’s chairmanship and appointed Paul Muthaura of Kenya’s Capital Markets Authority (CMA) as the AMERC’s new chair.
With the removal of Nigeria from AMERC and IOSCO boards, Nigeria has no major leadership role in the regional or global securities regulations. Nigeria, which had championed the formation of WASRA when it held the chairmanship of AMERC, had conceded the leadership of the sub-regional body in order to avoid undue concentration of power.
Now, Executive Secretary of Le Conseil Regional de l’Epargne Publique et des Marches Financiers (CREPMF), Abidjan, Mr. Mory Soumahoro, chairs WASRA.
Local squabbling, global rumbles
Zubair was kicked out by Mrs. Adeosun mid-April following the ensuing confusion that trailed the lifting, reinstatement and re-lifting of suspension on the share price of Oando Plc. Mrs. Adeosun confirmed that Zubair’s removal was due to the flouting of her directive not to lift the technical suspension placed on Oando.
The SEC, under Zubair’s watch, explained technical suspension on Oando was lifted in the overall interest of the investing public. In a statement, SEC noted that Oando shares were placed on technical suspension in October 2017 following the outcome of a forensic audit. The suspension was to protect investors as a short term measure.
According to the Commission, suspensions are typically intended for a short period to ensure market stability and thereafter lifted to allow market dictates. However, the suspension of the shares of Oando Plc was prolonged due to several litigations by the firm and other shareholders contesting the propriety of the forensic audit and technical suspension.
The SEC statement reads: “All litigations have now been withdrawn, the independent forensic audit by Deloitte is ongoing and the primary result is expected.
“Accordingly, the SEC directed the NSE to lift the technical suspension and allow market determination of the share price. The Commission acted in the interest of shareholders and would continue to protect the interest of all the investors and other shareholders in the capital market.”
The minister had earlier suspended Mounir Gwarzo as SEC’s substantive Director-General over allegation of financial impropriety, a charge denied by Gwarzo.
Gwarzo, who was in the heat of a forensic audit of Oando after shareholders filed petitions against the indigenous energy group, linked his suspension to the Oando investigation.
Many analysts also believed the Oando investigation played a role in Gwarzo’s suspension. With the pointed affirmation of the minister of Finance’s direct intervention in regulatory administration of SEC, the global unravelling started for Nigeria.
In an e-mailed response to enquiry by The Nation, the IOSCO General Secretariat noted that independence of securities regulator is a major principle of the global securities regulatory framework.
IOSCO stated in a response by its Communication Manager, Carlta Vitzthum, that while it has no legal arms with which to oblige its members to adhere to its standards, which include principle on independence, it expects members to comply with the standards and principles in furtherance of the global best practices.
Vitzthum said: “IOSCO is not a regulator. It is a standard setter. The standards that its board sets are non-binding, which means IOSCO has no legal arms with which to oblige its members to adhere to its standards, that is: IOSCO objectives and principles of securities regulation 1 – 10 relating to the regulator, which include a principle on independence.
“However, the IOSCO board has developed recommendations, standards and guidance to help global regulators meet those principles and improve their governance and regulation, while upholding IOSCO´s objectives of protecting investors, mitigating systemic risk and ensuring fair, efficient and transparent markets.
“As ordinary IOSCO members – securities regulators help develop these recommendations and standards, it is understood that they will strive to adhere to them. If that is not the case, then the standards can serve as a benchmark by which regulators can be compared to their peers.”
The IOSCO spokesman pointed out that it “realises that its effectiveness as a standard setter will be determined by implementation of its standards by members” and to that end, “IOSCO´s assessment committee seeks to develop programs to identify and assess implementation of the core IOSCO objectives and principles of securities regulation and other standards and policies set out in IOSCO reports or resolutions, across the IOSCO membership”.
Regulatory independence
IOSCO’s principles of securities regulation clearly underline the context and importance of the independence of a capital market regulator.
The IOSCO’s principles of securities regulation outline that: the regulator should be operationally independent and accountable in the exercise of its functions and powers; the regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers; the regulator should have comprehensive inspection, investigation and surveillance powers; and the regulator should have comprehensive enforcement powers.
The International Monetary Fund (IMF) Country Report No 13/144 of May 2013 on Nigeria’s Financial Sector Assessment Programme Documentation on the implementation of the IOSCO objectives and principles recommended that SEC, as Nigeria’s apex capital market regulator, should be operationally independent and accountable in the exercise of its functions and powers.
Principle 2 of the report observed that the ISA does not provide SEC with full independence because the Finance minister has the powers to give it directives to modify or rescind proposed rules and could exempt certain persons from the application of the ISA 2007.
In its March 8, 2004 Economic issues No. 32, the IMF highlighted that in nearly every major financial crisis of the past decade – from East Asia to Russia, Turkey and Latin America -political interference in financial sector regulation often worsen situations.
According to the report, political pressures not only weakened financial regulation, it hindered regulators and supervisors from taking action against troubled financial institutions. As such, to fulfil their mandate to preserve financial sector stability, regulators and supervisors need to be independent from the financial services industry as well as from the government.
Outgoing Chartered Institute of Stockbrokers (CIS) President of Oluwaseyi Abe said the ability of SEC to perform its statutory roles is directly related to its independence.
Abe, who is Magnartis Finance & Investments Limited’s Managing Director, said: “In my personal opinion, the government should reduce involvement in the affairs of our capital market regulators for enhanced independence of these institutions.
“Capital market regulators such as SEC need to be independent of undue influence to be able to play larger roles expected of them in the entire capital market space.”
While the ISA 2007 made copious provisions to protect the independence of SEC and ensure that its operations conform to international best practices, the refusal of the government to set up necessary organs of the Commission and the resultant running intervention in the affairs of the Commission by the minister of Finance have compounded the few loopholes in the Act.
The ISA 2007 designates SEC’s board as the main organ that is statutorily responsible for the general administration of the Commission. The apex capital market regulator has, however, been without a board since 2015, when its board was dissolved by the President Muhammadu Buhari’s administration. The Finance minister stepped in to fill the vacuum, even as many analysts argued there was no such provision under the ISA conferring the minister with the powers of the board of SEC.
The ISA stipulates the composition of a board for SEC which shall include a part-time chairman, the director-general and chief executive as accounting officer, three full-time commissioners, a representative of the Federal Ministry of Finance, a representative of the Central Bank of Nigeria (CBN), and two part-time commissioners, one of whom shall be a legal practitioner qualified to practice in Nigeria with 10 years post call experience.