The issue of identity management in the Nigerian capital market has been lingering for so many years despite numerous reforms by the regulating body and stakeholders. In this report, Kayode Tokede examines the implications of what the new management of the Securities and Exchange Commission and the Committee on Identity Management for the Capital Market is putting to check the menace
Regulating bodies, and stakeholders over the years have blamed mounting unclaimed dividend, among others in Nigeria's capital market, to poor identity management. The negative impact has contributed to weakening investors' confidence, increasing fraudulent activities, and decelerating overall market growth. Recently, the Securities and Exchange Commission (SEC), disclosed that as at March, 2024, the value of unclaimed dividends of 15 months and above stood at a whopping N180.92 billion, This is despite the introduction of e-Dividend Mandate Management System (eDMMS) in 2023 that makes it easier for investors to mandate their accounts for electronic dividends.
SEC had revealed that the total value of unclaimed dividends was at N190 billion in 2022, about 7.35 per cent increase from N177 billion recorded in 2021. With the current revelation of N180.92 billion unclaimed dividend by the Director-General, of the SEC, Emomotimi Agama, it means a lot investors enlightenment, among others innovations are needed on the backdrop of banks raising fresh capital as required by the Central Bank of Nigeria (CBN).
Over the years, the capital market regulating body has endeavored to curb the escalating issue of unclaimed dividends in the capital market, albeit with success stories as more shareholders are claiming their hard earned money.
Need to tackle Identity management
Identity management in the Nigerian capital market is crucial for ensuring transparency, security, and efficiency in transactions. It involves the verification and authentication of participants to prevent fraud, comply with regulatory requirements, and enhance trust among investors and stakeholders.
"In view of the promise to stem this undesirable trend going forward, the Commission is very passionate about this initiative because its success would portend great potentials for our market," Agama said.
In a move to tackle identity management challenges, the Capital Market Committee in 2018 discussed ways to address legacy identity management issues in the market.
The apex market regulating body in 2019, set up an in-house committee on the subject. The Committee was tasked with identifying issues surrounding identity management in the market, engaging with relevant stakeholders to document and proffer solutions, and make recommendations to Management.
Mr. Aigboje Aig-Imoukhuede chairs the committee, and its membership was drawn from leading market players and institutions across the Nigerian capital market ecosystem.
In the course of its work, the Committee engaged the services of Ernst and Young (EY) as consultants to assess the current state of the capital market identity management system, undertake a cross-jurisdictional peer review and develop a future-state identity management framework for the Nigerian Capital Market
The Committee came up with terms of reference that include, resolving lingering issues around obtaining probate to enable wealth transfer, minors' accounts, legacy accounts and unclaimed dividend; to agree on the unique identifier to be adopted by the capital market with a view to building on existing regulation without reinventing existing local and international best practice and to research best practice identity management systems in other capital market jurisdictions and adapt same to the Nigerian Capital Market context.
Others are: establishing the appropriate capital market structure to support 21st century customer experience for local investors and those in the diaspora; to enable partnerships between non-traditional capital market institutions such as Commercial/ Retail Banks, Telecoms Operators and Market Operators and to stimulate the introduction of products to democratize access to markets.
Speaking at a workshop in July 2024, the SEC boss stated that the commission is very passionate about this initiative because its success would portend great potentials for Nigerian capital market.
Agama noted that the report submitted by the in-house Committee to Management, stressed on the need to consolidate investors' data and seek ways and means to finding a lasting solution to this monster plaguing the market.
"Following the recommendations of the Committee, the Commission, in 2021, dissolved the in-house Committee and set up a market-wide and bigger Committee, to undertake a more intensive study of the depth of the Nigerian identity crisis , and more specifically, in the capital market and articulate actionable and measurable solutions to the lingering issues: harmonise the various databases of investors in the capital market with a view to engendering data accuracy, and addressing the absence of a central repository of investors' data for the entire spectrum of the Nigerian capital market.
"I believe that the identity management issues when solved will provide lasting solution to the issue of unclaimed dividends, reduce the barriers of entry to our market and make our market more attractive to the youth segment whose participation is currently very low," he said.
Aig-Imoukhuede stated that in the course of their work, EY conducted two workshops during which it had extensive engagements with key Capital Market Operators and participants in the market including the deployment of two surveys: one targeted at the wider capital market ecosystem and the other targeted the youth investor demography.
He stressed at the Exploratory Workshop, "EY was able to deep-dive into the current state challenges and pain points in the Nigerian capital market identity management system (IDMS)."
"At the Design Thinking workshop, EY conducted further engagements with relevant stakeholders to validate the investor personas and user journeys in the Nigerian capital market. Since both workshops held virtually with smaller groups, the Committee in its wisdom has put together this Industry Workshop to encourage wider participation and discussions on the subject matter from key players across the full spectrum of the capital market," he said.
According to the committee chairman, at the workshop delved into the current state of the Nigerian Capital Market IDMS, discussed the studies carried out on the Nigerian Capital Market IDMS, vis-à-vis five (5) benchmark jurisdictions namely: India, South Africa, UAE, Singapore and Malaysia.
"They also presented the proposed future state where we hope to secure your buy-in on the implementation roadmap. There were breakout sessions of three (3) groups to discuss issues on Regulation, Market Structure and Minimum Operating Standards and Technology as it affects the proposed future state IDMS architecture.
"I would like to use this opportunity to thank the SEC for the support rendered to the Committee and the various engagements held to better align with the work of the Committee. I commend all members of the Committee who have dedicated their time and resources to ensure the success of this phase.
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"The Committee has been saddled with this huge responsibility and will surely rise to the occasion to contribute our quota to building Nigeria's capital market to compete favourably and contribute to the nation's economic development. We expect you, our dear stakeholders to hold us accountable with the timelines we have established today for the implementation of the future state of the Nigerian capital market IDMS" he added.
Solidifying identity management
Part of the key solutions to solidified identity management in Nigeria involved adopting international best practices, continuous monitoring and updating of security protocols, and ensuring compliance with local and global regulations.
Market participants, including brokers, dealers, and other financial institutions, are required to implement Know Your Customer (KYC) procedures to verify the identities of their clients.
KYC processes involve collecting and verifying personal information, such as names, addresses, identification numbers, and other relevant details.
Also, National Identity Management Commission (NIMC), responsible for creating and managing a national identity database. It issues the National Identification Number (NIN), which is used to uniquely identify individuals. The integration of NIN with capital market operations helps in verifying investor identities and reducing fraud.
In addition, biometric data, such as fingerprints and facial recognition, are increasingly being used to enhance identity verification processes. This technology ensures higher accuracy and security compared to traditional methods.
