Pension industry regulator, the National Pension Commission (PenCom) has lifted the restriction on Licensed Pension Fund Administrators (LPFAs) investing in commercial papers where capital market operators act as Issuing and Paying Agents (IPAs).
This, according to the commission, was to facilitate capital raising and ensure continued market stability.
Recall that PenCom, through its circular of 23 October 2024, had directed all LPFAs to immediately suspend further investment in commercial papers where capital market operators (non-banks) are engaged in IPAs due to the absence of rules governing the issuance.
The restriction was to address concerns about the lack of clear guidelines governing such transactions.
Commercial papers, which are short-term debt instruments issued by corporations to fund operations such as payroll, inventory, and accounts payable, are a critical component of corporate financing.
However, PenCom had raised issues about regulatory oversight in cases involving non-bank IPAs.
In a circular signed by head of the Investment Supervision Department, PenCom, Abdulqadir Dahiru, PenCom had noted that, Securities and Exchange Commission(SEC) has developed draft rules and an amendment to rule 8 (Exemptions) to regulate the issuance of Commercial Papers by its regulated entities. To this end, SEC is addressing PenCom's concern about the role of non- bank IPAs in Commercial Paper transactions by bringing them within regulatory boundaries.
Nonetheless, the commission said, LPFAs must ensure that appropriate legal and financial due diligence are undertaken on all Prospectus/Offer Documents of all commercial papers prior to investment as stipulated in Section 2.9 of the Regulation on Investment of Pension Fund Assets.
"Consequently, to facilitate capital raising and ensure continued market stability, PenCom has lifted the restriction on LPFAs investing in commercial papers where capital market operators act as IPAs," the commission stated.
The move is expected to provide a boost to the capital market, enabling corporations to access necessary funds while ensuring the security of pension fund investments under a more robust regulatory framework.
Commenting on the unbanning of CPs, the president and chairman of Council of Chartered Institute of Stockbrokers (CIS), Oluropo Dada, lauded PenCom and SEC over the move.
PenCom had last month directed all LPFAs to desist from such investment due to what it attributed to regulatory concerns on the roles of non-bank operators in Commercial Paper transaction.
The restriction had drawn flak from capital market operators who regarded it capable of undermining their activities and dampening investor confidence in the market.
Speaking on the development, Dada advocated more collaboration among the stakeholders in the financial market, saying that "we at the CIS are very excited that the sanction was lifted through the timely intervention of our sector regulator, the Securities and Exchange Commission.
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"This is a sign of what to expect from the leadership of the Securities and Exchange Commission. The leadership of the CIS will continue to advocate for greater collaboration among the regulators with mutual respect for each other."
He pointed out that "We will also continue to monitor the event as it unfolded and we re-emphasise the need to have Securities professionals on the Board and Management of all financial regulatory agencies in Nigeria, reminiscent of what we have in CBN, Ministry of Finance and Securities and Exchange Commission."
