I. Summary

1. 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.

2. There are comprehensive legal provisions to ensure a robust governance structure for the SEC. 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, provide for a more robust governance structure. However, the SEC has been without a Board since June 2012. In addition, it does not currently have sufficient internal policies, procedures and practices relating to its core functions. These deficiencies jeopardize the proper governance and functioning of the SEC.

3. The SEC’s independence has improved with the adoption of the ISA, even though certain remaining provisions and practices affect its full independence. The SEC is self-funded through fees collected from market participants and has the authority to hire its staff and to establish their remuneration. In practice, its dependence on market-based funding creates a need to obtain the resources needed to operate adequately without adding excessive cost to the investors and market participants. The minister of finance has the power to give directives to the SEC, modify or rescind the rules proposed by the SEC and exempt certain persons from the application of the ISA after consultation with the SEC. The last power has been used once. During any period where the SEC is without a Board, the minister of finance must confirm the sanctions imposed by the SEC. Even though the Senate does not have any formal role vis-à-vis the day-to-day operations of the SEC, in practice its views seem to have an impact on the SEC’s decisions. The mere existence of these types of legal or practical powers, in particular if they are not transparently exercised, has the potential to undermine the SEC’s independence.

4. The SEC cooperates both at the domestic and international level with its counterparts and other authorities. The 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 and FRC need to cooperate on financial reporting, corporate governance and auditor independence. The SEC is a signatory to the IOSCO Multilateral 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.

5. The overall level of technical expertise in the key functions of the SEC is less than optimal. 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 organization 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.

6. The SEC focuses on regulating the products offered to investors through extensive scrutiny of prospectuses for all securities, including collective investment schemes. This approach derives from the regulatory framework that emphasizes initial disclosures to investors. Conduct of business requirements for market intermediaries are largely in place, but the regulatory framework is weak in prudential and organizational requirements, including internal control and risk management. Fund managers and issuing houses are covered by the product-related inspections, whereas broker-dealers have been rarely inspected by the SEC. The few inspections made have been primarily triggered by major deficiencies in the broker-dealers’ capital levels. The SEC has indicated that the regular inspections have been recommenced after the mission, but the scope and nature of these inspections has not been assessed.

7. The inadequate regulatory requirements and limited on-site supervision of broker-dealers has 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 ongoing 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 ongoing basis. A new, more robust regime would need to include ongoing monitoring and reporting requirements, accompanied by robust enforcement. Early intervention powers of the SEC should be strengthened and effectively applied.

8. The Nigerian Stock Exchange (NSE) has self-regulatory powers over broker-dealers. It is required to create and enforce its own rules and report on the results of its self-regulatory activities to the SEC. There is room for improvement in the cooperation and coordination between the SEC and the NSE in broker-dealer supervision. The SEC should also ensure that the NSE, as an operator of key market infrastructure, is subject to robust ongoing supervision to ensure that the planned changes are introduced in a manner that best contributes to the efficiency, integrity and transparency of the Nigerian securities markets. The respective roles of the SEC and NSE will likely need to be reassessed in the context of the NSE’s planned demutualization.

9. The SEC has comprehensive enforcement powers as provided by the ISA. It has used them for administrative, civil and criminal actions, but work remains to be done to ensure their effective and consistent use. The departments involved in inspections, investigations and enforcement are not communicating and coordinating adequately. The decisions to take enforcement action are not always adopted in a timely manner. The need to take effective enforcement action is essential for building public confidence in the Nigerian securities markets and its regulator.

II. Introduction

10. An assessment of the level of implementation of the IOSCO Principles in Nigeria was conducted from September 4 to 19, 2012 as part of the IMF-World Bank Financial Sector Assessment Program (FSAP). The assessment was made by Eija Holttinen, Monetary and Capital Markets Department, IMF, and Carlos Barsallo, MCM expert. The last IOSCO assessment in Nigeria was conducted in 2002.

III. Information and Methodology Used for Assessment

11. The assessment was made based on the IOSCO Objectives and Principles of Securities Regulation approved in 2010 and the Methodology updated in 2011. As has been the standard practice, Principle 38 was not assessed due to the existence of separate standards for securities settlement systems and central counterparties.

12. The IOSCO Methodology requires that assessors not only look at the legal and regulatory framework in place, but also at how it has been implemented in practice. The ongoing global financial crisis has reinforced the need for assessors to make a judgment about supervisory practices and to determine whether they are sufficiently effective. Among others, such a judgment involves a review of the inspection programs for different types of supervised entities, the cycle, scope, basis for and quality of inspections as well as how the agency follows up on findings, including by using enforcement actions.

13. The assessment benefited from a document prepared by the SEC prior to the mission. It included references to most of the relevant provisions of the ISA and the SEC Rules and Regulations for the majority of the Principles, inserted into the IOSCO self-assessment template. The document did not include information on the supervisory and enforcement policies and practices of the SEC. The staff of the SEC used their best efforts to collect this and other missing information during the mission, and most of the information required for a robust assessment was provided by the end of the mission. The depth of the assessment of some Principles was impaired by the fact that the primary expertise for those matters lies outside the SEC.

14. In addition to the SEC, meetings or conference calls took place with staff from the relevant public sector authorities and some market participants. These included the Economic and Financial Crimes Commission (EFCC) and Financial Reporting Council (FRC), as well as banks, issuing houses, a fund manager, an audit firm, the Nigerian Stock Exchange (NSE), the Central Securities Clearing System Ltd (CSCS), and industry associations (Chartered Institute of Stockbrokers and Association of Stockbroking Houses of Nigeria).

IV. Institutional and Market Structure—Overview

15. The only securities exchange currently operating in Nigeria is the Nigerian Stock Exchange (NSE). Its market capitalization dropped from the end–2008 value of US$80.6 billion to a low point of US$27.7 billion, before recovering to US$52.0 billion at end–September 2012. At end–September 2012, there were 202 listed companies and 311 dealing members at the NSE; however according to the information provided by the NSE only 254 of those dealing members are currently active. Since the beginning of 2010, only six new companies have listed on the NSE. Despite the large number of dealing members, the largest members are responsible for a significant proportion of trading at the NSE. During the first half of 2012, the market share of the 10 largest dealing members was over 75 percent.

Dealing Member	Value of Trading (US$)	Market Share (%)
Stanbic IBTC Stockbrokers Limited	223,451,325.88	20.44
Rencap Securities (Nig) Limited	197,661,692.14	18.08
Chapel Hill Denham Mgt Limited	142,633,635.80	13.05
CSL Stockbrokers Limited	65,837,264.75	6.02
A.R.M Securities Limited	51,985,160.78	4.76
FBN Securities Limited	40,206,422.68	3.68
Cordros Capital Limited	35,787,223.41	3.27
Vetiva Capital Management Limited	34,876,701.85	3.19
BGL Securities Limited	22,256,980.55	2.04
Meristem Securities Limited	20,463,608.54	1.87
		76.40

View Table

Dealing Member	Value of Trading (US$)	Market Share (%)
Stanbic IBTC Stockbrokers Limited	223,451,325.88	20.44
Rencap Securities (Nig) Limited	197,661,692.14	18.08
Chapel Hill Denham Mgt Limited	142,633,635.80	13.05
CSL Stockbrokers Limited	65,837,264.75	6.02
A.R.M Securities Limited	51,985,160.78	4.76
FBN Securities Limited	40,206,422.68	3.68
Cordros Capital Limited	35,787,223.41	3.27
Vetiva Capital Management Limited	34,876,701.85	3.19
BGL Securities Limited	22,256,980.55	2.04
Meristem Securities Limited	20,463,608.54	1.87
		76.40

16. In addition to broker-dealers, the market intermediaries operating in the Nigerian securities markets include issuing houses, underwriters, portfolio managers, and investment advisers. No up-to-date information on the number of active firms and the extent of their business is currently available, since there is no requirement for the firms to inform the SEC on when they cease to provide the registered functions. In this regard therefore, the information on the SEC website is not reliable.

17. The collective investment scheme sector remains small. As at September 7, 2012, the Net Asset Value of the funds under management remained at approximately US$600 million, managed in only 43 collective investment schemes that were primarily open-ended unit trusts.

Fund Type	Number of Funds	Net Asset Value (US$)
Equity funds	20	279,741,387.62
Money market funds	2	62,777,006.50
Bond funds	4	31,192,910.64
Real estate funds	2	104,741,806.95
Balanced funds	11	65,502,462.24
Ethical funds	4	37,996,165.68
Total	43	581,951,739.63

View Table

Fund Type	Number of Funds	Net Asset Value (US$)
Equity funds	20	279,741,387.62
Money market funds	2	62,777,006.50
Bond funds	4	31,192,910.64
Real estate funds	2	104,741,806.95
Balanced funds	11	65,502,462.24
Ethical funds	4	37,996,165.68
Total	43	581,951,739.63

V. Preconditions for Effective Securities Regulation

18. The preconditions for effective regulation and supervision of Nigerian securities markets have improved in the last years, but further changes are needed. Nigeria operates a federal political structure under the Constitution of the Federal Republic of Nigeria, 1999. The development of the Nigerian legal system has been greatly influenced by its colonial past as a part of the British Commonwealth. Other sources of Nigerian law include local legislation (state and federal), Nigerian case law as well as customary law. The principles of judicial precedent and hierarchy of courts is also a fundamental part of the legal system with the Supreme Court of Nigeria at the apex of the court system.

19. The Companies and Allied Matters Act (CAMA) provides the main framework for the corporate sector. The CAMA deals with the incorporation and winding-up of companies as well as provisions concerning shares, debentures, meetings and proceedings, directors, financial statements and audit, and dealings in companies’ securities. The CAMA also establishes the Corporate Affairs Commission (CAC), with responsibility for administering the Act and establishing and maintaining a companies’ registry. The CAMA works reasonably satisfactorily for the present. The CAMA also covers insolvency proceedings of companies and provides for receivers and managers to be appointed, companies to be wound up and arrangements and compromises to be made with creditors. The Bankruptcy Act is based on the comparable U.K. legislation for personal insolvency. The Banking and Other Financial Institutions Act regulates general banking matters, including licensing and supervision.

20. The FRC Act 2011 replaced the NASB with the FRC as the body with oversight responsibilities in the area of the regulation of financial reporting. The FRC is responsible for issuing accounting standards as well as monitoring and ensuring the accuracy, veracity and fairness of accounting and financial reports of public interest companies in line with applicable standards. The FRC has developed a roadmap for the adoption of IFRS in Nigeria in 2012.

21. The Investments and Securities Tribunal (IST) provides a process for the resolution of securities markets related cases that do not have to be resolved in the regular court system. The IST was established in 2002. Decisions by the IST can be appealed to the Court of Appeal and from it to the Supreme Court. Members of the country’s financial sector have criticized the judicial system in relation to delays involved in the determination of cases and the level of corruption in the system. Cases taking 10 to 20 years to resolve are not uncommon. Perception of corruption amongst members of the judiciary, particularly in the lower courts is widespread. The federal government’s fight against corruption has resulted in an improvement in the perception of the extent of corruption as indicated by Transparency International in 2011, but corruption continues to be a significant problem. In the case of the SEC, its management has expressed zero tolerance on corruption. However, according to information received from both SEC internal and external sources during the mission, challenges remain in ensuring that the SEC staff meets the high integrity requirements expected from public sector officials. Continuing to expeditiously and effectively address the integrity of the court system and of the related investigatory and enforcement authorities is a necessary precondition for the implementation of any credible improvements in the regulation and supervision of Nigerian securities markets.

22. Nigeria has made a high-level political commitment to address its strategic AML/CFT deficiencies. However, according to the FATF, Nigeria has not made sufficient progress in implementing its action plan and certain deficiencies remain, including addressing issues regarding criminalization of money laundering and terrorist financing.

VI. Main Findings

23. Principles relating to the regulator. The SEC has a clear mandate imbedded in the ISA. The ISA does not guarantee full independence of the SEC. The SEC is a member of the FSRCC. Its powers and authorities are sufficient. Certain core regulatory competencies do not appear to be well represented among the current SEC staff, despite the fact that its manpower overall seems ample vis-à-vis the current size and level of development of the Nigerian securities market. Even though increased over the past few years, the proportion of staff engaged in the core regulatory and supervisory functions is still only 30 percent. The SEC is authorized to issue rules and regulations subject to public consultation. The public consultation process is not well defined and allows for a significant amount of SEC discretion.

24. Principle relating to self-regulation. The Nigerian regulatory system makes use of self-regulatory organizations (SRO), but currently only the NSE acts as such. The process for assigning a body as an SRO and the regulatory requirements on other types of SROs than securities exchanges and capital trade points¹ are unclear.

25. Principles relating to enforcement. The SEC’s discharge of its functions falls short of expectations, mainly in the areas of inspections, investigations and enforcement. The departments responsible for these functions are not communicating and coordinating adequately. The SEC has comprehensive enforcement powers. It has used them for administrative, civil and criminal actions, but work remains to be done to ensure their effective and consistent use. The decisions to take enforcement action are not always made in a timely manner. The SEC has now outsourced some of its enforcement cases to expedite the processes. However backlogs exist also at the level of the police and the EFCC.

26. Principles relating to cooperation. The SEC cooperates both at the domestic and international level with its counterparts and other authorities. It is a member of the FSRCC. The FSRCC members have signed an MoU. It is also member of the FRC established by the FRC Act 2011. The SEC is a signatory to the IOSCO MMoU, and as such it is in a position to fully assist foreign securities regulators and share information with them, even though the MMoU has so far been used only in a limited number of investigations.

27. Principles relating to issuers. The disclosure standards for the Nigerian securities markets are generally sound. The requirements for issuers were recently amended to include new disclosure obligations and to take into consideration the need for internal controls and risk management. The concrete value of the new disclosure requirements will be entirely predicated upon the quality of implementation of the accounting and auditing standards in Nigeria, which is still work in progress.

28. Principles for auditors, credit rating agencies (CRAs) and other information service providers. The approval of the FRC Act and the creation of the FRC as the sole regulator responsible for the issuance of accounting standards as well as monitoring and ensuring the accuracy, veracity and fairness of accounting and financial reports of public interest companies is an important improvement. The FRC has developed a roadmap for the adoption of IFRS in Nigeria in 2012. It has yet to start its oversight of companies, accountants and auditors’ compliance with the accounting and auditing standards. Capital market consultants that provide analytical and evaluative services are subject to registration. There is no specific regulatory framework for sell-side analysts. CRAs that provide credit ratings for securities registered in Nigeria have to be either registered or exempted from registration by the SEC.

29. Principles relating to collective investment schemes and hedge funds. All fund managers and collective investment schemes are required to be registered. Most schemes are unit trusts, and they are required to have a fund manager, trustee and custodian. The fund manager cannot be a related party of the trustee or custodian. The SEC conducts yearly on-site inspections on the schemes, where the focus is on compliance with the legal requirements. Initial disclosure requirements in a partially standardized format apply, but there are no requirements for ongoing and periodic disclosures. Requirements on valuation of CIS assets are in place, while there are no rules on disclosure of prices of fund units. The establishment of hedge funds or marketing of foreign hedge funds to Nigerian investors would require registration by the SEC; currently there are no hedge funds offered to Nigerian investors.

30. Principles relating to market intermediaries. Market intermediaries need to be registered as Capital Market Operators for the specific functions they provide. The licensing process currently focuses on assessing the fitness and propriety of a limited number of sponsored individuals. Controllers are not assessed by the SEC, and the pre-registration inspection and registration committee meeting do not include a comprehensive assessment of the company applying for registration. Initial capital requirements are very low, and they are not adjusted for risk on an ongoing basis. Monitoring of compliance with the capital requirements and early intervention powers of the SEC are not adequate. Most conduct of business requirements are in place, but there are limited organizational requirements. The SEC inspects market intermediaries only for cause, and the amount of inspections has been very low at least during the past three years. The SEC has extensive powers to deal with an intermediary failure, but there is no plan on their use.

31. Principles relating to secondary markets. Securities exchanges and capital trade points are subject to registration. There are very limited requirements on technology, order execution procedures and equitable access to the trading systems. The enforcement action taken by the SEC in 2010 against the previous management of the NSE relating to its persistent governance problems brought the exchange under the SEC’s close monitoring; the situation is normalizing after the appointment of the new CEO. Both the SEC and the NSE conduct market surveillance, but have not been effective in detecting, investigating and prosecuting market abuse, even though certain improvements have recently been achieved. There are no regulatory requirements for pre- and post-trade transparency. While the securities settlement system effectively addresses the risk of non-delivery of shares, there are no limits for the value of the cash settlement obligations of broker-dealers.

Table 1.

Nigeria: Summary Implementation of the IOSCO Principles—Detailed Assessments

Table 1.

Nigeria: Summary Implementation of the IOSCO Principles—Detailed Assessments

Principle	Grade	Findings
Principle 1. The responsibilities of the Regulator should be clear and objectively stated.	FI	The SEC has a clear mandate derived from the ISA. It is a member of the FSRCC and has signed a multilateral MoU which includes other relevant domestic financial regulators.
Principle 2. The Regulator should be operationally independent and accountable in the exercise of its functions and powers.	PI	The ISA does not provide the SEC with full independence. The minister of finance has the power to give directives to the SEC, modify or rescind the rules proposed by the SEC, and exempt certain persons from the application of the ISA after consultation with the SEC. The last power has been used once. The possible need for the SEC to repatriate funds to the Federal Ministry of Finance (FMF) has the potential of undermining the SEC’s independence in case of continued operating deficits. Currently, eight of the nine positions of the SEC Board are vacant, with the Director-General as the only Board member. Internally the SEC is functioning with Acting Commissioners. The SEC Board members and staff have legal protection for acts done in good faith. Certain accountability mechanisms are in place, including the requirement to publish an annual report, however overall such mechanisms are not robust. The consultation process is mandated by the ISA, but there is no formal procedure on how to conduct it.
Principle 3. The Regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.	BI	The SEC has adequate powers; however they do not appear to be used effectively. It does not have sufficient policies and governance practices to perform its functions efficiently and effectively. The SEC is self-funded through fees and penalties levied from regulated entities. Market participants do not perceive the SEC as an attractive place to work for the most talented. The overall level of technical expertise in the key functions of the SEC is less than optimal. Its technology infrastructure appears to be insufficient to maintain efficient processes and support its statutory functions.
Principle 4. The Regulator should adopt clear and consistent regulatory processes.	PI	The ISA contains consultation requirements and the SEC consults regularly with market participants; however the consultation process is not well established. Information about certain processes can be accessed via the SEC’s web page. Some enforcement sanctions are disclosed. The IST is in charge of providing redress to individuals affected by the SEC’s decisions. The SEC is generally required to provide reasons in writing for its decisions. Judicial redress is available.
Principle 5. The staff of the Regulator should observe the highest professional standards, including appropriate standards of confidentiality.	PI	There is a Code of Ethics for SEC employees. The Code includes provisions for disclosure of personal securities transactions to the SEC, confidentiality obligations and sanctions for non-compliance. There are certain cooling-off period provisions in place. However, the Code does not appear to be implemented and enforced in practice. In 2009 the FSRCC initiated discussions on a comprehensive Code of Conduct for financial regulators. The draft Code includes more comprehensive conflict of interest provisions, and prohibitions on ownership and dealing with securities of regulated entities. There is no clear indication when or if the Code will be approved.
Principle 6. The Regulator should have or contribute to a process to monitor, mitigate and manage systemic risk, appropriate to its mandate.	PI	The SEC has not established any specific processes for the identification of systemic risk. The FSRCC has set up a sub-committee on financial sector soundness, which has the objective of providing surveillance over potential risks emanating from various sub-sectors of the financial sector. The work is not yet very advanced. The SEC is planning to introduce a risk-based supervisory model, with systemic risk as one element to consider.
Principle 7. The Regulator should have or contribute to a process to review the perimeter of regulation regularly.	BI	Even though the SEC does not have a distinct process to address the perimeter of regulation, it has sought to respond to the emerging regulatory needs. It has referred providers of illegal services possibly falling outside the regulatory perimeter to the criminal authorities. However the internal processes are not optimally set up. Since its mandate includes supervisory coordination, the FSRCC and its subcommittees discuss issues related to the perimeter of regulation. Recently these discussions have focused on consolidated supervision.
Principle 8. The Regulator should seek to ensure that conflicts of interest and misalignment of incentives are avoided, eliminated, disclosed or otherwise managed.	BI	The ISA and the SEC Rules and Regulations impose requirements for the management of conflicts of interest in various manners. For some regulated entities, this is addressed only through specific trading rules applicable to employees. Prohibitions and disclosure obligations address misalignment of incentives of issuers. The monitoring of such obligations by the SEC is not robust.
Principle 9. Where the regulatory system makes use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, such SROs should be subject to the oversight of the Regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.	PI	Even though the Nigerian regulatory system makes use of self-regulatory organizations, the process for assigning a body as an SRO and the regulatory requirements on other types of SROs than securities exchanges and capital trade points are unclear. The SROs are required to inform the SEC of the disciplinary measures they have taken, and the SEC is not precluded from carrying out inspections of dealing members. In practice the SEC and NSE appear to coordinate and cooperate in their supervisory activities only to a limited extent.
Principle 10. The Regulator should have comprehensive inspection, investigation and surveillance powers.	FI	The SEC has comprehensive powers to request information from and conduct inspections in regulated entities. It has been assigned the power to conduct market surveillance.
Principle 11. The Regulator should have comprehensive enforcement powers.	FI	The SEC has ample powers to request information from regulated entities and third parties. In the case of bank records the SEC relies in practice on the assistance of the CBN. The SEC enforcement tools include fines, bans, and suspension and revocation of registration.
Principle 12. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.	PI	The regulatory system contains tools for inspection, investigation, surveillance and enforcement. On-site inspections are used mainly in relation to the issuance of new securities, and to verify compliance with the requirements relating to CIS. The SEC has comprehensive enforcement powers, but work remains to be done to ensure their effective and consistent use. In practice enforcement tools are primarily used to tackle minor issues, mostly delays in filing mandatory reports, rather than major violations of securities law and rules. However, the SEC has worked to improve its enforcement capabilities, including by obtaining assistance from a foreign regulator. It has also tried to address its own capacity problems by outsourcing several enforcement cases to law and audit firms.
Principle 13. The Regulator should have authority to share both public and non-public information with domestic and foreign counterparts.	FI	The SEC has the power conferred by the ISA to enter into cooperative agreements with domestic and foreign regulators. This broad power includes the power to share information.
Principle 14. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.	BI	The SEC has signed an MoU at the FSRCC level for domestic information sharing among the relevant financial regulators. Cooperation among financial regulators through the FSRCC was reactivated after the crisis. The SEC is a signatory to the IOSCO MMoU. The SEC informed that it has received requests for specific investigatory assistance via the IOSCO MMoU, but information on the total number of requests was not readily available during the mission.
Principle 15. The regulatory system should allow for assistance to be provided to foreign Regulators who need to make inquiries in the discharge of their functions and exercise of their powers.	FI	The regulatory system allows the SEC to provide assistance to foreign regulators. The SEC collects information on behalf of foreign regulators.
Principle 16. There should be full, accurate and timely disclosure of financial results, risk and other information that is material to investors’ decisions.	FI	Issuers of public offers are required to submit a prospectus for approval by the SEC. There are periodic and ongoing disclosure requirements applicable to issuers, with the latter arising from the NSE rules. Monitoring of issuers’ compliance with their reporting obligations tends to concentrate on administrative aspects rather than fundamental issues, such as monitoring trading disclosures by company insiders. Cross-border offerings are contemplated in the ISA; however they are almost non-existent in practice.
Principle 17. Holders of securities in a company should be treated in a fair and equitable manner.	PI	The CAMA contains the shareholders’ fundamental rights, and the ISA includes additional protections through more stringent disclosure requirements. Tender offers are regulated, but rare with only one in the last five years. The legal requirements for the disclosure of major shareholdings are fairly appropriate, but in practice the investors do not have sufficient access to the disclosures since they are not electronically available. The new SEC Corporate Governance Code, while of a voluntary nature, introduces new provisions aligned with best practices and international standards.
Principle 18. Accounting standards used by issuers to prepare financial statements should be of a high and internationally acceptable quality.	BI	For the financial year starting in January 2012 issuers must submit, simultaneously to the SEC and the NSE, their financial statements according to the International Financial Reporting Standards (IFRS). The FRC is responsible for enforcing compliance with the IFRS. However, it has not yet fully established itself as the enforcer of accounting standards due to its recent establishment.
Principle 19. Auditors should be subject to adequate levels of oversight.	PI	With the enactment of the FRC Act in 2011 and the commencing of the FRC’s operations as the new auditor regulator, a significant change is expected in the auditor oversight. However due to its recent establishment, its oversight functions are not yet fully operational.
Principle 20. Auditors should be independent of the issuing entity that they audit.	PI	Auditor independence is required in legislation; however the monitoring has in the past fallen short of international standards. The FRC is currently establishing its processes to monitor auditor independence.
Principle 21. Audit standards should be of a high and internationally acceptable quality.	BI	Audits of the financial statements presented to the SEC must be conducted using International Standards on Auditing. The FRC is now responsible for promoting the highest standards among auditors and improving the quality of audit services.
Principle 22. Credit rating agencies should be subject to adequate levels of oversight. The regulatory system should ensure that credit rating agencies whose ratings are used for regulatory purposes are subject to registration and ongoing supervision.	PI	Credit ratings are used for various regulatory purposes in Nigeria, and credit rating agencies are subject to a requirement to register with the SEC or, in the case of foreign CRAs, be exempted from registration. They are required to submit periodic reports to the SEC. The SEC has not yet conducted any on-site inspections of CRAs. The IOSCO Code of Conduct Fundamentals for CRAs has not yet been implemented, and only some of its elements are in place through other regulatory means.
Principle 23. Other entities that offer investors analytical or evaluative services should be subject to oversight and regulation appropriate to the impact their activities have on the market or the degree to which the regulatory system relies on them.	PI	Independent sell-side analysts would be regulated as investment advisors, but no such firms currently exist. Those that provide analytical services ancillary to their other activities are subject to the requirements applicable to market intermediaries. Deficiencies exist in the requirements for the management and disclosure of conflicts of interest and related requirements for firms’ internal procedures and controls.
Principle 24. The regulatory system should set standards for the eligibility, governance, organization and operational conduct of those who wish to market or operate a collective investment scheme.	BI	All CIS and their fund managers, trustees and custodians are required to be registered. The registration requirement also applies to those that market a CIS. The most important organizational requirements are in place, whereas there are gaps in conduct of business rules. Fund managers and their trustees and custodians are subject to an extensive on-site inspection program, but the recent inspections have not covered the financial capacity of the fund manager and other prudential requirements. Fund managers are required to file comprehensive periodic reports with the SEC.
Principle 25. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.	FI	Most CIS in Nigeria have adopted the legal form of investment trust, even though other forms are also possible. The current requirements for the segregation and protection of client assets are comprehensive. The SEC has extensive powers to take various enforcement measures, including winding up of a CIS or a fund manager.
Principle 26. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.	BI	A potential investor in a CIS needs to be provided with a prospectus registered with the SEC, whose content is subject to minimum requirements. Together with the trust deed, it provides fairly comprehensive information on the CIS, its manager, trustee and custodian. There are no explicit requirements on periodic reporting to investors. The advertisements are subject to the approval of the SEC.
Principle 27. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.	BI	The regulatory framework requires CIS assets to be valued at fair market price, and the SEC has specified additional requirements for unlisted securities. The auditor of a CIS is required to certify that the scheme has been operated according to the regulatory requirements. The trust deed needs to address the subscription and redemption rights of unit holders, and the manner of calculating the subscription and redemption prices is regulated by the SEC. The industry has developed recommendations on the disclosure of unit prices and the provision of periodic information to investors. The treatment of pricing errors is not addressed in the regulatory framework.
Principle 28. Regulation should ensure that hedge funds and/or hedge funds managers/advisers are subject to appropriate oversight.	NA	There are currently no hedge funds in Nigeria and the SEC Rules and Regulations would need to be amended to allow the establishment of hedge funds. Marketing of a foreign hedge fund to Nigerian investors would also require amendments to the Nigerian regulatory framework.
Principle 29. Regulation should provide for minimum entry standards for market intermediaries.	PI	The regulatory framework requires market intermediaries to be registered by the SEC, and the minimum requirements for registration are clearly defined. The registration process focuses on the 3–4 sponsored individuals (as selected by the applicant) for each company applying for registration, instead of subjecting all directors to a full fitness and propriety assessment. Shareholders and other parties in a position to exercise control over the applicant are not evaluated by the SEC. The pre-registration inspection focuses on assessing the facilities of the applicant, and the Registration Committee meeting does not appear to sufficiently scrutinize the applicants. The SEC can cancel registration only as an enforcement measure, which seems to have contributed to the continued existence of many inactive companies.
Principle 30. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.	NI	The initial capital requirements of market intermediaries are very low, and ongoing capital requirements are not risk-based. The record-keeping and reporting requirements are not sufficient to determine and monitor the development of the capital level of market intermediaries on an ongoing basis. The SEC’s possibility to intervene in case of deteriorating capital is limited to failures, insolvency and other “grave” situations, and it is not clear whether it has exercised its powers effectively in such situations. The Nigerian prudential framework for market intermediaries does not currently address risks from outside the intermediary.
Principle 31. Market intermediaries should be required to establish an internal function that delivers compliance with standards for internal organization and operational conduct, with the aim of protecting the interests of clients and their assets and ensuring proper management of risk, through which management of the intermediary accepts primary responsibility for these matters.	PI	The most important conduct of business rules are in place in Nigeria, but the legislative and regulatory framework covers organizational requirements, including responsibility of the management, internal controls, risk management and management of conflicts of interest only in a limited manner. At least during the past three years, the SEC has conducted only for cause inspections of market intermediaries. Its inspection program is complemented by inspections conducted by the NSE (see Principles 9 and 34).
Principle 32. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.	PI	The SEC has extensive powers to act in the case of a failure of an intermediary, but no examples were available on the use of those powers. Its early warning system is based on quarterly returns, and it does not have a plan for dealing with an intermediary failure. The investor protection fund of the NSE required by law is not yet operational, and the SEC is in the process of establishing the nationwide trust scheme that it is required to maintain under the ISA.
Principle 33. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.	PI	The requirements for registration as a securities exchange or capital trade point are set out in the ISA. The SEC lacks supervisory expertise in the area of exchange supervision. This combined with the lack of legal clarity on the distinction between various types of trading systems is a source of concern, given the exchanges’ role as a key market infrastructure. The regulatory requirements on trading rules and order execution procedures are very limited.
Principle 34. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.	BI	Since 2009, the supervision of the NSE has been subject to extraordinary circumstances that culminated to the enforcement measures undertaken by the SEC in August 2010. This has lead to a situation where an on-site inspection has not been considered necessary. The quarterly reporting from the exchange has continued in the normal manner. Both the SEC and NSE conduct market surveillance and supervise broker-dealers. The NSE has suspended a significant number of dealing members in 2011 and 2012, but mostly for reporting delays.
Principle 35. Regulation should promote transparency of trading.	NI	The regulatory framework or the NSE rules do not specify any pre- and post-trade transparency requirements or objectives. The conditions for derogations from pre-trade transparency and waivers from post-trade transparency are not defined in the regulatory framework or NSE rules.
Principle 36. Regulation should be designed to detect and deter manipulation and other unfair trading practices.	PI	The regulatory framework prohibiting market abuse is in place in Nigeria. However, the surveillance and enforcement activities conducted by the SEC and NSE do not appear to be effective in tackling market abuse, even though certain improvements have recently been achieved (see also Principle 12).
Principle 37. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.	PI	The settlement system operated by the CSCS does not have any particular mechanisms in place to manage the risks arising from the payment obligations relating to the transactions made, beyond relying on the ability of dealing members and ultimately settlement banks to settle the cash leg, where necessary, or resorting to the trade guarantee fund in case of default. The NSE introduced short selling in September 2012 and the arrangements adopted currently appear to address the risks arising from short selling. However, there are no reporting requirements to the market or to the regulator.
Principle 38. Securities settlement systems and central counterparties should be subject to regulatory and supervisory requirements that are designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.	NA	Not assessed.
Fully Implemented (FI), Broadly Implemented (BI), Partly Implemented (PI), Not Implemented (NI), Not Applicable (NA)

View Table

Table 1.

Nigeria: Summary Implementation of the IOSCO Principles—Detailed Assessments

Principle	Grade	Findings
Principle 1. The responsibilities of the Regulator should be clear and objectively stated.	FI	The SEC has a clear mandate derived from the ISA. It is a member of the FSRCC and has signed a multilateral MoU which includes other relevant domestic financial regulators.
Principle 2. The Regulator should be operationally independent and accountable in the exercise of its functions and powers.	PI	The ISA does not provide the SEC with full independence. The minister of finance has the power to give directives to the SEC, modify or rescind the rules proposed by the SEC, and exempt certain persons from the application of the ISA after consultation with the SEC. The last power has been used once. The possible need for the SEC to repatriate funds to the Federal Ministry of Finance (FMF) has the potential of undermining the SEC’s independence in case of continued operating deficits. Currently, eight of the nine positions of the SEC Board are vacant, with the Director-General as the only Board member. Internally the SEC is functioning with Acting Commissioners. The SEC Board members and staff have legal protection for acts done in good faith. Certain accountability mechanisms are in place, including the requirement to publish an annual report, however overall such mechanisms are not robust. The consultation process is mandated by the ISA, but there is no formal procedure on how to conduct it.
Principle 3. The Regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.	BI	The SEC has adequate powers; however they do not appear to be used effectively. It does not have sufficient policies and governance practices to perform its functions efficiently and effectively. The SEC is self-funded through fees and penalties levied from regulated entities. Market participants do not perceive the SEC as an attractive place to work for the most talented. The overall level of technical expertise in the key functions of the SEC is less than optimal. Its technology infrastructure appears to be insufficient to maintain efficient processes and support its statutory functions.
Principle 4. The Regulator should adopt clear and consistent regulatory processes.	PI	The ISA contains consultation requirements and the SEC consults regularly with market participants; however the consultation process is not well established. Information about certain processes can be accessed via the SEC’s web page. Some enforcement sanctions are disclosed. The IST is in charge of providing redress to individuals affected by the SEC’s decisions. The SEC is generally required to provide reasons in writing for its decisions. Judicial redress is available.
Principle 5. The staff of the Regulator should observe the highest professional standards, including appropriate standards of confidentiality.	PI	There is a Code of Ethics for SEC employees. The Code includes provisions for disclosure of personal securities transactions to the SEC, confidentiality obligations and sanctions for non-compliance. There are certain cooling-off period provisions in place. However, the Code does not appear to be implemented and enforced in practice. In 2009 the FSRCC initiated discussions on a comprehensive Code of Conduct for financial regulators. The draft Code includes more comprehensive conflict of interest provisions, and prohibitions on ownership and dealing with securities of regulated entities. There is no clear indication when or if the Code will be approved.
Principle 6. The Regulator should have or contribute to a process to monitor, mitigate and manage systemic risk, appropriate to its mandate.	PI	The SEC has not established any specific processes for the identification of systemic risk. The FSRCC has set up a sub-committee on financial sector soundness, which has the objective of providing surveillance over potential risks emanating from various sub-sectors of the financial sector. The work is not yet very advanced. The SEC is planning to introduce a risk-based supervisory model, with systemic risk as one element to consider.
Principle 7. The Regulator should have or contribute to a process to review the perimeter of regulation regularly.	BI	Even though the SEC does not have a distinct process to address the perimeter of regulation, it has sought to respond to the emerging regulatory needs. It has referred providers of illegal services possibly falling outside the regulatory perimeter to the criminal authorities. However the internal processes are not optimally set up. Since its mandate includes supervisory coordination, the FSRCC and its subcommittees discuss issues related to the perimeter of regulation. Recently these discussions have focused on consolidated supervision.
Principle 8. The Regulator should seek to ensure that conflicts of interest and misalignment of incentives are avoided, eliminated, disclosed or otherwise managed.	BI	The ISA and the SEC Rules and Regulations impose requirements for the management of conflicts of interest in various manners. For some regulated entities, this is addressed only through specific trading rules applicable to employees. Prohibitions and disclosure obligations address misalignment of incentives of issuers. The monitoring of such obligations by the SEC is not robust.
Principle 9. Where the regulatory system makes use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, such SROs should be subject to the oversight of the Regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.	PI	Even though the Nigerian regulatory system makes use of self-regulatory organizations, the process for assigning a body as an SRO and the regulatory requirements on other types of SROs than securities exchanges and capital trade points are unclear. The SROs are required to inform the SEC of the disciplinary measures they have taken, and the SEC is not precluded from carrying out inspections of dealing members. In practice the SEC and NSE appear to coordinate and cooperate in their supervisory activities only to a limited extent.
Principle 10. The Regulator should have comprehensive inspection, investigation and surveillance powers.	FI	The SEC has comprehensive powers to request information from and conduct inspections in regulated entities. It has been assigned the power to conduct market surveillance.
Principle 11. The Regulator should have comprehensive enforcement powers.	FI	The SEC has ample powers to request information from regulated entities and third parties. In the case of bank records the SEC relies in practice on the assistance of the CBN. The SEC enforcement tools include fines, bans, and suspension and revocation of registration.
Principle 12. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.	PI	The regulatory system contains tools for inspection, investigation, surveillance and enforcement. On-site inspections are used mainly in relation to the issuance of new securities, and to verify compliance with the requirements relating to CIS. The SEC has comprehensive enforcement powers, but work remains to be done to ensure their effective and consistent use. In practice enforcement tools are primarily used to tackle minor issues, mostly delays in filing mandatory reports, rather than major violations of securities law and rules. However, the SEC has worked to improve its enforcement capabilities, including by obtaining assistance from a foreign regulator. It has also tried to address its own capacity problems by outsourcing several enforcement cases to law and audit firms.
Principle 13. The Regulator should have authority to share both public and non-public information with domestic and foreign counterparts.	FI	The SEC has the power conferred by the ISA to enter into cooperative agreements with domestic and foreign regulators. This broad power includes the power to share information.
Principle 14. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.	BI	The SEC has signed an MoU at the FSRCC level for domestic information sharing among the relevant financial regulators. Cooperation among financial regulators through the FSRCC was reactivated after the crisis. The SEC is a signatory to the IOSCO MMoU. The SEC informed that it has received requests for specific investigatory assistance via the IOSCO MMoU, but information on the total number of requests was not readily available during the mission.
Principle 15. The regulatory system should allow for assistance to be provided to foreign Regulators who need to make inquiries in the discharge of their functions and exercise of their powers.	FI	The regulatory system allows the SEC to provide assistance to foreign regulators. The SEC collects information on behalf of foreign regulators.
Principle 16. There should be full, accurate and timely disclosure of financial results, risk and other information that is material to investors’ decisions.	FI	Issuers of public offers are required to submit a prospectus for approval by the SEC. There are periodic and ongoing disclosure requirements applicable to issuers, with the latter arising from the NSE rules. Monitoring of issuers’ compliance with their reporting obligations tends to concentrate on administrative aspects rather than fundamental issues, such as monitoring trading disclosures by company insiders. Cross-border offerings are contemplated in the ISA; however they are almost non-existent in practice.
Principle 17. Holders of securities in a company should be treated in a fair and equitable manner.	PI	The CAMA contains the shareholders’ fundamental rights, and the ISA includes additional protections through more stringent disclosure requirements. Tender offers are regulated, but rare with only one in the last five years. The legal requirements for the disclosure of major shareholdings are fairly appropriate, but in practice the investors do not have sufficient access to the disclosures since they are not electronically available. The new SEC Corporate Governance Code, while of a voluntary nature, introduces new provisions aligned with best practices and international standards.
Principle 18. Accounting standards used by issuers to prepare financial statements should be of a high and internationally acceptable quality.	BI	For the financial year starting in January 2012 issuers must submit, simultaneously to the SEC and the NSE, their financial statements according to the International Financial Reporting Standards (IFRS). The FRC is responsible for enforcing compliance with the IFRS. However, it has not yet fully established itself as the enforcer of accounting standards due to its recent establishment.
Principle 19. Auditors should be subject to adequate levels of oversight.	PI	With the enactment of the FRC Act in 2011 and the commencing of the FRC’s operations as the new auditor regulator, a significant change is expected in the auditor oversight. However due to its recent establishment, its oversight functions are not yet fully operational.
Principle 20. Auditors should be independent of the issuing entity that they audit.	PI	Auditor independence is required in legislation; however the monitoring has in the past fallen short of international standards. The FRC is currently establishing its processes to monitor auditor independence.
Principle 21. Audit standards should be of a high and internationally acceptable quality.	BI	Audits of the financial statements presented to the SEC must be conducted using International Standards on Auditing. The FRC is now responsible for promoting the highest standards among auditors and improving the quality of audit services.
Principle 22. Credit rating agencies should be subject to adequate levels of oversight. The regulatory system should ensure that credit rating agencies whose ratings are used for regulatory purposes are subject to registration and ongoing supervision.	PI	Credit ratings are used for various regulatory purposes in Nigeria, and credit rating agencies are subject to a requirement to register with the SEC or, in the case of foreign CRAs, be exempted from registration. They are required to submit periodic reports to the SEC. The SEC has not yet conducted any on-site inspections of CRAs. The IOSCO Code of Conduct Fundamentals for CRAs has not yet been implemented, and only some of its elements are in place through other regulatory means.
Principle 23. Other entities that offer investors analytical or evaluative services should be subject to oversight and regulation appropriate to the impact their activities have on the market or the degree to which the regulatory system relies on them.	PI	Independent sell-side analysts would be regulated as investment advisors, but no such firms currently exist. Those that provide analytical services ancillary to their other activities are subject to the requirements applicable to market intermediaries. Deficiencies exist in the requirements for the management and disclosure of conflicts of interest and related requirements for firms’ internal procedures and controls.
Principle 24. The regulatory system should set standards for the eligibility, governance, organization and operational conduct of those who wish to market or operate a collective investment scheme.	BI	All CIS and their fund managers, trustees and custodians are required to be registered. The registration requirement also applies to those that market a CIS. The most important organizational requirements are in place, whereas there are gaps in conduct of business rules. Fund managers and their trustees and custodians are subject to an extensive on-site inspection program, but the recent inspections have not covered the financial capacity of the fund manager and other prudential requirements. Fund managers are required to file comprehensive periodic reports with the SEC.
Principle 25. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.	FI	Most CIS in Nigeria have adopted the legal form of investment trust, even though other forms are also possible. The current requirements for the segregation and protection of client assets are comprehensive. The SEC has extensive powers to take various enforcement measures, including winding up of a CIS or a fund manager.
Principle 26. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.	BI	A potential investor in a CIS needs to be provided with a prospectus registered with the SEC, whose content is subject to minimum requirements. Together with the trust deed, it provides fairly comprehensive information on the CIS, its manager, trustee and custodian. There are no explicit requirements on periodic reporting to investors. The advertisements are subject to the approval of the SEC.
Principle 27. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.	BI	The regulatory framework requires CIS assets to be valued at fair market price, and the SEC has specified additional requirements for unlisted securities. The auditor of a CIS is required to certify that the scheme has been operated according to the regulatory requirements. The trust deed needs to address the subscription and redemption rights of unit holders, and the manner of calculating the subscription and redemption prices is regulated by the SEC. The industry has developed recommendations on the disclosure of unit prices and the provision of periodic information to investors. The treatment of pricing errors is not addressed in the regulatory framework.
Principle 28. Regulation should ensure that hedge funds and/or hedge funds managers/advisers are subject to appropriate oversight.	NA	There are currently no hedge funds in Nigeria and the SEC Rules and Regulations would need to be amended to allow the establishment of hedge funds. Marketing of a foreign hedge fund to Nigerian investors would also require amendments to the Nigerian regulatory framework.
Principle 29. Regulation should provide for minimum entry standards for market intermediaries.	PI	The regulatory framework requires market intermediaries to be registered by the SEC, and the minimum requirements for registration are clearly defined. The registration process focuses on the 3–4 sponsored individuals (as selected by the applicant) for each company applying for registration, instead of subjecting all directors to a full fitness and propriety assessment. Shareholders and other parties in a position to exercise control over the applicant are not evaluated by the SEC. The pre-registration inspection focuses on assessing the facilities of the applicant, and the Registration Committee meeting does not appear to sufficiently scrutinize the applicants. The SEC can cancel registration only as an enforcement measure, which seems to have contributed to the continued existence of many inactive companies.
Principle 30. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.	NI	The initial capital requirements of market intermediaries are very low, and ongoing capital requirements are not risk-based. The record-keeping and reporting requirements are not sufficient to determine and monitor the development of the capital level of market intermediaries on an ongoing basis. The SEC’s possibility to intervene in case of deteriorating capital is limited to failures, insolvency and other “grave” situations, and it is not clear whether it has exercised its powers effectively in such situations. The Nigerian prudential framework for market intermediaries does not currently address risks from outside the intermediary.
Principle 31. Market intermediaries should be required to establish an internal function that delivers compliance with standards for internal organization and operational conduct, with the aim of protecting the interests of clients and their assets and ensuring proper management of risk, through which management of the intermediary accepts primary responsibility for these matters.	PI	The most important conduct of business rules are in place in Nigeria, but the legislative and regulatory framework covers organizational requirements, including responsibility of the management, internal controls, risk management and management of conflicts of interest only in a limited manner. At least during the past three years, the SEC has conducted only for cause inspections of market intermediaries. Its inspection program is complemented by inspections conducted by the NSE (see Principles 9 and 34).
Principle 32. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.	PI	The SEC has extensive powers to act in the case of a failure of an intermediary, but no examples were available on the use of those powers. Its early warning system is based on quarterly returns, and it does not have a plan for dealing with an intermediary failure. The investor protection fund of the NSE required by law is not yet operational, and the SEC is in the process of establishing the nationwide trust scheme that it is required to maintain under the ISA.
Principle 33. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.	PI	The requirements for registration as a securities exchange or capital trade point are set out in the ISA. The SEC lacks supervisory expertise in the area of exchange supervision. This combined with the lack of legal clarity on the distinction between various types of trading systems is a source of concern, given the exchanges’ role as a key market infrastructure. The regulatory requirements on trading rules and order execution procedures are very limited.
Principle 34. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.	BI	Since 2009, the supervision of the NSE has been subject to extraordinary circumstances that culminated to the enforcement measures undertaken by the SEC in August 2010. This has lead to a situation where an on-site inspection has not been considered necessary. The quarterly reporting from the exchange has continued in the normal manner. Both the SEC and NSE conduct market surveillance and supervise broker-dealers. The NSE has suspended a significant number of dealing members in 2011 and 2012, but mostly for reporting delays.
Principle 35. Regulation should promote transparency of trading.	NI	The regulatory framework or the NSE rules do not specify any pre- and post-trade transparency requirements or objectives. The conditions for derogations from pre-trade transparency and waivers from post-trade transparency are not defined in the regulatory framework or NSE rules.
Principle 36. Regulation should be designed to detect and deter manipulation and other unfair trading practices.	PI	The regulatory framework prohibiting market abuse is in place in Nigeria. However, the surveillance and enforcement activities conducted by the SEC and NSE do not appear to be effective in tackling market abuse, even though certain improvements have recently been achieved (see also Principle 12).
Principle 37. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.	PI	The settlement system operated by the CSCS does not have any particular mechanisms in place to manage the risks arising from the payment obligations relating to the transactions made, beyond relying on the ability of dealing members and ultimately settlement banks to settle the cash leg, where necessary, or resorting to the trade guarantee fund in case of default. The NSE introduced short selling in September 2012 and the arrangements adopted currently appear to address the risks arising from short selling. However, there are no reporting requirements to the market or to the regulator.
Principle 38. Securities settlement systems and central counterparties should be subject to regulatory and supervisory requirements that are designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.	NA	Not assessed.
Fully Implemented (FI), Broadly Implemented (BI), Partly Implemented (PI), Not Implemented (NI), Not Applicable (NA)

VII. Recommended Action Plan and Authorities’ Response

A. Recommended Action Plan

Table 2.

Nigeria: Recommended Action Plan to Improve Implementation of the IOSCO Principles

Table 2.

Nigeria: Recommended Action Plan to Improve Implementation of the IOSCO Principles

Principle	Recommended Action
Principle 2
	1)	The government should expeditiously appoint the SEC Board members.
	2)	Going forward, the government should consider staggered terms for the members of the SEC Board.
	3)	The government should strengthen the independence of the SEC by eliminating (a) the need for the ministerial approval for the SEC Rules and Regulations; (b) the power of the minister of finance to issue directives to the SEC; and (c) the power of the minister of finance to exempt individuals from the application of the ISA.
Principle 3
	1)	The SEC should establish policies and governance practices to perform its functions efficiently and effectively.
	2)	The SEC should continue to increase the proportion of staff engaged in the core regulatory and supervisory functions.
	3)	The SEC should adopt adequate mechanisms to attract talented and skilled staff.
Principle 4
	1)	The SEC should ensure that its powers and discharge of its functions are consistently applied.
	2)	The SEC should establish written procedures for its key functions, including rule-making and consultation to ensure due and efficient process.
	3)	The SEC should consider publishing the comments received to rule consultations.
Principle 5
	1)	The SEC should strengthen transparency of and compliance with its Code of Ethics and Code of Conduct.
	2)	The FSRCC should approve the Code of Conduct for Financial Regulators.
Principle 6	The SEC should strengthen its expertise in analyzing the potential systemic risks arising from securities markets.
Principle 7	The SEC should consider adopting a systematic process for the review of the perimeter of regulation.
Principle 8	The SEC should introduce an overarching requirement for the avoidance, management and disclosure of conflicts of interest applicable to regulated entities.
Principle 9
	1)	The SEC should make a strategic decision on the role of various types of SROs in the regulation and supervision of Nigerian securities markets, and based on that, clearly define the SROs’ responsibilities in the regulatory framework.
	2)	The SEC and NSE should intensify their cooperation and coordination in market surveillance, member supervision and supervision of listed companies.
Principle 12
	1)	The SEC should review and expand the coverage of its on-site inspection program.
	2)	The SEC should improve coordination between the departments in charge of registration, monitoring, inspections, investigations and enforcement.
	3)	The SEC should re-deploy resources to address the more serious securities violations, such as market manipulation and insider trading.
Principle 14	The SEC should ensure that its procedures for providing assistance to foreign regulators are well coordinated and documented.
Principle 17
	1)	The SEC should, in cooperation with the NSE, improve investors’ access to the information on changes in major shareholdings.
	2)	The SEC should establish effective mechanisms to conduct on-going monitoring of trading by company insiders.
Principles 18-21
	1)	The government should appoint the FRC Board.
	2)	The SEC and FRC should collaborate in monitoring issuers’ IFRS compliance.
	3)	The SEC should develop its technical expertise in IFRS.
	4)	The FRC should conduct inspections to monitor auditor independence.
Principle 22
	1)	The SEC should introduce an on-site inspection program for CRAs.
	2)	The SEC should implement the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies.
Principle 23	The SEC should ensure that the conflict of interest rules that need to be implemented for all Capital Market Operators sufficiently address the conflicts of interest inherent in the work of sell-side analysts.
Principle 24	The SEC should introduce additional conduct of business requirements for fund managers to ensure fair treatment of clients.
Principle 26	The SEC should develop ongoing and periodic disclosure requirements for fund managers, in coordination with the industry initiatives.
Principle 27	The SEC should ensure that the regulatory framework includes sufficient requirements to ensure availability of up-to-date price information to investors and to deal with any pricing errors in a fair and equal manner.
Principle 29	1)	The SEC should amend the regulatory framework to ensure that all directors, significant shareholders and all those in a position to exercise control over a market intermediary are subject to a sufficient fitness and propriety assessment.
	2)	The SEC should pay more attention in its pre-registration inspection to internal organization, risk management and supervisory systems.
	3)	The SEC should address the high number of inactive Capital Market Operators by facilitating the easier cancellation of registrations.
Principle 30	The SEC should expeditiously revise the capital requirements of market intermediaries by:
	1)	introducing higher initial capital requirements and ongoing risk-based capital requirements;
	2)	strengthening the ongoing monitoring of capital levels;
	3)	facilitating prompt corrective action in case of deteriorating capital levels; and
	4)	using its existing enforcement tools more effectively to require recapitalization of undercapitalized market intermediaries.
Principle 31	1)	The SEC should introduce requirements addressing the responsibility of the management and various organizational requirements for market intermediaries.
	2)	The SEC should complement, or where appropriate replace, the current product-related on-site inspections with entity-based inspections.
Principle 32	1)	The SEC, preferably in cooperation with the other members of the FSRCC, should formalize a written plan for dealing with an intermediary failure.
	2)	The SEC should try to expeditiously address the current lack of an investor compensation regime in Nigeria.
Principle 33	1)	The SEC should increase its expertise in the supervision of exchanges and other trading platforms.
	2)	The SEC should enhance the operational requirements applicable to trading platforms.
	3)	The SEC should ensure that the regulatory requirements for various types of trading platforms are clearly and transparently set out in the regulatory framework.
Principle 34	1)	The SEC should establish an ongoing supervisory program for the NSE, addressing various aspects of its role as an operator of a key market infrastructure and as an SRO.
	2)	The SEC should ensure that the NSE widens the use of the disciplinary measures available to it beyond suspensions in more serious cases.
Principle 35	The SEC should introduce minimum regulatory requirements on pre- and post-trade transparency, with clear conditions on exemptions and delays.
Principle 36	The SEC should continue to address its current lack of effectiveness in fighting market abuse, and ensure that the NSE also complies with its obligation to refer cases to the SEC.
Principle 37	The SEC should ensure that the CSCS settlement system sufficiently deals with the risk that failed settlement of large transactions can cause to the financial system.

View Table

Table 2.

Nigeria: Recommended Action Plan to Improve Implementation of the IOSCO Principles

Principle	Recommended Action
Principle 2
	1)	The government should expeditiously appoint the SEC Board members.
	2)	Going forward, the government should consider staggered terms for the members of the SEC Board.
	3)	The government should strengthen the independence of the SEC by eliminating (a) the need for the ministerial approval for the SEC Rules and Regulations; (b) the power of the minister of finance to issue directives to the SEC; and (c) the power of the minister of finance to exempt individuals from the application of the ISA.
Principle 3
	1)	The SEC should establish policies and governance practices to perform its functions efficiently and effectively.
	2)	The SEC should continue to increase the proportion of staff engaged in the core regulatory and supervisory functions.
	3)	The SEC should adopt adequate mechanisms to attract talented and skilled staff.
Principle 4
	1)	The SEC should ensure that its powers and discharge of its functions are consistently applied.
	2)	The SEC should establish written procedures for its key functions, including rule-making and consultation to ensure due and efficient process.
	3)	The SEC should consider publishing the comments received to rule consultations.
Principle 5
	1)	The SEC should strengthen transparency of and compliance with its Code of Ethics and Code of Conduct.
	2)	The FSRCC should approve the Code of Conduct for Financial Regulators.
Principle 6	The SEC should strengthen its expertise in analyzing the potential systemic risks arising from securities markets.
Principle 7	The SEC should consider adopting a systematic process for the review of the perimeter of regulation.
Principle 8	The SEC should introduce an overarching requirement for the avoidance, management and disclosure of conflicts of interest applicable to regulated entities.
Principle 9
	1)	The SEC should make a strategic decision on the role of various types of SROs in the regulation and supervision of Nigerian securities markets, and based on that, clearly define the SROs’ responsibilities in the regulatory framework.
	2)	The SEC and NSE should intensify their cooperation and coordination in market surveillance, member supervision and supervision of listed companies.
Principle 12
	1)	The SEC should review and expand the coverage of its on-site inspection program.
	2)	The SEC should improve coordination between the departments in charge of registration, monitoring, inspections, investigations and enforcement.
	3)	The SEC should re-deploy resources to address the more serious securities violations, such as market manipulation and insider trading.
Principle 14	The SEC should ensure that its procedures for providing assistance to foreign regulators are well coordinated and documented.
Principle 17
	1)	The SEC should, in cooperation with the NSE, improve investors’ access to the information on changes in major shareholdings.
	2)	The SEC should establish effective mechanisms to conduct on-going monitoring of trading by company insiders.
Principles 18-21
	1)	The government should appoint the FRC Board.
	2)	The SEC and FRC should collaborate in monitoring issuers’ IFRS compliance.
	3)	The SEC should develop its technical expertise in IFRS.
	4)	The FRC should conduct inspections to monitor auditor independence.
Principle 22
	1)	The SEC should introduce an on-site inspection program for CRAs.
	2)	The SEC should implement the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies.
Principle 23	The SEC should ensure that the conflict of interest rules that need to be implemented for all Capital Market Operators sufficiently address the conflicts of interest inherent in the work of sell-side analysts.
Principle 24	The SEC should introduce additional conduct of business requirements for fund managers to ensure fair treatment of clients.
Principle 26	The SEC should develop ongoing and periodic disclosure requirements for fund managers, in coordination with the industry initiatives.
Principle 27	The SEC should ensure that the regulatory framework includes sufficient requirements to ensure availability of up-to-date price information to investors and to deal with any pricing errors in a fair and equal manner.
Principle 29	1)	The SEC should amend the regulatory framework to ensure that all directors, significant shareholders and all those in a position to exercise control over a market intermediary are subject to a sufficient fitness and propriety assessment.
	2)	The SEC should pay more attention in its pre-registration inspection to internal organization, risk management and supervisory systems.
	3)	The SEC should address the high number of inactive Capital Market Operators by facilitating the easier cancellation of registrations.
Principle 30	The SEC should expeditiously revise the capital requirements of market intermediaries by:
	1)	introducing higher initial capital requirements and ongoing risk-based capital requirements;
	2)	strengthening the ongoing monitoring of capital levels;
	3)	facilitating prompt corrective action in case of deteriorating capital levels; and
	4)	using its existing enforcement tools more effectively to require recapitalization of undercapitalized market intermediaries.
Principle 31	1)	The SEC should introduce requirements addressing the responsibility of the management and various organizational requirements for market intermediaries.
	2)	The SEC should complement, or where appropriate replace, the current product-related on-site inspections with entity-based inspections.
Principle 32	1)	The SEC, preferably in cooperation with the other members of the FSRCC, should formalize a written plan for dealing with an intermediary failure.
	2)	The SEC should try to expeditiously address the current lack of an investor compensation regime in Nigeria.
Principle 33	1)	The SEC should increase its expertise in the supervision of exchanges and other trading platforms.
	2)	The SEC should enhance the operational requirements applicable to trading platforms.
	3)	The SEC should ensure that the regulatory requirements for various types of trading platforms are clearly and transparently set out in the regulatory framework.
Principle 34	1)	The SEC should establish an ongoing supervisory program for the NSE, addressing various aspects of its role as an operator of a key market infrastructure and as an SRO.
	2)	The SEC should ensure that the NSE widens the use of the disciplinary measures available to it beyond suspensions in more serious cases.
Principle 35	The SEC should introduce minimum regulatory requirements on pre- and post-trade transparency, with clear conditions on exemptions and delays.
Principle 36	The SEC should continue to address its current lack of effectiveness in fighting market abuse, and ensure that the NSE also complies with its obligation to refer cases to the SEC.
Principle 37	The SEC should ensure that the CSCS settlement system sufficiently deals with the risk that failed settlement of large transactions can cause to the financial system.

VIII. Detailed Assessment

48. The purpose of the assessment is primarily to ascertain whether the legal and regulatory securities markets requirements of the country and the operations of the securities regulatory authorities in implementing and enforcing these requirements in practice meet the standards set out in the IOSCO Principles. The assessment is to be a means of identifying potential gaps, inconsistencies, weaknesses and areas where further powers and/or better implementation of the existing framework may be necessary and used as a basis for establishing priorities for improvements to the current regulatory scheme.

49. The assessment of the country’s observance of each individual Principle is made by assigning to it one of the following assessment categories: fully implemented, broadly implemented, partly implemented, not implemented and not applicable. The IOSCO assessment methodology provides a set of assessment criteria to be met in respect of each Principle to achieve the designated benchmarks. The methodology recognizes that the means of implementation may vary depending on the domestic context, structure, and stage of development of the country’s capital market and acknowledges that regulatory authorities may implement the Principles in many different ways.

• A Principle is considered fully implemented when all assessment criteria specified for that Principle are generally met without any significant deficiencies.

• A Principle is considered broadly implemented when the exceptions to meeting the assessment criteria specified for that Principle are limited to those specified under the broadly implemented benchmark for that Principle and do not substantially affect the overall adequacy of the regulation that the Principle is intended to address.

• A Principle is considered partly implemented when the assessment criteria specified under the partly implemented benchmark for that Principle are generally met without any significant deficiencies.

• A Principle is considered not implemented when major shortcomings (as specified in the not implemented benchmark for that Principle) are found in adhering to the assessment criteria specified for that Principle.

• A Principle is considered not applicable when it does not apply because of the nature of the country’s securities market and relevant structural, legal and institutional considerations.

Table 3.

Nigeria: Detailed Assessment of Implementation of the IOSCO Principles

Table 3.

Nigeria: Detailed Assessment of Implementation of the IOSCO Principles

Principles Relating to the Regulator
Principle 1.	The responsibilities of the regulator should be clear and objectively stated.
Description	Regulation of the financial sector in Nigeria
	The financial sector in Nigeria is regulated and supervised by the following authorities:
	•	The CBN – Licenses, regulates and supervises all commercial banks, savings and loans associations, and some non-banking financial institutions (including finance leasing);
	•	The NAICOM – regulates and supervises insurance companies;
	•	The National Pension Commission (PENCOM) - regulates and supervises pension funds;
	•	Federal Ministry of Finance – sets overall financial and economic policies for Nigeria; and
	•	The SEC, whose mandate and responsibilities are described below.
	In 2010 the CBN took the decision to repeal the universal banking regime. Banks in Nigeria were required to divest from all non-banking business, including the securities market activities they or their subsidiaries conducted. Today banks are not allowed to undertake non-banking activities, such as securities market activities, with the exception of being able to act as primary dealers or market makers subject to a registration by the Debt Management Office. The primary dealers can trade in debt securities for their own account and for the account of their customers in the over-the-counter (OTC) market. In addition, it is possible that the same holding company owns a bank and a Capital Market Operator, and some banks dealt with the CBN requirement by setting up a holding company structure.
	Mandate and responsibilities of the SEC
	The SEC is mandated to regulate and develop the Nigerian capital market. The responsibilities, powers and authority of the SEC are clearly and transparently stated in Section 13 of the Investments and Securities Act of 2007 (ISA). The powers and authority are enforceable. The ISA 2007 repealed the Investments and Securities Act 1999 and established the SEC as the apex regulatory authority for the Nigerian capital market to ensure the protection of investors, the maintenance of fair, efficient and transparent markets, and the reduction of systemic risk.
	The SEC market regulation mandate includes:
	1)	Registration of securities and Capital Market Operators. Persons and instruments registered in the Nigerian market include:
		•	Securities and commodity exchanges and capital trade points
		•	Futures, options and derivatives exchanges
		•	Depository, clearing and settlement agencies
		•	Capital Market Operators, including:
			•	Issuing houses
			•	Securities dealers/stock brokers/sub-brokers
			•	Registrars/transfer agents
			•	Trustees
			•	Reporting accountants
			•	Solicitors
			•	Investment advisers
		•	Securities, including:
			•	Equities
			•	Debentures
			•	Debt instruments
			•	Collective investment schemes.
	2)	Inspections either done on-site or off-site.
	3)	Surveillance carried out over exchanges and trading.
	4)	Investigation of alleged breaches of the laws and regulations governing the Nigerian capital market.
	5)	Enforcement actions taken against Capital Market Operators where needed after an investigation has been carried out. In minor cases, an all parties meeting is convened by the SEC where it mediates between parties involved in a dispute. In more serious cases or where no resolution is reached or a party fails to comply with a directive given at the all parties meeting, the defaulting party is called before the Administrative Proceedings Committee (APC), which is a quasi-judicial court, with only civil jurisdiction. Appeals against decisions of the APC are made at the Investments and Securities Tribunal (IST). Enforcement actions may be in the form of payment of a fine, a ban, a suspension, and a cancellation or revocation of registration. Criminal cases are forwarded to the Nigeria Police Force (NPF), Economic and Financial Crimes Commission (EFCC) or the Attorney-General of the Federation (AGF) where allegations are found to be criminal in nature.
	6)	Rule-making by the SEC as stated in Section 312(1)(o)-(p) of the ISA. The SEC may make rules and regulations for the purpose of giving effect to the provisions of the ISA, providing for anything requiring to be prescribed under the ISA and generally for carrying out the principles and objectives of the ISA. The SEC in the exercise of its rule making power consults with stakeholders. There are limitations to the SEC’s rule making powers. The SEC Rules and Regulations to alter or modify the provisions of the Second Schedule of the ISA (Investment and Investment Business) require consultation with the minister of finance (Section 313(1)(a) ISA). Any SEC Rule or Regulation under the ISA will be deemed made fifteen days after receipt by the minister of finance, unless the minister of finance, before the expiration of the fifteen days, directs that it be modified, amended or rescinded (Section 313(4) ISA).
	Interpretation of authority
	There is no provision under the ISA that allows the SEC to interpret its authority.
	The SEC has the authority to make rules and regulations for the purpose of giving effect to the provisions of the ISA, including in order to alter of modify the provisions of the Second Schedule of the ISA after consultation with the minister. The SEC in the exercise of its power to make rules must consult with stakeholders. The IST exercises jurisdiction to hear and determine any question of law of dispute involving a decision or determination of the SEC in the application of the ISA.
	Gaps or overlaps
	The responsibilities of the financial sector regulators are defined in acts designed to minimize the possibility of gaps or overlaps.
	According to the ISA, in the Nigerian securities market there can be self-regulatory organizations (SROs) which include any registered securities exchange, capital trade point, association of securities dealers, clearing house, capital market trade association or any other self-regulatory body approved as such by the SEC. The SEC is required to promote and register SROs, to which it may delegate its powers.
	As explained in Principle 9 the only SRO in Nigeria is currently the NSE. If there were capital trade points, they would also be considered SROs. The NSE has rules of eligibility for its members; according to the regulatory framework it establishes and enforces binding rules of trading and business conduct as well as establishes disciplinary rules and conducts disciplinary proceedings (see Principle 9).
	Coordination and cooperation between regulatory authorities
	After the adoption of the universal banking model, the SEC is solely in charge of the supervision of all securities market activities, including the limited activities that banks are entitled to undertake. As explained in Principle 13, the SEC is a member of the Financial Services Regulation Coordinating Committee (FSRCC). The FSRCC is an inter-agency body set up to deal with matters of common interest and concern to the various regulatory and supervisory authorities in the financial services industry. The FSRCC was created in 1998, but it adopted a more active role after the financial crisis that hit the Nigerian market in 2008.
	In 2009 the FSRCC started to produce new regulatory proposals on areas such as consolidated supervision of financial institutions. This has a potential impact also on the SEC if the consolidated supervision will be extended to groups of holding companies that include Capital Market Operators as subsidiaries (see also Principle 30). The arrangements for cooperation and communication between the authorities of the financial sector in Nigeria are in place, including appropriate channels of communication and certain level of cooperation. These have been established in a multilateral MoU signed by all domestic authorities.
Assessment	Fully Implemented
Comments	The SEC’s powers and authority are clearly stated in the ISA and are enforceable (see Principle 12). There is no specific provision under the ISA that allows the SEC to interpret its authority. It is the IST that is authorized by law to interpret the ISA (Section 284(3) ISA).
	The communication and coordination between the SEC and the NSE is addressed in Principles 9 and 34, and that between the SEC and EFCC in Principle 12.
Principle 2.	The regulator should be operationally independent and accountable in the exercise of its functions and powers.
	Independence
	The SEC is a public law entity with its own legal personality and full public and private capacity.
	Governance
	The SEC’s governing body is its Board (Section 3 ISA). The Board of the SEC includes nine persons:
	•	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 CBN; and
	•	two part-time Commissioners one of whom is a legal practitioner qualified to practice in Nigeria with 10 years post call experience.
	The SEC has a four-member Executive Management Committee composed of:
	•	the director-general; and
	•	three executive commissioners in charge of Operations, Finance & Administration, and Legal & Enforcement.
	During the assessment mission, except for the Director-General, the rest of the Board positions were vacant. The three executive commissioner positions were filled by acting executive commissioners. That has been the situation since June 2012, when the term of the three full time SEC Commissioners, the chairman and the part-time commissioners appointed for a period of four years ended. The situation of ex-officio Commissioners is different due to the fact that according to the ISA they seem to have no established term (Section 5(2) ISA).
	The SEC workforce, as of the end of 2011, is composed of 630 members of staff spread across four directorates and seven zonal offices. The SEC has its headquarters at the Federal Capital Territory, Abuja, and operates through its seven zonal offices. The SEC is composed of seventeen departments. Seven of the seventeen departments are directly involved in regulation and supervision of markets.
	The Executive Commissioner, Operations, is responsible for the following departments:
	•	Securities and Investment Services (SIS): Registers and supervises the issuance of securities of public companies, as well as merger and acquisition activities. It is composed of 36 persons.
	•	Registration and Recognized Investment Exchanges (RRIE): Responsible for the registration of all Capital Market Operators and recognized securities exchanges. In addition, the department supervises the activities of securities exchanges and other trading platforms. It is composed of 32 persons.
	•	Collective Investment Schemes (CIS): Supervises unit trusts and venture capital activities. It is composed of 26 persons.
	•	Financial Standards and Corporate Governance (FS&CG): The department reviews the financial health of publicly quoted companies, and ensures compliance with the code of corporate governance and other relevant guidelines. It is composed of 21 persons.
	•	Research and Planning (R&P): Undertakes the market development functions of the SEC through research and other development activities. The department also serves as the Secretariat of both the monthly Executive Management Committee meeting and the Capital Market Committee (CMC), a quarterly interface with the market. It is composed of 52 persons.
	The Executive Commissioner, Legal & Enforcement, is responsible for the following departments:
	•	Monitoring and Investigations (M&I): Monitors the financial health of Capital Market Operators to ensure that only fit and proper participants are in the market. It also investigates and resolves disputes among market stakeholders. It is composed of 34 persons.
	•	Enforcement & Compliance (E&C): Undertakes the enforcement and compliance functions of the SEC and serves as the secretariat of the APC. It is composed of 27 persons.
	In addition, there is the Office of the Secretary to the Commission which serves as the Secretariat of the SEC’s Board, its Committees and the Executive Management Committee. It offers advisory services to the Board on issues of compliance with applicable laws and regulations. It reports to the Director-General. It is composed of six persons.
	The ISA contains mechanisms intended to protect the independence of the SEC which include procedures for appointment, terms of office and criteria for removal of the Board members. As a result, the Director-General and the three full time Commissioners are appointed by the President upon the recommendation of the minister of finance and confirmation by the Senate (Section 5(1) ISA).
	The Board members’ terms in office are established by the ISA. The Director-General holds office for a period of five years in the first instance and may be reappointed for a further period of five years and no more. The three full time Commissioners hold office in the first instance for a period of four years and may be re-appointed for a further term of four years and no more. The chairman and part-time commissioners (other than the ex-officio commissioners) each hold office for a term of four years and no more (Section 5(2) of the ISA).
	The removal of the Board members must be for cause. A member of the Board ceases to hold office if he/she (Section 8 ISA):
	a)	becomes of unsound mind;
	b)	becomes bankrupt or makes a compromise with creditors;
	c)	is convicted of a felony or any offence involving dishonesty;
	d)	is guilty of serious misconduct in relation to his duties; or
	e)	is a person who has a professional qualification, and is disqualified or suspended (other than at his/her own request) from practicing his/her profession in any part of Nigeria by the order of any competent authority.
	The President may at any time, for one of the reasons indicated above, and upon the recommendation of the minister of finance remove the members of the Board. However, the removal of the full-time members of the Board of the SEC requires Senate’s approval (Section 8 ISA).
	The SEC’s independence is impacted as the minister of finance, without prejudice to the provisions of the ISA, may give to the SEC directives as appear to him/her to be just and proper for the effective discharge of the SEC’s functions. The SEC has the duty to comply. The power of the minister of finance seems not to exclude decision making on day-to-day technical matters. The assessors were informed that the minister of finance has never made use of the provision authorizing him/her to give the SEC a directive that it must comply with.
	After consultation with the SEC, if the minister of finance is of the opinion that it is necessary or expedient to do so in the public interest, he/she may, by order published in the Gazette, exempt any person or class of persons buying or selling securities or otherwise dealing with the securities market from the operation of the provisions of the ISA (Sections 298, 309). The assessors were informed of a case where the minister of finance had used the ministerial prerogative under the ISA to exempt a person dealing with the securities market from the operation of some of the provisions of the ISA. The person was a public interest body. The exercise of this power to exempt by the minister of finance needs to be published in the Gazette (Section 309 ISA).
	Every decision of the APC needs to be confirmed by the SEC Board before it becomes effective. The confirmation is to made no later than thirty days after the decision was taken by the APC, provided that in the absence of the Board of the SEC, confirmation of the APC’s decision is made by the minister of finance or any person performing that function (Rule 17: Decisions of the Committee as amended March 2010).
	Mandatory consultation with the minister of finance by the SEC is required when the SEC intends to make rules and regulations to alter or modify the provisions of the Second Schedule of the ISA which deals with Investment and Investment Business (Section 313(1)(a) ISA). The consultation process is not established by law. Further, any SEC Rule or Regulation under the ISA will be deemed made fifteen days after receipt by the minister of finance, unless the minister of finance, before the expiration of the fifteen days, directs that it be modified, amended or rescinded (Section 313(4) ISA). Even though the Senate does not have any formal role in the operational decision making of the SEC, it appears that the SEC feels constrained in some of its decision making by the threat of an intervention on the part of the Senate. It was indicated that this perceived threat has also decreased the SEC’s willingness to make proposals for legislative changes.
	The APC is composed of non-executive SEC commissioners, directors of departments, and representatives from the ministry of finance and the CBN. Trade associations in the capital market participate in the APC but do not vote.
	The SEC funding
	The SEC establishes and maintains a fund into which the following is paid:
	(a) funds provided to the SEC by the federal government;
	(b) penalties, fees, charges and administrative costs of proceedings; and
	(c) monetary gifts, contributions and other funds that may be received by the SEC.
	In practice the SEC is self-financed by fees imposed on regulated entities. The fees chargeable by the SEC in respect of all transactions with it are those as the SEC from time to time prescribes by notice published in two national newspapers (Rule 151). The Board of the SEC approves the SEC budget (Section 4 ISA). The Board submits every year to the minister of finance and the National Assembly an estimate of its income and expenditure (Section 26 ISA).
	The SEC has a continuous source of funding sufficient to meet its regulatory and operational needs as long as the market is functioning well. If it is not the case, the SEC must use its accumulated fund. For example, in 2011 and 2010 the SEC had deficits. The deficits were covered by the SEC’s accumulated fund. According to the SEC’s audited financial statement, the accumulated fund had ₦23,471,808,000 (US$148 million) in 2011. In 2010 the accumulated fund had ₦35,668,891,000.
	As to the stability of the SEC’s source of funding The Report of the SEC Committee on the Nigerian Capital Market - Nigeria’s capital market: Making world-class potential a reality, February 2009, raised the issue of the requirement for the SEC to repatriate any excess funds to the Nigerian Treasury. The report considered necessary for the SEC to build reserves to fund the necessary expansion of its regulatory capacity. In August 2012 the Federal Ministry of Finance requested all the government agencies to remit their accumulated funds into the Consolidated Revenue Fund (CRF) Account. The SEC has been directed to remit the sum of ₦15 billion.
	The SEC’s operating expenses for 2011 were ₦9,092,486,000. Its income for 2011 was ₦6,895,403,000.
	Legal protection
	Officers, members and employees of the SEC are protected from suit, prosecution or other legal proceedings for anything which is done or intended to be done in good faith under the ISA or the SEC Rules and Regulations (Section 302 ISA). The assessors were informed that no suit, prosecution or legal proceeding has been initiated against SEC Board members or staff.
	There is no provision that guarantees free legal defense for the SEC Board members and staff in connection with such type of actions brought against them.
	Accountability
	The SEC’s Board prepares each year an estimate of the SEC’s income and expenditure during the next succeeding year and submits it to the minister of finance and the National Assembly. The SEC must keep proper books and records and accounts. Accounts are audited by private external independent auditors appointed by the Board (Section 26(1)-(2) ISA). The SEC’s current independent external auditor is one of the big four firms.
	The SEC, not later than three months after the end of each year, submits to the minister of finance and the National Assembly, a report on its activities and administration during the immediately preceding year and, including in such reports, its audited accounts and the report of the auditor on the accounts. The assessors were provided with the SEC’s 2011 audited accounts. Apart from the above mentioned provisions, as far as the assessors were able to find out or were informed, there are no specific provisions in the ISA and in the SEC Rules and Regulations requiring the SEC to be transparent in its way of operation and use of resources or to make public its actions that affect users of the market, excluding confidential or commercially sensitive information.
	Code of Ethics
	The SEC Board members are required to subscribe to a Code of Ethics approved by the minister of finance (Section 12 ISA). It indicates the securities transactions that a member can engage in, restrictions in the purchase of securities, minimum holding period, notification of securities transactions, restrictions on beneficial interest, disclosure of interest in a particular company, report on investment holdings, and sanctions for violation of the Code of Ethics. A copy was provided to the assessors. It is not clear to the SEC staff who monitors compliance with it.
	As explained in Principle 5, there is a Code of Conduct for Post-SEC Employment and a Code of Ethics for employees of the SEC. The Code of Conduct applies to all SEC employees, former employees, contract staff, IT staff and contractors engaged by the SEC. It contains sanctions. The Human Resources Department seems to be in charge of monitoring compliance with it. The Code of Ethics applies to all employees and contains disclosure requirements and trading prohibitions. The Commissioner of Finance and Administration receives the information and the Board of the SEC handles the sanctions for violation of the Code of Ethics.
	The SEC has a whistle blowing policy. According to its Human Resources Policies and Procedures Manual the SEC is committed to delivering high quality services to its customers and it expects high standards from its employees. The whistle blowing policy is designed to encourage employees and contractors to raise concerns about malpractice within the SEC without fear of reprisal and to provide information about how to raise it.
	Review of the SEC’s material actions
	There are various provisions in the ISA and the SEC Rules and Regulations that address procedural fairness, including in the Rules of Procedure of the APC. The requirement to provide reasons for the SEC’s decisions is addressed through individual provisions in the ISA (see e.g., Sections 48(2)(c) and 122(12)(b)).
	Material actions of the SEC in applying its rules are subject to review by the IST (Section 289 ISA). The IST is a body of ten persons appointed by the minister of finance for a term of five years for the chairman and four years for the other nine members. They can be removed only for due cause (Part XVI ISA). It is the exclusive court of law in Nigeria to exercise jurisdiction to hear and determine any question of law or dispute involving, among others, a decision or determination of the SEC in the operation and application of the ISA and, in particular, relating to any dispute, among others, between an issuer, a Capital Market Operator, an investor or an SRO and the SEC.
	The IST is active and operational.
	It is mandatory to include in the arbitration clause (if any) in any underwriting agreement that any party aggrieved by the decision of the SEC may refer the matter to the IST (Rule 256). Parties affected by the SEC’s decisions have remedies indicated in the ISA.
	Affected persons are permitted to make representations before a decision is taken by the SEC. The SEC provides the regulated entities with an opportunity to be heard. It has what is called an all parties meeting where the person allegedly not in compliance with the ISA is allowed to be heard.
	The accountability of the SEC is through the requirement to submit a report on its activities and administration during the immediately preceding year to the minister of finance and the National Assembly (including in such reports its audited accounts and the auditor’s report on the accounts). The information provided is not of a confidential nature nor is it commercially sensitive information. Appeals on the IST’s decisions can be made to the Court of Appeal and the Supreme Court. There is no issue of confidentiality with respect to information provided in a judicial process. The SEC’s financial statements are audited by private sector auditors bound by professional secrecy. The SEC’s Annual Reports are due to be available on its website; however the relevant section of the website was not accessible during the assessment mission due to maintenance. The Code of Ethics and the Code of Conduct were not available on the SEC’s website during the mission. After the mission, a short extract of the SEC staff manual, which makes reference to the Code of Ethics, has been published.
Assessment	Partly Implemented
Comments	The SEC is not fully independent of government. The minister of finance may issue directives to the SEC with which the SEC must comply. The minister of finance is empowered to authorize persons to be exempted from provisions of the ISA. The treatment of the SEC is different for example from the National Pension Commission. The Pension Reform Act, 2004 does not contain provisions similar to the ones in the ISA with respect to the regulator’s independence.
	In addition to the potential use of the legal powers provided to the minister of finance, any politically motivated involvement of the Senate in the operations of the SEC could also undermine its independence.
	The SEC has been without a Board since June 16, 2012. The terms of the members ended simultaneously without a prior preparation for the nomination of the Board as contemplated in the ISA. The new members of the Board must be confirmed by the Senate. The Senate is currently in recess. The SEC Board is necessary, among other things, to approve rules and regulations and to apply sanctions.
	If the SEC is required to repatriate ₦15 billion from its accumulated fund to the CRF account it will be left with ₦8 billion in reserves. If it continues to have budget deficits and will not in the future have enough funds in its accumulated fund to cover its deficits, the situation could raise concerns about its capacity to operate adequately due to resource constrains.
	The SEC does not have an ethics officer. Its provisions regarding ethics lack proper monitoring and enforcement. Transparency could be improved further by more formal publication of actions.
Principle 3.	The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.
Description	Sufficiency of SEC’s powers and authorities
	The powers and authorities of the SEC are sufficient to meet its responsibilities, taking into account the nature of Nigeria’s securities market and a full assessment of the IOSCO Principles.
	Funding
	The SEC’s revenue in 2011 was ₦6,895,403,000 obtained mainly from market transaction charges and money market investment and bond interest income. The SEC expends most of its revenues in staff salaries and administrative expenses. It has the power to affect the operational allocation of its resources. As noted above in Principle 2, in 2011 the SEC had a deficit with respect to its funding. It had to use its accumulated fund.
	Level of resources and difficulty of attracting and retaining experienced and skilled staff.
	According to the SEC’s 2011 annual report, its workforce at the end of the year was composed of 630 members of staff spread across four directorates and seven zonal offices.
	The percentage of staff in each Directorate of the four member Executive Management Committee is as follows:
	•	The Director-General has 12 percent of the staff;
	•	Executive Commissioner in charge of Operations has 29 percent of the staff;
	•	Executive Commissioner in charge of Finance & Administration has 25 percent of the staff; and
	•	Executive Commissioner in charge of Legal & Enforcement has 14 percent of the staff.
	The core disciplines of the staff are: economists (56), accountants (52), lawyers (67), computer scientists (15), mathematicians and statisticians (6) and others (402). 30 percent of the staff is involved with core disciplines while the other 70 percent is involved in other disciplines. According to the SEC staff, this represents a change from previous periods when 20 percent of the staff was involved in core disciplines and 80 percent in other disciplines.
	407 members of staff are regulars in a senior position. 16 members of staff are under contract in a senior position. 145 members of staff are regulars in a junior position. 20 members of staff are under contract in a junior position.
	The age distribution of the SEC staff shows that more than 50 percent of the staff is between the ages of 35 and 44 years. Less than 10 percent of the staff is between the ages of 25 and 29 years old.
	The remuneration (including allowances) and the terms and conditions of service of the Secretary and other staff of the SEC are determined by the Board of the SEC. The SEC is not under obligation to ask for approval of its staff remuneration from any other agency. Every staff member of the SEC is entitled to pension and other retirement benefits (Sections 16 and 18 of the ISA). The staff turnover is low and, according to the person responsible for human resources, the current turnover does not constitute a problem to the SEC.
	In discussions with market participants, it was indicated that the self-funded status that the SEC enjoys has not transformed into it using its resources to draw the best talent from the securities market.
	Adequacy of ongoing training
	According to the SEC annual report 2011, it expended around 10 percent of its 2011 revenues in training. Its staff has received different types of training in several areas. The list of courses provided showed ongoing training and the curricula were very broad and varied. The SEC has a training philosophy stated in its Human Resources Policies and Procedures Manual. There is a training plan and courses have included risk management and IFRS. However, some SEC staff members indicated that in some instances approval for technical training had been denied for budgetary reasons.
	Types of Structured Training 2012 Expenditure (₦ as at June 30, 2012) 2011 Expenditure (₦) In-House Training 37,965,000,00 15,000,000.00 Local Training 171,113,305.00 142,620,400.00 Foreign Training 367,232,590.00 516,436,000.00 Total 576,310,895.00 674,056,400.00 Source: SEC Annual Report (for 2011) and SEC staff (for 2012)
	Policies and governance practices
	The SEC has produced, and they are available to the public on its website, different forms and templates so anyone can use them to request services at the SEC. However, when asked about the procedures of the SEC to perform its core functions and exercise its powers, several of the persons interviewed made reference to practices without reference to specific written policies or procedures. A lack of written policies and procedures and reliance on manual, paper-based processes leads to inefficiencies in the SEC’s processes and makes them prone to errors and potential misconduct. The SEC has ongoing projects aimed at improving its IT infrastructure, but the projects have been subject to serious delays.
	Investor education
	The SEC is involved in investor education and the training of all categories of intermediaries in the securities industry (Section 13(s) ISA). The SEC has a section on its website dedicated to investor education.
Assessment	Broadly Implemented
Comments	Certain core regulatory competencies (e.g., on-site supervision of registered entities) do not appear to be well represented among the current SEC staff, even though the SEC’s manpower is large vis-à-vis the current size and level of development of the Nigerian securities market. Even though increased over the past few years, the proportion of staff engaged in the core regulatory and supervisory functions is still only 30 percent. Several market participants informed the assessors that they consider important that the SEC concentrates on technical training for its personnel. It was mentioned that in practice private sector employees are generally not interested in working at the SEC. It is also rare for the SEC employees to move to the private sector. Market participants highlighted that there were what was called pockets of respect and expertise at the SEC, but in general terms the SEC needs to improve the technical capacity of its personnel.
	The SEC also needs to accelerate its plans to develop the technology infrastructure indispensable to adequately supervise the securities market. The same applies to increasing the use of IT in its internal processes. The SEC needs to have in place written procedures to conduct its operations
Principle 4.	The regulator should adopt clear and consistent regulatory processes.
Description	Clear and equitable procedures
	The SEC is subject to the ISA which contains reasonable procedural rules and to the SEC Rules and Regulations which contain more detailed procedures. However the SEC does not appear to have any internal written policies and procedures on how it conducts its functions other than the Human Resource Policies and Procedures Manual.
	Process for consultation
	The SEC in the exercise of its powers to make rules must consult with stakeholders. The need to consult is established by law (Section 313(2)(2) ISA). The consultation process itself is not well established. It was described orally by several persons interviewed during the mission; however no written procedure appears to exist.
	The process of consultation according to the ISA should be with stakeholders, but in practice it is carried out mostly with the Capital Market Operators. The SEC has a Rules Committee which handles the process of establishing new rules and regulations. New proposals for rules are discussed with the relevant Capital Market Operators. They are published for public comment (exposed). The SEC also uses advisory committees and informal contacts to support its rule making. The objective of the consultation process as applied by the SEC has been to provide participants in the capital market with notice of what is expected from them, what conduct will be sanctioned and to promote fairness and equality of treatment.
	The SEC has prescribed rules and regulations. They are made of twelve parts and nine schedules, 312 rules as amended up to 2008 and 25 rules and amendments from 2008 until April 2012. They contain both rules of general and specific application governing securities exchanges; Capital Market Operators; securities offered for sale or subscription; mergers, acquisitions and combinations; collective investment schemes; investors protection fund; borrowing by States, local government and other government agencies amongst other things.
	The SEC has improved the content of its website making it more investor friendly. Important information, such as the ISA and the SEC Rules and Regulations, is available to the public; however exposed rules are not permanently available for review and comment on the SEC’s website. Currently the content of the final consolidated rules and regulations has not been updated with those that have been amended since 2008. This creates confusion to the public and the legal risk of not knowing which the rules and regulations currently in force are and what the responsibilities of the SEC are (see Principle 1). The rules and regulations are in the process of being consolidated.
	The assessors were not able to obtain any documents regarding the explanation of the SEC’s policies in important operational areas, such as setting of standards, or issuance of opinions stating the reasons for regulatory actions other than selected press releases provided by the SEC staff interviewed. The reasons for changes in rules are included as information provided in the introduction to the new rules and regulations.
	The SEC has the authority to prepare guidelines and organize training programs and disseminate information necessary for the establishment of securities exchanges and capital trade points (Section 13(f) ISA). The concept of a guideline is not defined in the ISA. The only guideline currently available at the SEC’s website deals with the Code of Conduct for Capital Market Operators and their Employees which is however also included in the Schedule of the SEC Rules and Regulations.
	Cost of compliance with regulation
	There are no specific evaluations done by the SEC about the cost to market participants of compliance with a rule or regulation before it is proposed by the SEC, however the persons interviewed at the SEC believe that the process of consultation with the market participants provides the SEC the feedback to determine the issue of cost of compliance with the proposed rule or regulation.
	The rules and regulations are available to the public as indicated before, with the caveat of having a mix of current regulations with regulations that have been amended, which could create confusion to the reader. The rule-making procedure is not readily available to the public.
	Procedural fairness
	There are various provisions in the ISA and the SEC Rules and Regulations that address procedural fairness, including in the Rules of Procedure of the APC. The requirement to provide reasons for the SEC’s decisions is addressed through individual provisions in the ISA (see e.g., Sections 48(2)(c) and 122(12)(b)).
	Material actions of the SEC in applying its rules are subject to review by the IST (Section 289 ISA). The IST is working properly and has reviewed numerous SEC actions.
	The IST is a body of 10 persons appointed by the minister of finance. The chairman is appointed for a term of five years. For the other nine members the term is four years. They can be removed only for due cause (Part XVI of the ISA).
	It is the exclusive court of law in Nigeria to exercise jurisdiction to hear and determine any question of law or dispute involving, among others, a decision or determination of the SEC in the operation and application of the ISA, and in particular, relating to any dispute, among others, between an issuer, a Capital Market Operator, an investor or an SRO and the SEC. The IST is active and operational.
	It is mandatory to include in the arbitration clause (if any) in any underwriting agreement that any party aggrieved by the decision of the SEC may refer the matter to the IST (Rule 256).
	Judicial review of the SEC’s decisions
	Any person dissatisfied with a decision of the IST may appeal to the Court of Appeal. An appeal to the decision of the Court of Appeal must go to the Supreme Court.
	Criteria for granting, denying or revoking a registration
	There are established criteria to grant, deny or revoke a registration.
	In cases where the SEC has assumed control of a Capital Market Operator whose paid-up capital is lost or unrepresented by available assets, it has the authority to make an order revoking the Capital Market Operator’s registration (Section 51(a) ISA).
	The SEC may suspend or cancel the registration granted to a Capital Market Operator or any registered function where the Capital Market Operator contravenes any of the provisions of the ISA, the SEC Rules and Regulations, or the Code of Conduct for Capital Market Operators and their Employees; fails to furnish any information relating to its activities as required by the SEC or furnishes information which is false and misleading in any material particular; fails to submit periodic returns or reports as required by the SEC, to co-operate in any enquiry or inspection conducted by the SEC, to update its systems and procedures as recommended by the SEC to resolve the complaints of clients; to give a satisfactory reply to the SEC in this regard; or to meet the renewal requirements for registration.
	The SEC may cancel the registration granted to a Capital Market Operator where it is found guilty of fraud or repeated defaults or has been convicted of an offence involving moral turpitude (Rule 20B). Currently, due to the lack of a Board, the SEC’s authority to revoke registrations, as well as any other sanction imposed by the APC needs to be approved by the minister of finance (Rule 17 of the Rules on APC Procedures as amended in March 2010).
	The general criteria for granting, denying, or revoking a registration are published in the ISA and the SEC Rules and Regulations. The parties affected by the process are entitled to a hearing with respect to the SEC’s decision.
	Procedures for making investigation reports public and rights of individuals, including confidentiality
	There is no specific provision in the ISA or the SEC Rules and Regulations regarding making reports on investigations public. The SEC’s personnel are bound by an oath of secrecy. Investigations are not made public; however the SEC publishes on its website a list of companies facing enforcement action. The list includes the name of the company, the nature of the enforcement action and the reason why the action was taken.
	SEC’s exercise of its powers and discharge of its functions
	From the information obtained by the assessors during interviews with the SEC’s personnel and selected market participants, the SEC has not exercised its powers and discharged its functions consistently in the past. The different SEC departments do not appear to communicate adequately.
Assessment	Partly Implemented
Comments	There is no written procedure for the SEC’s consultation process. The SEC’s main concern in the consultation process is market participants and not necessarily the general public. The use of the website in the consultation process is limited.
	The establishment of the Investments and Securities Tribunal constitutes a positive corrective action.
	In the current situation in the absence of the Board for more than three months the final decision on the imposition of any sanctions to Capital Market Operators would need to be taken by the minister of finance. At the time of the assessment mission, no such decisions had been made by the minister.
	The assessors were informed of an instance where the SEC Rules and Regulations that were still in the process of consultation (exposed) had been used as if they were the rules in force (see Principle 24).
Principle 5.	The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.
Description	Code of Conduct and Code of Ethics
	A Code of Conduct for the SEC employment exists. It is somewhat misleadingly called Code of Conduct for Post-SEC Employment. However it applies to all SEC employees, former employees, contract staff, NYSC, IT staff and contractors engaged by the SEC. There is also a Code of Ethics for the Board of the SEC and a Code of Ethics for the Staff of the SEC.
	The Code of Conduct for Post-SEC Employment contains a duty of confidentiality, certain conflicts of interest provisions, permanent restriction on representation on particular matters, two year restriction concerning particular matters under official responsibility and sanctions for non-compliance which include disciplinary action including dismissal and total withholding of benefits (financial or otherwise) that an employee would ordinarily have been entitled to. The SEC could bring action in court against former employees and may seek an order restraining the person from engaging in the conduct prohibited under the Code of Conduct.
	In addition to the Code of Conduct, Rule 4 of the SEC Rules and Regulations imposes an obligation of non-disclosure of information obtained in performing official duties. Every officer or employee of the SEC must adhere to a Code of Secrecy in respect of any paper, document or information which he/she may possess or have knowledge of, whether in the course of any examination or investigation conducted pursuant to any provision of the ISA or the SEC Rules and Regulations or in the course of official duty.
	SEC employees are subject to what is called an oath of secrecy that must be renewed every year.
	Appropriate use of information obtained in the course of the exercise of powers and discharge of duties
	Section 112(1)-(2) of the ISA contains certain prohibitions for a public officer to deal with certain securities. A public officer means any person working in the public service of the Federation or of a State as defined in the Constitution of Nigeria. The prohibitions of Section 112(2) are subject to certain appropriate exceptions set out in Section 113 of the ISA.
	Disclosure of financial affairs or interests and restriction on the holding or trading in securities
	Under the Code of Ethics, employees are prohibited from transacting in securities and investments which are subject to a registration statement filed under the provisions of the ISA before the effective date of registration and before opening of the offer for sale/subscription to the general public and in securities and investments of companies that are subject of investigation by the SEC or that are involved in any proceeding before the SEC.
	According to the Code of Ethics, employees are prohibited from maintaining accounts with the securities firms. Securities purchased by an employee must be held for a minimum of six months before any sale. This restriction does not apply to units of CIS, unit trusts or any other security which has a maturity at the time of issuance of less than one year.
	Any securities transaction by an employee must be reported to the Commissioner in charge of Finance and Administration. Employees of the SEC are not allowed to have a beneficial interest in any company registered with the SEC, except where such companies are publicly quoted. An employee must disclose his or her interest in any company in which he or she is a shareholder, if assigned to handle the registration application or anything affecting the company.
	Employees must report every purchase or sale of any secondary market security within five working days of consummation of the transaction. Employees must also report receipt of notice of any change in holding resulting from inheritance, gifts, bonus issue and allotments of shares in the case of primary market issue. Employees having no interest in securities are required to so state.
	Every employee must furnish the Commissioner of Finance and Administration on a form provided by the SEC information relating to securities owned by the employee or held for his or her benefit, by any trust or estate of which he or she is a trustee and by immediate family members who are partners or officers of securities firms, investment advisers, broker dealers and other Capital Market Operators registered by the SEC.
	Investigation and resolution of alleged violations of the SEC Code of Ethics
	The procedure for the implementation of the Code of Ethics is not clearly defined and it was not possible to verify how the Code is implemented.
	In the case of the Code of Ethics for the SEC Board members there are requirements for disclosure of interests in a particular company, restriction on purchase of securities, a minimum holding period, requirements for notification of securities transactions, and restriction on beneficial interest. Members of the SEC Board are prohibited from maintaining accounts with securities firms.
	Sanctions for non-compliance
	Breaches of the Code of Conduct are subject to disciplinary action, including dismissal and total withholding of whatever benefits the employee would ordinarily have been entitled to. In case the breach of the Code of Conduct occurs after the cessation of employment, the SEC is entitled to bring action in court against any such person and to seek an order restraining the person from engaging in the conduct prohibited by the Code of Conduct. Sanctions for breaches of the Code of Ethics are not clearly indicated in the Code of Ethics.
	The assessors were informed that monitoring compliance with the Code of Conduct is handled by the Human Resources Department; however the procedure is not clearly stated in a written document. The Code of Ethics for employees gives a role to the Commissioner of Finance and Administration as well as to the Board of the SEC. The SEC staff indicated that the Code of Conduct would have been applied in the past, but no specific examples were presented. The staff was not clearly aware of the Code of Ethics, the obligation to disclose information to the SEC and the trading restrictions applicable to staff.
	A proposal for a Code of Conduct for financial regulators has been discussed at the FSRCC. It includes disclosure requirements. The proposal has not yet been approved.
Assessment	Partly Implemented
Comments	Requirements for the disclosure of financial interests and restrictions on holding or trading in securities by the SEC staff are defined in the Code of Ethics for Staff of the SEC. The financial information of the SEC staff must be provided to the Commissioner (Finance and Operations); however in the discussions conducted with the heads of department it was indicated that they were not aware of this obligation. There is no clear procedure to monitor compliance with the Code of Conduct and the Code of Ethics. This implies that the Code of Ethics is in practice not implemented and enforced.
	The proposal for a Code of Conduct for financial regulators presented to the FSRCC covers the main aspects of a more robust ethics program.
Principle 6.	The Regulator should have or contribute to a process to monitor, mitigate and manage systemic risk, appropriate to its mandate.
Description	The SEC is not a systemic risk regulator
	The SEC does not conduct any analysis on systemic risks possibly arising from securities markets. There is no top down analysis of the macroeconomic (national or international) environment and its impact on the Nigerian securities markets. The supervisory information available to the SEC for example on solvency and liquidity of Capital Market Operators is so limited that it is not used to assess their possible impact on financial stability. Such an analysis could be used by senior management to determine whether there are important risks that need to be monitored.
	Contribution to the overall assessment of financial stability
	The SEC is a member of the FSRCC, which is an inter-agency body set up to deal with matters of common interest and concern to the various regulatory and supervisory authorities of the financial services industry. The FSRCC was accorded legal status by the 1998 amendment to Section 38 of the CBN Act 1991 and it was formally inaugurated in May 1999.
	The FSRCC was initially not a particularly active inter-agency body. It has become more active in the last three years.
	The objectives of the FSRCC do not specifically refer to systemic risk and financial stability. They are to:
	a.	Coordinate the supervision of financial institutions, especially conglomerates;
	b.	Cause the reduction of arbitrage opportunities usually created by differing regulatory and supervisory standards among supervisory authorities in the financial services industry;
	c.	Deliberate on problems experienced by any member in its relationship with any financial institution;
	d.	Eliminate any information gap encountered by any regulatory agency in its relationship with any group of financial institutions;
	e.	Articulate the strategies for the promotion of safe, sound and efficient practices by financial intermediaries; and
	f.	Deliberate on such other issues as may be specified from time to time.
	The FSRCC has resumed its meetings during the past three years. There is an MoU signed among its members. Discussions seem to be helping the members of the FSRCC to have a more comprehensive view of the problems, issues and risks across the different sectors of the financial sector. Exchange of information on the entities under the supervision of the various FSRCC members is addressed in the FSRCC MoU and facilitated through a section of the FSRCC website available only to the members of the FSRCC.
	Expertise
	The SEC is currently starting to develop expertise regarding risk measurements and analysis relevant to systemic risk. In addition it has been able to take into consideration risk measurements and analysis developed by other regulators. It is neither clear nor evident how these considerations have been applied in practice. There is on-going capacity building on risk-based supervision, where the potential systemic impact of a Capital Market Operator is planned to be taken into account in the decision on appropriate supervisory measures.
Assessment	Partly Implemented
Comments	The level of expertise available at the SEC to conduct analysis on systemic risks possibly arising from securities markets or the implications that the macro-economic environment has on the securities market is currently limited. The FSRCC does not yet appear to be very focused on analyzing the potential sources of systemic risks, but has rather concentrated on coordinating micro-prudential initiatives (e.g., on consolidated supervision)
Principle 7.	The Regulator should have or contribute to a process to review the perimeter of regulation regularly.
Description	Internal assessment of perimeter of regulation
	The SEC does not have a specific process explicitly with the objective of assessing whether the securities regulatory framework adequately identifies and manages the risks posed by markets, participants and products to the ISA objectives, which are the protection of investor, fair, efficient and transparent markets and the reduction of systemic risk.
	The SEC has the power to conduct research into all or any aspect of the securities industry and advise the minister of finance on all matters relating to the securities industry (Sections 13(z)(aa) and (cc) of the ISA).
	There are supervisory programs in place for the capital markets operators with off-site and on- site inspections. The Monitoring & Investigations Department reports that no on-site inspection took place in 2011. The off-site information is not well suited to help to identify potential areas of risk and contribute to determining if additional measures are needed.
	The identification of potential regulatory gaps is done on an ad hoc basis. Inputs can come from the market participants with topics of concern, from the Directors of departments, when they identify issues and bring them to the attention of the Executive Management Committee for further escalation to the Director-General and the Board.
	The SEC has a Rules Committee to review, where it is presented with information on changing circumstances, its past regulatory policy decisions on products, markets, entities, market participants or activities, especially decisions to exempt, and take measures as appropriate. The Rules Committee is composed of 15 members including staff members of the SEC as well as market participants. It is chaired by the office of the SEC Secretary. The Director of the Legal Department is involved.
	The proposed rules are evaluated by the different departments at the SEC. They are sent to the SEC management for approval and exposure. Extracts of the proposed rules are published in two national papers and the full proposals are posted on the SEC web page.
	Actions could involve imposing additional requirements on Capital Market Operators or issuers, providing guidance or making proposals for change in the law.
	Examples of the identification of risks which ended in the establishment of rules and regulations are: Rules on Market Makers (April 2012); Rules on Securities Lending and Borrowing; Rules on Exchange-Traded Funds; Rules on Custodial Services for Registered Collective Investment Schemes (January 2011); and SEC CBN Rules on Margin Lending (October 2010).
	The SEC participates in a process (with other financial system supervisors and regulators if appropriate), which reviews unregulated products, markets, market participants and activities, including the potential for regulatory arbitrage, in order to promote investor protection and fair, efficient and transparent markets and to reduce systemic risks. This is done through collaboration with the FSRCC and other agencies. The SEC has also contributed to the detection of ponzi schemes, wonder banks and similar illegal activities by referring cases it has detected to the criminal authorities. The SEC seeks legislative or other changes when it identifies a regulatory weakness or risk to investor protection, market fairness, efficiency and transparency that requires legislative or other changes (Section 313(1) of the ISA). There have been no recent changes in the ISA which was enacted in 2007.
Assessment	Broadly Implemented
Comments	The rule making process could be streamlined at the initial stage by establishing specific deadlines to produce the proposals that are required to ensure that any gaps in the regulatory framework are promptly addressed.
Principle 8.	The Regulator should seek to ensure that conflicts of interest and misalignment of incentives are avoided, eliminated, disclosed or otherwise managed.
Description	Overview on the treatment of conflicts of interest and misalignment of incentives
	The SEC does not have a specific process in place designed to identify and evaluate potential and actual conflicts of interest and misalignment of incentives. The Nigerian regulatory framework includes some requirements for the identification, monitoring and mitigation of conflicts of interest, but there is some variation in the content of the requirements depending on the type of regulated entity. In some cases the requirements do not apply to the entity itself, but rather to its employees.
	The Nigerian securities regulatory framework also uses trading prohibitions in some cases to address conflicts of interest. In other cases, as for example with issuers, the disclosure to the public is used as a tool to address the conflict of interest.
	Capital Market Operators
	Fund managers are subject to the requirement to avoid conflicts of interest (Section 157(1)(a)). There is no requirement to disclose conflicts of interest. Rule 247 of the SEC Rules and Regulations addresses certain conflicts of interest through trading prohibitions applicable to the management company, trustee and their affiliates (see Principle 24).
	A management company, trustee and their affiliates are subject to a prohibition from dealing as principals in the sale of underlying assets to the trust scheme; prohibition of deals in, or retention of any underlying securities of any company, if those individual officers of the management company or any of their affiliates own each beneficiary more than 0.5 percent of the securities of such company and together more than 5 percent of the securities of that particular company; and a provision prohibiting the fund manager from investing in its in-house, trustee’s or their associates’ instruments (Rule 247).
	The Code of Conduct for Capital Market Operators and their Employees (Schedule IX SEC Rules and Regulations) that in Nigeria applies also to credit rating agencies and sell-side analysts establishes the need for avoidance of conflicts of interest by employees who must ensure that their personal interest does not at any time conflict with their duty to their employer’s clients. There is a requirement to disclose all the personal interests beneficial or not of the employee. The information must be disclosed to the employer. However the Code of Conduct does not apply to the Capital Market Operator itself, but only to its employees.
	Auditors
	The SEC Code of Corporate Governance states that, in addition to its statutory functions, the audit committee has the following responsibilities regarding auditors’ independence:
	•	Assist in the oversight of the integrity of the company’s financial statements, compliance with the legal and other regulatory requirements, assessment of qualifications and independence of external auditor.
	•	Review the independence of the external auditors and ensure that where non-audit services are provided by the external auditors there is no conflict of interest.
	•	Preserve auditor independence, by setting clear hiring policies for employees or former employees of independent auditors.
	In order to safeguard the integrity of the external audit process and guarantee the independence of the external auditors companies should rotate both the audit firms and audit partners.
	Issuers
	The issuer must disclose in the prospectus any existing and potential related party transactions and conflicts of interest in relation to the company and its related parties, together with steps taken to resolve such conflicts of interest; the nature and extent of the related party transactions and conflict of interest situations; declaration of an expert on any existing and potential interests/conflicts of interest in any capacity vis-à-vis the company/group.
	Disclosure of director’s interest in stock broking/dealing companies
	A director of a public company must disclose to the SEC any interest he/she has in stock broking/dealing companies engaged by the company to which he is a director (Rule 112).
	Disclosure of interest of stock broking/dealing companies in quoted companies
	Stock broking/dealing companies must disclose their interest in publicly quoted companies in offer documents as well as in their Annual Report and accounts (Rule 113).
	For an issuer in a take-over bid, disclosure of potential conflicts of interest needs to be provided. For example the director’s circular issued by the director of the offeree company must include particulars of any payment made to an officer or former officer of an offeree company by the way of compensation for loss of his/her office or as consideration for or in connection with his/her retirement from any office (Section 140 of the ISA).
Assessment	Broadly Implemented
Comments	The SEC does not have an overarching requirement for the avoidance, management and disclosure of conflicts of interest applicable to regulated entities.
Principles for Self-Regulation
Principle 9.	Where the regulatory system makes use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, such SROs should be subject to the oversight of the Regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.
Description	SROs in Nigeria
	The SEC is required to promote and register SROs, including securities exchanges, capital trade points and capital market trade associations to which it may delegate its powers (Section 13(o) ISA). According to Article 315 of the ISA, a self-regulatory organization means any registered securities exchange, capital trade point, and association of securities dealers, clearing house, capital market trade association or any other self regulatory body approved as such by the SEC. The self-regulatory role of securities exchanges and capital trade points derives also directly from Section 29 of the ISA, that sets certain self-regulatory responsibilities as a precondition for the registration of a securities exchange or capital trade point (see Principle 33). These responsibilities include the requirement to establish and enforce binding rules of trading and business conduct as well as establish disciplinary rules and conduct disciplinary proceedings.
	The interpretation of Section 315 would appear to be that in addition to securities exchanges and capital trade points, all associations of securities dealers, clearing houses and capital market trade associations would be self-regulatory bodies. However, none of these bodies are defined in the ISA, and the SEC Rules and Regulations refer to National Association of Securities Dealers (not to associations of securities dealers in general) and securities clearing and settlement companies (not to clearing houses). Further, the SEC has not yet officially delegated its powers to any capital market trade association as referred to in Section 13(o) or approved any other self-regulatory body so that it would have become an SRO.
	Rule 23 of the SEC Rules and Regulations includes registration requirements for a national association of securities dealers. The requirements imply that such a body would be created for the purpose of operating a trading platform. The NASD Ltd owned by the members of the Nigerian Association of Securities Dealers was granted an Approval-in-Principle in September 2012 for registration of an OTC market under Section 29 of the ISA (see Principle 33 on the definition of a securities exchange that also covers an OTC market).
	Authorization of SROs
	The requirements for the authorization of a securities exchange or capital trade point are described under Principle 33. These requirements include some of the elements of Key Question 2(a), but some gaps remain. There are no specific requirements for the regulator to assess the capacity of the SRO to carry out the purposes of the governing laws, regulations and SRO rules, and to enforce compliance with them. There is no requirement for the SROs to promote investor protection, and the rules of the SROs are not required to be consistent with the public policy objectives established by the regulator. There are no requirements for the SROs to cooperate with the SEC to investigate and enforce applicable laws, regulations and rules.
	In addition to the above, the regulatory framework does not include any requirements for fair treatment of members and applicants for membership. In practice, there are currently no rules on admission of new members and admission criteria in the NSE. According to the information provided on the website of the NSE, membership is granted to broker-dealers to enable them to use the services of the NSE and broker-dealers must meet specific requirements set by the NSE to receive a dealing member license. These requirements are said to be detailed in the Application Requirements for Dealing Membership License document available from the NSE’s Legal Department, which was not available for review during the mission. In practice the NSE has not admitted new members for several years.
	There is no requirement for the SROs to have MoUs or other formal arrangements in place to secure cooperation between them and the SEC. There is no MoU between the SEC and the NSE, nor have they otherwise formally agreed on any particular arrangements for their cooperation. In practice the cooperation of the SEC and NSE in e.g., dealing member supervision is limited, and is largely based on the quarterly reports that the NSE sends to the SEC. The Monitoring & Investigations Department of the SEC that is responsible for the supervision of broker-dealers does not have any contacts with the NSE, but the communication is organized through and the reports received by the Registration and Recognized Investment Exchanges Department.
	The SROs are not under a regulatory obligation to avoid rules that may create anti-competitive situations. The NSE does not appear to have such rules, and its policy of not admitting new members has effectively created an anticompetitive situation. Finally, there are no requirements on the SROs to avoid using their oversight role to allow any market participant to gain advantage in the market in an unfair manner.
	The NSE’s self-regulatory functions are described in Principles 33-34.
	The requirements in Rule 23 of the SEC Rules and Regulations relating to an application for registration of a national association of securities dealers are very similar to those applicable to a securities exchange, with the exception of the fact that an association is not required to provide listing requirements (because it cannot operate a listing market). The ISA does not include any requirements on the self-regulatory tasks of an association registered as an SRO since Section 29 applies only to securities exchanges and capital trade points. Rule 23 refers to a code of conduct, code of dealing, instruction and inspection manual of members’ activities and a requirement to enforce compliance by the SRO’s members with the provisions of the ISA and SEC Rules and Regulations.
	Oversight by the SEC
	The oversight program of the SEC in the NSE is covered in Principle 34.
	Section 32(3) of the ISA specifically provides that nothing precludes the SEC from carrying out inspections, or conducting enquiries or audits of any member of a securities exchange, capital trade point or other self-regulatory organization, i.e., the SEC retains full authority to inquire into matters affecting the investors or the market.
	According to Section 33 of the ISA, where a self-regulatory organization reprimands, fines, suspends, expels or otherwise takes disciplinary action against its member, it must within seven days notify the SEC in writing of the name and other particulars of the member and the nature of and reason for the action taken. On the basis of Section 34 of the ISA, the SEC may review any disciplinary action and may affirm or set aside such decision after giving the member and self-regulatory organization an opportunity of being heard. Nothing precludes the SEC from suspending, expelling or otherwise imposing or causing disciplinary action to be taken against a member where the self-regulatory organization fails to act, provided that, before exercising this power, the SEC gives the affected member and the self-regulatory organization an opportunity of being heard.
	Professional standards
	The ISA, the SEC Rules and Regulations, or the SEC itself do not require the NSE or other self-regulatory organizations to follow any particular standards of behavior beyond those required from all registered entities. Therefore confidentiality and procedural fairness are not addressed, nor are there specific requirements for the appropriate use of information obtained in the course of the SRO’s exercise of its powers and discharge of its responsibilities.
	Conflicts of interest
	Beyond the conflict of interest requirements included in Schedule IX.2 of the SEC Rules and Regulations applicable to employees of Capital Market Operators, there are no conflict of interest rules for SROs.
Assessment	Partly Implemented
Comments	Even though the Nigerian regulatory system makes use of self-regulatory organizations, the process for assigning a body as an SRO and the regulatory requirements on other types of SROs than securities exchanges and capital trade points are unclear. There are requirements on the SROs to inform the SEC of the disciplinary measures they have taken, and the SEC is not precluded from carrying out inspections of dealing members.
	Instead of assessing applications for registrations as a SRO on a case-by-case basis, the SEC should make a strategic decision on the role of various types of SROs in the regulation and supervision of Nigerian securities markets, and based on that, clearly define the responsibilities of various types of SROs in the regulatory framework.
	In practice the SEC and NSE appear to coordinate and cooperate in their regulatory/self-regulatory activities only to a limited extent. It is recommended that the SEC and NSE increase the level of coordination of their activities, in particular to ensure that the large dealing member community is subject to robust supervision.
Principles for the Enforcement of Securities Regulation
Principle 10.	The regulator should have comprehensive inspection, investigation and surveillance powers.
Description	SEC’s inspection, investigation and surveillance powers
	The SEC has the power to call for information from and inspect as well as conduct inquiries and audits of securities exchanges, Capital Market Operators, collective investment schemes and all other regulated entities (Section 13(r) ISA). The SEC is not required by the ISA to give prior notice and the inspections can be done on-site. The SEC does not delegate this power to the NSE; instead, the NSE has its independent on-site inspection program (see Principle 34).
	The SEC is under the obligation to conduct routine and special inspections and investigations of any Capital Market Operator that is involved in the administration, management or custody of funds for or on behalf of clients including the management and operation of a collective investment scheme or the soliciting of investment in a collective investment scheme (Section 45(1) ISA). The Monitoring & Investigations Department (M&I) is in charge of monitoring, inspecting and investigating specific Capital Market Operators. It also investigates and resolves disputes among market stakeholders.
	The SEC must examine periodically the books and affairs of each Capital Market Operator, for which it has a right of access at all times to the books, accounts and vouchers of Capital Market Operators, and it is empowered to require from directors, managers and officers of Capital Market Operators such information and explanations as it may deem necessary to the performance of its duties.
	Every Capital Market Operator must produce to the SEC’s examiners all books, accounts, documents and information which they may require. The SEC has the above mentioned power to obtain books and records and request information form Capital Market Operators without judicial actions even in the absence of suspected conduct and as indicated on a routine basis.
	The SEC has the power to conduct surveillance of trading activity at the NSE (see Principle 34).
	In the case of routine examinations the SEC forwards a copy of the report arising from the examination, together with the SEC’s recommendations, to the Capital Market Operator with instruction that it be placed before the meeting of the board of directors of the Capital Market Operator specially convened for the purpose of considering the report and its recommendations (Section 46 ISA).
	Special examinations
	The SEC has the power to order a special examination or investigation of the books and affairs of a Capital Market Operator for any of the following reasons:
	•	it is in the public interest to do so;
	•	the Capital Market Operator has been carrying on its business in a manner detrimental to the interest of its clients, beneficiaries and creditors;
	•	the Capital Market Operator has insufficient assets to cover its liabilities to the clients, beneficiaries and creditors;
	•	the Capital Market Operator has been contravening the provisions of this Act; or
	•	an application is made therefore by a director, shareholder, client, beneficiary or creditor of the Capital Market Operator.
	In the case of special examinations and investigations which are conducted for the reasons indicated above, the SEC must appoint one or more qualified persons other than SEC’s officers to conduct the examination or investigation, under conditions of confidentiality, of the books and affairs of the Capital Market Operator (Section 47(1)-(2) ISA).
	The SEC may conduct an investigation into the business of a person whether registered or authorized or not, who is involved in the administration of a CIS or the soliciting of investment in a CIS (Rule 172(1)).
	Obligation to maintain records
	A Capital Market Operator must keep or cause to be kept accounting and other records (Section 39(1) ISA). Capital Market Operators are required to maintain records concerning client identity and records that permit tracing funds and securities in and out of brokerage and bank accounts related to securities transactions. The SEC has the authority to have access to the identity of all clients of Capital Market Operators.
Assessment	Fully Implemented
Comments	The regulatory framework grants the SEC the powers to conduct inspections and investigations. On the basis of the information gathered during the assessment, these powers have not been used in the past for several reasons including capacity issues. Currently the powers are being used more; however there is a lack of coordination among the SEC’s departments which results in the SEC not acting timely or efficiently (see Principle 12).
Principle 11.	The regulator should have comprehensive enforcement powers.
Description	SEC’s investigative and enforcement powers
	The functions and powers of the SEC related to investigation and enforcement (Section 13 ISA) are to:
	•	protect the integrity of the securities market against all forms of abuses including insider dealing;
	•	intervene in the management and control of a Capital Market Operator which it considers has failed, is failing or is in crisis including entering into the premises and doing whatsoever the SEC deems necessary for the protection of investors;
	•	enter and seal up the premises of persons illegally carrying on capital market operations;
	•	seek judicial order to freeze the assets (including bank accounts) of any person whose assets were derived from the violation of the ISA, or any securities law or regulation in Nigeria or other jurisdictions;
	•	prevent fraudulent and unfair trade practices relating to the securities industry; and
	•	disqualify persons considered unfit from being employed in any arm of the securities industry.
	In the case of a failing Capital Market Operator the SEC is authorized to (Section 48 ISA):
	•	prohibit the Capital Market Operator from receiving funds or other assets from the public;
	•	require the Capital Market Operator to take any steps or any action or to do or not to do any act or thing whatsoever, in relation to the Capital Market Operator or its business or its directors or officers which the SEC may consider necessary;
	•	remove any manager or officer of the Capital Market Operator;
	•	in respect of a Capital Market Operator remove from office any director, or appoint any person or persons to manage the affairs of the Capital Market Operator in the interim; and
	•	appoint any person to advise the Capital Market Operator in relation to the proper conduct of its business.
	The SEC Board has the power to assume control of the whole property and affairs of a Capital Market Operator and to carry on the whole of its business and affairs (Section 49 of the ISA). The SEC has the power to revoke a registration or apply to Court to revoke a registration.
	Sanctions
	The SEC has the power to levy penalties on any person in relation to investments and securities business in Nigeria in accordance with the provisions of the ISA (Section 13(u) ISA).
	The ISA stipulates specific penalties for certain violations of the ISA. For example, a public company not having a system of internal control over its financial reporting, having an auditor that is not registered with the SEC and not disclosing within 20 days prior to the beginning of a quarter to the NSE its quarterly earnings forecast is liable to a penalty of not less than ₦1,000,000 and a further penalty of ₦25,000 per day for the period the violation continues.
	The general penalty applicable when there is no specific penalty consists of a fine of not less than ₦100,000 and a further sum of ₦5,000 per day for every day that the violation continues.
	The SEC may in addition to any penalty prescribed under the ISA, direct any person who has contravened any of the provisions of the ISA or a related rule or regulation, to compensate any person who may have suffered any direct loss as a result of the contravention.
	The SEC may also direct the forfeiture to the victim of any direct benefit or advantage received or receivable by the person in contravention.
	In the exercise of its powers to impose a penalty, the SEC must accord the person in violation a fair hearing (Section 303(1) ISA).
	Administrative Proceedings Committee
	An Administrative Proceedings Committee (APC) exists for the purpose of hearing Capital Market Operators and institutions in the market that have allegedly violated any of the provisions of the ISA and the SEC Rules and Regulations and persons against whom complaints/allegations have been made to the SEC (Rule 312, Schedule VII SEC Rules and Regulations, Rule 3: Reference of matters to the Committee, Rules on APC procedures March 2010).
	Complaints are forwarded to the SEC by the complainant. The complaint is investigated by the appropriate department which means the department for the time being responsible for investigation and enforcement in the SEC.
	Where the appropriate department is of the opinion that any provision of the ISA, the SEC Rules and Regulations or the Code of Conduct for Capital Market Operators and their Employees has been violated, it prepares a report of the matter and formulates appropriate claim and details of the alleged violations and forwards them to the Secretary of the APC with all documents considered by the department.
	The APC has jurisdiction, among others, in respect of the following:
	•	disputes between investors and Capital Market Operators;
	•	disputes between Capital Market Operators;
	•	disputes between securities exchanges, capital trade points and other SROs;
	•	disputes arising from public offers by companies;
	•	disputes between investors and issuers of securities;
	•	disputes between investors;
	•	disputes between SROs;
	•	violations or probable or threatened violation of the provisions of the ISA, the SEC Rules and Regulations and the Code of Conduct for Capital Market Operators and their Employees;
	•	violation of the Code of Corporate Governance for public companies;
	•	activities and dealings of public companies and their employees;
	•	issues relating to the registration of Capital Market Operators and SROs;
	•	public sale or trading in unregistered securities;
	•	dealing in securities or sale of securities to the public;
	•	unethical and unprofessional practice, manipulation and use of deceptive devices or contrivances in securities transactions;
	•	denial of registration;
	•	non-compliance with orders, guidelines and directives of the SEC; and
	•	any other matter which the SEC may direct it to hear.
	It is possible for the parties to arrive at an inter-party settlement. Settlements must be acceptable to the APC. However settlements do not apply to matters initiated by the SEC or matters involving manipulation, insider dealing and any other serious violation to be determined by the SEC from time to time (Rule 10: Inter-Party Settlement as amended March 2010). APC’s administrative sanctions
	The APC has the power to impose any of the following sanctions:
	•	suspension or cancellation of registration of a capital market operator;
	•	revocation of the certificate of a securities exchange or capital trade point;
	•	suspension or expulsion or other decisions/actions against members of securities exchanges, capital trade points and other SROs in respect of their members;
	•	suspension or expulsion or other decisions/actions against members/officials of securities exchanges, capital trade points and other SROs where they fail to act against their members/officials;
	•	removal of executive officers of a Capital Market Operator, securities exchange, capital trade point or other SROs;
	•	suspension of registration of securities;
	•	fines for late registration and non-compliance with the ISA, the SEC Rules and Regulations and the Code of Conduct for Capital Market Operators and their Employees;
	•	restitution and compensation orders;
	•	determination of compensation for insider dealing cases;
	•	disqualification of professionals or sponsored individuals from operating in the capital market;
	•	imposing conditions for registrations;
	•	imposing the rate of interest payable to subscribers by issuing houses for late return of monies;
	•	payment of administrative charges; and
	•	any other sanctions which the SEC may prescribe from time to time (Rule 16 Sanctions, Rules on APC Procedures as amended March 2010).
	Every decision of the APC must be confirmed by the SEC Board before it becomes effective. However when there is no Board the decision must be confirmed by the minister of finance.
	Any party who is not satisfied with the decision of the APC as confirmed by the SEC may appeal to the IST (Rule 13). The IST was put into operation in 2002. The IST provides a process for the resolution of securities markets related cases that do not have to be resolved in the regular court system. It has handled more than 400 cases, the breakdown of which into various types of cases was not available at the time of the assessment mission. The IST deals with the resolution of disputes in the securities market and the enforcement cases delivered by the SEC. It can provide to the SEC at its request remedies such as freezing assets, closing down firms involved in fraud, and appointing receivers.
	Suspension of trading
	The SEC may issue directives to a securities exchange, capital trade point or any other SRO. The SEC may suspend or prohibit further trading in securities (Sections 35(1) and 36(1) of the ISA). See Principle 36 on further details on the SEC’s power to suspend trading.
	Information sharing with criminal prosecuting authorities
	Where in the course of its investigation, the SEC discovers evidence of possible criminality, the SEC passes such information to the appropriate criminal prosecuting authorities, such as the office of the Attorney-General of the Federation (AFG), the Attorney-General of a State or the Economic and Financial Crimes Commission (EFCC).
	According to information provided by the SEC, the SEC has a list of 42 open cases referred to the Nigeria Police Force for criminal investigation. The nature of the offences includes fraudulent conduct, misappropriation of client’s funds, and illegally operating in the market. The oldest case is from November 2002. In most of the 42 cases the SEC is awaiting for an update on the status of the case.
	The SEC has referred cases relating to 21 Capital Market Operators to the EFCC. In the most serious case, there were 171 investors who had complained of unauthorized sales and non-purchase of clients’ shares. The managing director of that particular Capital Market Operator was detained by the EFCC. No further report has been available to the SEC. In another case, there were 45 cases of capital market malpractices relating to the same Capital Market Operator. In another case dealing with unauthorized sale and non-purchase of securities paid for by various clients’ worth of ₦136 million, the managing director was tried, convicted and jailed for five years. For the other 19 Capital Market Operators, the cases involve offences such as illegally operating as a Capital Market Operator. The SEC is awaiting an update on the current status of the cases from the EFCC. One of the cases regarding illegally operating as a Capital Market Operator is before the High Court in Lagos. The oldest case referred to the EFCC is from September 2004. The most recent case referred is from August 2011.
	The SEC had appealed to both the Nigeria Police Force and the office of the AGF to post some of their personnel to work with the SEC in the SEC’s premises. As a result, the Nigeria Police Force has currently a unit with 19 police officers at the SEC headquarters in Abuja, collaborating with the SEC to investigate criminal infractions. The SEC believes that this will help to enhance the investigative and prosecutorial capabilities of the two agencies on fraudulent/criminal conduct in the Nigerian securities market. The SEC has also commenced local and foreign capital market related training of the police officers and the prosecutors from the office of the AGF.
	The SEC has the power to investigate and to require and obtain information from any person, including third party entities and individuals (whether regulated or unregulated), that are either involved in relevant conduct or that may have information relevant to a regulatory or enforcement inquiry/investigation. It includes the power to obtain contemporaneous records sufficient to reconstruct all securities transactions, including records of all funds and assets transferred into and out of bank and brokerage accounts relating to those transactions.
	The SEC has the power to call for, or furnish to any person, such information as may be considered necessary by it for the efficient discharge of its functions (Section 13(t) ISA).
	Records for securities and derivatives transactions
	A Capital Market Operator is under the obligation to keep its records in sufficient detail to show particulars of all monies received or paid by it, including monies paid to or disbursed from a trust account; all purchases and sales of securities made by the Capital Market Operator, the charges and credits arising from them, and the names of the buyers and sellers of each of those securities; all securities which are the property of the Capital Market Operator showing by whom the securities or the documents of title to the securities are held and, where they are held by some other person, whether or not they are held as securities against loans or advances; and all securities that are not the property of the Capital Market Operator and for which the dealer or any nominee controlled by the security dealer is accountable, showing by whom, and for whom, the securities or the documents of title to the securities are held and the extent to which they are either held for safe custody or deposited with a third party as securities for loans or advances made to the Capital Market Operator.
	The records must be kept in sufficient detail to show particulars of every transaction by the capital market operator; specify the day on which or the period during which each transaction by the Capital Market Operator took place; and contain copies of acknowledgements of the receipt of securities or of documents of title to securities received by the Capital Market Operator from clients for sale or safe custody clearly showing the name or names in which the particular securities are registered. Derivative transactions are not common in Nigeria.
	A securities exchange, capital trade point or any other self-regulatory organization must maintain proper books of account and records relating to its operations which must be made available for inspection by the SEC (Section 37 ISA).
	A Capital Market Operator who contravenes or fails to comply with any of these provisions commits an offence and is liable on conviction to a fine of not less than ₦500,000 or to a term of imprisonment of not less than one year or to both such fine and imprisonment (Section 39(4) ISA).
	The SEC can enter into a cooperative agreement with other regulators for the discharge of its functions (Section 13 ISA). The SEC can share information with other regulators obtained from its regulatory activities.
	In practice with respect to obtaining banking information the SEC communicates with the CBN to obtain the information. The SEC has signed a MoU as member of the FSRCC. The SEC chairs the Information Sharing Committee of the FSRCC.
Assessment	Fully Implemented
Comments	The SEC has in the ISA sufficient legal tools to address the main violations in the Nigerian securities markets. The SEC’s powers include the imposition of monetary sanctions. There is no maximum limit on the amount of sanction that the SEC can impose. Usually most jurisdictions establish by law, or by regulation, the maximum amount in case of monetary sanctions that a regulator can impose.
	According to some market participants the SEC has not used its enforcement tools adequately in the past. Allegations of instances of insider trading and market manipulation with no action taken by the SEC were mentioned by several of the market participants interviewed. Since 2010 there are indications that there is a change, however more concrete, effective and timely actions need to be taken. The SEC efforts to increase cooperation with the criminal authorities, including by training their staff and by having their representatives located in the SEC’s premises are important steps in the right direction.
Principle 12.	The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
Description	System of inspections
	The SEC must conduct an inspection to a registered person for compliance with regulatory requirements within one month of registration (Rule 46(1)).
	As per Rules 46 and 123 the SEC is empowered to inspect registered persons to ensure compliance with regulatory requirements on a periodic basis. This mandate is carried out by the Monitoring & Investigations Department (M&I) through on-site and off-site inspections. According to the information provided by the SEC staff interviewed, the M&I Department reviewed in 2011 a total of 2,072 quarterly returns submitted by broker/dealers. Following analysis of the 2,072 returns, 18 firms were found to have reported shareholders’ funds below regulatory minimum, nine firms were with negative shareholders’ funds, 10 firms were assessed to have high 30-90 percent of their total assets as margin loans to clients, 26 firms were assessed to have between 40 percent to 96 percent of their total assets in unquoted equities, while 36 firms still had outstanding debt exposure to banks constituting between 31 percent to 682 percent of their total assets. Some other violations were also detected which imposed a high risk to the market. As a result the department selected for inspection during the first and second quarters of 2012 certain companies which were considered to have violated the rules. The request for approval of the schedule for the inspections from the department to management was presented in June 2012. Those inspections were started after the assessment mission.
	SEC’s Routine On-Site Prudential Inspections Year Number inspected Sanctions by penalties imposed (₦) 2009 23 34,622,809 2010 13 52,027,432 2011 0 95,582,263
	The sanctions imposed in 2011 came from off-site inspections, since no on-site inspections were conducted in 2011.
	SEC’s Target Inspections Year Number Remarks 2009 6 1 company was suspended for market manipulation 2010 1 1 company was referred to EFCC for further criminal investigation 2011 1
	The inspection and enforcement activities of the NSE are covered in Principle 34.
	Risk-based inspections
	The SEC is planning to move to a risk-based approach to supervision (see Principle 31).
	Complaints handling
	Currently the investors have a variety of authorities to which to bring a complaint including the SEC, NSE, IST, and EFCC. There is no clear guidance on how various categories of customer complaints and disputes will be handled. This results in a less then efficient process. The SEC’s website has a section to be used by the public to send complaints. It is not clear if the SEC is informed of all the complaints received by other authorities.
	In addition to the number of complaints brought forward from the previous year, the following table includes information on the complaints received and resolved by the SEC each year, those transferred internally to enforcement as well as the cases outstanding at the end of each year.
	Three-year Statistics of Complaints Management Details 2009 2010 2011 Complaints brought forward against stockbrokers, registrars and other Capital Market Operators 999 926 664 New complaints 695 1,223 729 Resolved complaints 666 1,169 709 Transfer to Enforcement & Compliance Department 102 316 156 Outstanding complaints 926 664 528
	The types of complaints lodged against broker-dealers include:
	•	unauthorized/fraudulent sale of shares;
	•	non-remittance of share sale proceeds;
	•	refusal/illegal transfer of shares;
	•	falsification of clients’ accounts;
	•	non-purchase of shares/undue delay in purchase of shares; and
	•	non-verification of share certificates.
	Complaints on non-remittance of share sale proceeds rose to their highest in 2010 largely due to the problem of margin facilities most brokers had with the banks and their clients. The trend changed in 2011 with the intervention of the SEC, the NSE and the Asset Management Corporation of Nigeria (AMCON).
	The types of complaints lodged against registrars include:
	•	non-receipt of dividends;
	•	non-verification of share certificates;
	•	non-issuance of share certificates; and
	•	wrong crediting of accrued bonus shares.
	As a result of the cases transferred to the Enforcement and Compliance Department, the following total amount of monetary sanctions were given. A total of 26 cases arising from complaints were referred to criminal action by the SEC.
	Enforcement and Compliance Department – Monetary Sanctions Type of case/market abuse 2010 in ₦ 2011 in ₦ 2012 in ₦ Insider information 0 0 0 Market manipulation 0 0 0 Other market abuse related topics 33,217,000 33,094,500 21,123,143,84
	Enforcement and Compliance Department – Referral to criminal action Type of case/market abuse 2010 in ₦ 2011 in ₦ 2012 in ₦ Insider information 0 0 0 Market manipulation 0 0 0 Other market abuses 11 9 5 Other breach of SEC rules and regulations 1 0 0
	As demonstrated by the above statistics, the SEC receives numerous complaints from investors. As a result its inspection and enforcement programs are expended on managing innumerable disputes between customers and brokers dealing basically with contractual disputes and unauthorized transactions. The process is time consuming and involves using too many resources.
	Market surveillance
	The SEC has no automated system to identify unusual transaction on the NSE. It maintains permanently two members of its staff on the premises of the NSE.
	Market and/or price manipulation and insider trading
	Manipulative and deceptive devices and contrivances are prohibited. A person involved in securities trading must not employ any device, scheme or artifice to defraud or capable of defrauding any person or institution; make, utter or present any untrue statement of a material fact; omit to disclose a material fact necessary in order not to render any statement misleading in the light of the circumstances under which the statement was made; engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of or dealing in any security; or deal in the securities of a company of which he is an insider.
	Dealing by an insider applies to dealings at a recognized securities exchange and also to off-market dealings in securities, and occurs where a person or group of persons who is in possession of some confidential and price sensitive information not generally available to the public, utilizes such information to buy or sell securities for his/its own account and benefit or makes such information available to a third party (either knowingly or unknowingly) who uses it for his benefit. (Rule 110).
	Rules and regulation regarding misrepresentation of material information or other fraudulent or manipulative practices relating to securities are in place. Rules and regulations against insider trading exist (Section 111–114 ISA and Rules 110–111 of SEC Rules and Regulation).
	A person who is an insider of a company must not buy or sell, or otherwise deal in the securities of the company which are offered to the public for sale or subscription if he/she has information which he/she knows is unpublished price sensitive information in relation to those securities.
	There is a definition of “insider” in Rule 110 of the SEC Rules and Regulations. It includes an individual who is connected with the company during the preceding six months in one of the following capacities: a director of the company or a related company; an officer of the company or a related company; an employee of the company or related company; a person in a position involving a professional or business relationship to the company; a shareholder who owns 5 percent or more of any class of securities; any person who can be deemed to be an agent of any of the above listed persons; and a person who by virtue of having been connected with the company has obtained unpublished price sensitive information in relation to the securities of the company.
	The SEC has issued a Code of Conduct for Capital Market Operators and their Employees to address failure of compliance with the conduct of business requirements. It contains sanctions.
	Requirements for firms’ compliance systems
	The SEC requires regulated entities to have in place supervisory and compliance procedures reasonably designed to prevent securities law violations. A compliance officer must be appointed by every capital marker operator. The compliance officer must be registered by the Capital Market Operator with the SEC as a sponsored individual. The compliance officer must immediately and independently report to the SEC any non-compliance observed by him/her (Section 61 and 63 ISA, Rule 168(b) on appointment of compliance officer). Personnel from the Monitoring & Investigations Department were not aware of any report to the SEC by a compliance officer since 2006 (see Principle 31).
	It is not clear how the SEC actually monitors how compliance procedures are executed and communicated to employees of Capital Market Operators.
	The SEC does not take measures against or discipline or sanction Capital Market Operators for failure to reasonably supervise subordinate personnel whose activities violate the securities laws.
	The SEC requires market surveillance mechanisms that permit an audit of the execution and trading of all transactions made on the NSE.
	Effectiveness
	The SEC is building its enforcement program in order to enforce securities laws.
	Investigations are conducted by the Monitoring & Investigations Department. After an investigation is finished, the case is transferred to the Enforcement and Compliance Department that conducts a review of the case in order to confirm the possible violations of the ISA or the SEC Rules and Regulations. The mentioned departments report to the Executive Commissioner Legal and Enforcement. From the Enforcement and Compliance Department the matter is then taken to the Executive Commissioners and the Director General for approval to take the case to the APC.
	As indicated in Principle 1 the APC is a quasi-judicial body established by Section 310 of the ISA. It is formed by non-executive SEC Commissioners, directors of departments, representatives from the Ministry of Finance and the CBN. Trade associations in the capital market participate in the APC but they do not vote.
	The APC convenes a hearing with the parties and witnesses. Evidence is taken and arguments are presented. The APC issues a recommended decision to the SEC Board. According to Section 310(3) of the ISA final decisions by the APC must be sent to the SEC Board for confirmation. The SEC Board makes a final decision based on the APC’s decision. The SEC Board decision can be appealed to the IST.
	On the basis of the information reviewed by the assessors and discussions with the SEC personnel, the SEC’s enforcement system does not in practice appear to be effective for several reasons. Firstly, it was not possible to confirm whether there is a proper audit trail of all the cases that the various SEC departments have investigated and that have then possibly been passed on to the Enforcement & Compliance Department and from there possibly to the criminal process. The involved departments do not seem to communicate directly, but the communication takes place through the senior management. Secondly, onsite inspections are currently not done on a routine basis, and there have been severe delays in the decisions to take action in potential enforcement cases.
	However, the SEC has worked to improve its enforcement capabilities. It has obtained assistance from a foreign regulator to build its enforcement capacity and has outsourced several enforcement actions. Specifically, as a result of the CBN intervention in several banks after the crisis of 2008 the SEC and the CBN worked together in a Joint Task Force (JTF) in 2010. The JTF included private law firms and an audit firm. It was set up to identify deviations from the ISA and relevant SEC Rules and Regulations. The JTF identified infractions such as false trading and market rigging, price fixing transactions, general fraud liability and insider trading. The SEC has filed five cases at the IST in respect of banks intervened by the CBN. The suits included the banks and their directors and subsidiaries. Four suits started in the middle of 2010 and one was filed in 2011. The alleged violations of several ISA provisions include insider trading and manipulative devices. The SEC seeks various remedies for the series of infringements complained of, including certain injunctive as well as declarative reliefs. To handle the cases the SEC hired external counsel. One of the cases was discontinued following the federal government directive that instructed the attorney-general to enter into plea bargains with the affected banks. The suit was dismissed in October 2011. The other four cases are still pending at the IST. The following table describes the status of the SEC’s enforcement action as at March 2011 as presented on the SEC website
	Companies Facing Enforcement Action (as at March 2011) Number of companies Type of sanctions Reason 39 34 Suspensions Yet to pay penalty for non-rendition of quarterly returns (28) Unethical capital market conduct (6) 5 licenses revoked Unauthorized sale of clients shares (3) Failure to pay client return on investment and principal (1) Breach of share purchase and resell agreement with client (1)
	Out of the above 39 companies, six have since closed business. 33 cases are still pending. Oldest case still pending dates back to 2009.
	The only other statistics that consolidated the enforcement actions taken by the SEC are presented below. They relate to the measures taken by the Collective Investment Schemes Department.
	Summary of Fund Managers Referred for Enforcement Action Year Number Nature of Violation 2010 4 • Commingling of fund’s assets; misappropriation/borrowing of fund’s money; failure to keep proper records. • Mismanagement of the schemes. • Operation of unauthorized funds. • Issuance/dealing in additional unregistered units of the schemes 2011 1 Failure to provide requisite information on the assets of the fund and remit same to the trustee 2012 1 Mismanagement of the fund.
	Sanctions for Late/Non-Submission of Statutory Returns with Respect to CIS Year Number Amount of fine (₦) 2010 17 4,019,000 2011 5 3,278,500 2012 2 174,000 Total 24 7,471,500
	Number of Sanctions and Nature of Violations/Misconduct with Respect to CIS Year Number Nature of Violation 2010 7 • Late filing of accounts. • Late filing of monthly and quarterly returns. 2011 9 Late filing of accounts 2012 15 • Late filing of accounts. • Non submission of accounts
	The lack of aggregate information on the total amount and nature of enforcement measures taken by the SEC appears to reflect the lack of internal procedures and governance practices referred to under Principles 3 and 4.
Assessment	Partly Implemented
Comments	On the basis of the several discussions conducted with the personnel in charge of enforcement as well as the review of the information provided, there appear to be significant challenges with the efficiency and efficacy of the SEC’s enforcement. This is affected by the division of the functions of investigations and enforcement among the different departments of the SEC and the lack of procedures to govern the processes and keep track of the progress of cases. The result is the absence of a satisfactory control over the cases. The SEC should improve the audit trail of cases transferred internally from one department to another and from the SEC to criminal authorities.
	The SEC’s resources are being use to tackle minor violations. They should be re-deployed to address more serious violations in the securities market.
	A potential conflict of interest is possible due to the composition of the APC. The mere presence of a member of a trade association in the APC meetings, although without voting right, could create potential conflicts of interest
	To address the current lack of effectiveness of its enforcement function, the SEC has outsourced the enforcement of a group of important cases handled by a Joint Task Force with the CBN to private law and audit firms. The cases are pending at the IST.
Principles for Cooperation in Regulation
Principle 13.	The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.
Description	Domestic information sharing and co-operation
	Section 13(y) of the ISA allows the SEC to relate effectively with domestic regulators and supervisors of other financial institutions, including entering into co-operative agreements on matters of common interest. The SEC can share with domestic regulators and supervisors of other financial institutions any information that they need to perform their functions.
	Section 13(y) of the ISA does not limit the type of information that can be shared. It also does not require any external approval for the sharing of information.
	International information sharing and cooperation
	Section 13(y) of the ISA allows the SEC to relate effectively with foreign regulators and supervisors of other financial institutions including entering into co-operative agreements on matters of common interest. The SEC can share with foreign regulators and supervisors of other financial institutions any information that they need to perform their functions.
	There are no limitations to the type of information that the SEC can share, and the sharing of information does not require any external approval.
	Unsolicited information
	There is no explicit recognition in Section 13(y) of the ISA that the SEC may send information to foreign regulators and supervisors without the existence of a prior request. However the SEC has the power to call for, or furnish to any person, such information as may be considered necessary by it for the efficient discharge of its functions (Section 13(t) ISA).
	Requirement for breach of domestic laws
	The SEC can share information and cooperate with other foreign regulators and supervisors even in cases in which the investigated conduct does not constitute a breach of Nigerian law.
	Bank account information
	There is no explicit recognition in Section 13(y) of the ISA that allows the SEC to share information about the beneficial ownership of bank and brokerage accounts. Although there is no explicit recognition, Section 13(y) relating to the SEC’s power to enter into co-operative agreements on matters of common interest with foreign regulators is broad enough to allow the SEC to share information about the beneficial ownership of banking and brokerage accounts.
	According to Section 13(x) of the ISA, the SEC may seek judicial order to freeze the assets (including bank accounts) of any person whose assets were derived from the violation of the ISA, or any securities law or regulation in Nigeria or other jurisdictions.
	Confidentiality
	There is no explicit requirement in Section 13(y) of the ISA that the confidential information gathered by the SEC that is shared with another competent authority has to be subject to appropriate rules of confidentiality. However, confidentiality is addressed both in the IOSCO MMoU and, on the basis of one bilateral MoU reviewed, in the bilateral information sharing arrangements.
Assessment	Fully Implemented
Comments
Principle 14.	Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
Description	Power to enter into information sharing agreements
	There is no explicit provision that authorizes the SEC to enter into information sharing agreements with domestic and foreign authorities, but according to the SEC such authority is implicit in the power to enter into co-operative agreements on matters of common interest with domestic and foreign regulators conferred by Section 13(y) of the ISA.
	Information sharing mechanisms
	Domestic authorities
	The SEC is a member of the Financial Services Regulation Coordinating Committee (FSRCC). The FSRCC is an inter-agency body set up to deal with matters of common interest and concern to the various regulatory and supervisory authorities in the financial services industry. The FSRCC was accorded legal status by the 1998 amendment to Section 38 of the CBN Act 1991 and it was formally inaugurated in May 1999.
	The FSRCC was not initially an active inter-agency body. It has become more active in the last three years, including through the preparation of several important proposals that however still have to be approved. For example, a proposal for a Code of Conduct for Financial Regulators first presented for discussion in 2009 has not yet been approved.
	The objectives of the FSRCC are to:
	a)	Coordinate the supervision of financial institutions, especially conglomerates;
	b)	Cause the reduction of arbitrage opportunities usually created by differing regulatory and supervisory standards among supervisory authorities in the financial services industry;
	c)	Deliberate on problems experienced by any member in its relationship with any financial institution;
	d)	Eliminate any information gap encountered by any regulatory agency in its relationship with any group of financial institutions;
	e)	Articulate the strategies for the promotion of safe, sound and efficient practices by financial intermediaries; and
	f)	Deliberate on such other issues as may be specified from time to time.
	The current members of the FSRCC as specified by Section 43(2) of the CBN Act 2007 are:
	•	The governor, CBN (chairman);
	•	The managing director, NDIC;
	•	The director-general, SEC;
	•	The commissioner for insurance, NAICOM;
	•	The registrar-general, Corporate Affairs Commission (CAC);
	•	A representative of the federal ministry of finance (FMF) not below the rank of a director (currently the director, Home Finance);
	•	The director-general, PENCOM;
	•	The director-general, NSE (observer);
	•	The managing director of the Abuja Securities and Commodity Exchange (ASCE) (observer); and
	•	The executive chairman of the Federal Inland Revenue Service (observer).
	The FSRCC has five standing Sub-Committees. One of the Sub-Committees is the Information Sharing Sub-Committee (ISSC). Its responsibilities include identifying the type of information and the mechanism and procedures for information sharing, resolving conflicts in information sharing, and recommending measures to guard against misuse of information. The ISSC is chaired by the SEC.
	To give effect to the foregoing, all FSRCC members have signed a Memorandum of Understanding (MoU) on the type of information to be shared among members only. The MoU is being revised to include financial system stability indicators and statistics.
	The information to be shared is cascaded into two levels. The first level of information is available to some designated management staff of member agencies while the Chief Executive Officers of member agencies have access to both the first and second levels of information.
	The FSRCC also has ad-hoc committees. One of the ad-hoc committees is the Consolidated Supervision Committee. On March 19, 2009, the FSRCC set up an Inter-Agency Committee to prepare a framework and work out the modalities and timelines for implementing consolidated supervision of financial institutions in Nigeria. The Inter-Agency Committee prepared a draft Framework for Consolidated Supervision which was presented at the July 14, 2011 meeting of the FSRCC.
	Foreign counterparts
	The SEC has been a signatory to the IOSCO MMoU since 2006. It has also entered into nine bilateral MoUs with foreign regulators. The MoUs have been signed with South Africa, Ghana. Tanzania, China, Uganda, India, Malaysia. Kenya and Mauritius. After the end of the assessment mission, the SEC published on its website a list of the bilateral MoUs signed with foreign regulators. It is currently also negotiating MoUs with Oman and Zambia.
	Confidentiality
	As described under Principle 13, there is no explicit requirement in Section 13(y) of the ISA that the confidential information gathered by the SEC that is shared with another competent authority has to be subject to appropriate rules of confidentiality. However, confidentiality is addressed both in the IOSCO MMoU and, on the basis of one bilateral MoU reviewed, in the bilateral information sharing arrangements. More specifically, as signatory to the IOSCO MMoU, the SEC can maintain the confidentiality of the request for information received from a foreign regulator.
	Practice
	All members of the FSRCC have signed an MoU on the type of information to be shared among members only. In practice, the information sharing is implemented through a common database that includes information on registered entities, sanctions given and fitness and propriety assessments.
	Consolidated information on the precise number of requests for assistance received by the SEC from foreign authorities was not available during the assessment mission, even though the staff mentioned instances where the SEC had received requests for assistance under the IOSCO MMoU. According to the information provided after the mission, the SEC has provided investigatory or enforcement assistance to two foreign regulators under the IOSCO MMoU.
Assessment	Broadly Implemented
Comments	The SEC needs to improve the coordination of the handling of the requests for assistance by foreign regulators made under the different MoUs. As one of the 86 signatories to the IOSCO MMoU and with nine bilateral MoUs signed, the SEC must be in a position to attend to all the requests received and keep track of the assistance provided. The need for better coordination in this area is closely linked to the SEC’s need to improve the audit trail of enforcement cases that it deals with internally or passes on to the criminal authorities (see Principle 12).
Principle 15.	The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.
Description	Records
	As noted in Principle 10, Section 13(r) of the ISA provides that the SEC has the power to call for information from, inspect, and conduct inquiries and audits of securities exchanges, Capital Market Operators, collective investment schemes and all other regulated entities. This broad power covers records and information about securities and derivatives transactions (the latter are rare in the market); bank and brokerage accounts; and details about clients of securities firms, including the identity of the ultimate account holders.
	Section 13(y) of the ISA allows the SEC to relate effectively with foreign regulators including entering into co-operative agreements on matters of common interest.
	Compliance with laws and regulations
	The SEC can seek information and documents relating to all matters within its jurisdiction. This includes market abuse, the issuance of securities, Capital Market Operators (market intermediaries) and markets, exchanges and clearing and settlement facilities.
	Independent interest
	There is no requirement for the SEC to have an independent interest in a matter in relation to which a foreign regulator seeks assistance.
	Information on regulatory processes
	The SEC can provide information about regulatory processes, including the authorization process, investigations in progress and sanctions imposed.
	Documents and statements
	The SEC can use its evidence gathering powers under the ISA to require information and documents requested by a foreign regulator. The SEC’s powers under the ISA include the power to summon a person and take a statement from them. As an administrative body, the SEC does not have the power to request the taking of a person’s statement under oath.
	Court orders
	The SEC can request the IST to issue court orders.
	Financial conglomerates
	The powers available to the SEC under the ISA mean it is able to seek documents and information about financial conglomerates on a foreign regulator’s behalf.
	Information from other domestic authorities
	The SEC can seek information from other domestic authorities in response to a request from a foreign authority.
	Use of information
	As signatory to the IOSCO MMoU, the SEC is subject to Art. 10(a) of the MMoU. On the basis of one bilateral MoU reviewed, the bilateral MoUs signed by the SEC require that the information to be shared is used for performing the tasks entrusted to competent authorities
Assessment	Fully Implemented
Comments	During the mission, the assessors experienced difficulties in obtaining exact information about how many requests had been received under the IOSCO MMoU and other MoUs signed by the SEC. The information is not appropriately managed and stored. Consideration should be given to designating experienced personnel with enforcement background or from the Enforcement and Compliance Department to handling the matters related to international enforcement cooperation.
	The SEC keeps the content of the MoUs it has signed confidential. International best practices suggest that other securities regulators show greater transparency than is currently the case with the SEC, since their MoUs are published on their websites. After the mission, the SEC published the list of the bilateral MoUs it has signed on its website. However, there could be even greater transparency and reporting of its cooperative endeavors, which should benefit the image of the country and its financial sector.
Principles for Issuers
Principle 16.	There should be full, accurate and timely disclosure of financial results, risk and other information that is material to investors’ decisions.
Description	Market overview
	Public quoted companies, public unquoted companies, governments and government agencies and investment schemes need to register their securities and file reports with the SEC.
	Private companies looking to list their shares on the NSE must comply with the listing rules and requirements of the NSE. The NSE has two boards in the Equities Market: the Main Board and the Alternative Securities Market (ASeM) Board. Corporate debt products such as corporate bonds and preference shares are listed on one of the two boards in the Debt Market.
	Fund managers may also list their investment funds on the exchange. Investment funds are not actively traded on the NSE. They are listed on the List of Memorandum Quotations Market to provide the investing public access to their daily prices.
	The types of business entities that would be eligible to list their securities on the NSE are:
	•	Large Nigerian companies: The Main Board comprises large companies with at least 300 shareholders, 20 percent of share capital on offer to the public, and the ability to raise an unlimited amount of capital.
	•	Small-to-medium Nigerian enterprises (SMEs): The ASeM comprises SMEs with at least 51 shareholders, 15 percent of share capital on offer to the public, and the ability to raise an unlimited amount of capital.
	•	Foreign companies (overseas issuers). There must also be a signed Memorandum of Understanding (MoU) between the NSE and the company’s home country exchange to ensure all available means of natural process for investor protection.
	•	Investment Trusts (Units): An investment trust is a separate legal person or company constituted under a trust deed that has a fund manager, trustee (ensures the fund manager keeps to the fund’s investment objective and safeguards the trust assets), unit holders (have the rights to the trust assets), distributors (allow the unit holders to transact in the fund manager’s unit trusts), and registrars (usually engaged by the fund manager and generally act as middlemen between the fund manager and various other stakeholders).
	•	Investment Trusts (Real Estate): A Real Estate Investment Trust (REIT) is a tax designation for a corporate entity investing in real estate that is intended to reduce or eliminate corporate income taxes. REITs are typically required to distribute 90 percent of their income into the hands of the investors. REITs can be publicly or privately held.
	Disclosure requirements for issuers
	The ISA and the SEC Rules and Regulations contain clear and comprehensive disclosure and reporting requirements for issuers whose securities are offered to the public.
	Prospectus for public equity and debt offers
	The Mandatory contents of the prospectus include (Section 73, Schedule 111 ISA):
	•	the company’s proprietorship, management and capital requirement;
	•	property acquired or to be acquired by the company;
	•	contracts;
	•	auditors;
	•	interests of directors;
	•	accountants’ report;
	•	five year historical financial information stating the accountant’s report, accounting policies, balance sheets, profit and loss accounts, cash flow and notes to the accounts. If the company has existed for less than five years, audited historical financial information for the number of years in existence or an audited statement of affairs for a new company;
	•	caveat on risk factors;
	•	risk factors;
	•	definitions and corporate directory;
	•	description of group structure;
	•	expected timeframe for completion of project period;
	•	information about the company;
	•	information on shareholders/Directors/key management staff;
	•	related party transactions/conflicts of interest;
	•	director’s interests;
	•	merger or take-overs;
	•	financial information - segmental reporting;
	•	accountant’s report;
	•	property schedule;
	•	financial and non-financial disclosure requirements;
	•	directors’ remuneration;
	•	confirmation of the “going concern status”;
	•	corporate governance compliance;
	•	pledge of assets;
	•	capacity utilization;
	•	research and development; and
	•	disclosure of developments/events occurring after submission of prospectus but before opening the offer.
	The prospectus and the annual report must state the level of compliance with the Code of Corporate Governance. According to this Code the question whether a company or entity is required to comply with or to observe the principles or provisions of the code of corporate governance must be, in the first instance, determined by the Board and shareholders and thereafter by the SEC.
	Whenever the SEC determines that the Code of Corporate Governance is breached by a company or entity required to comply with or observe its principles or provisions, the SEC must notify the company or entity concerned specifying the areas of non-compliance or non-observance and the specific action or actions needed to remedy the non-compliance or non-observance. So far the SEC has not taken any such measures.
	The regulatory framework requires financial information and other required disclosures in prospectuses, listing documents, and annual and other periodic reports to be of sufficient timeliness to be useful to investors.
	Annual reports
	Every public company whose securities are required to be registered must file with the SEC on a periodic or annual basis and on a specified format its audited financial statement and other returns as may be prescribed by the SEC from time to time.
	Every public company must appoint a compliance officer who in conjunction with the Chief Financial Officer must ensure compliance with all regulatory requirements of the SEC.
	The annual report to be filed with the SEC must in all material facts comply with the provisions of the IFRS issued by the FRC. The annual reports must be filed with the SEC not later than 90 days after the financial year end in line with the provisions of CAMA
	The Chief Executive Officer and Chief Financial Officer or Officers or persons performing similar functions in a public company must, in filing the annual account, attach a duly signed certification letter certifying in each annual or periodic report filed, that:
	•	The public company has established a system of internal controls over its financial reporting and security of its assets and it must be the responsibility of the board of directors to ensure the integrity of the company’s financial controls and reporting.
	•	The board of directors of a public company has reported on the effectiveness of the company’s internal control system in its annual report.
	The auditor of a public company must in his audit report to the company issue a statement as to the existence, adequacy and effectiveness or otherwise of the internal control system of the company.
	Any company who fails to file its annual report with the SEC is liable to a fine of ₦1 million and the sum of ₦25,000 for every day the default continues.
	Periodic information about financial position and results of operations are made publicly available to investors.
	Quarterly report
	Public quoted companies must not later than 30 days from the end of each quarter file with the SEC and simultaneously with the NSE and the investing public a quarterly report prepared in accordance with the IFRS. The quarterly report must contain the following by way of notes:
	a)	Accounting policy changes;
	b)	Seasonality or cyclicality of operations;
	c)	Unusual items;
	d)	Changes in estimates;
	e)	Issuance, repurchase, and repayment of debt and equity securities;
	f)	Dividends;
	g)	Items of segment information (for those entities required by SAS 24 and IAS 14 to report segment information annually);
	h)	Significant events after the end of the interim period;
	i)	Business combinations;
	j)	Long term investments;
	k)	Restructuring and reversals of restructuring provisions;
	l)	Discontinuing operations;
	m)	Correction of prior errors;
	n)	Write-down of inventory to net realizable value;
	o)	Impairment loss of property, plant, equipment, intangible or other assets, and reversal of such impairment loss;
	p)	Litigation settlements;
	q)	Any debt default or any breach of a debt covenant that has not been corrected subsequently;
	r)	Related party transactions;
	s)	Acquisitions and disposals of property, plant and equipment; and
	t)	Commitments to purchase property, plant and equipment.
	The Chief Executive Officer and Chief Financial Officer or Officers or persons performing similar functions in a public company must in filing the quarterly report attach a duly signed certification letter.
	All public companies must publish their “signed” quarterly balance sheet, income statement and cash flow statements in at least one national daily newspaper. However, the accounting policies, notes and other relevant information must be posted on the company’s website which address must be disclosed in the newspaper publication. The publication must be signed by the CEO and the CFO.
	Any company which fails to file its quarterly report with the SEC must be liable to a fine of ₦1 million and the sum of ₦25,000 for every day the default continues.
	Half yearly returns
	Public companies must file with the SEC half yearly returns which must include:
	a)	General information;
	b)	Corporate governance issues;
	c)	Financial reporting;
	d)	Unclaimed dividends;
	e)	Audit Committee;
	f)	Undertaking by the company secretary, chief internal auditor, financial controller, managing director, Board chairman, and chairman of Audit Committee certifying the reliability of the information in the format provided.
	The completed form must be returned to the SEC within 30 days from the end of the half year period, either in hard or electronic copy.
	Any company which fails to file its half yearly returns with the SEC is be liable to a fine of ₦1 million and the sum of ₦25,000.00 for every day the default continues.
	Earnings forecast
	All public companies must release their earnings forecast to the NSE, the SEC and the investing public 20 days prior to the commencement of a quarter. The forecast must be certified by the chief executive officer and chief financial officer.
	Audit Committee
	Every public company must establish an Audit Committee with written terms of reference. The Committee must be independent in carrying out its terms of reference. The Audit Committee must maintain records of attendance and deliberations of its meetings and interactions.
	The Audit Committee of every public company must review the company’s financial statements prior to approval by the Board of the company and present the report at the Annual General Meeting.
	Risk management by public companies
	All public companies must include risk management as part of their accounting policies and, by way of notes, disclose any material effect of unmitigated risk on corporate profitability as well as strategies for preventing risks the company is exposed to.
	Shareholder voting decisions
	Section 242(1) of the CAMA requires the books containing the minutes of proceedings of any general meeting of a company to be kept at the registered office of the company and to be open to inspection by members without charge during business hours (subject to such reasonable restrictions as the company may by its articles or in general meeting impose, but so that no less than six hours in each day be allowed for inspection).
	Advertising of public offerings outside of the prospectus
	According to the ISA the advertisements on public offerings must be approved by the SEC prior to publication (Section 69(a) ISA, Rule 52(b) of the SEC Rules and Regulations).
	Material events
	The regulatory framework requires accurate, sufficiently clear and comprehensive and reasonably specific and timely disclosure of events that are material to the price or value of securities for public quoted companies.
	According to the NSE Listing Rules companies listed at the NSE must immediately notify the Director-General of the NSE without delays of any facts and events that are material to price or value of the securities. Appendix III of the NSE Listing Rules includes the list of material events, but it is an open list as it indicates that the public companies must also provide any other information necessary to enable the shareholder to appraise the position of the company and to avoid the establishment of a false market in the shares of the company.
	For public companies that are not listed at the NSE, no such obligation is clearly stated. In the discussion with the responsible department at the SEC, it was indicated that there is no monitoring by the SEC of the obligation to disclose material events for public companies not listed. The monitoring of compliance with the obligation for public companies listed is left to the NSE.
	Disclosure of the most significant risks of investing in the security
	It is required that the risk factors peculiar to the issuer should be stated in the prospectus including the following risks: risks associated with the business activities of the entity; sectoral risks, political risks, currency risks and environmental risks. Measures, if any, taken to address or mitigate the identified risk factors must be stated (Rule 56(3) of the SEC Rules and Regulations). Important relevant information about the issuer and its activities must be disclosed (Rule 56).
	Requirement to provide current information
	In addition to specific disclosure requirements, there is a general requirement to disclose either all material information or all information necessary to keep the disclosures made from being misleading. Rule 55 of the SEC Rules and Regulations makes parties liable for misleading statements or any omission of material fact in a prospectus.
	The SEC has measures available to address concerns with the sufficiency, accuracy and timeliness of the required disclosures. They include review of the information by reporting accountant, certification by CEO and CFO and sanctions (Sections 80, 85, 86 ISA, Rules 40(b)(i)(iv)(h), 50(1(i)-(iii), 56(14)(c), administrative review on registration requirements, civil liability for misleading statements in prospectus).
	The ISA ensures that issuers and others involved in the issuing process are liable for the content of disclosures they make. The ISA and the SEC Rules and Regulations provide that issuers and others involved in the issuing process are liable for the content of disclosures they make (Sections 85, 86, 87 ISA and Rule 55(1)-(2)(c) on misleading statements in prospectus).
	No prospectus is to be issued by or on behalf of a company or in relation to an intended company unless, on or before the date of its publication, a copy of the prospectus has been delivered to the SEC for registration, signed by every person who is named in it as a director of the company, or by his agent authorized in writing and having endorsed on it or attached to it (Section 80 (1) ISA).
	There are no legal or regulatory provisions dealing with circumstances where disclosures related to trade secrets, similar proprietary information or other valid business purposes, such as incomplete negotiations, could be omitted or delayed. The ISA or the SEC Rules and Regulations do not grant any specific powers to the SEC in this regard, but the potential need for such derogations has arisen only rarely in the past.
	ISA contains restrictions on and sanctions regarding the trading activities of persons with inside information. Section 111 of the ISA and Rule 110 of the SEC Rules and Regulations contain prohibition on insider dealings and manipulative and deceptive devices and contrivances.
	Public offerings or listings by foreign issuers
	There are only two foreign issuers listed at the NSE. All securities offered to the public by foreign issuers must be registered by the issuer or issuing house with the SEC. The registration statement for the distribution of the securities must be filed by the issuer or issuing house and must conform to the SEC Rules and Regulations for cross-border securities transactions (Rule 223).
	Bond Issues Registered at the SEC 2009–August 2012 Year Types and Numbers Value ₦ million 2009 1 Corporate bond 13,165.00 3 State government bonds 54,665.00 2010 6 Corporate bonds 77,290.00 5 State government bonds 234,790.00 2011 10 Corporate bonds 83,138.06 5 State government bonds 202,138.06 2012 2 State government bonds 120,000.00
	Equity Issues Registered at the SEC 2006–August 2012 Year Types and Numbers Value of Shares Offered ₦ million 2009 1 Offer of subscription 3,300.50 2 Rights 27,522.00 2 Private placements 417.25 Total 31,239.75 2010 5 Rights 46,086.67 7 Placements 74,252.33 Total 120,339.00 2011 7 Rights 54,458.34 10 Placements 161,366.54 2 Placements to AMCON 854,015.37 1 Preference share 8,435.18 Total 1,078.275.44 2012 5 Offers of subscription 352,945,999
Assessment	Fully Implemented
Comments	The disclosure standards for the Nigerian securities market are generally sound. However, the value of the disclosure requirements is entirely predicated upon the quality of the accounting and auditing conducted in practice in Nigeria and the enforcement of the relevant standards (see Principles 18 and 21). As indicated by several market participants interviewed, disclosure requirements are perceived to be more comprehensive and better monitored for banks than for other types of issuers. The NSE monitors ongoing disclosures relative to listed securities; the SEC does not have a program for monitoring and enforcing material event disclosures (see Principle 12).
Principle 17.	Holders of securities in a company should be treated in a fair and equitable manner.
Description	Rights and equitable treatment of shareholders
	The CAMA provides the basic framework for shareholder rights. The Nigerian legal and regulatory frameworks address the rights and equitable treatment of shareholders in connection with voting for election of directors. The CAMA contains the basic rights of shareholders in connection with the voting of directors (Part IX). The SEC Rules and Regulations (Rule 292(6)) contain the rules and basic rights for the election of directors.
	New provisions on protection of shareholder rights were introduced by the SEC Code of Corporate Governance that requires the Board to develop a written, clearly defined, formal and transparent procedure for the appointment of the Board of Directors. The Board should ensure that (22.1,22.2,22.3,22.5 SEC Code of Corporate Governance):
	•	Shareholders’ statutory and general rights, in particular their effective powers to appoint and remove directors, are protected at all times.
	•	All shareholders are treated equally.
	•	Minority shareholders are treated fairly at all times and adequately protected from abusive actions by controlling shareholders.
	•	Shareholder representation on a Board should be proportionate to the size of shareholding.
	According to the SEC Code of Corporate Governance the question on whether a company is required to comply with or observe the Code or has complied with or observed the Code is, in the first instance, determined by the company’s Board and shareholders and thereafter by the SEC. This creates certain ambiguity about the nature of the Code and the SEC’s power to enforce it.
	The CAMA and the SEC Rules and Regulations establish that shareholders must be provided with any material information on corporate changes. Shareholders must be provided with any material information regarding bonus, profit-sharing and other other corporate actions where action is to be taken with respect to the acquisition or disposition of any operating property (Rules 292(7),(9) and (11) of the CAMA Rules and Regulations).
	Notice of shareholder meetings and voting decisions
	The CAMA contains the rules for the statutory, general and extraordinary meeting of shareholders. The notice required for all types of meeting is 21 days. The notice must contain the details indicated in Section 218(1) of the CAMA, i.e., mainly the nature of the business to be transacted in sufficient detail to enable the persons to decide whether to attend or not. Failure to give notice of any meeting to a person entitled to receive it invalidates the meeting.
	The SEC Code of Corporate Governance contains similar provisions. The notice should include copies of such documents, including annual reports and audited financial statements and other information, as will enable members to prepare adequately for the meeting. Procedures that enable beneficial owners to give proxies or voting instructions efficiently are in place. The CAMA provides the rules for the use of proxies (Section 230) while the SEC Rules and Regulations expand on these rules indicating what the proxy form must indicate and the need for the proxy statement and proxy form to be furnished to the shareholder together with the notice of meeting and annual report 21 days before the date of the meeting in the case of the Annual General Meeting (AGM).
	A copy of the proxy statement, proxy form and all other soliciting material in the form must be filed with the SEC. The use of proxies for mergers, acquisitions and combinations is regulated. There are provisions to deal with false statement on proxies (Rules 286, 287, 288).
	Ownership registration (in the case of registered shares) and transfer of shares is contemplated in the CAMA. There is a fine of N200 to the company and every officer of the company who does not comply with the provisions of transfer and transmission of shares (Section 153 CAMA).
	A company may offer or transfer its securities electronically; however when the investor elects to have a share certificate, the company must issue one.
	Every registrar must keep a manual and/or electronic register of members of client companies with adequate back-ups which must be stored in a safe place outside the premises of the registrar (Rules 98, 194–198 of the SEC Rules and Regulations).
	The receipt of dividends and other distributions, when, as, and if declared is a function of the registrar
	The registrar must keep the register of the members of a company and make the appropriate changes in the register. The registrar must also prepare and dispatch dividend/interest warrants. A dividend declared must be paid by the issuance of a check or transfer of funds to the registrar no later than seven working days after the AGM where the dividend was declared (Rules 193(1)(iv) and 204 of the SEC Rules and Regulations). The regulation of transactions involving a takeover bid indicates that where any person acquires shares, whether by a series of transactions over a period of time or not, which taken together with shares held or acquired by a person acting in concert with him carry 30 percent or more of the voting rights of the company, or together with a person acting in concert with him, holds not less than 30 percent but not more than 50 percent of the voting rights and such person or any person acting in concert with him acquires additional shares which increase his percentage of the voting right, such person must make a takeover offer to the holder of any class of equity share capital in which such person or any person acting in concert with him holds shares.
	It is clearly stated that all shareholders of the same class of an offeree company must be treated similarly by an offeror.
	An authority to proceed with the takeover bid needs to be granted by the SEC that must be informed at the date of the takeover bid (Section 134 ISA).
	There is no antitrust or competition agency in Nigeria. When deciding whether or not to grant an authority to proceed with a takeover bid, the SEC must have regard to the likely effect of the takeover bid on the economy of Nigeria and on the policy of the federal government with respect to manpower and development. If the SEC is satisfied that none of these matters are adversely affected, it must grant an authority to proceed with the proposed takeover bid.
	If a director makes a takeover bid without the approval of the corporation, he/she commits an offence and is liable on conviction to a fine of not less than ₦100,000 or to imprisonment for a term not exceeding twelve months or to both such fine and imprisonment.
	Where a bid under a takeover bid is for less than all the shares of any class in the offeree company and a greater number of shares than the offeror is bound or willing to take up and pay is deposited pursuant to the bid, the offeror must take up the shares pro rata according to the number of shares deposited by each shareholder.
	The SEC must place on the file of the offeree company any bid or amendment to it (Section 131–150 ISA, Rule 235 of the SEC Rules and Regulations).
	Other change of control transactions
	Section 118(1) of the ISA requires that every merger, acquisition or business combination between or among companies must be subject to the review and approval of the SEC. The following table indicates the number of change of control transactions that have taken place in Nigeria from January 2009 to August 2012.
	Type of transaction 2009 2010 2011 2012 (January-August) Mergers 1 3 5 2 Acquisition/Management 11 6 14 4 Buyout Restructuring 0 4 18 5 Takeover 0 0 0 1
	The SEC is empowered to hold a company, its directors and senior management liable for contraventions of the ISA provision with respect to registration of securities. The issuers registered with the SEC are responsible for filing with the SEC on quarterly, half yearly and annual basis their financial information as prescribed by the SEC. The CEO and CFO must provide a certification that the annual report does not contain any untrue statement of a material fact or does not to omit to state a material fact, which would make the statement misleading. Any contravention of the obligation of the company to present financial reports as mentioned as the result of any neglect on the part of a director, manager, secretary or other similar officer, servant or agent of the company or any person purporting to act in any such capacity or as a result of a director, manager, secretary or other similar officer, servant or agent of the company to act in such capacity knowingly or willfully authorizing the contravention, the individual in question is liable to the same extent as the issuer. The SEC is authorized to administratively apply penalties prescribed for such violations.
	Provisions on a bankruptcy of a company are included in the CAMA.
	Shareholder voting decisions
	Full disclosure of all information material to an investment or voting decision is required in connection with shareholder voting decisions.
	With respect to transactions regarding control changes shareholders affected by the proposal are given a reasonable time in which to consider the proposal. In case of a takeover bid shareholders are given up to 21 days in the case the bid is for less than all the shares of the offeree company. In the case a bid under a takeover bid is for all or less than all the shares of any class in the offeree company the shareholder may withdraw the shares deposited pursuant to the bid at any time within 10 days after the date of the take-over bid (Section 143–146 ISA).
	Shareholders are supplied with adequate information to enable them to assess the merits of the proposal. The requirement as to the bid under a takeover bid are comprehensive and include the terms on which those shares are proposed to be acquired and set out how and by what date the obligations of the offeror are to be satisfied. It is an offence and each director is liable, if default is made in complying with the provision regarding the information that must be provided to the shareholder in a takeover bid. The sanction for not complying that could be imposed to each director is a fine of not less than ₦100,000 or imprisonment for a term not exceeding 12 months or both such fine and imprisonment (Section 136 and 138 ISA, Rule 236 of the SEC Rules and Regulations).
	Shareholders are given reasonable and equitable opportunities to participate in any benefits accruing to the shareholders under the proposal.
	Shareholders must be given fair and equitable treatment in relation to the proposal. Section 146 of the ISA on acquisition of shares of dissenting shareholders includes provisions on the treatment of outstanding shares, which refers to shares in respect of which a takeover bid was made but has not been accepted. A dissenting offeree means a person who is, or is entitled to be registered as a holder of outstanding shares. The dissenting offeree has the right to be informed of the choice which he is required to make to either transfer his shares to the offeror on the terms on which the offerer acquired the shares from an offeree that accepted the takeover bid or to demand payment of the fair value of the shares. The offeror may, within twenty days after he had paid to the offerees apply to the court to fix the fair value of shares of the dissenting offeree. There are no specific regulatory requirements on the calculation of fair value.
	Requirement for the directors of the offeree company
	The directors of an offeree company must send a directors’ circular to each shareholder of the offeree company and to the SEC at least seven days before the date on which the takeover bid is to take effect. They may recommend that no shares be tendered pursuant to the takeover bid until the directors’ circular is sent. When the director of the offeree company is of the opinion that the takeover bid is not advantageous to the shareholders, or disagrees with any statement in a directors’ circular he is entitled to indicate his opinion or disagreement in the directors’ circular. The directors’ circular must include particulars of any payment made to an officer or former officer of an offeree company by the way or compensation for loss of his office or as consideration for or in connection with his retirement from any office (Section 140 ISA.)
	Notification of large shareholdings
	Information about the identity and holdings of the most important shareholders is required to be included in the public offering and listing particulars documents. More specifically, Rule 56(1)(x) of the SEC Rules and Regulations requires information on the principal shareholders to be included in a prospectus. The concept of a principal shareholder is not defined in the SEC Rules and Regulations. The rules are more specific for cross-border offers and require that the names and the percentage of shares owned by the company’s major shareholders (i.e., the beneficial owners of 5 percent or more of each class of the company’s voting securities) need to be disclosed in the prospectus as of the most recent practicable date, or an appropriate negative statement needs to be included if there are no major shareholders. Any significant change in the percentage ownership held by any major shareholder during the past three years also needs to be disclosed (Rule 225(8) of the SEC Rules and Regulations).
	Every registrar needs to file with the SEC information on beneficial owners of 5 percent or more of the company’s shares and any subsequent transactions by the holder. The information must be filed within five days of the change in ownership (Rule 109A). The information is available for review at the SEC, but in practice it is not easily accessible. The registrars also file this information on a quarterly basis, and the SEC monitors the large shareholdings from those returns.
	In the case of listed companies, as required by the listing rules a statement as at the end of the financial year showing the interest of each director in the share capital of the company must be published. The statement must include, by way of a note, changes in the directors’ interests occurred between the end of the financial year and a date not more than one month prior to the date of notice of the AGM, or if there has been no such change, disclosure of that fact.
	Listed companies must also provide the NSE a statement showing particulars as at a date not more than one month prior to the date of notice of the AGM of an interest of any person, other than a director, who holds 5 percent or more in the equity of the company and the actual amount so held or, where appropriate, a negative statement.
	It is not clear how effectively the SEC and the NSE have enforced compliance with the above requirements.
	There are no specific requirements on the application of the disclosure requirements to two or more persons acting in concert.
	Filing of notice by directors and other insiders upon sale or purchase of their shares in the company
	With respect to holdings of voting securities by directors and senior management the information about the beneficial ownership interest and material changes in beneficial ownership in a company is required to be disclosed in a timely manner.
	Directors and other insiders of public companies must notify the SEC of the sale of their shares in the company or any purchase of shares in the company not later than 48 hours after such activity. Such information is available to the public.
	Cross-border matters
	The public offerings or listings by foreign issuers are not significant in Nigeria; however the rules for cross-border listings require disclosure in foreign issuers’ offering and listing particulars documents of any governance provisions or information relating to the foreign issuer’s jurisdiction that may materially affect the fair and equitable treatment of shareholders (Rule 225 of the SEC Rules and Regulations on contents of prospectus for offerings).
Assessment	Partly Implemented
Comments	The legal requirements for the disclosure of major shareholdings are fairly appropriate, but in practice the investors do not have sufficient access to the disclosures since they are not electronically available. The SEC should, in cooperation with the NSE, seek to improve access to this important information and ensure that the disclosure obligations are sufficiently enforced. The same applies to the disclosures made by company insiders.
Principle 18.	Accounting standards used by issuers to prepare financial statements should be of a high and internationally acceptable quality.
Description	Requirement to include audited financial statements in public offering and listing documents
	In Nigeria five year historical financial information including the accountant’s report, accounting policies, balance sheets, profit and loss accounts, cash flow statements and notes to the accounts is required to be included in the prospectus. If the company has existed for less than five years, audited historical financial information for the number of years in existence or an audited statement of affairs for a new company has to be provided.
	Requirement to include audited financial statements in annual reports
	Every public company whose securities are required to be registered must file with the SEC, on a periodic or annual basis and in a specified format, its audited financial statements and other returns as may be prescribed by the SEC from time to time.
	The audited financial statements, whether interim or final, are required to include a balance sheet, income statement or profit and loss account, statement of changes in equity, statement of cash flows, as well as notes, statements and explanatory materials and other documents as required under CAMA and any other relevant accounting standards.
	Since January 2012, financial statements required in public offering and listing documents in Nigeria and publicly available annual reports are required to be prepared in accordance with IFRS.
	As such, the IFRS as accounting standards require financial statements to be comprehensive, to be designed to serve the needs of investors, to reflect consistent application, and to be comparable if more than one accounting period is presented. The transition to the IFRS happens in such a manner that the closing balances of December 2010 need to be converted to IFRS-based figures which then become the opening balances as at January 1, 2011 for IFRS-based financial statements as at December 31, 2011. This provides opening balances for January 1, 2012 which is the first year for full IFRS financial statements (with 2011 as the comparative year). Establishment of the FRC
	Since 2011, there has been a major change in the setting of accounting standards in Nigeria. The new organization responsible for the establishment and timely updating of accounting standards is the Financial Reporting Council (FRC). It has replaced the Nigerian Accounting Standards Board (NSAB). The NSAB Act of 2003 was repealed and the FRC Act establishing the FRC came into force in 2011. The FRC is responsible for, among other things, developing and publishing accounting and financial reporting standards to be observed in the preparation of financial statements of public entities in Nigeria. The FRC may issue rules and guidelines for the purpose of implementing auditing and accounting standards.
	The Nigerian regulatory framework provides that the FRC is the organization responsible for the establishment and timely interpretation of accounting standards. The FRC has determined that the accounting standards to be used in Nigeria since January 1, 2012 are the IFRS. The IFRS are applicable to “public interest entities” which means governments, government organizations, quoted and unquoted companies and all other organizations which are required by law to file returns with regulatory authorities (FRC definitions).
	Unaudited financial statements used in quarterly reports of issuers registered with the SEC are also required to be presented in accordance with the IFRS since January 1, 2012.
	Some of the FRC’s main objectives are to:
	•	Protect the interest of investors and other stakeholders;
	•	Give guidance on issues relating to financial reporting and corporate governance to professional, institutional and regulatory bodies in Nigeria;
	•	Ensure good corporate governance practices in the public and private sectors of the Nigerian economy;
	•	Ensure accuracy and reliability of financial reports and corporate disclosures, pursuant to the various laws and regulations currently in existence in Nigeria;
	•	Harmonize activities of relevant professional and regulatory bodies as relating to corporate governance and financial reporting;
	•	Promote the highest standards among auditors and other professionals engaged in the financial reporting process;
	•	Enhance the credibility of financial reporting; and
	•	Improve the quality of accountancy and audit services as well as actuarial, valuation and corporate governance standards.
	The powers and functions of the FRC as the new standard setter, regulator and supervisor .are comprehensive. They include to:
	•	Develop and publish accounting and financial reporting standards to be observed in the preparation of financial statements of public interest entities;
	•	Review, promote and enforce compliance with the accounting and financial reporting standards adopted