The National Pension Commission (PenCom) has lifted its suspension on investments in commercial papers by Licensed Pension Fund Administrators (LPFAs) where non-bank capital market operators act as Issuing and Paying Agents (IPAs).
This decision comes after the Securities and Exchange Commission (SEC) took steps to address regulatory concerns related to the role of these non-bank operators in commercial paper transactions.
In a circular issued on December 3, 2024, and signed by Abdulqadir M. Dahiru, the Commission’s Head of the Investment Supervision Department, PenCom referenced its earlier directive, which called for an immediate halt on such investments.
The suspension had been put in place due to the lack of clear regulatory guidelines governing the involvement of non-bank IPAs in commercial paper issuances. The Commission raised concerns that the absence of rules from the SEC left these transactions outside established regulatory frameworks, potentially exposing pension fund investments to unnecessary risks.
However, with the SEC now having developed draft rules and proposed amendments to Rule 8 (Exemptions) for the regulation of commercial paper issuances by its regulated entities, PenCom has decided to lift the restriction. The updated SEC rules aim to bring the involvement of non-bank IPAs within regulatory boundaries, thereby addressing PenCom’s earlier concerns.
The circular read: “The Commission has noted that the Securities and Exchange Commission (SEC) has developed draft rules and an amendment to rule 8 (Exemptions) to regulate the issuance of Commercial Papers by its regulated entities. Accordingly, the SEC is addressing the Commission’s concern about the role of non-bank IPAs in Commercial Paper transactions by bringing them within regulatory boundaries.
“Consequently, to facilitate capital raising and ensure continued market stability, the Commission has lifted its restriction on LPFAS investing in commercial papers where capital market operators act as IPAs. Nonetheless, LPFAS must ensure that appropriate legal and financial due diligence is undertaken on all Prospectus/Offer Documents of all commercial papers prior to investment as stipulated in Section 2.9 of the Regulation on Investment of Pension Fund Assets.”
Key highlights of the circular
The suspension on LPFAs investing in commercial papers issued with non-bank capital market operators as IPAs is now officially lifted.
- LPFAs are required to carry out thorough legal and financial due diligence on all commercial paper prospectuses and offer documents before proceeding with investments. This aligns with PenCom’s Regulation on Investment of Pension Fund Assets, specifically Section 2.9, which mandates stringent checks to ensure the safety and soundness of pension fund investments.
- The SEC’s draft rules and amendments to Rule 8 address PenCom’s concerns, ensuring that all parties involved in the commercial paper process are adequately regulated, promoting transparency and financial stability in the market.
- The lifting of this restriction is expected to facilitate smoother capital-raising efforts in the Nigerian financial markets, while also ensuring that the integrity and stability of pension fund assets are maintained. The decision to reinstate investment in these instruments comes at a time when capital markets are increasingly seen as a vital source of funding for corporate entities and government projects.
PenCom has emphasized the importance of adhering to due diligence standards, reminding LPFAs that this new investment opportunity comes with the responsibility of safeguarding pensioners’ funds.
What you should know
In October 2024, PenCom ordered Licensed Pension Fund Administrators and Custodian Fund to immediately suspend further investment in commercial papers where capital market operators and non-banks, are engaged as IPAS.
PenCom in a circular with Reference number : PENCOM/TECH/ISD/2024/402, dated October 23, 2024, by Head, Surveillance Department of PenCom, A.M. Saleem, addressed to Managing Directors and Chief Executives Officers of all LPFAs, warned the LPFAs to desist from investing in the affected portfolio pending the issuance of guidelines or regulations on the issuance of commercial papers by the Securities and Exchange Commission, SEC.